Biden’s Green Boondoggle! Mortgage Purchase Demand 18% Lower Than Last Year, Refi Demand Down 8% From Last Year

Biden’s green energy mandates, a boondoggle for China and lodestone for Americans, is leaking over to the mortgage market. That’s Bidenomics!

Mortgage applications increased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 19, 2024. The results include an adjustment to account for the MLK holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 3.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The holiday adjusted Refinance Index decreased 7 percent from the previous week and was 8 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 18 percent lower than the same week one year ago.

The unadjusted Refinance Index decreased 16 percent from the previous week and was 8 percent lower than the same week one year ago.

Will “Animal Spirits” Force “Dovish Trifecta” Off-Course? (Will The Fed Misread Soaring Stock Market And Make Yet ANOTHER Policy Error??)

It smells like … ANIMAL spirits.

The last week or so has seen a tactical ‘hawkish’ reversion in USTs and STIRs to play for a re-pricing lower in March rate-cut expectations, following the recent ‘hard-data resiliency’ with Consumer and Labor, alongside modestly “hawkish” rhetoric (despite soft data weakness)…

And, as Nomura’s Charlie McElligott highlights this morning, we are also seeing new upside being bot in SOFR Options for “dovish outcome”-hedging again, with Core PCE looming later this week.The market has had bunches of March SOFR Downside structures trading over the past few weeks to play for “Fed cut overshoot,” which has been the right trade YTD, as the implied probability distribution shows March Fed cuts now having been slashed by over half the the past week and a half (~80% priced to now just ~40%), and accordingly now we’ve witnessed some monetization of tactical Downside in recent days…

And we see the swaption surface getting mushed…

As he notes, the “dovish-trifecta” right-tail repricing has gotten us to ~4900… and, he says, the actual “realization” could then certainly push us through 5000:It’s my expectations that we could very well see:1) “March Fed cut” to pick-up Delta again after what is expected to be a “light” core PCE print this Friday…and taking back pricing following the past week’s Fed speak pushback and “too resilient” Labor- and Consumer- data, which has driven March Fed meeting “cut” probabilities being sliced in half over the past one week (~80% on 1/12/24 to today’s ~40%)The next potential dovish catalyst is 2) the QRA est / announcement end of Jan / start Feb, with “binary risk” implications on the direction of Duration and Risk-Assets, as the market generally anticipates resumption of larger Coupon issuance from the US Treasury ahead—but what if there is one final announcement where Bills stay high, Coupon increases but isn’t as large as most anticipate, AND Yellen signals that this is the final expected Coupon increase?!

While we’re at it and relate to the Treasury’s QRA discussion, let’s not forget the “other” market- and economic- backstop being applied by the Biden Administration (and aided by what looks to be Janet Yellen’s “politically activist” US Treasury with TBAC sign-off) – which is the continued willingness to run large fiscal deficits in an attempt to “run the economy hot” in this election year, with much of it being “paid for” via Bills (so to prevent long-end Rates from pushing higher, which would tighten US financial conditions)……this is Green build, CHIPS Act, and even fresh “election surprises” like Biden announcement Friday on “forgiveness” of a fresh $5B of student loans, now making the total loan forgiveness approved by the Biden admin $136.6B

And finally as a derivative of the above mention, another hypothetical Treasury QRA where we’d see “Bill issuance remaining high, yet with Coupon increases not as large as most anticipate” would then mechnically see MMF’s continuing pulling from RRP to buy Bills, which will further accelerate the RRP drain…and as outlined in recent weeks, “low” RRP levels will act as “a” key input to Fed reaction function on determining LCLoR……which will ultimately mean 3) a pulling-forward on the market’s expected timing on the “end of QT”

This “dovish-trifecta” is the macro catalyst behind the “right-tail” scenario which has appropriately been repriced higher by the market over the course of the past month, and we’ve seen clients allocate some protection spend to this “crash-UP” scenarioAnd again, IF the above were to realize… without negative catalysts (Earnings fine, no further Rates selloff / Fed repricing, continued disinflationary trajectory rebuilds “Fed cut” implied probability) around that upcoming Feb VIXpery with all that Dealer “short VIX Calls” positioning being hedged… there is absolutely potential for an Equities slingshot if there are no issues and those customer “Long VIX Calls” bleed-out, which will mean Dealers puke out their UX1 Longs (as hedges) back into the market for a potential “kicker” to goose Spot Equities even higher…For now, no-one is worried about downside based on VVIX being back near post-COVID lows…

So what then is the largest DOWNSIDE RISK to Equities?

