Happy Easter! US Interest To Hit $1.6 Trillion By Year End, Making It The Largest US Government Outlay (Endless Wars And Exploding Entitlements Now Over $214 TRILLION)

Happy Easter! I mean Happy TRADITIONAL Easter, not a Biden weird trans celebration.

Biden and Congress (Schumer, Johnson, McConnell, etc) spend and borrow like its cottage cheese.

After hitting $1 trillion in late 2023, interest expense on US debt rose to a record $1.1 trillion in late March, and ii) while US debt is now rising at a pace of $1 trillion every 3 months, US interest expense is rising at a just as torrid $100 billion every 4 months (this interval will also shrink to three months very soon).

he Biggest Picture: $1.1tn in interest payments on US government debt past 12 months, doubled since COVID (Chart 2); trend in govt spending (up 9% YoY) & debt (up $1.0tn every 100 days)…big motivation for Fed to cut rates to constrain surge in interest costs (“ICC” or Interest Cost Control policy)… bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

Of course, since Hartnett is one of those good strategists where one fact opens up a cascade of downstream observations, that’s precisely what happened this time and he fills out the balance of his latest report (available to pro subscribers in the usual place) with his tongue-in-cheek notes on why the US is on a doomsday date with a debt disaster, starting with why being a “dove means never having to say you’re sorry”:

US government spending past 5 months = $2.7tn, up 9% YoY… on course for $6.7tn in FY24; US national debt rising $1tn every 100 days…set to hit $35tn in May’24, $37tn by US election, $40tn in H2’25 (doubling in 8 years); spending up, deficits up (9% of GDP average past 4 years), debt up -> interest payments up = $1.1tn in past 12 months & set to rise by $150bn in next 100 days [ZH: this sounds familiar]
US Treasury has aggressively shifted refunding toward <1-year T-Bills ($21tn issuance past 12 months), lowering maturity of debt to ≈5 years, increasing sensitivity to short rates, incentivizing Fed to cut rates;

And the punchline: Hartnett takes our observations, and expands them to their logical, if absurd, extreme (which ironically takes places in just 9 months) to find that US annual interest costs are set to jump from $1.1 trillion to $1.6 trillion, which is a big deal…

Unchanged rates/yields & debt trend next 12 months & US refinancing rate is 4.4% & annual interest costs jump from $1.1tn to $1.6tn (Chart 5); in contrast 150bps of Fed cuts next 12 months and average refi rate is 3.2%, stabilizing/constraining interest payments to $1.2-1.3tn over next 2 years; call it “ICC”/Interest Cost Control but Fed must placate fiscal excess coming quarters…bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

… because if the Fed does not cut rate by 150bps (as it may in an “ICC” scenario) should inflation prove to be sticky (something which Putin clearly has figured out realizing the fate of Biden’s re-election is in his oily hands), and total interest does rise to $1.6 trillion by year-end, that it will become the single biggest US government outlay by the end of the fiscal year; as a reminder, in fiscal 2023, Social Security spending was $1.354 trillion, Health was $889 billion, Medicare $848 and national defense, a paltry (by comparison) $821 billion.

Stepping briefly away from the looming US debt disaster, Hartnett makes three more observations on the current state of the market:

Tech regulation getting noisier: DoJ vs Apple antitrust lawsuit, FTC vs Amazon antitrust lawsuit, FTC inquiry into AI deals of Amazon, Google, Microsoft; EU investigation into Apple, Meta, Google breach of Digital Markets Act; EU $2bn Apple antitrust fine, Japan FTC Apple & Google antitrust complaint et al…
“Magnificent 7” = 30% of SPX index & 60% of SPX gains past 12 months…investors love big tech “moats”, monopolistic ability to protect margins, market share, pricing power, finance & control AI arms race; but ≈$2tn of Magnificent 7 revenues past 12 months tempting target for regulators/governments struggling to pay bills;

Note tech historically the least regulated of sectors (the chart below uses data from 2017) and in past 12 months average tax rate of “Magnificent 7” was 15% vs 21% for rest of S&P 500… and regulation & rates the historic way sector bulls & bubbles end.

