Oil prices are soaring as US President Biden pleads like a homeless person to foreign countries for oil rather than let the US produce more oil to drive down prices. Meanwhile, the US Treasury yield curve 10Y-3M is at its steepest (rising 10Y yields while The Fed keeps short rates at near zero).
But if we look at the belly of the beast, so to speak, the 10Y-5Y slope, we can see that the Treasury curve has declined to a mere 0.278 basis points as inflation rages.
Bankrate’s 30-year mortgage rate keeps on climbing and has hit 4.55% as the 2-year Treasury yield rises rapidly.
The US Dollar Index has risen dramatically as US inflation has increased dramatically.
Oil? Oil is up over 4% in the US. Mexican Mix (not a #3 meal at Chuy’s) is up 7.32%.
Gasoline? NY prices are up over 10%.
Russian oil is up 9.35%.
Ah, for the good old days of 30 cents a gallon gasoline, although I always wondered about Gulf’s marketing campaign. “Good Gulf” seems to imply that the other Gulf gasolines aren’t good. And Gulf’s “No-nox” seems to imply that the other Gulf gasolines knock like Biden’s knees as he pleads for foreign oil.
The news just keeps getting worse and worse. Russia is still assaulting Ukraine, WTI Crude prices are above $100 a barrel and climbing, the Cleveland Browns signed Deshaun Watson to replace Baker Mayfield at quarterback, etc.
But back to energy prices. Since Biden was sworn-in as President, WTI Crude Oil futures are up 125%, regular gasoline prices are up 89%, and diesel fuel prices are up 155%. Diesel is important since America uses diesel-powered trucks to transport goods to market.
Globally? The world inflation rate has grown from 2% in January 2021 to 6.82%. Global food prices are up 24%.
Yes, WTI Crude and Brent Crude are above $100 per barrel.
And coal prices are up 256% under Shoeless Brainless Joe.
Mortgage rates? Bankrate’s 30-year mortgage rate is now above 4.50%.
Let’s see if Dr. StrangeFedpolicy raises rates as aggressively as signaled.
So, The Federal Reserve raised their target rate by … as expected … 25 basis points to 50 basis points.
The Taylor Rule suggests that the target rate should be 11.96%. So, Powell and The Gang are getting closer! /sarc
The short-term reaction to the measly rate increase? The Dow declined (but still in positive territory for the day) and the benchmark 10-year Treasury yield spiked to 2.23%.
On Powell’s surrender to inflation, the US Treasury 10Y-2Y curve continued to flatten.
You can see The Fed’s sloth-like response to blood-curdling inflation in the lower right-hand part of the chart.
The US Producer Price Index (PPI) final demand rose 10% YoY in February, further evidence of spiraling inflation under Biden/Pelosi/Schumer’s reign of error.
And speaking of Senate Majority Leader Chuck Schumer (D-NY), the Empire State Manufacturing Survey (General Business Conditions) crashed to -11.8.
And Russia is losing the economic demolition derby with Ukraine (at least for sovereign debt).
I am still trying to figure out what House Speaker Nancy Pelosi (D-San Francisco) meant by “When we’re having this discussion, it’s important to dispel some of those who say, well it’s the government spending. No, it isn’t. The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.”
Really Nancy?
Here is a chart of Federal government outlays and inflation. Massive expenditures and growth in Federal debt and the resulting inflation. Nancy?
Coindesk: The foundations of Bretton Woods II crumbled last week when the G7 seized Russia’s foreign exchange reserves, the investment bank said.
The Russian-Ukrainian war will create a new world financial order from which Bitcoin is set to benefit, according to Credit Suisse.
Zoltan Pozsar, global head of short-term interest rate strategy at the giant investment bank, wrote in a Monday report that Western sanctions on Russia are likely to cause a paradigm shift in the way the world organizes money and reserves, a “Bretton Woods III” kind of scenario.
“From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money, to Bretton Woods III backed by outside money,” the strategist wrote.
Pozsar argues that the fall of Bretton Woods II ensued last week as G7 countries decided to seize Russia’s foreign exchange (FX) reserves, leading to a rise of outside money – reserves kept as commodities – over inside money – reserves kept as liabilities of global financial institutions.
“We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West,” the report states.
Russia, a surplus agent in the financial system, can now no longer make use of the hefty FX reserves it accumulated through its commodity exports over the decades to defend its falling ruble or aid its local economy. Moreover, Russia’s ability to export its commodities has been severely hurt due to the “buyer’s strike” in the West.
“What we are seeing at the 50-year anniversary of the 1973 OPEC supply shock is something similar but substantially worse – the 2022 Russia supply shock, which isn’t driven by the supplier but the consumer,” the strategist wrote. “The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West.”