Outside of “Mag 7” guidance disappointments, I believe the next worst-case scenario for current positioning in Stocks would be an “Animal Spirits” US data reacceleration which forces the above “dovish trifecta” off-course and blows-out the recently calming “Fed Rates path” distribution again:Why would resumption of better US growth data negatively impact US Equities consensus thematic / singles positioning?Because after the 4Q23 de-grossing of short books and forced “Net-up” to stop the bleed and chase (massive squeeze & cover in low quality / cyclical value / leveraged balance sheet / high short interest “junk”)….2024 YTD has instead seen the market reset the prior “Momentum” regime of “Long Quality / Size / Secular Growth” i.e. MegaCap Tech, while re-shorting that economically-sensitive “low quality / junk” stuff againIn a world of slowing but positive growth to 2% GDP and now with 3m inflation annualizing sub 2% target…you go back to that “QE of old” 2010s -decade playbook of “long stuff that can grow earnings and profits without needing a hot economic cycle”…i.e. long quality, size (liquid) & secular growth / short leverage & cyclical valueBut IF we see the “animal spirits” data reacceleration off the back of the massive FCI easing that the Fed and Treasury have facilitated, plus the persistent wage growth and still too strong labor meaning consumption remains robust, along with ongoing govt fiscal stim / spending…

..we risk a chance of inflation pivoting away from the current disinflationary trajectory (God-forbid actual “reflation”) which would could see that “long secular growth / short econ sensitive / cyclical value’ trade get a shock reversal…

…as long-end Yields and accordingly then, financial conditions, re-tighten and smash the “high valuation” Quality / Secular Growth stuff, while the heavily hated / shorted Cyclicals would painfully squeeze higher.Don’t forget, we’ve seen that happen before (yes we know the magnitudes of the inflationary impulse are different, but the timing of the human-emotion/monetary-policy-over-confidence double-rip in inflation is unquestionable)…

So, be careful what you wish for from higher and higher all-time-highs for stocks – the stronger they look (on the back of dovish expectations), the more likely The Fed is to hold back the actual dovish actions so much hope is founded on.

The Bidenomics Roadmap! Existing Home Sales (4.09 million) Drop To Lowest Level Since 1995 (Lowest SAAR Since 2010)

American homebuyers are going down the road of Bidenomics and feeling bad. Is this the roadmap for the US??

Existing Home Sales fell 1.0% MoM in December, worse than the +0.3% expected, leaving sales down

Source: Bloomberg

Total Existing Home Sales in December 2023 were 3.78mm – the lowest SAAR since 2010…

Source: Bloomberg

But, on an annual basis, this is the worst year on record (back to at least 1995)..

Source: Bloomberg

“The latest month’s sales look to be the bottom before inevitably turning higher in the new year,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”

Existing Home Sales were flat in the Northeast, lower in the MidWest and the South, and up marginally in the West (driven by single-family-home sales as condo sales declined)…

Source: Bloomberg

Last month, the number of previously owned homes for sale dropped to 1 million, the lowest since March.

At the current sales pace, selling all the properties on the market would take 3.2 months.

Realtors see anything below five months of supply as indicative of a tight resale market.

That lack of inventory is helping to keep prices elevated.

The median selling price climbed 4.4% to $382,600 in December from a year ago, reflecting increases in all four regions. Prices hit a record of $389,800 in 2023.

