The Philly Fed non-manufacturing sentiment index just tanked to -12.8 as The Federal Reserve removes its Covid-related stimulus.
The banking fiasco (SVB, Signature, etc.) has caused The Fed’s balance sheet to expand … again.
And Fed Funds Futures are pricing in a meager 20 basis points increase at tomorrow’s FOMC meeting (some betting on no change, some betting on 25 basis points). Then another rate hike at the May FOMC meeting, then all downhill from there.
Its the start of a new week after the closure of several US banks (SVP, Signature) and the failure of Credit Suisse. But swaps spreads have calmed down a bit and are no where near the credit crisis highs of late 2008. Or the plain vanilla swap between fixed and variable contracts (white line) has simmered down a bit. BUT was never as high as it was during the financial crisis. Panic by The Fed and FDIC much?
And the 2-year Treasury yield dropped -10 basis points … again.
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.
To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April.
And once the USD swap lines are reopened, the rest of the cavalry follows: rate cuts, QE (the real stuff, not that Discount Window nonsense), etc, etc. In fact, we have already seen a near record surge in reserve injections:
The Fed may as well formalize it now and at least preserve some confidence in the banking sector, even if it means destroying all confidence left in the “inflation fighting” Fed, with all those whose were in charge handing in their resignation for their catastrophic handling of this bank crisis.
Its Gov’t Gone Wild! Insane spending budget by “Sloppy Joe” Biden, Yellen asking Warren Buffet for banking advice (seriously??), a war in Ukraine that America doesn’t seem to actually want to win, etc. But its the banking system where banks are getting crushed by rising inflation and interest rates (but failed to hedge). Sigh.
As I always told my investments and fixe-income students at University of Chicago, Ohio State University and George Mason University, a 10 basis point change in the 2-year and 10-year US Treasury yield is a big deal. This morning, the US Treasury 2-year yield fell -32 basis points while the 10-year Treasury yield fell -14.8 basis points.
At the same time, gold 3.8% and silver rose 4.7% on banking fears.
Debt would hit a new record by 2027, rising from 98 percent of GDP at the end of 2023 to 106 percent by 2027 and 110 percent by 2033. Nominal debt would grow by $19 trillion, from $24.6 trillion today to $43.6 trillion by 2033.
Deficits would total $17.1 trillion (5.2 percent of GDP) between FY 2024 and 2033, rising to $2.0 trillion, or 5.1 percent of GDP, by 2033.
Spending and revenue would average 24.8 and 19.7 percent of GDP, respectively, over the next decade, with spending reaching 25.2 percent of GDP and revenue totaling 20.1 percent by 2033. The 50-year historical average is 21.0 percent of GDP for spending and 17.4 percent of GDP for revenue.
Proposals in the budget would reduce projected deficits by $3 trillion through 2033, including $400 billion through 2025 when it could help fight inflation. The budget proposes $2.8 trillion of new spending and tax breaks, $5.5 trillion of revenue and savings, and saves $330 billion from interest.
The budget relies on somewhat optimistic economic assumptions, including stronger long-term growth, lower unemployment, and lower long-term interest rates than the Congressional Budget Office (CBO). The budget assumes 0.4 percent growth this year, 2.1 percent growth next year, and 2.2 percent by the end of the decade – compared to CBO’s 0.1 percent, 2.5 percent, and 1.7 percent, respectively. The budget also assumes ten-year interest rates fall to 3.5 percent by 2033, compared to CBO’s 3.8 percent.
And then we have Sloppy Joe and Statist Janet Yellen meeting with mega donor Warren Buffet for advice on dealing with the banking crisis … made by Biden’s energy policy and insane Covid spending by the Administration. And, of course, The Fed’s “too low for too long” monetary policy. What is 92-year old Warren Buffet going to say?
Meanwhile, Fed Funds Futures are pointing to one more rate hike then a series of rate cuts down to 3.737 by January 2024.
First, The Fed’s discount window soared to its highest level since … you guessed it … the previous financial crisis of 2008/2009.
Second, the 10-year Treasury yield declined -16 basis points this morning as investors flee to safety.
Bankrate’s 3-year mortgage rate rose to 7%, but with today’s decline in the 10-year Treasury yield we should see mortgage rates declining.
Yes, much of the blame belongs to The Fed’s leadership (Bernanke, Yellen, Powell) for leaving rates too low for too long, then suddenly try to lower inflation by raising rates. Now we have The Fed’s balance sheet INCREASING again as the use of The Fed’s discount window soars to highest level since Lehman Bros fiasco.
Argetina’s inflation rate just hit 102.5% as their M2 Money printing hit 80%
Argentina’s central bank is considering raising its benchmark rate on Thursday for the first time since September after inflation data showed prices increased by more than 100% annually last month, according to two people with direct knowledge.
The monetary authority’s board will consider an increase after leaving the key Leliq rate unchanged at 75% for several months, the people said, asking not to be named discussing internal decisions. The board has not yet decided on the size of the hike in case they opt for such move, they said.
A cautionary tale for Washington DC spendacrats and Fed officials.
Brought to the same country that gave us Statist Juan Peron and his wife Eva.
Well, the banking fiasco CREATED BY THE FEDERAL RESERVE is still with us. Why? Because the FDIC guaranteed deposits above $250,000 for the first time in history, bailing out millionaires/billionaires. I call this Crony Socialism (but I repeat myself).
Congress doesn’t understand banking, only how to spend money.
While headline inflation (CPI) came in a 6% (considerably higher than The Fed’s 2% target), core inflation came in at 5.5% year-over-year (YoY), which was expected.
The truly nasty number is today’s inflation report is that weekly earnings YoY remained the same at a terrible -1.9%. Meaning that inflation is higher than nominal wage growth. This is the 23rd straight month of negative real weekly earnings. Well done, Fed and Biden!
Food is up 10.2% YoY. Electricity up 12.9%, shelter up 8.1%.
On the news, the US Treasury 2-year yield rose 34.3 basis points.
Somehow I doubt that Biden’s press secretary will tout 23 straight months of negative weekly earnings growth as one of Biden’s economic accomplishments.
All together now. The Fed has been printing too much money for too long and Biden restricts fossil fuel production. Ad in rampant Federal spending and we have INFLATION. Inflation led to The Fed to raise rates. And with rate increases and down go the banks.
Of course, The Fed and Biden Administration will overeact (e.g. offering deposit insurance on ALL deposits above $250,000 creating moral hazard risk). As such, we are seeing gold prices soar by 2% this AM.
In adddition to gold rising 2%, natural gas futures are up 6%
The Silicon Valley Bank failure (along with NY’s Signature Bank) are sending shock waves through the global economy. Not because of the incompetence of bank regulators, but because of the reaction function from the FDIC and Fed.
The 10-year Treasury yield is down -26 basis points in the AM. And the Fed Funds Target Rate is expected to drop to 4.7%.
Its not just the US Treasury yield that declined -26 basis points. European sovereign yields are down too (Germany 10-year is down -32.9 basis points).
Look at the 2-year Treasury yield. Its down -54.6 basis points.
On a sad note, Resident Biden is calling for stricter regulations for the banking industry, already one of the most regulated sectors of the economy. How about less politics and just make them do their ^*T^R jobs!
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