As the US is engulfed in inflation while The Federal Reserve is engaged in trying to fight inflation (well, sort of), we are seeing markets taking a shellacking, particularly commodities.
One indicator of a slowdown is declining commodity prices. Crude oil futures are down around -2.5%. Iron Ore is down -5% and steel rebar is down -3.21%.
Inflation numbers are due out Wednesday and are forecast to be 8.1% YoY (based on headline CPI). But combined with a slowing global economy, we get the dreaded “STAGFLATION.”
Meanwhile, the S&P 500 index futures are down around 1.726% for Monday open. Asian markets already got clobbered with the Hang Seng down almost -4%.
On the bond side, the 10Y Treasury Note yield rose to 3.20% early in the morning, but has retreated to 3.1447% as of 8:40am EST.
Both stock and bond market volatility measures are increasing.
So, is it a Blue Monday effect? Or global stagflation?
Perhaps Joe Biden and Fed Chair Jay Powell are channeling Dean Martin by letting us have it.
Since Obama’s 3rd term as President (aka, Biden’s installation as President on January 20, 2021), mortgage rates have risen 87%, regular gasoline prices have risen 80%, CRB foodstuffs are up 59% and Commodities are up 63%.
And don’t forget about America’s energy life force, WTI Crude Oil. It is UP 123% under Biden.
Well, the Fed’s talking heads have been saying a 50 basis point hike was coming in May … and it appeared!
And it looks like 9 rate hikes are a comin’ by February 2023.
The Fed’s Dot Plots shows a cooling of Fed rate hikes by 2024 and beyond.
Here is the path of Balance Sheet peel-off.
The US Treasury actives curve is up by 14 bps at the 10-year tenor and up 17 bps at the 2-year tenor.
The plan will see $30 billion of Treasuries and $17.5 billion on mortgage-backed securities roll off. After three months, the cap for Treasuries will increase to $60 billion and $35 billion for mortgages.
I could read the Fed’s speech on their decision, but since The Fed has been so highly politicized, I don’t really care what they say. Only what they do.
Simply unaffordable! US housing, that is. As The Federal Reserve tries to fight inflation caused by Biden’s Medusa-like policies, mortgage rates are soaring and we are seeing an INCREASE in mortgage purchase applications ahead of Fed tightening. Panic in (Fed) Needle Park!
Mortgage applications increased 2.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 29, 2022. The Refinance Index increased 0.2 percent from the previous week and was 71 percent lower than the same week one year ago.
The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was11 percent lower than the same week one year ago.
Adjustable rate mortgage (ARM) share has risen to 9.3% along with mortgage rates.
Between Biden’s energy policies, Congressional Covid relief and seemingly perpetual monetary stimulus from The Fed, we have 20% growth in home prices despite mortgage rates soaring.
And as The Fed is expected to tighten, mortgage rates hit 5.50%.
President Biden (or whoever is pulling his strings) is inflicting a “Medusa Touch” on the US. That is, everything his administration touches turns to stone.
Let’s look at average hourly earnings. Thanks to “progressive” energy policies from Biden, REAL average hourly earnings growth has crashed and burned.
But here is the chart that the Biden Administration touts showing average hourly earnings growth at 5.6% YoY (although I doubt if Jen Psaki would leave out the massive distortion caused by The Federal Reserve’s “Let’s go crazy!” monetary policy.
Another Medusa Touch moment is the reverse repo market. When I wrote about reverse repos before, several people wrote me saying “You don’t understand. This is a temporary problem and will vanish shortly.” However, The Fed’s reverse repo facility has now climbed to an all-time high.
Then we have the disruptive effects of The Federal Reserve deciding for us that mortgage rates are too low and should be higher.
Now look at lithium prices, a key element for electric car batteries. Making the switch from Internal combustion engines to electric motors far more costly.
The list goes on and on.
Suffice it to say, everything the Biden Administration touches turns to stone.
But I wager that the Biden Administration wishes that Hunter Biden’s laptop would turn to stone.
Only an elitist DC bureaucrat like Joe Biden would laugh at inflation that is ruining the lives of millions of Americans.
Rising home prices and The Fed signaling an end to the perpetual punch bowl have resulted in the University of Michigan buying conditions for houses to hit the lowest level since 1982.
While bearish sentiment in markets highest since 2009 in the stock market.
I don’t get why Biden created a “Disinformation Control Board” led by Nina Jankowicz – a disinformation spewer. We already have disinformation media outlets like CNN, MSNBC, ABC, CBS, NBC, New York Times, Washington Post, etc., so why create a Federal control board? All in time for the midyear elections!!
If this move by Biden doesn’t terrify you, then you didn’t study history.
M2 Money Velocity (GDP/M2 Money) peaked in Q3 1997, but after several bouts of Fed money printing, M2 Money Velocity is near the all-time low at 1.1216 In Q1 2022. And M2 Money stock is still growing at a torrid pace of 9.9% YoY. But the massive overreaction of The Federal Reserve in response to the Covid outbreak has led to near zero money velocity.
Now with The Federal Reserve considering removing the monetary stimulus, what will happen to US GDP left to survive on its own?
An example of how The Fed’s expected tightening of monetary policy can be seen in the meteoric rise in mortgage rates.
So, the US has hit terminal money velocity. I wish The Fed lots of luck going forward.
Is Charlie Sheen the Chairman of The Federal Reserve Board of Governors?? That must be Lael Brainard falling out of the sky with Charlie Sheen (aka, Jerome Powell).
I hope America’s foreign policy wizards (Biden, Harris and Blinken) weren’t relying on the Russian Ruble staying pulverized, because the Ruble (relative to King Dollar) has regained all its losses.
On the other hand, the Japanese Yen and Chinese Yuan have crashed harder than Biden’s popularity.
Actually, The Atlanta Fed’s flexible price inflation rate is 25%, up from 3.90% Pre-Joe.
Perhaps Biden, Harris and Blinken think Putin is a pasta sauce.