Now for the REALLY bad news. Unfunded liabilities (entitlements) have hit $214+ TRILLION. Given how voters hate paying more in taxes, look for the growing entitlements to add AT LEAST $214 trillion in NEW DEBT which will result in record high interest payments.

Hey big spender! How about NOT spending trilliions while pocketing 10% from foreign enemies?

Congress and The Biden Regime should select the now defunct British beer Watney’s Red Barrell (a truly awful beer) to symbolize their committment (or lack thereof) to fiscal responsibilty.

Biden, Schumer Fund Border Defense In Spending Bill! Jordan, Lebanon, Egypt, Tunisia and Oman Get Border Funding, NOT The US (US Falls To 23rd In Global Happiness Ranking)

Biden loves to blame Republicans for the border crisis. Although he has it in his power to close and secure the border, but won’t. It’s easier to blame the opposition, like “extreme MAGA Republicans.” Huh, I didn’t realize that as a conservative American I am considered extreme by the Biden Administration.

Unfortunately, Biden, Schumer and Johnson only provided financial support for Jordan, Lebanon, Egypt, Tunisia and Oman. In the form of $380 million.

As the US falls to 23rd in World Happiness ranking. Based, in part, on Biden’s idiotic open borders policy.

Weekly Jobs Reports Doesn’t Capture The Disastrous US Jobs Market (Biden’s “Take This Job And Shove It” Economy)

As Johnny Paycheck sang, “Take This Job And Shove It”. Apparently, we are seeing a number of firms scaling back on their workforce.

As a reminder, in the real world labor market, 2024 has been a shitshow of layoffs…

1. Everybuddy: 100% of workforce
2. Wisense: 100% of workforce
3. CodeSee: 100% of workforce
4. Twig: 100% of workforce
5. Twitch: 35% of workforce
6. Roomba: 31% of workforce
7. Bumble: 30% of workforce
8. Farfetch: 25% of workforce
9. Away: 25% of workforce
10. Hasbro: 20% of workforce
11. LA Times: 20% of workforce
12. Wint Wealth: 20% of workforce
13. Finder: 17% of workforce
14. Spotify: 17% of workforce
15. Buzzfeed: 16% of workforce
16. Levi’s: 15% of workforce
17. Xerox: 15% of workforce
18. Qualtrics: 14% of workforce
19. Wayfair: 13% of workforce
20. Duolingo: 10% of workforce
21. Rivian: 10% of workforce
22. Washington Post: 10% of workforce
23. Snap: 10% of workforce
24. eBay: 9% of workforce
25. Sony Interactive: 8% of workforce
26. Expedia: 8% of workforce
27. Business Insider: 8% of workforce
28. Instacart: 7% of workforce
29. Paypal: 7% of workforce
30. Okta: 7% of workforce
31. Charles Schwab: 6% of workforce
32. Docusign: 6% of workforce
33. Riskified: 6% of workforce
34. EA: 5% of workforce
35. Motional: 5% of workforce
36. Mozilla: 5% of workforce
37. Vacasa: 5% of workforce
38. CISCO: 5% of workforce
39. UPS: 2% of workforce
40. Nike: 2% of workforce
41. Blackrock: 3% of workforce
42. Paramount: 3% of workforce
43. Citigroup: 20,000 employees
44. ThyssenKrupp: 5,000 employees
45. Best Buy: 3,500 employees
46. Barry Callebaut: 2,500 employees
47. Outback Steakhouse: 1,000
48. Northrop Grumman: 1,000 employees
49. Pixar: 1,300 employees
50. Perrigo: 500 employees

But, according to the government-supplied data…

The number of American filing for jobless benefits for the first time last week dropped to 209k (vs 218k exp) with the NSA number tumbling to 200k…

