Here is my version of their chart since 2000 where you can seen the seismic shift in the balance sheet (toxic green slime line), particularly with The Fed’s response to Covid. The Fed is signaling a tightening in monetary policy to help reduce inflation (blue line).
But notice that M2 Money Velocity (GDP/M2) is now near the all-time low along with consumer purchasing power.
How BIG is The Fed’s balance sheet? Try more that a third of size of US GDP.
And as The Fed signals its inflation-fighting intentions, mortgage rates have shot up to 5.51%, the highest mortgage rate since June 2009.
Instead of President Ronald Reagan saying ““Mr. Gorbachev, tear down this wall” we need someone to tell President Biden and Federal Reserve Jerome Powell to “Stop driving up prices and making housing unaffordable.” Unfortunately, The Fed thinks that raising interest rates will temper price increases — it won’t. But it could tamper home price growth.
So what we are left with is soaring home prices AND soaring mortgage rates, leaving this scary chart. The housing cost index has risen 114.5% under Biden.
Its only going to get worse from here.
Today’s jobs report for May showed that the U-3 unemployment rate remained the same as April, 3.60%. However, that is lower than the NATURAL rate of unemployment of 4.445% indicating that the labor market is overheated. Historically, The Fed has tightened monetary policy by raising rates when this has happened. So, look for The Fed to keep raising rates.
As I have mentioned before, REAL hourly wage growth is negative since March 2021, just after Biden signed his executive orders canceling drilling on Federal lands and cancelling the Keystone Pipeline. Later, he canceled off-shore drilling permits and Alaska drilling. Now we have REAL average hourly wages declining at -2.8% YoY as The Fed has been reducing M2 Money supply YoY.
Listings of homes is up 11% YoY, the highest in several years.
Let’s see how the housing market does with soaring mortgage rates.
German inflation hit another post-World-War-II record high, piling pressure on The ECB’s need to exit from crisis-era stimulus after numbers from Spain also printed hotter than expected.
Driven by soaring energy and food costs, this morning’s data showed consumer prices in Europe’s largest economy surged 8.7% YoY – far hotter than the +8.1% expected (the highest since the start of the monthly statistics in 1963).
And top of that, the German 10-year Bund rate rose +9.4 BPS this morning, although Finland, Hungary and Slovakia all rose above +10 BPS.
While US markets are closed today in honor of Memorial Day, the US Treasury curve (10Y-2Y) has stabilized at 25.8 basis points after the initial shock of The Fed finally raising rates for the first time under Biden.
Then there is this headline: Biden to Meet Powell to Discuss Economy Amid Inflation Pain. So much for Fed independence. I wonder if Powell will say “Joe, have you ever considered canceling your executive orders on oil and natural gas exploration?”
Adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.
This makes the Ukrainian relief bill of $30 billion look like chump change. Although it is about the same amount as Biden’s student loan forgiveness plan which would about to $321 billion.
Nobody spends other peoples’ money like politicians and now The Federal Reserve. Who are also DC-based politicians.
And yes, the purchasing power of the US Dollar and M2 Money Velocity (GDP/M2) appear to be collapsing like a dying star.
The University of Michigan Consumer Survey showed a decline in May to 58.4 (100 is baseline). Soaring inflation is a likely culprit.
But the truly horrible survey result is the UMich Buying Conditions for Houses, plunging to 45. The reason? Crazy, expensive house prices courtesy of The Federal Reserve and rising mortgages (also, courtesy of The Federal Reserve).
The buying conditions for houses is now the lowest in the history of the University of Michigan consumer survey. In fact, consumer sentiment for housing is far lower than during the awful housing bubble burst of 2008 and the subsequent financial crisis.
And the US economic surprise index has turned negative.
Here is Fed Chair Jerome Powell wielding his monetary bat called “Lucille.”
US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.
The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.
Foodstuff are up 61.5% under Biden’s Reign of Error. Gasoline prices are up 85.8%, diesel prices are up 111%. Yet the government inflation index (aka, CPI) is up only 8.3% in April.
But while energy and food prices are soaring, the CRB Spot Metals Index has plummeted -15% since May 4 as Covid is ravaging the Chinese economy. Recession alter anyone?
And then we have soaring home prices and rents. But notice that Zillow’s Rent index is slowing down as mortgage rates soar.
We have a stalling Chinese market, down 28% since October. Is Biden President of China??
On the currency front, the Russian Ruble is soaring relative to the US Dollar while the Chinese Renminbi, the Japanese Yen and the Euro (or in this case, the Gyro) are sinking like a rock.
If I compare the Russian Ruble and Ukrainian Hryvnia, you can see Ukraine is losing the currency war with Russia.
Inflation Inferno thanks to Biden’s misguided energy executive orders and cancellation of Alaskan and Gulf of Mexico drilling leases.
Biden’s economic mismanagement team: American Gothics Treasury Secretary Janet Yellen and Fed Chair Jay Powell.
Here’s some simple Medusa math for you: negative growth + payroll gains = negative productivity. Negative productivity + high labor costs = very high unit labor costs. That’s not a pretty picture for the economy or for companies, and the Q1 figures were even worse than expected — productivity fell by 7.5%, pushing unit labor costs up by 11.6%. Nasty.
In fact, labor productivity fell to the lowest level since 1947 and President Harry Truman.
Of course, Biden’s green energy policies have led to crushing inflation.
So, after Fed Chair Powell (aka, Jay The Revelator) said yesterday that “No Signs US Economy ‘Vulnerable’ To Recession”, we saw the S&P 500 index dive 1.5% and the 10-year Treasury yield break through the 3% barrier.
Biden’s policies are a Medusa-touch on the economy.
As The Federal Reserve seems hellbent on raising interest rates to fight the rapid increases caused by Biden’s follicies, we see the S&P 500 index taking a hit in 2022, but NAREIT’s all equity index as well.
An example of how a REIT can be impacted by The Fed is the Industrial REIT index that tanked with Amazon’s declining earnings prospects.
While industrial REITs is a broad category, Amazon’s crashing EPS has certainly shocked the market.
Retail REITs? How about Simon Properties? Simon Properties, a large mall REIT, go “Fauci’d” as the Covid economic shutdown really caused pain for shopping malls. Simon’s occupancy rate has increased as the economy opens back up (we hope).
Meanwhile, Simon Properties equity has declined along with the S&P 500 index as The Fed raises rates. In other words, both the S&P 500 and shopping mall REITs are getting “Fauci’d” by The Fed. Or Powell’d.
Confounded Interest - Anthony B. Sanders 
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