Source: Bloomberg

But, with mortgage rates having tumbled (and given the lagged responses), are sales about to start rising again?

Source: Bloomberg

So The Fed managed to kill sales, collapse inventories, send home prices higher, destroying affordability… and now what is going to happen?

Is Bidenomics the Highway To Hell?

Who designed this photoshoot for an accordian band?? Not sure I want to have a party with this crew!

Not Always Sunny! Dis-Inflation & Disappointment For Philly Fed Survey In January (-10.6, Worse Than Expected)

It’s not always sunny in Philadelphia! And not because the Eagles got stomped by Baker Mayfield and the Tampa Bay Bucs.

Manufacturing activity in the Philadelphia region continued to decline in January (for the 18th month of the last 20). The headline Philly Fed survey printed -10.6 (worse than the -6.5 expected) and apart from the insane outlier spike in August, this indicator screams recession…

Source: Bloomberg

More worrying is the fact that hope appears to be dwindling fast as the six-month-forecast for the survey plunged back into contraction (from +12.6 to -4.00)…

Source: Bloomberg

Philly Fed’s demise is consistent with the collapse of hope as ‘soft’ survey data has slumped in the last month, back to its weakest since July (as ‘hard’ data improves relative to expectations)…

Source: Bloomberg

On the bright side for the doves, the dis-inflationary trend remains in tact as priced paid and prices received both plunged in January. However, we highlight the fact that Philly businesses expect price pressure to return in the next six months…

Source: Bloomberg

Overall, the ‘bad news’ in this report should buoy stocks and bonds (lower inflation and lower growth enables sooner and faster cuts)… But will it.

Green man (The Federal Reserve) will stike again!

WTF are dancing sandwiches??

Fed Better Think Twice About Rate Cuts! 10-year Treasury Yield Surges To 4.10% After Strong Dec Retail Sales (Consumers Win, Fed/Treasury Lose)

The Fed had better think twice about expected rate cuts. The market just isn’t feeling it.

Treasury yields rose Wednesday, with the 10-year yield touching almost 4.10% as investors focused on stronger-than-expected December retail sales and the latest remarks from Federal Reserve members.

The yield on the 10-year Treasury note was recently up 4 basis points at 4.108% after briefly getting to 4.117%, the highest since Dec. 13. The 2-year Treasury yield rose by around 11 basis points to trade at 4.335%.

December’s retail sales data indicated strong consumer demand at the holidays. Retail sales increased 0.6% for the month, above economists’ estimates of 0.4%, as compiled by Dow Jones. Excluding autos, sales rose 0.4%, which also topped a 0.2% estimate.

On Tuesday, yields jumped after comments from Federal Reserve Governor Christopher Waller, who suggested that while the central bank will likely cut rates this year, it may take its time.

At the World Economic Forum in Davos, more European Central Bank members indicated that markets were getting ahead of themselves on rate cut projections.

The president of the Dutch central bank, Klaas Knot, told CNBC Wednesday that the euro zone’s central bank looked at overall financial conditions, and that “the more easing the market has already done for us, the less likely we will cut rates.” Knot was referring to the fact that higher stock and bond prices in the fourth quarter of last year acted as the equivalent of easier interest rate policy, while lower prices act as the equivalent of tighter policy.

Rising interest rates are going to bite a big chunk out of The Fed’s massive ass (I mean balance sheet). Of course, The Fed sends the bill to Treasury. Gee, no wonder Biden/Yellen want so much money!

There is something wrong with letting aging politicians like Biden (81), Grassley (90), Pelosi (83), etc. borrow vast sums of money to spend when they will likely not be around for another 10 years.

Debt Star! Massive Money-Printing Will Accelerate As Debt Soars ($34 Trillion In Current Federal Debt And $212 Trillion In Promises To The 99% Will Require LOTS Of Money Printing!!)

Biden and Congress continue their massive spending spree, mostly on themselves and their donors, creating a massive Debt Star capable of unfathomable economic destruction. This will require massive money printing to fund the US Debt Star.

