T-Dazzle! Inflation Crushing Households Under $60k, Russian CDS Indicating 99% Probability Of Russia Debt Default Over Next Year (WTI Crude UP 2%+, Wheat UP 3%+)

As we are painfully aware, The Fed’s exaggerated monetary flood combined with Federal stimulus spending has led to horrible inflation.

Yes, despite what government talking heads say, Federal stimulus increases demand for goods, the supply is generally slow to respond resulting in rising prices. Then government policies driving up energy prices also leads to highers prices. Throw in Federal Reserve monetary stimulypto and we have this chart from hell from Penn-Wharton. The chart shows that households earning less that $60,000 experience higher expenses due to rising prices than their gain in earnings.

Speaking of the government push to “go green” I saw an ad for a Mercedes Benz EQ sedan that I admit looked really cool, but no price given. I went to Car and Driver’s website and it said “Starting at $103,360.” I’ll take a hard pass, but you can see why households making over $150,000 per year have rising additional expenses due to price increases. To paraphrase April Ludgate, “Thanks for nothing President Biden and Fed Chair Powell.”

Another chart from hell is the Russian USD Credit Default Swap (CDS) curve. It is spiking at over 20,000.

The one-year Russian CDS is currently at a whopping 20,336 indicating that there is about a 99% of a Russian default over the coming year. As someone who lived through the 1998 Russian credit default scare on Wall Street, this will send a shock wave through credit and Treasury markets.

On the US Treasury front, this chart shows how steeply sloped the US Treasury actives curve has become. Steep until 3 years, then flat. I call this chart “T-Dazzle!” T-Dazzle because I can’t believe how badly the Biden Administration and The Federal Reserve are screwing up the country.

Crude oil? WTI Crude is back to almost $100 per barrel while Brent Crude is at $102.78 per barrel. Wheat is up 3.22% thanks largely to problems related to Russia invading Ukraine (Europe’s bread basket) and a dismal Chinese wheat harvest.

Cryptocurrencies, the alternatives to the US fiat dollar, are rising (in particular, Bitcoin and Ethereum).

Of course, I have to finish up with the soaring 30-year mortgage rate.

Here are Treasury Secretary Janet Yellen and Transportation Secretary Pete Buttigieg trying to convince people that Treasuries are fantastic and to avoid alternatives to fiat currency like Bitcoin, Ethereum, Stablecoin or anything else.

Alarm! Treasury 10Y Term Premium Remains Deeply Negative As Fed Plans Its Attack On Mortgage Rates And Treasury Yields (3M TBill/OIS Spread Crashes As 30Y Mortgage Rate Is -3%) Venezuela 2Y Yield At … 436.77%

Alarm!

The 10-year Treasury term premium, the amount by which the yield on a long-term bond is greater than the yield on shorter-term bonds, remains steeply negative (white line) as The Federal Reserve steps up its attack (aka, monetary tightening). Meanwhile, the 10Y-2Y curve actually rose into positive territory.

Historically, the 10-year Treasury Term Premium declines before a recession.

Meanwhile, 3 month Treasury bill to Overnight Indexed Swaps spread is crashing to the lowest level since 2017.

But with inflation raging at the fastest pace in 40 years, the REAL 10-year Treasury yield remains negative at -5.236% while the REAL 30-year mortgage rate is -3.01%. Both were in positive territory when Biden was installed as President.

Speaking of interest rates, the infamous PIGS (Portugal, Italy, Greece, Spain) are all seeing surges in their 10-year sovereign yields. Sweden, while not a PIG has the largest spike today at 13.8 BPS.

Actually, the biggest spike in sovereign yields occurred in Ukraine where their 2-year yield popped +205.8 BPS. But Lebanon has the highest 2-year yield at 162.29%. Turkey is in third place in the sovereign demolition derby at 23.52%. Sadly, Poland’s 2-year yield is up 16 bps today.

But the winner of the sovereign debt demolition derby is …. drumroll … VENEZUELA! At 436.77%.

I am really surprised that Biden hasn’t adopted Maduro’s fashion sense.

When Fed Gov Brainard Talks, Markets Listen! Brainard Says Fed Will Shrink The Balance Sheet At A Rapid Rate (10Y Treasury Yield Rises 16 BPS As Nasdaq Falls 300 PTS) Mortgage Rates Will SOAR!!

When Federal Reserve Governor Lael Brainard speaks, markets listen

Federal Reserve Governor Lael Brainard said the U.S. central bank will continue to tighten policy methodically and shrink its balance sheet at a rapid pace as soon as May.

Brainard’s hawkish remarks sent bond prices crashing and 10Y bond yields up over 16 bps.

