Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
New home sales rose 1.11% since January and is down -19% since last February (YoY).
The median price of new home sales is down a whopping -8.18% since December 2022. And average price is down -12.83%.
I feel like I am watching the Star Trek original series episode “The Doomsday Machine” as former Fed Chair and current US Treasury Secretary effectively just guaranteed ALL US bank deposits. Aka, a massive bank bailout. The episode was about a robot space vehicle that destroy planets … and anything in its path. And if it changed course to destroy something, it gradually returned to its original destructive path. Like The Federal Reseve.
But after a few days of declining Treasury yields because of the mess created by Bernanke/Yellen’s too low for too long policies, and the Biden/Congress insane spending, the US Treasury 2-year yield is up 16.1 basis points.
Whether it was politcally motivated to protect Obama/Biden or Obama/Biden’s economic recovery was terrible, The Fed only raised their target rate once before Trump’s election. And then Yellen raised rates like crazy. Only to hand her mess off to Powell who had to drop rates like a rock and massively expand the balance sheet … again … to fight Covid.
The Federal Reserve from a car on Constitution Avenue in Washington DC.
Apparently, the NEO financial crisis (not the subprime, but The Fed’s “too low for too long” crisis) is still with us.
Credit Suisse Group AG’s top shareholder, whose stake has lost more than one-third of its value in three months, ruled out investing any more in the troubled Swiss bank as a bigger holding would bring additional regulatory hurdles.
“The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,” Saudi National Bank Chairman Ammar Al Khudairy said in an interview with Bloomberg TV on Wednesday. That was in response to a question on whether the bank was open to further injections if there was another call for additional liquidity.
Credit Suisse says it has identified material weaknesses in its internal control over financial reporting as of December 31, 2022 and 2021, according to the annual report.
The material weaknesses relate to the failure to design and maintain an effective risk assessment to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities relating to:
– Providing sufficient management oversight over the internal control evaluation process to support the Group’s internal control objectives
– Involving appropriate and sufficient management resources to support the risk assessment and monitoring objectives
Assessing and communicating the severity of deficiencies in a timely manner to those parties responsible for taking corrective action
And it could simply be that Credit Suisse was caught in the Central Bank “Bear Trap” where banks get clobbered as interest rates rise.
Credit Suisse’s CDS (credit default swap) is soaring!
And on the “it ain’t over till its over” news from Credit Suisse, the US Treasury 2-year yield plunged -40.4 basis points.
And the US Treasury 10-year yield plunged -24.8 basis points.
The official logo of the Federal Reserve should be Munch’s The Scream.
Well, the banking fiasco CREATED BY THE FEDERAL RESERVE is still with us. Why? Because the FDIC guaranteed deposits above $250,000 for the first time in history, bailing out millionaires/billionaires. I call this Crony Socialism (but I repeat myself).
Congress doesn’t understand banking, only how to spend money.
Its just like The Fed. The Taylor Rule says that The Fed’s target rate should be 10.29%, but now the terminal rate has been lowered to 5.475%, almost half of where the target rate should be.
Today’s jobs report for February was a huge disappointment IFF you expected another blowout jobs report like the one from January (504k jobs added). February saw just 311k jobs added, a decline of -38.3% MoM.
And just like that, The Fed’s terminal rate fell to 5.475%, a far cry from the 10.29% rate according to the Taylor Rule.
Today’s Fed Funds Target rate is 4.75% leaving only 72.5 basis points to move.
Today’s market hurl? The Dow fell -300 points and Europe looks like WWIII just broke out.
And the US Treasury 2-year rate plungeed -26.1 basis points.
Of course, Powell until recently followed the Yellen Rule. That is, keep rates at 25 basis points.
This is a classic communications breakdown between The Fed and the economy.
Let’s see if The Fed holds course with Silicon Valley Bank collapsing in biggest failure since 2008.
Silicon Valley Bank became the biggest US lender to fail in more than a decade after a tumultuous week that saw an unsuccessful attempt to raise capital and a cash exodus from the tech startups that had fueled the lender’s rise.