Source: Bloomberg

How is this possible, you may ask… well let us show you the ways… New York State claims that its jobless benefits rolls collapsed last week. New York accounted for 99.75% of the weekly change in initial claims across the entire US as shown below…

Source: Bloomberg

Continuing Claims was a shit show – with a massive 112k person downward revision for last week from 1.906 million to 1.794mm. That is the 5th straight weekly downward revision of continuing claims…

Source: Bloomberg

But thanks to the adjustments, it all looks ‘normal’ and ‘stable’ at around 1.8 million Americans…

Source: Bloomberg

And WARN numbers are rising rapidly…

Source: Bloomberg

As a reminder, if you doubt the accuracy of the Biden admin’s data, here’s what the most recent FOMC Minutes said:

“While the recent trends prior to the meeting had been remarkably positive, Fed officials judged that some of the recent improvement “reflected idiosyncratic movements in a few series.”

Even they aren’t buying it, and neither should you!

Victory?? US GDP Grew By $334 Billion In Q4 With $834 Billion In Additional Debt ($2.5 In Debt To Get $1 Of GDP, Unfunded Liabilities At $664,000 Per Citizen)

Paul Krugman and others are cheering the defeat of inflation (odd since it is on the rise again). But how does our Federal government “grow” the economy and inflation? Borrow and spend, baby!

The Bureau of Economic Analysis just released Q4’s GDP update. The good news? US GDP grew by $334 billion. The bad news? Yellen and Treasury had to borrow $834 billion in debt to get there. That is a ratio of $2.5 of debt to get $1 of GDP. Only in Washington DC does math like that causes zero consternation. They are all down at the nightclub partying the nights away.

I still want to hear Biden (or any other elected official, Democrat or Republican) to explain to me how the US is going to honor its unfunded liabilities (Social Security, Medicare, etc) which is $664,000 PER CITIZEN. Again, this figure does not included the 8-11 million illegal immigrants who have stormed our borders under Biden. Hey, how about an entry fee for each immigrant of $664,000?

“Billions” Biden loves to spend money along with members of Congress and the Administrative State.

Newsom’s Fiscal Inferno! California’s Budget Crisis Worse Than Newsom Projected (State Watchdog Warns Deficit Could Reach Record $73B!)

Newsom’s Fiscal Inferno!

When Arnold Schwarzenegger was Governor California, his budget chief, a former high school pal of mine, called me to look at California’s budget. He sent me his spreadsheets with forecasts and asked me what I thought. Even back then, I called back and said “California is on an unsustainable fiscal path and seems to be committing suicide.” He agreed, but noted that Schwarzenegger would not like that conclusion. I told him to blame me for the report, as an unpaid consultant to The Golden State. But even back then, I could foresee the absolute mess that the California State legislature would make, particularly if they elected a Democrat governor.

Fast forward to today. Another “glamorous” governor (Newsom does have a great smile and great hair), but even a far worse fiscal path. California’s budget deficit could reach a record $73 billion!

California’s budget deficits look a lot like Biden’s (call him Newsom’s elderly intellectual grandpa) budget deficits where Biden and Congress went on a spending spree from “the honey pot” (US Treasury) and borrowed funds.

California’s budget crisis is projected to expand more than previously thought and could hit a record deficit of $73 billion, according to a new report from the state’s nonpartisan Legislative Analyst’s Office (LAO).Her

The LAO laid out the grim forecast in a Tuesday report that cautions that a $24 billion “erosion in revenues” corresponds to a $15 billion increase in the state’s budget problem. Due to this, the budget deficit, which last month was estimated to hit $58 billion, could now go as high as $73 billion.

“The actual increase in the state’s budget problem will depend on a number of factors, including formula-driven spending changes, most notably Proposition 98 spending requirements for schools and community colleges,” the report said.

H.D. Palmer, the deputy director of the California Department of Finance and Newom’s spokesperson on budget matters, responded to the new LAO report by telling Fox News Digital that their budget shortfall differs from the $38 million they estimate.