But as of today, M2 Money growth is negative as is bank credit growth.

But all this is about to change.

The U.S. federal government published a December deficit of $129 billion, up 52% from the previous year. The private sector recession is clear as expenses continue to rise while tax receipts decline. If we look at the period between October and December 2023, the deficit ballooned to a staggering $510 billion.

You may remember that the Biden administration expected a significant deficit reduction from its tax increases and the expected benefits of its Inflation Reduction Act.

What Americans got was a massive deficit and persistent inflation.

According to Moody’s chief economist, Mark Zandi, the entire disinflation process seen in the past years comes from exogenous factors such as “fading fallout from the global pandemic on global supply chains and labor markets, and the Russian War in Ukraine and the impact on oil, food, and other commodity prices.” The complete disinflation trend follows the slump in money supply (M2), but the Consumer Price Index (CPI) should have fallen faster if deficit spending, which means more consumption of newly created currency, would have been under control. December was disappointing and higher than it should have been.

The United States annual CPI (+3.4%) came above estimates, proving that the recent bounce in money supply and rising deficit spending continue to erode the purchasing power of the currency and that the base effect generated too much optimism in the past two prints. Most prices rose in December, and only four items fell. In fact, despite a large decline in energy prices, annual services (+5.3%), shelter (+6.2%), and transportation services (+9.7%) continue to show the extent of the inflation problem.

The massive deficit means more taxes, more inflation, and lower growth in the future.

The Congressional Budget Office (CBO) expects an unsustainable path that still leaves a 5.0% deficit by 2027, growing every year to reach a massive 10.0% of GDP in 2053 due to a much faster growth in spending than in revenues. The enormous increase in debt will also lead to extremely poor growth, with real GDP rising much slower throughout the 2023–2053 period than it has, on average, “over the past 30 years.”

Deficits are not a tool for growth; they are tools for stagnation.

Deficits mean that the currency’s purchasing power will continue to vanish with money printing and that the real disposable income of Americans will be demolished with a combination of higher taxes and a weaker real value of their wages and deposit savings.

We must remember that, in Biden’s administration’s own estimates, the accumulated deficit will reach $14 trillion in the period to 2032.

Yes, the US has $34 trillion in national debt and $212 trillion in promises made to keep the 99% quiet while the 1% gut the economy for their own wealth. Think Biden, Clintons, and various Congress Critters who suddenly become millionaires.

The Debt Star was born under Obama and weaponized under Biden/Pelosi/Schumer.

Yes, national debt rose under Trump too. Bear in mind that spending originates in The House and Trump was saddled with warhawks like RINO Paul Ryan and insider trading expert and warhawk Nancy Pelosi.

US Mortgage Rates Rise Slightly (+8% YoY) As M2 Money Growth Dies (-3% YoY) In Plain Sight (M2 Money Growth Has Been Negative For All Of 2023)

We are closing out the first week of the New Year and 30-year conforming mortgage rates are up slighlty.

Mortgage rate GROWTH is now at 8% year-over-year (YoY). While M2 Money growth has died and is down -3% YoY.

Bank credit growth has been negative since July 2023 and M2 Money growth has been negative for the entirity of 2023.

Mortgage rates should decline in 2024 as The Fed cuts rates to prop up Vacation Joe.

Here is a video of The Federal Reserve managing interest and mortgage rates.

Government Power! Core Producer Prices Up 17% Under Biden But 3rd Straight Month Of ‘Deflation’ (Consumer Purchasing Power Down 15% Under Biden)

Government power is causing inflation and middle class economic repression.

For example, US credit card debt is at an all-time high as consumers attempt to cope with inflation under Biden.

While inflation RATE is finally cooling off, the LEVEL of inflation remains high. Purchasing power for consumers is down 15% under Vacation Joe.

With structural inflation rising again.