While Bankrate’s 30Y mortgage rate is down slightly today, the surge in the 10Y and 2Y Treasury yields could push mortgage rates above 5% by tomorrow,

Even Europe is feeling Brainard’s wrath. Italian 10Y sovereign yields are up almost 20 bps.

The NASDAQ index is down 300 points on Brainard’s utterance.

Gee thanks Lael from all us wanting to finance the purchase of a house.

Brainless and Brainard.

Euphoria! CoreLogic February Home Price Index UP 20% While Real Hourly Wages Decline (Wine Prices UP 25.1%, Foodstuffs UP 52.7 Under Biden)

Euphoria!

CoreLogic’s Home Price Insights revealed that home prices rose 20% YoY in February despite REAL average hourly earnings declining -2.678% YoY. THAT is euphoria! Or Stimulypto, as I like to call it.

No, The Federal Reserve still hasn’t removed its staggering monetary stimulus. Notice that M2 Money Stock is still growing at a torrid 11% pace.

20% YoY home price growth in February? CoreLogic has increased their forecast of home price growth to 5%, likely because The Federal Reserve is imitating a sloth in removing its monetary Stimulypto.

Of course, there are other assets growing at lightning speeds. US Regular gasoline prices are UP 75.4% under Biden. Foodstuffs are UP 57.2% since Biden was installed as President. At least ground beef is only up 16.8% while the fine wine index is up 25.1%.

Speaking of wine, Hitching Post II in Buellton, CA must be suffering from rising food and grape costs too (I highly recommend eating there and using their HP Magic Stuff at home). Not to mention their spectacular wines. Roast artichokes anyone??

Inversion Therapy? Yield Curve Continues Inversion As Fed Slows Down Treasury Purchases (Mortgage Rates Climb To 4.91%) Biden Orders Autos Have 49 MPG By 2026

Its official! I submitted my resignation from George Mason University effective June 1, 2022. I will miss teaching the students, past and present.

But back to the US Treasury yield curve. It remains in reversion (meaning shorter-term Treasuries have higher yields than longer-term Treasuries, usually a sign of impending recession. The Fed has actually started quantitative tightening (QT) and the growth rate of Treasury note and bond purchases has slowed to a crawl.

Meanwhile, Bankrate’s 30-year mortgage rate rose slightly to 4.91%.

Meanwhile, President Joe “The Big Guy” Biden has ordered carmakers to increase their average fuel economy to about 49 miles (78.8 kilometers) per gallon by 2026. Of course, this is intended to kill-off gasoline-powered autos and make all cars electric or hybrid like the Toyota Prius.

According to Kelley Blue Book, the average transaction price for an electric vehicle in April 2021 was $51,532. That’s more than $11,000 higher than what you’d pay at the dealership for a full-size gas-powered car, and nearly $30,000 more than the average compact car sale.

This can be the Democrat’s midterm election slogan: “Making living in the USA unaffordable!”

The middle-class unaffordable Ford F-150 Lightning at nearly $100,000. Thanks Joe!

Alternatively, you can buy a Buick Envision (made only in Shanghai China) with up to 24 city / 31 highway MPG. Well, kiss that baby goodbye under Biden’s new MPG mandate.

Zoltan! US Dollar Purchasing Power For Consumers Sinking Faster Than The Titanic As Zoltan Pozsar Suggests Bretton Woods III With Money Backed By Commodities

Zoltan!

(Forbes) – Credit Suisse’s Zoltan Pozsar argues Bretton Woods II crumbled when the G7 countries seized Russia’s foreign exchange reserves. Keeping money inside financial institutions like the IMF was considered risk free. That is clearly no longer the case. Similarly, Bretton Woods I collapsed when Nixon took the US of the gold standard back in 1971 when dollars were convertible to gold at a fixed exchange rate of $35 an ounce. This led to Bretton Woods II, backed by “inside money” or the dollar, which itself is not linked to gold or any other commodity.

Now the basis of this system, which has operated for the past 50 years, is being called into question. The sanctions on Russia, which showed that reserves accumulated by central banks can simply be taken away, raised the question of “what is money?”

That question may explain why Pozsar believes a huge shift in the way the world organizes money and reserves is now underway, “creating a “Bretton Woods III backed by outside money,” (gold and other commodities). Including crude oil and bitcoin.

At least crude oil has fallen below $100 as Biden merrily drains the Strategic Petroleum Reserve (SPR). Gasoline prices have fallen slightly as this is being done before the midterm elections with political, not economic, intent. Once the midterms pass, will Biden continue draining the SPR until there is little left forcing the US to convert to “green energy”?

The purchasing power of the consumer dollar took a plunge under Biden as other commodities such as Bitcoin and crude oil soared.

An alternative asset, gold, have generally risen under Biden’s Reign of Error, but particularly after the Russian invasion of Ukraine.