“From now through April, more than $51 billion in income and corporate tax receipts are forecast to come in,” Palmer said. “No one can say today with certainty how those numbers may change the budget estimate of a $38 billion shortfall.”

“A responsible step would be for the Legislature to act now on the early action budget measures needed for $8 billion in solutions to help close this gap,” he added.

The projected bad news comes as Newsom has worked to increase his profile nationwide. It also occurred as California experienced a mass exodus.

California saw its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic. From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.

Census data has shown that Texas is the most popular destination for residents fleeing the state, followed by Arizona, Florida, and Washington. (Of course, Arizona where I used to live has flipped from a Red state to a Blue state with immigration and Democrats are working hard to flip Texas to a Blue state. Washington, has already flipped Blue. Florida remains a Red state under Ron DeSantis).

Here is Biden’s budget deficit chart under the hilariously termed “Bidenomics.” Ah, so maybe Governor Newsom is a perfect fit for the wild spenders in Washington DC.

Lest we forget, Biden/Congress can borrow endless funds and stick the bill to Gen Zers and the unborn.

And remember, US politicians have promised $213 TRILLION in unfunded payments that will require cuts (LOL!) or a massive increase in Federal debt.

Biden and Newsom could sing “Fiscal inferno” together! “Here is my demented, doddering grandfather!”

Back In The Saddle Again! Why The Fed Will RAISE Rates (Home Price Growth Reaccelerating, SuperCore Inflation Is Rising, Mass Immigration)

The Federal Reserve (aka, The Keep) is back in the saddle again. The Fed has been unable to control inflation since Federal government spending was so fast and furious after Covid that little thought was given to the long-term ramifications of insane spending. Not to mention The Fed’s overreaction to Covid.

Example?

Home price growth is rising again. Home prices in traditional “bubble cities” out west were cooling, but are reaccelerating. Even Detroit and Cleveland are seeing rapid home price acceleration.

Yes, housing inflation is sticky.

In retrospect, this wholesale dovish euphoria may have been rather short sighted, because after several strong economist reports hit the tape (with the Nov 2024 election growing closer by the day, that should hardly have been a surprise), March rate cut odds collapsed from over 100% in late December, to just 12% currently…

… as first the January CPI printed red blazing hot – with core coming in at 3.9% far higher than the 3.7% expected, with the 3-month annualized rate jumping to 4% from 3.3% and the 6-month annualized rate spiking to 3.7% vs 3.2%, but the biggest highlight was SuperCore CPI (i.e., core CPI services ex-Shelter) which soared 0.7% MoM, the biggest jump since Sept 2022…

… and then the January PPI print come in even hotter, with a core component surging in January by 0.5%, smashing expectations and beating estimates by the most since Jan 2021.

The result: not only has the market rapidly priced out what if formerly saw as many as 6 rate cuts in 2024, but growing speculation that a rate cut may not come at all unless the Fed tightens some more first (and with the S&P500 now over 5000, it is pretty clear that the market has already priced in virtually all rate cuts and has cornered the Fed).

Of course, the mass migration across the Mexican border (who knows? could be up to 11 million under Biden’s Reign of Error). While Paul Krugman, the resident lunatic economist for the New York Times, extols the virtues of mass immigration for driving up GDP, fails to recognize that mass migration is helping drive up prices. This is inflation that The Fed can’t control. And Biden/Mayorkas want even MORE mass immigration.

Maybe Fed Chair Powell should watch the film “The Keep” for lessons on how to control inflation. in the face of government sanctioned mass ILLEGAL immigration from Latin America, China, Africa and The Middle East.

Slowdown! ADP Reports an Increase of 107,000 Private Payrolls As Powell Proclaims “No Sugar Tonight” (Why Do We Need Millions Of Illegal Immigrants?)

Slowdown! Bidenomics, based on historic binge spending and Fed sugar, is wearing out as the enormous sugar (stimulus) rush is over.

