Biden Picks Powell Over Brainard, 10-Year Treasury Yields Rise (10Y-3M Treasury Curve Rose From 83 BPS At End Of 2020 To 160 BPS Today)

President Biden nominated Jerome Powell for a second term as Fed Chair and nominated Lael Brainard as Deputy Chair to replace Richard Clarida. The US House of Overlords (aka, the US Senate) will hold hearings on the nominees (with Elizabeth Warren opposing Powell and supporting Brainard’s nomination).

Treasury yields jumped and U.S. index futures signaled a continued selloff in technology shares as traders pruned bets for a dovish-for-longer Federal Reserve after the renomination of Jerome Powell as its chair.

Contracts on the Nasdaq 100 Index fell 0.3% after Monday’s last-hour selloff in technology stocks. The subgroup was the worst performer in Europe Tuesday, sending the region’s benchmark to a three-week low. A currency crisis deepened in Turkey, with the lira weakening past 13 per U.S. dollar. Zoom Video Communications Inc. lost 9% in premarket trading on slowing growth.

Investors are reducing expectations for a deeper dovish stance by the Fed after Powell was selected for a second term. The chair himself sought to strike a balance in his policy approach saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched.

Fed rate hike premium is added after Powell confirmed as next Fed Chair:

Change in Fed’s interest-rate target implied by overnight index swaps and eurodollar futures.

Fed Bank of Atlanta President Raphael Bostic said Monday the U.S. central bank may need to speed up the removal of monetary stimulus and allow for an earlier-than-planned increase in interest rates.

Translation: Markets are pricing in MORE hawkish Powell over uber-dove Brainard. The 10-year Treasury yield has risen from 1.52% to 1.65%

And the 10Y-3M Treasury curve has risen from 83 basis points at the beginning of 2021 to 160 basis points today. I will this the Biden Inflation Effect (BIE).

Let’s see if Powell & Company deliver on removing the excessive stimulus from the market, particularly with midterm elections approaching.

Home Sales Rose 0.8% MoM In October As Investors Rushed Into The Market (Inventory Remains Thin, Median Price +13.1% YoY)

Fools rush in … or at least investors rush into the US housing market. Investors made up 17% of existing home purchases in October.

Inventory of homes remains depressed and with investors picking up 17% of homes for sale, the median price of existing homes rose to 13.1% YoY.

While existing home sales rose 0.8% MoM, they fell -5.79% on a YoY basis as M2 Money slowed.

It is lonesome town for inventory. But it will be a poor little fool for those buying into this thin inventory market if home prices correct.

President Biden has decided to nominate Fed Chair Jerome Powell for a second term in an effort not to rock the boat. Lael Brainard is nominated for Deputy Chair.

The Fed’s Gilded Age: A Tale of Today’s Housing Market (REAL Home Prices Rising At 14.6% YoY As REAL Hourly Earnings Fall (-0.41% YoY)

Welcome to The Fed’s Gilded Age … for housing! The gilded age refers to the thin-veneer of gold covering up problems in the late 1800s.

Today’s gilded age is largely fueled by The Federal Reserve’s uber-easy monetary policies combined with absurd Federal government policies. The result? Thanks to inflation, REAL home prices are growing at 14.6% YoY while REAL hourly earnings are declining (-0.41% YoY).

Redfin predicts a more balanced housing market in 2022. Part of their rationale is that they predict mortgage rates will rise to 3.6%. This growth in the mortgage rate is predicted to slow home price growth to 3.2% from double digit growth currently.

While this scenario is plausible, it will require a change in direction of the 10-year Treasury yield which has been declining since 1981. 5.39% YoY inflation may encourage The Fed to raise rates.

Today’s REAL 30-year mortgage rate is -3.08% while the REAL 10-year Treasury yield is -4.67%. It will require a reduction in inflation AND an increase in the nominal rate to get to 3.6%.

With the Freddie Mac 30-year survey rate at 3.10, will a 50 basis point increase in mortgage rates send the market crashing? Not likely.

