Actually, I have to Spain numerous times and love visiting Barcelona. But the US debt fiasco under Biden and Congressional spending sprees has led to … US credit default swap being priced worse than Spain’s CDS.
With Biden/Congress orgy of spending (and a declining economy in many important respects), the US is seeing Federal debt near $33 TRILLION and even worse, unfunded Federal liabilities (promises, promises) are at $193 TRILLION, almost 6 times the current Federal debt load.
If you are into archaelogy and fossils, Nancy Pelosi (83) has announced that she is running for re-election to The House. Hasn’t San Francisco suffered enough under Feinstein, Newsom and Mayor Breed?
What a mess Biden and his Progressive backers have made. And we are forced to suffer the consequeinces of his policies. Or follies!
Money-market funds saw inflows for the 7th week of the last 8 with a $42BN jump (the most in 2 months) to a new record high of $5.625TN…
Source: Bloomberg
The inflow was dominated by a $24BN increase in Institutional fund assets while Retail also saw a sizable $17.7BN increase…
Source: Bloomberg
And the divergence between money-market fund assets and bank deposits continues to grow…
Source: Bloomberg
And while we actually saw huge deposit outflows (on a non-seasonally-adjusted basis) – despite The Fed’s seasonally-adjusted deposits increase – The Fed balance sheet shrank by another $20BN last week to its smallest since June 2021…
Source: Bloomberg
The Fed’s QT program continues apace with$18.4BN sold last week to its smallest since June 2021…
Source: Bloomberg
Usage of The Fed’s emergency bank funding facility jumped by $328 Million last week to a new high of $108BN…
Source: Bloomberg
Fed BS weekly change:
Fed balance sheet QT (Notes and bonds decline): $4.255 trillion, down $18,2BN
Discount Window $2.1BN, down $800M from $.29BN
BTFP new record $107.9BN, up $400MM
Other Credit Extensions (FDIC Loans): $133.8BN, down $0.6BN from $134.4BN
Finally, US equity markets and bank reserves at The Fed have converged a little recently, but the gap remains wide (thanks to the plunge in reverse repo balances)…
Source: Bloomberg
Tick, tock, banks!
Source: Bloomberg
You have six months to figure out how to clean up the $108 Billion hole in your balance sheet that you’re currently paying The Fed’s exorbitant rates to fill.
Bank deposit growth remains negative as The Fed tightens its overly accomodative monetary policy.
And then we have this chart showing plinging M2 Money (white line fever).
And the horrific unrealized losses on bank’s books.
Bidenomics is failing America. Primarily because Biden was one of the stupidest members of the US Senate. Not to mention nasty. Great President, America! /sarc
Billions Biden, the President who loves to (recklessly) spend taxpayer money (mostly on large donors). is going to have difficuly spinnig the latest employment figures.
Mortgage demand (applications) decreased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 18, 2023.
The Market Composite Index, a measure of mortgage loan application volume, decreased 4.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 35 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 30 percent lower than the same week one year ago.
The spread betweenn Bankrate’s 30 year rate at 7.62% and the effective rate on mortgage debt outstanding at 3.595% has exploded as mortgage rates jump.
Today’s mortgage rates are up to 7.49%. OMG!
Bidenomics (code for making large donors wealthier and the middle class getting the boot) and catch-up for Yellenomics (rates too low for too long), and Powell are helping to burn down the housing market.
Thanks to the crippling effects of Bidenomics (Fed easing then tightening to combat inflation caused by insane green spending and a war in Ukraine), US mortgage rates (conforming 30-year) has increased 159%.
On the yield curve side, the US Treasury curve 10Y-2Y CMT fell from 99 basis points the day after Maui Joe was sworn-in as El Presidente to the inverted curve we see today (-63 basis points).
Dynamic Maui Joe looking less than happy trying to visit Maui while he could be partying with mega-donor Tom Steyer (a big green energy con artist).
At least Biden didn’t wear his aviator sunglasses or down an ice cream in a show of “empathy.” But, of course, he did find time to assault a child! Watch the hands Maui Joe!!!!
This is very strange. Global Treasury Yields just rose to a 15-year high (2008). This is primarily due to Central Bank moneta
And REAL 10-year Treasury yields also the highest since 2009.
At the same time, US industrial production is at the same level as pre-financial crisis (2007). Despite Federal Reserve monetary stimulypto (remember, The Fed’s balance sheet remains abouve $8 trillion.
