Category: Inflation

Weekend Update! Crude Oil Above $100, Diesel Fuel UP 155%, Coal UP 256% Under Biden, Mortgage Rates Now Above 4.5%

The news just keeps getting worse and worse. Russia is still assaulting Ukraine, WTI Crude prices are above $100 a barrel and climbing, the Cleveland Browns signed Deshaun Watson to replace Baker Mayfield at quarterback, etc.

But back to energy prices. Since Biden was sworn-in as President, WTI Crude Oil futures are up 125%, regular gasoline prices are up 89%, and diesel fuel prices are up 155%. Diesel is important since America uses diesel-powered trucks to transport goods to market.

Globally? The world inflation rate has grown from 2% in January 2021 to 6.82%. Global food prices are up 24%.

Yes, WTI Crude and Brent Crude are above $100 per barrel.

And coal prices are up 256% under Shoeless Brainless Joe.

Mortgage rates? Bankrate’s 30-year mortgage rate is now above 4.50%.

Let’s see if Dr. StrangeFedpolicy raises rates as aggressively as signaled.

Can You Spot The Fed’s Policy Errors? The Fed And Fannie/Freddie’s Demise After 3 Fed Policy Errors (We Are Now In PE5!)

The Federal Reserve is not mentioned in the movies “The Big Short” or “Margin Call”, but The Fed’s policy errors played a big role in the demise of Fannie Mae’s and Freddie Mac’s equity prices.

Here is a chart of The Fed’s many policies errors. Let’s start with The Fed lowering rates too fast around the 2001 recession. They pushed their target rate from 6.5% in December 2000 down to 1.75% after one year and then down to 1% (PE1). As home price growth accelerated, The Fed engaged in their second policy error — raising rates too fast resulting in a dramatic cooling of home price growth. Then came Policy Error 3: the dropping of The Fed Funds Target rate from 5.25% in September 2007 to an eventual 0.25% in December 2008.

With the election of President Obama, The Fed engaged in Policy Error 4: keeping The Fed Funds Target rate too low for too long, combined with their massive asset purchase programs (QE).

Finally, The Fed (under Yellen) finally raised The Fed’s target rate ONCE under Obama, but started raising rates once Trump was elected. The Fed also slowed their QE under Trump which as called “Fed policy NORMALIZATION.” Then COVID struck and The Fed engaged in Policy Error 5: keeping rates too low for too long … again while massively expanding their balance sheet.

Fannie Mae and Freddie Mac, the DC mortgage giants were done in by The Fed’s whipsaw Policy Error machine.

Now we are embarking on PE 5: Powell and The Fed Gang not raising rates but signalling that they will. Like the play “Waiting for Godot.”

Fed’s “Fats” Waller Says Rates Too Low And Data Is Screaming Towards 50 BPS Increase In Rates (As 10Y-2Y Treasury Yield Curve Flattens Below 20 BPS)

The Federal Reserve’s Christopher “Fats” Waller thinks that your rates are too low.

“The data is basically screaming at us to go 50 but the geopolitical events were telling you to go forward with caution. So those two factors combined pushed me” to support the 25 basis points increase, he said. “Going forward that will be an issue whether to think about going 50 in the next couple of meetings or not. But the data certainly seem to suggest that we move in that direction.”

WIRP is pricing in over 7 rate increases by February 2023 as the Treasury yield curve (10Y-2Y)

Fed’s “Fats” Waller:

Do I Detect A Trend? US Treasury 10Y-5Y Slope Hits Zero (Inversion Imminent) As USD OIS Curve Steepens (Nickel UP 66.25%)

Today’s hawky-dove announcement by The Fed (raises rates by only 25 basis points, but hints that many rate hikes are around the corner.

The US Treasury 10Y-5Y curve has slumped to zero as inflation climbs and the number of rate hikes hits 7. Do I detect a trend?

And then there is the USD Overnight Indexed Swap (OIS) curve. Steep much?

And electric battery metal, nickel, is surging … again. Up 66.25%.

When they made Narcos, Pablo Escobar should have said “Nickel or Lead” instead of “Silver or Lead.”

Fear The Talking Fed! Fed Raises Target Rate To 50 BPS, Still 11.50% Below The Taylor Rule (Dow Drops, 10Y Treasury Yield SPIKES)

So, The Federal Reserve raised their target rate by … as expected … 25 basis points to 50 basis points.