Following yesterday’s hotter-than-expected CPI, this morning’s Producer Price Index was expected to accelerate (headline not core). However, it did not – headline PPI actually decline 0.1% MoM (+0.1% MoM exp). That is the 3rd straight month of ‘deflation’ but inched PPI YoY up to +1.0%

Source: Bloomberg

Energy and Construction cost deflation dominated the headline PPI MoM decline…

Source: Bloomberg

Energy and Food deflation dominated the slowing of the YoY PPI (though Services is re-accelerating)…

Source: Bloomberg

Excluding food and energy, the core PPI was unchanged MoM in December – the third month of unchanged in a row, which dfragged the Core PPI YoY down to +1.8% (the lowest since Dec 2020)…

Source: Bloomberg

Goods PPI deflated and Services was unchanged…

Half of the decrease in the index for final demand goods is attributable to prices for diesel fuel, which dropped 12.4%

Over 80% of the decrease in the index for unprocessed goods for intermediate demand can be attributed to a 13.2% drop in prices for crude petroleum.

Reminder, disinflation does not mean lower prices. Core producer prices are up 16.9% since President Biden came into office (and headline PPI up over 18%)…

Source: Bloomberg

Finally, the deflationary impulse remains for the headline PPI as ‘intermediate PPI’ remains below zero BUT it is starting to accelerate higher…

Source: Bloomberg

That’s a little worrying given The Fed seems adamant it wants to cut in March to save the banking system from collapse.

I am amazed that the Biden family babysitter (Jill Biden) is trashing Trump supporters calling them insurrectionist and dangerous extremists while her demented husband tries to use courts to remove his primary Presidential candidate from the ballot and violates Federal law by leaving the border wide open, letting in millions of unvetted immigrants. Rep Jerry Nadler (D-NY) admitted that he is in favor of open borders because 1) fruits and vegetables need to be picked and 2) Democrats need to import Democrat voters because Americans are fed up with Democrat policies. Like rampant inflation.

And Jill Biden said Joe works hard EVERY DAY! Except for the near 40% of his Presidency spent on vacations to Delaware, Nantucket, Virgin Islands and whereever else large corporate donors live.

Inflation Feelin’ Hot, Hot, Hot! CPI Rises To 3.4% YoY, Core Inflation Declines To 4% YoY (Is The Fed Tightening Too Much Since The Target Rate Is 150 Basis Points HIGHER Than Core Inflation Rate??)

Inflation is feelin’ hot, hot, hot!

Although core inflation declined in December (CPI all items less food and energy), it is still hot, hot, hot at 4% Year-over-year (YoY). This raises the following question: Is The Fed tightening too much? Aka, yet another Fed policy error?? Since The Fed target rate is 5.50% and core inflation is now 4%?

Headline Consumer Price Inflation printed hotter than expected in December, +0.3% MoM vs +0.2% exp and +0.1% prior, pushing the YoY headline CPI up to +3.4% (from +3.1% prior and hotter than the +3.2% exp)…

Source: Bloomberg

Services (Shelter mostly) costs re-accelerated and energy deflation stalled in December…

On the brighter side, core CPI according to the BLS rose 0.3% MoM as expected, dropping the YoY change below 4.00% for the first time since May 2021…

Source: Bloomberg

Goods deflation has stalled as the used cars and trucks index rose 0.5 percent over the month, after rising 1.6 percent in November.

More problematically for The Fed (and the rate-cut ‘hypers’), is the fact that Core CPI Services Ex-Shelter (SuperCore) rose 0.4% MoM, upticking the YoY rise to +4.09%…

Source: Bloomberg

This is a category that Fed Chair Jerome Powell and other policymakers have highlighted as a focus.

All the subsectors of SuperCore rose MoM with the shelter index increased 6.2 percent over the last year, accounting for over two thirds of the total increase in the all items less food and energy index.

But shelter inflation is slowing (slowly):

Shelter inflation was up 6.15% YoY in Dec, down from 6.51% in Nov and the lowest since July 2022
Rent inflation was up 6.47% YoY in Dec, down from 6.87% in Nov and the lowest since July 2022

And the next time someone from the Biden administration says ‘inflation is down’ in an attempt to gaslight the public into believing ‘prices are down’ – show them this chart…

Headline costs at record highs
Core costs are record highs
Food costs at record highs
Fuel costs on the rise again

Source: Bloomberg

Four of the six major grocery store food group indexes increased over the month.

