Export prices by end us YoY is up to 18.8%, the highest in recorded history (or since 1983 when they started recording export prices).
Import prices by end use rose to 12.5% YoY.
Unrelated to US export and import prices, the MBA’s mortgage credit availability index slumped with the Covid outbreak and the explosion of The Fed’s Balance Sheet. As I have said before, nothing has been the same since Covid.
Harry Truman once uttered the phrase “The buck stops here.” Joe Biden’s catchphrase should be “It’s Russia’s fault!”
Well, all roads led to Joe and Jay. Here is a chart of Producer Price Index (Final Goods) prices YoY, now the highest in history. At least, gasoline prices are declining to $4.083 (they were $2.40 when Biden was installed as President). But inflation is out of control and the 30-year mortgage rate is now 5.14% (mortgage rates were 2.82% in February 2021 just after Biden took control).
Just in case you wonder why I follow Fed Funds Futures data so closely.
Equity markets are up strongly today as markets sense a weakening in resolve by The Federal Reserve (number of expected rate hikes dropped at 10AM EST).
It appears that we have a “Powell in the headlights” problem.
US real average weekly earnings growth YoY is down to -3.60%. That is the lowest since 2007 and is worse than The Great Recession and financial crisis of 2008.
And look at this chart of mortgage payments under Biden. The US was actually experiencing DECLINING mortgage payments YoY in 2019 and 2020. But under Biden’s leadership, mortgage payments have increased by 50% making housing even MORE unaffordable for the middle class and lower-income households.
And now for something kind of scary. The US today suffered a 12 basis point decline in the 2-year Treasury yield, generally a bad sign for the economy. As if we needed more bad news for today.
Highest inflation in 40 years, worst wage growth since 2007 and rising mortgage payments. We will need all the luck we can get.
With 8.5% YoY inflation, REAL average hourly earnings growth fell to -3% YoY.
And with The Fed intent on extinguishing their part of the inflation, Bankrate’s 30Y mortgage rate rose to 5.14%.
Energy is the biggest culprit (fuel oil up 70.1% YoY) thanks to the double whammy of 1) Russia’s invasion of Ukraine and 2) Biden’s restrictions on oil and natural gas production. Food at home is up 10% YoY.
Here is a colorful chart of MoM growth in prices.
The Taylor Rule model now says that The Fed Funds Target Rate should be 11.90%. Hence, Fed Stimulypto is still in place with the signal that rates will increase.
How about WTI Crude and Brent Crude soaring over 4% today?
Once again, the Four Horsemen of the Inflation Apocalypse (Biden, Powell, Pelosi, Schumer) overstimulated the economy and financial markets with excessive monetary stimulus (Powell) and excessive Federal spending (Biden, Pelosi, Schumer) where demand soared for products and supply naturally hasn’t caught up.
Stablecoin refers to a new class of cryptocurrencies which offer price stability and/or are backed by reserve asset. In recent times, stablecoins have gained enough traction as they attempt to offer the best of both world’s – the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
US Senator Pat Toomey, ranking member of the Banking, Housing and Urban Affairs Committee, announced today legislation to create a responsible regulatory framework for STABLECOINS.
Toomey Announces Legislation to Create Responsible Regulatory Framework for Stablecoins Releases Discussion Draft of the Stablecoin TRUST Act
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today released a discussion draft of legislation establishing a new regulatory framework for payment stablecoins.
“While today stablecoins facilitate trading with cryptocurrencies, tomorrow stablecoins could be widely used in the physical economy. They have the potential, among other things, to speed up payments and automate transactions,” said Ranking Member Toomey. “The proposed regulatory framework I’m releasing today will allow this crypto-innovation to continue flourishing while protecting consumers and minimizing potential risks from stablecoins to the financial system. I look forward to receiving feedback on this legislation from my colleagues and stakeholders as Congress continues its work on stablecoin regulation.”
Key Components
· Authorizes three different options to issue payment stablecoins:
o Establishes a new federal license designed specifically for stablecoin issuers;
o Preserves the state-registered money transmitter status for most existing stablecoin issuers; and
o Clarifies that insured depository institutions are permitted to issue stablecoins.
· Protects consumers by subjecting all payment stablecoin issuers—regardless of whether they are a state money transmitter or receiving a new federal license—to standardized requirements, including:
o Disclosures regarding the reserve assets backing the stablecoin;
o Clear redemption policies; and
o Subjecting them to routine audits by registered public accounting firms.
· Provides much-needed clarity that, at a minimum, stablecoins that do not offer interest are not securities.
o Provides a clear regulatory framework for payment stablecoins and rejects the Securities and Exchange Commission’s approach of regulating through enforcement actions.
· Applies privacy protections to transactions involving stablecoins and other virtual currencies.
Background
· In August 2021, Ranking Member Toomey announced he was soliciting legislative proposals to ensure federal law supports the development of digital assets and its underlying technologies while protecting investors.
· In December 2021, Ranking Member Toomey released a set of principles to lay the framework for forthcoming stablecoin legislation.
Crytpos in general are having a bad day, with Bitcoin down 4.78% today and Ethereum Classic down 12%.
Toomey’s proposal is a great step forward in the regulation of stablecoin.
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.
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??
Consider what has happened since President Biden was elected. The S&P 500 total return index (green index) has risen thanks to The Federal Reserve’s balance sheet expansion (orange line) with COVID. Until 2022 when the expectation of Fed rate hikes surged from 3 in late December 2021 to 9.4 expected rate hikes over the next 12 months (yellow line).
The US Treasury total return index (white line) has gotten crushed with The Fed’s signals of rate hikes and quantitative tightening (QT). Call it “White Line Fever.” The commodity total return index (blue line) has surged as The Fed’s expected rate hikes have risen from 3 to 9.4 in 2022.
Is The Fed causing a Great Reset in housing? In 2022, we see the surge in Fed rate hike expectations leading the 30-year mortgage rate to be nearly 5%. The last Case-Shiller home price index was for January and it was still raging at 19.17% YoY growth. Let’s see if The Fed’s QT will slow down home price growth. But home prices are growing at 4x 30-year mortgage rates.
(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.
The Dallas Federal Reserve issued a warning recently that a housing bubble is brewing … after the economy drank its magic monetary elixir. We can see the housing bubble clearly (defined as the spread between REAL home price growth and REAL average hourly earnings). Notice that the current housing bubble looks similar to the infamous 2005 housing bubble. And the US is seeing several months of the spread between REAL home price growth and REAL hourly earnings be even higher than the peak of the 2005 bubble.
The Federal Reserve is starting to slow down its asset purchases, so we should see a cooling of the housing bubble. Unless, of course, The Fed changes its tune from quantitative tightening (QT) back to quantitative easing (QE) … again.
The Dallas Fed has a measure of housing “exuberance” which shows a bubble forming, but not there yet. I like the spread between real house price growth and real hourly earnings better.
The Dallas Fed also has a price-to-rent chart also showing growing exuberance.
But if we look at the Case-Shiller National HPI YoY to US CPI Urban Consumers Owners Equivalent Rent of Residences YoY we see that the US is currently experiencing a price-to-rent ratio higher than the peak of the 2005 house price bubble. What is the culprit? The vast expansion of monetary and fiscal Stimuylpto surrounding the Covid outbreak in early 2020.
So, the Dallas Fed thinks that is a house price bubble is brewing, but it has actually been in the works since QE3 in 2013 (bubble 2), but really took off with The Fed’s stimulypto and Federal COVID spending surrounding the COVID outbreak in early 2020.
Confounded Interest - Anthony B. Sanders 
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