Politicians love to spend money, often recklessly. And with The Fed monetizing Federal government expenditures, the purchasing power of the US dollar for consumers is sinking faster than The Titanic.

Goin’ Green! Lithium Prices UP 761% Since Biden Elected, Making Electric Cars Even MORE Unaffordable (Defense Production Act For Critical Materials)

You can always count on government to make things more expensive when they claim they want to help make things more affordable.

For example, President Biden and his green commandos are helping drive critical electric battery component LITHIUM through the roof!

Lithium hydroxide futures prices are through the roof making already expensive electric cars even MORE expensive. So much for making electric cars affordable!

Of course, The Federal government will now have to subsidize GM and Ford and increase Federal tax credits to encourage consumers to purchase outrageously expensive electric cars.

Thanks Joe for issuing your enactment of the Defense Production Act, helping to drive prices insane.

In fairness to Biden and his green commandos like AOC and Bernie Sanders (no relation to me), other nations are going electric car crazy, bidding for a scare resource like lithium. Particularly when there is an abundance of oil in the ground.

I wonder how about members of Congress and the Biden Administration bought lithium ahead of Biden declaring the Defense Production Act to encourage electric car battery production?

Wasting Away In Biden/Pelosiville! US Treasury 10Y-2Y Yield Curve INVERTS As Real Average Hourly Earnings Decline -2.678% YoY (30Y Mortgage Rate Rises To 4.90%)

Wasting away again in Biden/Pelosiville, looking for my lost inexpensive gasoline and food. Some people say that Putin is to blame, but we know its Biden/Pelosi’s fault.

The US Treasury 10Y-2Y yield curve just inverted, generally a precursor to a recession. Called it, nothing but net!

Meanwhile, today’s jobs report shows that Bidenflation is crushing America’s wage growth. While average hourly earnings grew to 5.6% YoY, we are still seeing inflation growing at 7.9% YoY meaning that inflation is reeling hurting the middle class and lower-income households.

The good news is that the U-3 unemployment rate fell to 3.6%, almost back to the Trump-era unemployment rate of 3.5% prior to the Covid outbreak. And the unemployment rate remains below the CBO’s short-term natural rate of unemployment indicating that the labor market is OVERHEATED.

Today’s jobs report was pretty good, as we would expect from a recovery caused by governments shutting down economies, then reopening them. 431k jobs were added, but less than last month’s jobs added of 678k and less than the forecast 490k.

The number of people NOT in the labor force fell slightly, but it still around 100 million. The number of people holding multiple jobs to overcome Bidenflation rose to 7.5 million.

On the mortgage front, Bankrate’s 30-year mortgage rate rose to 4.90% as the 2-year Treasury rate (yellow) rises and the number of expected Fed rate hikes over the coming year is 9.26%.

Run, Runaway! February PCE Core Deflator YoY Rises To 5.4%, Highest Since 1983, As Fed Keeps Foot On Monetary Gas Pedal (Spread Between PCE Core Deflator And Fed Funds Target Rate Highest Since 1970)

Run, runaway!

February’s Core Personal Consumption Expenditures (PCE) price YoY grew to 5.4%, the highest since 1983. The spread between the PCE Core Deflator and The Fed Funds Target Rate (upper bound)

In terms of the spread, it is the highest since the 1970s.

The Taylor Rule (which Jerome Powell probably thinks is the New Jersey breakfast meat “Taylor Ham”) indicates that The Fed’s target rate should be 12.21%. This is using the Rudebusch specification of the Taylor Rule.

Now that the Biden Administration is going gangbusters on building electric cars, lithium prices are going through the roof.

The Federal Reserve’s new theme song is “Come Feel The Inflation!”

Noddy Powell?

Alarm! Massive Divergence Between US Treasury Yield Curve And Near-term Forward Spread (Biden Considers Releasing HUGE Oil Release To Control Inflation)

Alarm!

There is a massive divergence between the collapsing US Treasury 10Y-2Y yield curve and the near-term forward spread. The near-term forward spread is the difference between the implied
interest rate expected on a three-month Treasury bill six quarters ahead and the current yield on a three-month Treasury bill.

As we already know, the 10Y-5Y yield curve has inverted signaling a coming recession.

This divergence between the Treasury yield curves and the near-term forward spread is occurring as US inflation hits the highest rate in 40 years.

Now President Biden is considering “Releasing the Kraken!” That is, releasing a huge amount of crude oil from the nations Strategic Petroleum Reserve (SPR) in order to combat inflation. If the purpose of Biden’s executive orders were to limit fossil fuel production and consumption, why doesn’t Biden simply rescind his executive orders and allow the construction of the Keystone Pipeline?