The hiring slowdown of 2023 spilled into January, and pressure on wages continues to ease. The pay premium for job-switchers shrank to a new low last month.

Another Soft Landing Proclamation

“Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay. Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally,” says Nela Richardson, Chief Economist, ADP.

ADP National Employment Report

The ADP National Employment Report shows Private Sector Employment Increased by
107,000 Jobs in January; Annual Pay was Up 5.2%

Job Switching Payouts

Year-over-year pay gains for job-stayers reached 5.2 percent in January, down from 5.4 percent in December.
For job-changers, pay was up 7.2 percent, the smallest annual gain since May 2021.
Median Change in Annual Pay (ADP matched person sample) Job-Stayers 5.2%, Job-Changers 7.2%

ADP Notice

January’s report presents the scheduled annual revision of the ADP National Employment Report, which updates the data series to be consistent with the annual Quarterly Census of Employment and Wages (QCEW) benchmark data for March 2023. In addition, this revision introduces technical updates, namely, in re-weighting of ADP data to match QCEW data. The historical file was updated to reflect these revisions.

Notice Translation

ADP revises its data to match annual BLS data from March of 2023. The BLS will do the same in its annual revisions.

The BLS does not even back adjust the numbers so its historical record is bogus. And despite being incredibly lagging, the Fed makes key decisions on the data.

Job Openings Rise in December But Quits Tell the Real Story

There’s lots of meaningless chatter yesterday about job openings. However, actions speak louder than openings.

This report comes after Fed Chair Jerome Powell said “No Sugar Tonight” as in no expected rate cuts. That is, until it becomes obvious that Biden will lose the election, THEN The Fed will start cutting rates like crazy.

An example of the trash that Biden and Democrats are importing from Latin America, Africa and China. Among other sewers. I am sure that employers are lining up to hire this guy. … NOT! Correction: Biden may appoint this creep to his cabinet with the other losers.

Biden’s Wreck Of The US Economy! Mortgage Demand Fell To New 30-year Low In January, Down 54% From Pandemic Peak (Mortgage Demand Down 14% Over Last Year And 40% From Pre-Pandemic Levels)

Yikes! Bidenomics is a disaster! MBA mortgage purchase applications are down 54% from Pandemic Peak. I was going to play “The Wreck of the Edmund Fitzgerald” by Gordon Lightfoot and rename it “The Wreck of The US Economy.”

Mortgage demand fell to a new 30-year low in January 2024, down 54% from the pandemic peak. Mortgage demand is down 14% over the last year and 40% from pre-pandemic levels.

Mortgage applications decreased 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 26, 2024. Last week’s results included an adjustment to account for the MLK holiday.

The Market Composite Index, a measure of mortgage loan application volume, decreased 7.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8 percent compared with the previous week. The Refinance Index increased 2 percent from the previous week and was 3 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 11 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 20 percent lower than the same week one year ago.

Simply Unaffordable! 31% Of Gen Zers Living With Parents (Home Prices UP 32.5% Under Biden, Mortgage Rates UP 140.5% Under Bidenomics, Rent CPI UP 19.2%)

Housing is simply unaffordable under Bidenomics, a strange brew of big corporate green subsidies, political handouts (any wonder why Biden is forgiving student loans in an election year?) and bad Fed policy errors.

But young Americans don’t always have a sugar daddy like Hunter Biden has who are willing to pay for rent for political parasites like those in Washington DC.

Young adults used to dream of moving out of their parents’ homes and into their own apartments, but living alone has become a luxury not everyone can afford. Not surprising, since home prices under Biden have risen 32.5% while 30-year mortgage rates are up a staggering 140.5% under Clueless Joe.

But in growth terms (year-over-year), White House Propagandists Karine Jean Pierre and John Kirby will no doubt focus on the cooling of housing prices and mortgage rates … although both are reaccelerating.

Rent CPI is up 19.2% under Clueless Joe.

How does this impact younger Americans? According to a recent study by Intuit Credit Karma, 31% of Gen Zers are living with their parents because they can’t afford to rent or buy their own place. Overall, 11% of American adults still live at home with their parents.