After all, the US economy is under the thumb of The Federal Reserve.

T-R-O-U-B-L-E! Apartment Rents UP 33% Over Past Year, Food UP 33%, Heating Oil UP 89% And Gasoline UP 61% (Affordable Housing Policies??)

The Marty Stuart/Travis Tritt song “This One’s Gonna Hurt You (For A Long, Long Time)” seems appropriate for the plight of the middle and lower income classes in the face of high inflation. How do you spell the combination of President Biden’s policies and The Fed’s inaction on inflation? T-R-O-U-B-L-E … for the middle and lower income classes.

Over the past year, since the election of Joe Biden, the household consumption bundle (food, rent, heating, gasoline) have all risen dramatically in terms of prices. Food is up 33%, heating oil is up 89%, regular gasoline is up 61%, and effective apartment rents are up 33%.

Meanwhile, the 1% are sitting high on a mountain top obvious to the pain caused by The Federal Reserve and Biden Administration. Here is the growth in wealth by the 1% since the housing bubble burst and financial crisis compared with the bottom 50%.

A problem facing renters is the rapid growth of home prices particularly since the COVID epidemic. At least M2 Money has “slowed” to 12.80% YoY while home prices are raging at almost 20% YoY. But hopefully home price growth will slow with declining M2 growth.

Compendium of Fed Chair Jerome Powell and President Biden on vacation.

Is The US At Full (Realistic) Employment? If So, Why Isn’t The Fed Raising Rates?

Is the US at full employment? That is, is the US at REALISTIC full employment? And if the US is at realistic full employment, why is The Federal Reserve keeping rates at 25 basis points??

Let’s start with the “quits” data. An estimated 3% of American workers quit their jobs in September, the Bureau of Labor Statistics reported last week.1That’s the highest percentage since the BLS started keeping track two decades ago.

Front-line and low-wage workers are leaving at rates higher than historical norms while higher-paid office workers aren’t. College-educated workers haven’t been quitting or dropping out of the workforce at higher rates than before the pandemic, but less-educated workers have.

The quits rate in professional and business services was just 0.4 percentage points higher in September than before the pandemic in February 2020. In financial activities it was unchanged. In the information sector, made up of telecommunications, publishing, broadcasting, motion pictures, software and most internet companies, the quits rate was down 0.3 percentage points.

The biggest increases in quit rates were in sectors such as leisure and hospitality where office workers are few, working remotely seldom an option and wages low. Within manufacturing, the quits-rate increase has been much bigger in lower-paying nondurable goods (of which food manufacturing is the biggest part) than in higher-paying durable goods.

In particular, fast food restaurants are offering above minimum wage salaries to attract workers. Burger King was even offering college tuition (not to University of Chicago, but to the local community college).

Labor force participation crashed with COVID and has struggled to recover, despite the staggering monetary stimulus. If this a sign that the US is at full employment (or very difficult to entice workers to enter and stay in the labor force)?

Speaking of colleges, business schools in particular, here are the top 85 business schools in the US according to Bloomberg/Business Week. I had the honor of teaching at University of Chicago in the 1990s which is currently ranked at #4.

I saw this headline this morning: “More Americans Than Expected File for Jobless Benefits.” Odd since so many jobs are available.

I guess Johnny Paycheck’s “Take This Job and Shove It” is the new national anthem under Biden.

October Country! US 1-Unit Housing Starts Decline -10.6% YoY As Housing Sentiment Crashes (High Housing Price Inflation Is Hurting)

US housing starts for October were less than expected. A 1.5% increase MoM was expected, but housing starts actually fell -0.7% MoM.

5+ unit (multifamily) starts were up 6.82% MoM. 1-unit single family detached units were down -3.89% MoM. Permits to build were up 4% MoM.

On a YoY basis, 1-unit start declined -10.6% as M2 Money growth continues to fall.