This is Obama/Biden/Yellenomics. Trillions of dollars of fiscal (green) stimulus and monetary stimulus only to have industrial production be at the same level BEFORE The Great Recession and financial crisis.
Commercial real estate (CRE), particularly office space, reminds me of the Arthur Brown tune “Fire!” except that Jerome Powell of The Federal Reserve is the God of Hellfire! While fighting inflation caused by … The Federal Reserve and insane Federal spending (aka, Bidenomics). Call this the Over, Under, Sideways Down economy. The top 1% are doing quite well, while the lower 50% of net worth households are struggling.
The Q1 2023 NCREIF Office property (value) index shows declining office value since Q2 2022 as The Fed began raising its target rate to combat inflation.
From Trepp, we have this shocking table showing the decline the average total value loss over the span of around a decade. The oldest buildings experienced the largest reduction in value of 60%, and the newest experienced the least (but quite substantial) reduction of 52%. Although the newest buildings performed the best relatively, their 52% value reduction is easily the most concerning, and displays truly how much distress is present in the office sector. This group has the highest percentage of Class A buildings, but its reduction value over the past decade is still approximately on par with buildings constructed over half a century prior. With north of $150 billion in securitized maturities beyond 2023, these trends set a gloomy tone for their future and the performance of office properties as a whole.
Then we have this alarming headline from Trepp: “Commercial Mortgage Sector Faces Another Wall of Maturities as $2.75 Trillion Rolls by 2027.” An estimated $528.7 billion of commercial mortgages mature this year, according to Trepp data, which projects that next year, maturities will increase to $532.8 billion. The projections are based on data for the first quarter compiled using the Federal Reserve’s flow of funds and made various assumptions regarding loan terms for each of the major lender categories. The data would indicate that the market is facing a wall, if not a mountain of maturities that would make the 2015-2017 wall of maturities look almost inconsequential. During that period, roughly $1.1 trillion of loans were scheduled to come due. But attention was focused on the CMBS market, as more than $335 billion of loans were set to mature during the period.
Well, REAL gross domestic income fell -0.8% YoY in Q1 2023 as M2 Money growth crashes. Not a good sign for the US economy or commercial real estate.
Of course, office properties are suffering from almost out-of-control crime in major American cities and the desire of workers to work from home rather than commute to work in cubicles.
But never fear! We have massively corrupt and compulsive liar Joe Biden as President!! He is the President of The 1%! Not the other 99%.
The Case-Shiller home price numbers are out for May. The national home price index is down -0.46% YoY as The Fed slows M2 Money growth into negative growth territory. No doubt Biden (and Karine Jean-Pierre) will take credit for slowing home price growth, although The Federal Reserve slowing monetary stimulus is mostly responsible.
The Fed is still slow walking shrinking its enormous balance sheet. Although The Fed is cranking up their target rate.
The Taylor Rule suggests a 10.42 target rate to cool inflation. They are only half way there!!!
Starwood Capital Group’s Barry Sternlicht recently told Bloomberg’s David Rubenstein about the ongoing crisis in the commercial real estate sector, equating it to a severe “Category 5 hurricane“. He cautioned, “It’s sort of a blackout hovering over the entire industry until we get some relief or some understanding of what the Fed’s going to do over the longer term.”
Currently, the biggest problem in the CRE space is sliding office and retail demand in downtown areas. Couple that with high-interest rates, and there’s a disaster lurking for building owners. According to Morgan Stanley, the elephant in the room is a massive debt maturity wall of CRE loans that totals $500 billion in 2024 and $2.5 trillion over the next five years.
Senior markets editor for Bloomberg, Michael Regan, chatted with John Fish, who is head of the construction firm Suffolk, chair of the Real Estate Roundtable think tank and former chairman of the board of the Federal Reserve Bank of Boston, in the What Goes Up podcast to discuss the biggest problems in the CRE market.
Fish warned that “capital markets nationally have frozen” and “nobody understands value.” He said, “We can’t evaluate price discovery because very few assets have traded during this period of time. Nobody understands where the bottom is.”
For a sense of recent price discovery trends, we were the first to point out to readers of a wicked firesale of office towers in the downtown area of Baltimore City:
As for the overall CRE industry, Goldman Sachs chief credit strategist Lotfi Karoui recently told clients, “The most accurate portrayal of current market conditions with Green Street indicating a 25% year-over-year drop in office property values.”
Sooooo, Powell and The Fed will likely raise rates this week. And maybe a few more times over the next few months. And The Fed remains defiant about taking away the Covid monetary stimulus.
Confounded Interest - Anthony B. Sanders 
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