Alarm! Nasty Inflation Report Leads To No-bid For MBS (Duration Risk Has Extended To 7 From <1 On August 2, 2021 With Rising Inflation)

Alarm!

The CPI news on Friday was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. (Courtesy of Cherry Creek Mortgage)

Despite what Treasury Secretary Janet Yellen has said, Friday’s inflation report demonstrated that inflation is no longer transitory. And with that realization, there was a dearth of bidders for Agency Mortgage-backed Securities (Agency MBS) on Friday.

As a result, agency MBS 2.5% dropped to under $90 as markets expect The Fed to keep raising rates to combat inflation.

Duration of the FNCL 2.5% agency MBS has been extending with growing inflation. Duration was under 1 on August 2, 2021 but is now 7 times greater at almost 7.

Note to Yellen: inflation seems be permanent, not transitory. Or at least inflation will remain high for the foreseeable future, crushing the life out of Agency MBS.

Weekend Update! US Gasoline Tops $5 (Highest In History), 2Y Treasury Yields Soaring, Mortgage Rates Highest Since 2008 (Inflation Tax Costing Households $5,200 More YoY)

Up, up and away in our inflationary balloon!

Regular gasoline prices have breached the $5 a gallon barrier, the highest in recorded history. And it is even worse in states like California where regular gas prices have been above $7 per gallon.

Bankrate’s 30-year mortgage rate is now 5.78%, the highest since 2008. And rising really fast as The Fed tightens the monetary noose.

Speaking of noose tightening, the 2-year US Treasury Note yield is rising awfully fast.

The US Treasury 10Y-2Y curve slope just flattened to 8.819 bps and challenging the 0% grade awfully fast.

The US Dollar is soaring as US inflation soars, consumer purchasing power (green line) collapses along with M2 Money Velocity.

There is little doubt that soaring inflation, gasoline and food prices have hurt Biden’s popularity as well as the Democrats popularity ahead of the upcoming mid-year elections. People for the most part vote with their wallets.

According to estimates by Bloomberg Economics, US households will spend $5,200 more this year than they did last year on the same consumption basket.

That breaks down to $433 extra in expenditures every single month. That is what is called “the inflation tax.” And it hurts.

Call this The Inflation Tax Blues.

UMich Buying Condition Plunges To 43, Lowest Since 1982 As Fed Goes Crazy (Consumer Sentiment Drops To Lowest Level EVER)

The Federal Reserve is going crazy on inflation news!

The Fed is expected to raise their target rate to 2.875% by February 2023. With that expectation, mortgage rates (yellow line) are soaring. And with that, University of Michigan’s Buying Conditions for housing has plunged to 43, the lowest levels since 1982 as the US was trying to recover from high inflation.

The University of Michigan consumer sentiment index just plunged to the LOWEST LEVEL in history on inflation and Fed’s reaction.

Average REAL wage growth has now declined to -2.11% YoY.

Do Washington DC politicians and bureaucrats feel like we do? I doubt it.

Feelin’ Hot, Hot, Hot! US Inflation Soars To 8.6% YoY For May, Fed Expected To REALLY Start Jacking-up Rates (Mortgage Rates Rise To 5.58%, The Highest Since 2009)

Feelin’ hot, hot, hot!

Inflation, the bane of the middle class and working families, just rose to 8.6%.

Core inflation, that excludes energy and food, actually declined slightly to 6% from 6.2% in April. But since most families are concerned with gas prices and food, (not to mention home prices growing at 21.17% YoY), core inflation really underestimates the suffering.

Under Biden’s leadership in cooperation with eternal Fed stimulus (until now), inflation started at 1.4% YoY and has increased to 8.6% YoY. The Fed’s balance sheet has increased by 20.27% (more monetary Stimulypto!), Case-Shiller home prices started at 10.44% YoY and has now doubled to 20.55% YoY. Regular gasoline started at $2.57 and is now at $5.42, up 102%. Food is up 61%.

The Fed is expecting two half-point hikes followed by quarter-point increases.

And mortgage rates keep rising as The Fed fights the inflation fire.

Here is a video of Milton Friedman speaking on inflation.

On the hotter than expected inflation news, the US Treasury 10Y-2Y curve flattened to 12 bps.

Tower of … inflation?

Pennies From The Fed! Who Gained The Most From Fed Stimulypto? The Top 1%, Of Course! (Fed Helps Homeowners, Not Renters)

Pennies from Heaven. That is what the bottom 50% received from The Federal Reserve’s massive doses of monetary stimulus (or stimulypto).

There was one big dose of monetary stimulus in late 2008 surrounding the financial crisis and housing bubble burst, another doses (aka, QE 2 and QE3) then the biggest dose of all with the outbreak of Covid in early 2020.

President Biden should have mentioned on Jimmy Dimmel last night that The Federal Reserve has helped the bottom 50% with its endless monetary stimulus.

But if you were fortunate enough to own a home (the top 1% are likely homeowners), then you benefited from The Fed’s monetary stimulypto.

And I noticed that Biden didn’t mention plunging REAL average weekly earnings YoY.

The Federal Reserve’s monetary “policies” have benefited the top 1% and homeowners relative to the bottom 50% (who often rent and got clobbered with 20% growth in rents).

Great job, Fed! Making housing more unaffordable for rents (combine rising rents and declining REAL wages and we have a real affordability problem).

Home affordability for first time homebuyers?

And what is with Biden’s ear lobes? As inflation is rising, his ear lobes are shrinking.

Weird, wacky stuff.

The inflation numbers are out tomorrow. I noticed that Biden and Jimmy Dimmel only discussed gun control, not the sad state of the economy under Biden.