The index for meats, poultry, fish, and eggs rose 0.5 percent in December, led by an 8.9-percent increase in the index for eggs.

The index for food away from home rose 5.2 percent over the last year.

The index for limited service meals rose 5.9 percent over the last 12 months, and the index for full service meals rose 4.5 percent over the same period.

The White House was quick to note that real hourly earnings was positive in December (+0.8% YoY) but that number is the aggregate of ALL American workers.

If we drill down to the ‘average joe’ – production and non-supervisory jobs – their wages are up 17% since Biden was elected… The only problem is, the cost of food since then has surged almost 21%…

Is this a pause before the re-plunge? M2 thinks so…

So what happens next?

Not so much Goldilocks perfection.

Powell is in a real pickle now – does the Fed begin shrinking QT in March (which it has to if it is terminating BTFP and Reverse Repo is drained) without starting rate cuts.

Nobody But The Fed! Expiration Of Fed Bank Bailout Facility Strengthens Calls For Earlier Rate-Cut (As Core Inflation Falls Below Fed Funds Target Rate)

Nobody manipulates markets like The Federal Reserve! Nobody but The Fed.

Here we sit with core inflation rate BELOW the current Fed Funds Target Rate (upper bound). So is it time to start withdrawing its more than ample monetary stimulus. Like the Bank Term Funding Program.

The Federal Reserve is likely to retire the Bank Term Funding Program in March. This would entail an additional ongoing headwind for reserves, and thus liquidity, through 2024. At the margin, this adds weight to the case for the Fed cutting interest rates sooner in the year.

The BTFP was created in the wake of the SVB crisis to help struggling banks get access to liquidity when bond prices were dropping. However, its use in recent months has jumped to over $140 billion. That is not, however, a sign of banking stress.

The chart below shows the usage of the BTFP along with the rate paid at the 99th percentile in the fed funds market relative to the upper bound of the range for fed funds.

As can be seen, this is under zero, i.e. banks are not having to pay up to get liquidity.

This is in stark contrast to last March at the time of SVB’s fall when some banks were having to pay 15 bps above the fed funds upper bound for liquidity.

This time the rise in BTFP usage is good old-fashioned arbitrage. After the Fed’s pivot, term rates have come down relative to the policy rate. The cost to use the BTFP is 1y OIS + 10 bps, which is ~4.90%. Banks can post USTs at par as collateral, borrow at this rate, then deposit the funds back at the Fed at the IORB rate (interest on reserve balances), i.e. 5.40%, for a juicy risk-free profit.

This is not good optics, so it is unlikely the program will be renewed when it is due to expire on March 11. Michael Barr, the Fed’s vice chair for supervision, hinted as much on Tuesday when he emphasized the BTFP is an “emergency program.”

And it seems clear the emergency is over. Deposits of small banks (for whom the program was aimed at) have been rising since their drop after SVB’s collapse (both on a seasonally and non-seasonally adjusted basis). That, along with the quiescent fed funds market, suggests banks are not facing stress. Furthermore, the Fed’s pivot has also increased collateral values, making banks’ hold-to-maturity portfolios less underwater.

The BTFP’s expiry would mean another ongoing drain on reserves as the loans expire over the year.

With the Fed now seemingly focused on liquidity in this new paradigm, this adds to reasons why the central bank may cut earlier in the year.

The market is currently pricing 17 bps of cuts for the March 20 meeting, so that’s not an attractive risk-reward, but at under ~7 bps or so that proposition changes – more so if the BTFP is no more.

Meanwhile, the futures market is forecasting rate cuts of over 200 basis points!

The Federal Reserve is a private enterprise that works with The Federal government like in the film “Prometheus” or “Chariots of the Clods.”