As the Biden Administration touts “affordable housing,” we are seeing the 30-year mortgage rate rise above 7% as The Federal Reserve fights inflation … caused by the Biden Administration. Meanwhile, US home prices are falling.
The Biden Administration launched a war on domestic energy production, resulting in crude oil prices rising 74% under Biden and regular gasoline prices rising 62.4%.
As Biden pleaded with OPEC to increase oil production, he was embarrassingly rejected. Hence, West Texas Crude Oil prices have begun to rise again along with gasoline prices (pink box).
How about unemployment and the 10yr-2yr yield curve?
Yesterday, I told my family “The good news is that Rotolo’s Pizza tastes even better reheated in the morning. The bad news? I ate the only two piece left.”
Which brings me to the September jobs report. The good news is that 263k jobs were added to the US economy. That means 10,521k jobs have been added in the 21 months under Biden! (Bear in mind that 12,100k jobs were added in the 7 months under Trump following the Covid economic shutdown, yet no media outlet trumpeted that accomplishment).
The bad news? While nominal average hourly earnings grew by 5% YoY, when I subtract Bidenflation from that number I get -3.06% growth. Or should I say that REAL wages are shrinking under Biden.
Now for the “Biden Miracle” of jobs being added. Here is a chart of NFP jobs added (white line) against M2 Money and headline inflation. Both The Fed and the Federal government pumped trillions into the economy leading to the highest inflation rate in 40 years. Once governments stopped with their Covid shutdown nonsense, jobs would return regardless of who was President. BUT Federal spending and Fed money printing went off the rails in early 2020.
As Paul Harvey used to say, “Here is the rest of the story.” Labor force participation fell in September and the U-3 unemployment rate fell slightly to 3.5%.
But labor force dropouts increased leading U-3 unemployment to decline. The number of people NOT in the labor force grew to nearly 100 million. Nothing has been the same since Covid.
So what will The Fed do? According to Fed Funds Futures data (WIRP), The Fed will keep raising rates until March ’23 then slowly start lowering interest rates again.
And with that “positive” jobs report, The Dow is down almost -500 points and the NASDAQ is down over -3%.
And with Fed tightening, we are seeing a collapse in M2 money supply.
Bloomberg’s market pulse gauge is signalling panic.
The Bloomberg market pulse index quantifies sentiment using 6 factors — price breadth, pairwise correlation, low vol performance, defensive vs. cyclical sector performance, high vs. low leverage performance and high yield spreads.
In addition to creating the highest inflation rate in 40 years, we are now seeing the highest mortgage rate in 16 years. I feel like we are all on a chain gang.
(Bloomberg) — US mortgage rates jumped to a 16-year high of 6.75%, marking the seventh-straight weekly increase and spurring the worst slump in home loan applications since the depths of the pandemic.
In fact, mortgage application just fell to the lowest level since May 1997.
The contract rate on a 30-year fixed mortgage rose nearly a quarter percentage point in the last week of September, according to Mortgage Bankers Association data released Wednesday. The steady string of increases in mortgage rates resulted in a more than 14% slump last week in applications to purchase or refinance a home.
Over the past seven weeks, mortgage rates have soared 1.30 percentage points, the largest surge over a comparable period since 2003 and illustrating the abrupt upswing in borrowing costs as the Federal Reserve intensifies its inflation fight.
The effective 30-year fixed rate, which includes the effects of compounding, topped 7% in the period ended Sept. 30, also the highest since 2006.
The Refinance Index decreased 18 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 13 percent from one week earlier. The unadjusted Purchase Index decreased 13 percent compared with the previous week and was 37 percent lower than the same week one year ago.
Here is today’s table of MBA mortgage applications and its ugly.
Unfortunately for the US chain gang, gasoline prices are rising again as the US drains its petroleum reserve. Because, that’s the way … uh-huh … they like.
On the real estate side, Bankrate’s 30-year mortgage rate dropped to 6.85% as the 10-year US Treasury yield drops.
On the home price front, according to the Black Knight Home Price Index (HPI), median home prices fell 0.98% in August, only marginally better than July’s upwardly revised 1.05% monthly decline July. August 2022 marked the largest single-month price declines seen since January 2009 and rank among the eight largest on record. The monthly rate of home price decline is now rivaling that seen during the Great Recession – the question is how long it will continue to do so, and how far off peaks prices will fall.
Now, will The Fed pivot to correct the plunging M2 Money growth?
As I frequently told my investment and fixed-income securities students at Chicago, Ohio State and George Mason University, any 10 basis point change in the US Treasury 10-year yield is significant.
But how about today’s 20 basis point decline in the US Treasury 10-year yield?
The UK’s 10-year yield is down even more at -24.1 basis points. Germany is down -18 bps and France is down -10.3 bps.
Speaking of credit default swaps, Credit Suisse is back to financial crisis levels while UBS and Deutsche Bank are not … yet.
With all the turbulence in markets thanks to the war in Ukraine and Biden’s green energy mandates and spending (not to mention Statists like Klaus Schwab screaming about a Great Reset), I was reminiscing about more simple times.
Between going green and the war in Ukraine, Germany is seeing economic distress (high inflation) and a -7.89% Real 10yr yield. At least the US is seeing “only” a -4.43% REAL 10yr Treasury yield.
Like the US, I wonder who in Germany studied game theory? That is, going green leaves nations vulnerable to foreign nations oil and natural gas supplies. Like Russian natural gas.
The Nash equilibrium is a decision-making theorem within game theory that states a player can achieve the desired outcome by not deviating from their initial strategy. In the Nash equilibrium, each player’s strategy is optimal when considering the decisions of other players.
Unfortunately, the US and Germany have deviated from the initial strategy are are paying dearly with skyrocketing energy prices. Particularly as we enter the winter season.
So, who blew up the Nordstream natural gas pipeline going from Russia to Germany?
19 nations now have inverted 10yr-2yr yield curves.
And housing inventory for sale growth is soaring out West and in Tennessee?
At least Ohio is seeing a modest increase in housing inventory for sale.
On a parting note (before I watch the Ohio State Buckeyes annihilate the Rutgers Scarlet Knights tomorrow at 3pm EST, reverse repos parked overnight at The Fed just hit an all-time high. Apparently, banks don’t believe Janet Yellen’s inflation is transitory mumbo-jumbo.
Confounded Interest - Anthony B. Sanders 
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