Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Remember the TV show “The Biggest :Loser”? That show was about weight loss.
Now The Federal Reserve has posted a record loss of $114 BILLION IN 2023.
The cause of the loss? Massive expansion of The Fed’s balance sheet coupled with rising interest rates. The two year track record of The Fed is truly appaling. With a bloated balance sheet, rising interest rates have caused staggering losses.
The Fed is the biggest loser!
And the biggest losers!
Bidenomics (actually Biden/Harrisnomics) is all about huge payoffs to large, powerful donors. A good example is The Chips Act, intended to bring chip manufacturing back to the US from Taiwan, China, etc. Biden/Harris doled out $8.5 BILLION to Intel … which just laid off 15% of it’s labor force or 15k workers.
Intel has suspended dividends and its stock price has crashed from above $45 in March now down to $21.48, a 53% loss in 4 months.
Bear in mind that a Harris Presidency would be more of the same wasteful, Communist-style centralized economic (mis)management. Perhaps even worse.
And on that dreadful jobs report on Friday, the VIX fear index soared (white line) to its highest level since March 2023.
Qhat a terrible jobs report! The number of unemployed rose by 352k and only 114k jobs added.
It was a 3 sigma miss to the median estimate of 175K.
May revised down by 2,000, from +218,000 to +216,000, and the change for June was revised down by 27,000, from +206,000 to +179,000. With these revisions, employment in May and June combined is 29,000 lower than previously reported. It gets better because as shown in the next chart shows, 5 of the past 6 months have now been revised lower.
And the US yield curve is screaming recession ahead!
Over the last year, native-born Americans have LOST 1.2 million jobs while foreign-born employment has increased 1.3 million; we’re just swapping out American workers at this point.
The US commercial real estate sector is dying, like an episode of The Twillight Zone.
Example? This is 135 W 50th St in NYC. In 2006, this building sold for $332 million. Yesterday it sold for $8.5 million at auction. A 97% discount!
It is mostly smaller banks with large CRE exposure.
Up until 2022, the US Treasury yield curve behaved normally. In fact, as late as May 6th, 2022, the US Treasury 10Y-3M yield curve was at +227 basis points. Denote by the orange line in the following chart. That date corresponded with peak Fed balance sheet.
Then the massive spending by Biden/Harris/Congress hit the fan and inflation soared. The Fed counter attacked by raising rates and began scaling back their balance sheet. The 10Y-3M yield curve has been negative ever since.
What’s it going to be? Mortgage rate increases or balance sheet (MBS) reductions?
Since the Covid outbreak in early 2020, The Fed went wild with rate cuts and massive and unpredented balance sheet expansion.
Let’s look at The Fed’s puchase of agency MBS and mortgage rates. From 2020 2022, The Fed continued to buy agency MBS. But in 2022, all hell broke loose as The Fed went crazy RAISING rates, but slowly began unwinding their balance sheet. The result? Mortgage rates began to climb. In fact, the US conforming mortgage rate for 30 years has risen 102% since early 2022. The Fed is only slowing unwinding their MBS holdings.
Despite the struggles in the residential housing market, the COMMERCIAL mortgage market is a trainwreck.
What will The Fed do?? After all, nothing from nothing beats nothing.
This scene from the film “McCabe and Mrs. Miller” sums up our political plight quite nicley. Politicians spend like crazy to stay in power (Biden/Harris) are excellent examples). Politicians promises endless money, then shoot the economy. The US is broke and relies on printing money and boowed funds to stay afloat. Harris wants to raise taxes on everyone to fund her plans like even MORE emphasis of failed green energy schemes and endless foreign wars. I doubt if Harris could defend her spending plans in light of the US already $35 TRILLION in debt.
Even more worrisome if thev fact that DC politicians have promised entitlements (Social Security, Medicare, etc. totalling $217.63 Trillion. Or 623% higher than the rapidly increasing national debt.
Biden/Harris raised thr national debt by 25% in less than 4 years. And Harris wants to increase spending! Harris wants illegal immigrants put on Social Security and Medicare, further bankrupting those entitlement programs.
Let’s see Harris explain her indefensible budget (like raising taxes and not hurting economic growth).
Cacklenomics strikes again!
The University of Michigan consumer survey revealed that buying conditions for housing just hit an all-time low.
High house prices and high mortgage rates aren’t helping.
Purchase loan demand keeps dropping.
Shape of things. Thw Fed will likely cut rates shortly helping the flagging mortgage market
The US Treasury yield curve, of Jay Powell and The Blackhearts, .js the least inverted in 2 years, signalling an impending Fed rate cut.
The Fed loves manipulating interest rates!
After a disappointing dump in existing home sales in June, new home sales just confirmed the slowdown, dropping 0.6% MoM (notably below the 3.4% MoM expected) and also saw a major downward revision in May from -11.3% MoM to -14.9% MoM. That leaves new home sales down 7.4% YoY…
That shift dragged the new home sales SAAR down to 617k – basically unchanged since 2016…
While the median new home price rose in June, it remains below the median existing home price…
It appears the homebuilder subsidy fad is wearing off as mortgage rates show no signs of easing significantly…
Of course, none of this should be a surprise as homebuyer confidence has collapsed to an all-time record low…
Will cutting rates help?
Probably not. Bidenomics is now called Harrisnomics (or Cacklenomics) since Harris as VP was the tiereaker in the US Senate. So, she holds some responsibility for the outrageous, wasteful spending in Washington DC.
Confounded Interest - Anthony B. Sanders 
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