Pozsar argues that while Western central banks cannot close spreads between Russian and non-Russian commodity prices as sanctions lead them in opposite directions, the People’s Bank of China can “as it banks for a sovereign who can dance to its own tune.”
“If you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns,” Pozsar wrote.
As outside money keeps trumping inside money, this crisis will likely emerge and end differently than all others ever since Nixon broke off the gold standard in 1971 – which marked the end of the era of commodity-based money.
Meanwhile, US Treasury Secretary Janet Yellen said the U.S. dollar is in no danger of losing its status as the world’s dominant reserve currency as a result of sanctions imposed against Russia over its invasion of Ukraine.
“I don’t think the dollar has any serious competition, and is not likely to for a long time,” Yellen told reporters in response to questions following a speech in Denver on Friday.
Some commentators, including Credit Suisse Group AG interest-rate strategist Zoltan Pozsar, have warned sanctions that blocked Russia’s access to its foreign currency reserves could drive other countries away from the dollar.
Well, what Zoltan says may be true, but not so far. Bitcoin has been plunging since November 2021 as inflation keeps rising.
Zoltan: “..and Bitcoin (if it still exists then) will probably benefit from all this.” The US Treasury yield curve is listing towards inversion, a signal of impending recession.
US rent inflation (owner’s equivalent rent of residence YoY) surged to 4.30%. However, Zillow’s rent index last month was 15.93% YoY.
But if we look at US Monthly Rent YoY, we see that rents are climbing at a 17.6% rate.
Energy costs soared in February YoY. Gasoline was up 38%. Fuel Oil was up 43.6%. Food was up 7.9%.
Volatility (AVAT) rages in the energy sector.
There are still 7 rate hikes in the cards from The Federal Reserve.
Gold has been climbing as Russia invades Ukraine. Cryptos Bitcoin and Ethereum are steady, even as the Biden Administration issues an executive order to “study” cryptocurrencies.
America is suffering a “nickel pickle.” As the US Federal government pushes their green energy agenda, Mayor Pete Buttigieg (aka, Transportation Secretary) on Monday said “the American people stand to benefit from having more electric vehicles on the road.” Unfortunately, electric vehicles use nickle in their production and guess who produces the most nickel? Russia.
Nickel futures were up +66.25%.
Unfortunately, Russia is the largest miner of nickel. But Brazil is second.
We are also seeing rising volatility of US stocks (VIX) and bonds (MOVE) as Russia’s invasion of Ukraine continues and crude oil prices soar.
While NYM WTI Crude volatility is up +296%, NYM DUBAI Crude is up +4,626.19%, and NYM JKM (Japan/Korea) natural gas volatilty is up 1,900%.
Now, US oil and gas exploration and drilling rig count has almost doubled under Biden as oil price surge.
We are in an American pickle since Russia is a major supplier of oil and natural gas as well as nickel.
WTI Crude Oil spot price was up 91% from the beginning of 2021 to the Russian invasion of Ukraine. Now it is up 142% thanks to the invasion of Ukraine.
Energy prices are still soaring with UK Natural Gas prices up another 34.70% today with Brent Crude futures up 3.34%. Wheat futures are up 7.03%.
The US Treasury 10Y yield rose 6.8 bps this morning (UK takes the lead with a 10.3 bps increase).
The US Treasury 10Y-2Y yield curve slope continues to swoon to where it is now flatter than when President Biden entered office.
Gold is now at it highest level since before Biden was sworn-in as President as WTI Crude Oil soars.
Gold hit $2,000 before retreating back down.
And Bankrate’s 30Y mortgage rate declined to 4.10%.
Russia is the world’s largest exporters of wheat and Ukraine is the 5th largest exporter.
This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).
Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.
The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”
On Friday, the US Treasury 10-year yield declined 11 bps.
And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.
The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.
But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).
And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.
And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.
Its anyone’s guess as to whether The Fed will actually tighten monetary policy.
The US still has a steeply upward-sloping yield curve, but Russia has the exact opposite: a steeply downward-sloping or inverted yield curve.
Here is a comparison of the US Treasury Actives curve (steeply-upward sloping) compared to Russia’s sovereign curve (steeply-downward sloping).
Russia’s technical default on international bonds has led to its 5.25% coupon international bond (denominated in Euros) to plunge from 131.6 in September 2022 to only 21.75 this morning.
Commodity prices? Commodity prices saw the biggest one-day gain in 13 years on Tuesday.
Between Biden’s anti-fossil fuel executive orders and the Russian invasion of Ukraine, gasoline futures are up 126% since the start of January 2021.
Confounded Interest - Anthony B. Sanders 
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