Moving? Diesel Prices UP 117% Under Biden, Gasoline UP 106%, Natural Gas UP 281%

As I line up my move from Fairfax VA to Columbus OH, I am getting a variety of quotes from moving companies. And wow! The cost of moving using a national moving company for a 4 bedroom house is $15,000 to $20,500. That includes International, North American and Bekins.

One of the reasons for the high cost of moving is the massive increase in diesel fuel used for trucking. Diesel fuel under Biden has risen 117%. And since it was revealed that natural gas often is used for electric charging stations, and NATGAS is up 281% under Biden (but there aren’t many electric moving trucks yet).

The other problem facing moving companies is labor scarcity. Despite our open borders with Mexico and millions flowing across the border, moving companies STILL can’t find crews. Both Mayflower and United refused to give me a quote for moves under $1,000.

And for any of you who say “Do it yourself!”, I am physically disabled and can’t do it.

I wonder if it would be less expensive if we used horse-drawn moving vans?

Fed’s Limbo Rock! Mortgage Purchase Applications Drop 18% WoW (And -21% YoY), Refi Applications Drop 6% WoW (And -75% YoY) How HIGH Can They Go??

Its The Fed’s Limbo Rock! Except that it is how HIGH can they go? Mortgage rates have soared 71.4% over the past year as The Fed signals tightening of monetary policy.

Mortgage applications decreased 6.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 3, 2022. This week’s results include an adjustment for the Memorial Day holiday.

The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index decreased 18 percent compared with the previous week and was 21 percent lower than the same week one year ago.

The Refinance Index decreased 6 percent from the previous week and was 75 percent lower than the same week one year ago.

In related news (debt), consumer debt is rising at 7.5% YoY while the personal savings rate plunged to 4.4% in May as consumers borrow more and save less to cope with inflation.

How HIGH can The Fed go?

Mr. Freeze! Natural Gas Futures UP 5.53% This Morning (UP 255% Under Biden), Housing Square Footage Goes Up With Fed Easing (Stay Warm!)

You better hope it doesn’t get Cold Outside. Because the cost of heating your house just rose 5.74% this morning (natural gas futures). To $9.01.

Between Biden’s anti-fossil fuel policies and the war in Ukraine, natural gas futures are up 255% under Biden.

With rising natural gas prices, one would think American consumers and American home builders would start building higher-density housing like duplexes.

But The Federal Reserve has helped America build BIGGER houses (as in greater square footage).

Note that following the financial crisis and the takeover of the US economy by The Fed, median square footage of US housing starts rose with Fed easing. Median square footage started falling as The Fed leveled-off its asset purchases (green line). But when Covid struck and The Fed really went to town (aka, monetary stimulypto), median square footage started rising again.

The above chart demonstrate the conflict that can arise between a Presidential Administration and The Federal Reserve. President Obama wanted more green apartments built and less suburban growth, but thanks to The Fed, we got median square footage of new builds rising. But once The Fed took its enormous foot off the monetary accelerator pedal, median square footage started falling. Then Covid struck, The Fed intervened, and median square footage rose again.

But with alleged Fed monetary tightening, we should should see the demand for larger homes decline relative to smaller homes.

Mortgage rates have been climbing rapidly, making housing acquisition relatively less affordable.

Black Knight’s monthly P&I payment to average purchase price says it all.

My version of the Black Knight chart is slightly different, but tells the same story: home prices and mortgage rates are rising FAST with Fed stimulus, but should slow down.

I guess we can call both Biden and Fed Chair Powell jointly “Mr Freeze” for housing.

The Fed has helped make housing not only more expensive, but larger in size. And the Biden Administration and war has helped make heating those large houses more costly.

The Fed’s Missouri Boat Ride! Housing Acquisition Index Rises 114.5% Under Biden As Housing Price Reductions Rise 70% YoY (House Price Growth Will Freeze)

I call this The Federal Reserve’s Missouri Boat Ride.

Meaning that The Fed has kept monetary stimulus in play for too long since late 2008 helping to lower mortgage rates from over 6% in November 2008 to 2.98% in November 2021. Then came “The Missouri Boat Ride” as The Fed signaled monetary tightening, leading to mortgage rates skyrocketing to their highest level since 2010.

The result of rising home prices AND mortgage rates? Housing acquisition prices (home prices * 30 year mortgage rates) have skyrocketed.

Between rising home prices and rising mortgage rates, we see that number of prices reductions increasing at nearly 70% YoY (chart courtesy of WolfStreet.com).

Of course, Congress and the media will never ask Janet Yellen (former Fed Chair [2013-2018] and current Treasury Secretary) WHY she kept massive monetary stimulus around for so long. Or why current Fed chair Powell did the same with Covid-related monetary stimulus.

Time to buy gold and silver??

Weekend Update! Gasoline Prices UP 101% Under Biden, Mortgage Rates UP 89%, Foodstuffs UP 58% (Crude Oil Futures UP 142%)

This is not the legacy that will endear President Biden to voters. Regular gasoline prices have risen 101% under Biden.

But it not just gasoline and diesel that are soaring (while the rest of us are sore!), CRB Foodstuffs are up 58% under Biden while the 30-year mortgage rate is up 89% under Biden.

And this morning, WTI crude futures are up +1.71%.

And up 142% under Biden.

Prices are sizzling and clobbering the American middle class and low wage workers. But former Federal Reserve Chair and current US Treasury Secretary Janet Yellen never saw it coming.

Biden’s just killing us. And Powell is making up for Yellen’s keeping monetary stimulus too high for too long. Price? Mortgage rates are soaring.