“The current housing market has many Americans making adjustments to their living situations, including relocating to less-expensive cities and even moving back in with their families,” said Courtney Alev, a consumer financial advocate at Intuit Credit Karma.

Even young adults who live alone are reconsidering their living arrangements because costs are too high.

About a quarter (27%) of Gen Zers reported that they could no longer afford rent and 25% said they’ll have to move back in with family to make ends meet.

Millennials are in the same boat: 30% say rent is unaffordable, and 25% are thinking about moving back in with their parents.

The research is consistent with a 2021 study conducted by the U.S. Census Bureau, which showed that one in three adults ages 18 to 34 live with their parents.

In a 2022 study, Pew Research also found that the percentage of Americans living with their parents has increased steadily since 2000. Pew calls these living arrangements “multigenerational households,” and said young adults ages 25 to 29 are most likely to cohabit with their parents.

Different studies, but all tell the same story: Finances are the top reason young adults are still living with family.

Housing and rental costs rise

It’s hardly surprising that young adults are struggling to make ends meet. Housing costs and living expenses have skyrocketed since the pandemic, and younger generations have faced the most financial hardship.

As Creditnews Research reports, Millennials and Gen Zers have been locked out of homeownership due to rising home prices, elevated interest rates, and stagnant real wages (adjusted for inflation).

For example, in 2023, Millennials accounted for only 28% of homebuyers despite being in their prime home-buying age. Gen Zers barely made a dent in the housing market, accounting for a paltry 4% of all buyers.

According to Fed data, average home prices were $431,000 as of the third quarter of 2023.

The rental market isn’t much better. Although rent costs have declined for three straight months, landlords are still asking for $1,964 per month on average, per Redfin data. Average rents were below $1,650 at the start of Covid.

But the problem of surging rents goes back much longer than that. According to a report from Moody’s Analytics, rent prices grew 135% between 1999 and 2022, while average incomes for all age groups were up 77% over the same period.

In terms of earning potential, younger generations are at the lower end of the totem pole, so they’re more likely to be affected by rising rent prices.

Where’s the “strong economy” everyone always talks about?

While the U.S. economy has steered clear of recession and unemployment remains near historic lows, Americans are still struggling to afford basic expenses. This is especially true for younger generations.

A 2023 study conducted by Deloitte found that more than half of Millennials and Gen Zers were living paycheck to paycheck. Perhaps shockingly, 37% of Millennials and 46% of Gen Z reported taking another part-time or full-time job just to afford their bills.

As it turns out, people working multiple jobs could be inflating the seemingly rosy job numbers.

Working longer hours and barely scraping by is one of the main reasons why younger adults feel they’re worse off financially than their parents were at their age.

An August 2023 study conducted by The Harris Poll found that 74% of Millennials and 65% of Gen Zers believe they are starting further behind financially than previous generations.

“They’re telling us they can’t buy into that American dream the way that their parents and grandparents thought about it—because it’s not attainable,” said The Harris Poll CEO John Gerzema.

Remember, Clueless Joe Biden is in charge! (or Obama, take your pick).

Financing Bidenomics! The Good, The Bad And The Ugly (Rising Bond Total Returns, Rising Refinancing Costs, Falling Mortgage Purchase Demand)

Like the spaghetti western “The Good, The Bad And The Ugly,” Bidenomics has had similar effects on financing. Some good, some bad and a lot of uglies.

The good! For investors like pension funds the own US Treasuries, inflation has led The Federal Reserve to raise interest rates. This is good for investors holding short-term debt. The Bianco Fixed Income Total Return Index is soaring!!

The Bad: Well, the flip-side of the same coin is that debt refinancing costs have soared.

The Ugly. There are many contenders for losers under Bidenomics and current Fed (garbled) policies. But I choose … mortgage demand collapse with rising home prices and rising mortgage rates. Mortgage rates are up 165% under Biden.