And 1-unit housing starts have fallen with the rapid decline in home buying sentiment.

1-unit starts have slowed to pre-COVID levels, thanks in part to The Federal Reserve’s money printing bonanza which may never end.

As housing sentiment crashes (due to rapid home price growth), we are seeing the demand for multi-family housing rise. 5+ unit (multifamily) starts were up 6.82% MoM in October.

It is October after all as winter sets in.

Slipping Into Darkness? Inflation + Growing Recession Probability = Stagflation?

Is the US slipping into darkness?

The smoothed US recession probability just rose to 44.40%. Meanwhile, the CPI YoY rose to 6.24% YoY.

The Fed has been lowriding rates since late 2008.

Why can’t The Fed be friends with the middle class instead of just the top 1%?

Playing “Cisco Kid” to chill.

Infrastructure Bill Contains 2% Cut In Medicare Reimbursements And Delay In Implementation Of Competitive Drug Rebate Rule (Landrieu Will Coordinate Infrastructure Plan)

How did healthcare insurance companies get a seat at the table for the massive infrastructure bill is beyond me.

President Biden and Congressional Democrats are celebrating the signing of the $1.2 trillion Infrastructure Bill at the White House. Remember, of the $1.2 trillion estimated price tag, less than 10 percent –$110 billion – will fund true infrastructure: bridges, roads, tunnels, and waterways.

And what the hell is healthcare doing in the infrastructure bill?

H.R. 3864 will restore a 2 percent cut in reimbursements to Medicare providers, on top of all the other federal payments reductions.

A second health care provision buried in the $1.2 trillion infrastructure bill delays implementation of the Medicare Part D Rebate Rule, a Trump-era rule that would inject competitive forces into the market for prescription drugs. Just like payment cuts, by delaying this rule, desperately needed drugs will remain unaffordable and therefore unavailable.

And they wonder why there is a going concierge medicine movement that won’t accept Medicare and healthcare insurance. It is The Red Hour for free markets.

Biden has appointed former New Orleans Mayor Mitch Landrieu to coordinate infrastructure plan implementation.

“I am Landrieu.” Former mayor of the most corrupt city in the United States. Makes sense that Biden would choose Landrieu to coordinate the infrastructure plan.

What’s Wrong With This Picture? M2 Money Growth “SLOWS” To 12.8% YoY As Real Earnings Growth Slows To -1.6% YoY (Will Omarova As Comptroller Make This Better??)

Highlights for Children has a popular segment called “What’s Wrong With This Picture?”

I give you my economics version of “What’s Wrong With This Picture?” It features The Federal Reserve’s M2 Money year–over-year compared with Real Average Weekly Earnings year-over-year.

Yes, M2 Money growth has “slowed” to 12.8% YoY while US Real Average Weekly Earnings YoY is now -1.6%. In other words, while M2 Money is still growing at a rapid pace, real weekly earnings growth is NEGATIVE.

The Fed continues to pump money into a bottle-necked economy while The Federal government pays people NOT to work.

The US Senate has a plan to fix the problem: Biden has nominated Saule Omarova, a dingbat law professor from Cornell (alma matter for The Office’s Andy Bernard), who proposes the following:

(1) Moving all bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;

(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;

And Ohio Senator Sherrod Brown (D-of course) thinks there is NO MORAL HAZARD PROBLEM with The Fed confiscating bank deposits for its own use?????

If I was attending Omarova’s confirmation hearing, my verdict would be ..

Reverse Repos Parked Overnight At Fed Remain Near $1,418 BILLION As UBS Warns Of Stagflation And 50% Stock Plunge

When something is wrong with the economy.

Banks park funds at The Federal Reserve in an attempt to soothe themselves.

Nothing has been the same since the housing bubble of the 2000s, the resulting banking meltdown and the takeover of the economy by The Federal Reserve.

And since the 2000s housing bubble and financial crisis, The Federal Reserve has taken control of the economy resulting in M2 Money Velocity crashing to historic lows.