Regulators stepped in and seized it Friday in a stunning downfall for a lender that had quadrupled in size over the past five years and was valued at more than $40 billion as recently as last year.
The move by California state regulators to take possession of the lender, known as SVB, and appoint the Federal Deposit Insurance Corp. receiver underscores the impact that the US’s rapid interest-rate increase is having on smaller lenders. SVB is the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank, spurring a broader selloff in bank stocks.
The FDIC has set up a bridge bank to handle the failure of SVB. VERY rare. The last bridge bank was for IndyMac Bank from LA.
SVP is the second biggest bank failure in US history after Washington Mutual (WAMU).
RIP Gary Rossington, the last remaining Lynyrd Skynrd original member.
According to Attom Data, New York City leads the nation in zombie forceclosures.
A zombie foreclosure refers to a situation where a homeowner vacates their property after receiving a notice of default, expecting they will lose the home in the pending foreclosure. The foreclosure may get canceled for any number of reasons and never completed.
New York City and its surrounding areas lead the nation in zombie foreclosures. Followed by Miami. Chicago and Cleveland. Then Philadelphia.
The last US debt crisis occured in 2013 when Congress finally raised the debt ceiling … and kept on borrowing and spending, But if you thought that a debt crisis would scare Congress (and the Administration) into balancing the Federal budget, you would be wrong. In fact, since the 2013 debt crisis, Federal debt is up 88% (+$14.7 TRILLION over the last 10 years).
And with the massive growth in Federal debt under Obama, Trump and Biden has resulted in an explosion in interest payments on the Federal debt.
And with $182 TRILLION in UNFUNDED liabilities, the debt issuance won’t stop.
Let’s see what is in Treasury Secretary Janet Yellen’s bag of tricks.
LIBOR cracked 5% for first time since 2007.
And the US Treasury 10Y-2Y yield curve is the most inverted since 1981.
Is Janet Yellen the “evil woman” from Crow’s song?
Today’s mortgage application (demand) numbers from the Mortgage Bankers Association was disappointing to say the least. Mortgage purchase demand just sank to it lowest level since 1995.
Typically, mortgage purchase applications peak in May or June of each year before beginning their annual lemmings drive downwards. But this year is seeing a early turn for the worse.
The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 44 percent lower than the same week one year ago. The Refinance Index decreased 6 percent from the previous week and was 74 percent lower than the same week one year ago.
The Fed is hell bent on removing the punch bowl to fight inflation. Looks like Biden’s economic plan is turning the punch bowl into a dust bowl.
The most recent tightening by the Federal Reserve has pushed the federal funds target rate above mortgage-backed securities yields for the first time in history. Though this poses clear challenges of carry for MBS holders, selective investments in specified pool and collateralized mortgage obligations (CMOs) could provide incremental returns.
While Biden brags (redundant) about lowering inflation (that his energy policies and massive Federal spending caused), apparently he never learns. Now we learn from Mish that the Biden Administration is ready to unleash a $27 billion green slush fund on the US middle class.
Inflation started under Biden, but the massive expansion in money supply (M2) begin with Covid in 2020.
Once this latest spending splurge kicks in, we will see rising inflation again. After all, Biden and Congress have gotten the taste for massive spending bills (like vampires) and spending likely won’t slow down.
Falling mortgage rates are having a predictible effect on mortgage refinancing applications, but not so much for mortgage purchase applications.
Mortgage applications increased 7.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2023. This week’s results include an adjustment for the observance of Martin Luther King, Jr. Day.
The Refinance Index increased 3.15 percent from the previous week and was 77 percent lower than the same week one year ago. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 39 percent lower than the same week one year ago.
Generally speaking, declining mortgage rates are due to declining 10-year Treasury yields. And 10-year Treasury yields decline as the economy weakens. Of course, M2 Money growth YoY is now 0% as The Fed tightens.
On a humerous note, US Treasury Secretary Janet “The Evil Gnome” Yellen is visiting Africa and lecturing them on prudcnt sovereigh debt management. Seriously. China responded with “Fix the US debt problems before you lecture anyone else.”
Confounded Interest - Anthony B. Sanders 
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