Shiller CAPE Ratio Rises Above 1929 Levels (And Highest Since Dot.com Bubble)

The recent surge in tech stocks (aka, FANG stocks) has resulted in the highest Shiller Cyclically-adjusted Price-to-earnings (CAPE) ratio since the Dot.com bubble of 2000. And overall higher than 1929.

Of course, helping the inflated valuations is The Fed.

With Powell as “the leader of the pack.”

Of course, The Fed can always take valuations higher.

Top 10 City Office Occupancy Crashes To 17.6% (San Francisco Worst At 9.9% Occupancy)

The US office market occupancy rate has dropped to a new low of 17.6% (average of 10 cities) with San Francisco leading the way with 9.9% occupancy.

A close-up of Washington DC’s back to work barometer shows the Covid-crash in March and the slow non-recovery to today.

Fannie, Freddie Whipsaw as Mnuchin and Powell Discuss Capital


(Bloomberg) — Common shares of Fannie Mae and Freddie Mac pared double-digit percentage losses in Tuesday trading as Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell discussed the government’s control over the mortgage giants.

Powell and Mnuchin testified before the Senate Banking Committee

In response to a question from South Dakota Republican Mike Rounds on when the government can end FNMA, FMCC conservatorship, Mnuchin said it’s something that should be done but it takes time, while Powell agreed it’s something that needs to be done “carefully”

Mnuchin said he didn’t think FNMA, FMCC should be let out from conservatorship without appropriate capital

“I would certainly like to see the GSEs return to private hands over time,” Powell said “with a lot of private capital behind it”

Yes Jerome, if there were that much private capital available, we wouldn’t be having this discussion in the first place.

The cure (which no one in the US Senate is really interested in) is for Fannie Mae and Freddie Mac to focus on purchasing 5/1 ARMs (adjustable-rate mortgages) rather than the dreadnought 30Y Fixed-rate mortgage that the affordable housing community is obsessed with. Generally, the 5/1 ARM rate is lower than the 30Y FRM rate.

Or Quicken’s push for 15 year mortgages that enable borrowers to pay down their mortgages much more rapidly. And 50 basis points less expensive the 30Y FRM.

But what does Congress insist on F&F doing? Buying the riskiest mortgage product, the 30Y FRM.

Biden Appoints Labor Economist Yellen As Treasury Sec, Global Markets Decline (But US Pending Home Sales YoY Rises)

President-elect Joe Biden has appointed former U-C Berkeley labor economist Janet Yellen as US Treasury Secretary. The reaction in global equity markets?

But pending US home sales YoY are up 19.50%.

The US Dollar keeps droppin’ as Bitcoin keeps a poppin’!

Mortgage Credit Availability Declines To 2014 Levels Despite Fed Easing

Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 6, 2020.

The Refinance Index increased 1 percent from the previous week and was 67 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 16 percent higher than the same week one year ago.

Yes, Covid struck and moved the purchase applications window out 2 months.

Mortgage refi applications are level after the Covid burst in March, despite declining mortgage rates (yellow).

Mortgage credit availability is now the lowest since 2014 during The Fed’s QE2, but declined substantially during the Covid epidemic.

Mortgage Delinquencies Fall To 7.65% While Mortgage Foreclosures Decline To 0.59% (Covid /= Disaster For Mortgage Markets)

Covid-19 has been a disaster TEMPORARILY for the US economy, but the US economy is resilient. According to the Atlanta Fed’s GDPNow real time GDP is now at 3.514%, higher than GDP before the Covid outbreak.

While the US mortgage market saw a rapid increase in mortgage delinquencies thanks to Covid, it did not materialize into a foreclosure wave as did during the financial crisis.

The reason why? Forbearance. And loans in forbearance has been gradually declining.

So if states and cities discontinue their Covid lockdowns, we should see a normalization in mortgage delinquencies.

Government Spending And Debt: The Fallacy Of Modern Monetary Theory (Gold Rises With Investor Fears Of Insane Gov’t Spending And Debt)

Politicians and economists are seemingly all on board with Modern Monetary Theory. MMT translates to “American has the world’s biggest printing press and they can print as much currency as the want.” The logic is that if Japan can do it, the USA can do it.”

Government debt as a percent of GDP was under 40% until the Reagan Administration tried outspending the Soviet Union eventually leading to its collapse. But the growth of government debt to GDP abated briefly under Clinton when House Speaker Gingrich refused to go along with Clinton’s spending fantasies, so Clinton paid off some of the long-term debt outstanding. But as soon as Gingrich was outed as House Speaker and Bush I got us in a war with Iraq, government debt growth resumed at a modest pace (around 60% public debt as a % of GDP). Then came the housing bubble burst and the ensuing financial crisis and bank bailout that saw public debt to GDP rise from 62.7% in Q3 2007 to 100.45% in Q4 2012.

Politicians figured out that the voters don’t care or are too uninformed. Starting in 2000 you can see the concern of investors about out-of-control government spending and debt issuance. Gold rose from $270 per ounce in 2001 to almost $2,000 per ounce today.

Here is an interesting article from Reason Magazine on Biden’s spending and regulation wishes.

Biden is proposing $11 trillion in brand-new spending over the next decade. Among his biggest-ticket items are $1.4 trillion to expand Obamacare; $2 trillion for his version of the Green New Deal; $1 trillion in new Social Security and Supplemental Security Income spending; and 1.5 trillion more dollars for preschool, K-12, and higher education. He has also signed on to a $3.3 trillion stimulus spending plan pushed by House and Senate Democrats. 

That all comes after nearly $7 trillion in federal spending this past year, up from a then-record $4.4 trillion in 2019. To pay for this new largess, Biden has laid out $3.6 trillion in tax hikes over the coming decade, resulting in what the Manhattan Institute’s Brian Riedl calls “the largest permanent tax increase since World War II.” But Biden’s spending plan, as laid out in his campaign, is so out of control that it would still manage to increase the national debt by about $5.6 trillion by 2030, according to the Committee for a Responsible Federal Budget.

Biden should sing a version of Sting’s “Fields of Gold” called “Rivers of Debt.”

Are we turning Japanese??

Good Thing! Challenger Job Cuts Drop From 185.9% YoY In September To 60.4% YoY In October (Initial Jobless Claims Remain The Same, Bitcoin and Gold Up)

Good Thing! Challenger US Job Cut Announcements Year Over Year Percent Change fell from 185.9% in September to 60.4% in October.

However, unit labor costs (a favorite measure of The Fed) fell from +9.0% to -8.9%.

Both Gold and Bitcoin are up this morning.

And the Dow Mini is up over 300 points prior to opening.

Markets drive me crazy.

This may be the most misleading ad campaign of all time.

Commercial And Residential Real Estate Dependent on Fed Stimulus

The Federal Reserves is the largest holder of US Treasury debt and it looks like they are here to stay.

Both commercial and residential real estate have benefited from the massive expansion of The Fed’s intervention in financial markets since late 2008. Zero interest rate policies and massive balance sheet expansion ALMOST went away under Powell (2019), but Covid killed their exit plan.

No worries. The Fed is here to stay!!