The Taylor Rule suggests that the target rate should be 11.96%. So, Powell and The Gang are getting closer! /sarc

The short-term reaction to the measly rate increase? The Dow declined (but still in positive territory for the day) and the benchmark 10-year Treasury yield spiked to 2.23%.

On Powell’s surrender to inflation, the US Treasury 10Y-2Y curve continued to flatten.

You can see The Fed’s sloth-like response to blood-curdling inflation in the lower right-hand part of the chart.

Here is what The Fed had to say. Kind of “We can’t fight inflation because Putin is invading Ukraine.”

Slowing! Mortgage Purchase Applications Down 2% From Previous Week, Down 8% From Same Week Last Year (Bankrate’s 30Y Mortgage Rate Rises To 4.46%)

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 11, 2022.

The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 8 percent lower than the same week one year ago.

The Refinance Index decreased 3 percent from the previous week and was 49 percent lower than the same week one year ago.

Bankrate’s 30-year mortgage rate has surged to 4.46%.

Here is a photo of alligators in Great Falls, Virginia, up-river from Washington DC. They are likely congregating for the Fed Open Market Committee (FOMC) announcement today.

The Empire Strikes Out! US Producer Price Index Final Demand (Inflation) Hits 10% As NY State General Business Conditions Crash (Russia Winning Economic Demolition Derby With Ukraine)

Bad news. Its the same all over the world.

The US Producer Price Index (PPI) final demand rose 10% YoY in February, further evidence of spiraling inflation under Biden/Pelosi/Schumer’s reign of error.

And speaking of Senate Majority Leader Chuck Schumer (D-NY), the Empire State Manufacturing Survey (General Business Conditions) crashed to -11.8.

And Russia is losing the economic demolition derby with Ukraine (at least for sovereign debt).

I am still trying to figure out what House Speaker Nancy Pelosi (D-San Francisco) meant by “When we’re having this discussion, it’s important to dispel some of those who say, well it’s the government spending. No, it isn’t. The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.”

Really Nancy?

Here is a chart of Federal government outlays and inflation. Massive expenditures and growth in Federal debt and the resulting inflation. Nancy?

Here is House Speaker Nancy Pelosi trying to figure out the cause of inflation in the US.

Fed Week! 10Y Treasury Yield UP 11.1 BPS, Mortgage Rates UP To 4.33%, Oil Down 7.5% (Russian, Ukraine Sovereign Curves Collapsing)

Yes, it is the much anticipated Fed Week! The Fed Open Market Committee (FOMC) will announce it decision (probably the first rate hike under Biden of 25 basis points).

This morning, the 10-year Treasury yield rose by 11.1 basis points and the Bankrate 30Y mortgage rate rose to 4.33%.

Actually, sovereign yields are up around 10 basis points in the US, Canada, and across the pond.

Fed Funds Futures are pointing to 7 rate hikes over the next year with 1.114 rate hikes on Wednesday. That means The FOMC may raise rates MORE than the 25 basis points expected my many (including me).

The US Treasury actives curve remains steeply upward sloping while both the Russian and Ukraine sovereign curves are steeply inverted and crashing.

Russia has pushed the weighted average maturity of its dollar sovereign bonds out to almost 12 years.

The most hilarious headline of the day is a Bloomberg opinion piece: “Fighting Inflation May Require the Fed to Be Brutal: Clive Crook” How about the Biden Administration relaxing oil drilling and pipeline restraints? Otherwise, brutal translates into causing a recession. Great suggestion, Clive! … NOT!

US Gasoline Prices UP 48% YoY In February, But Gas Prices Were UP 62% In April 2021 BEFORE Russia Invaded Ukraine

Well, so much for rising gasoline prices being the fault of Vlad “The Ukrainian Impaler” Putin and Russia invading Ukraine. In fact, gasoline prices were rising at a 62% YoY pace in April 2021, well before Russia’s invasion of Ukraine.

REAL gasoline prices (nominal gasoline prices less inflation) are up 32.72% YoY in February.

Press secretary Jen Psaki can take the opportunity to proclaim that REAL gasoline prices have actually declined in February.

Hi diddly dee, a President’s press secretary’s life for me!

I keep waiting for the Biden Administration and Congress to launch price controls and supply rationing rather than simply allow the Keystone Pipeline to be built and allow drilling on Federal lands.