Alarm! Nasty Inflation Report Leads To No-bid For MBS (Duration Risk Has Extended To 7 From <1 On August 2, 2021 With Rising Inflation)

Alarm!

The CPI news on Friday was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. (Courtesy of Cherry Creek Mortgage)

Despite what Treasury Secretary Janet Yellen has said, Friday’s inflation report demonstrated that inflation is no longer transitory. And with that realization, there was a dearth of bidders for Agency Mortgage-backed Securities (Agency MBS) on Friday.

As a result, agency MBS 2.5% dropped to under $90 as markets expect The Fed to keep raising rates to combat inflation.

Duration of the FNCL 2.5% agency MBS has been extending with growing inflation. Duration was under 1 on August 2, 2021 but is now 7 times greater at almost 7.

Note to Yellen: inflation seems be permanent, not transitory. Or at least inflation will remain high for the foreseeable future, crushing the life out of Agency MBS.

Pennies From The Fed! Who Gained The Most From Fed Stimulypto? The Top 1%, Of Course! (Fed Helps Homeowners, Not Renters)

Pennies from Heaven. That is what the bottom 50% received from The Federal Reserve’s massive doses of monetary stimulus (or stimulypto).

There was one big dose of monetary stimulus in late 2008 surrounding the financial crisis and housing bubble burst, another doses (aka, QE 2 and QE3) then the biggest dose of all with the outbreak of Covid in early 2020.

President Biden should have mentioned on Jimmy Dimmel last night that The Federal Reserve has helped the bottom 50% with its endless monetary stimulus.

But if you were fortunate enough to own a home (the top 1% are likely homeowners), then you benefited from The Fed’s monetary stimulypto.

And I noticed that Biden didn’t mention plunging REAL average weekly earnings YoY.

The Federal Reserve’s monetary “policies” have benefited the top 1% and homeowners relative to the bottom 50% (who often rent and got clobbered with 20% growth in rents).

Great job, Fed! Making housing more unaffordable for rents (combine rising rents and declining REAL wages and we have a real affordability problem).

Home affordability for first time homebuyers?

And what is with Biden’s ear lobes? As inflation is rising, his ear lobes are shrinking.

Weird, wacky stuff.

The inflation numbers are out tomorrow. I noticed that Biden and Jimmy Dimmel only discussed gun control, not the sad state of the economy under Biden.

Fed Data Shows a Half Century of Moderate Growth in the Fed’s Balance Sheet Through Two World Wars – Then a Seismic Explosion Under Bernanke, Yellen and Powell (Mortgage Rates Rise To Highest Since June 2009)

Wall Street on Parade had an excellent article showing the seismic explosion in the Fed’s Balance Sheet after the housing bubble burst and ensuing financial crisis.

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.

Here is a video of the seismic shift in The Fed Balance Sheet, now that they are allegedly tightening monetary policy.

Speaking of seismic shifts, the Atlanta Fed’s Q2 GDP tracker just fell to +0.9%.

The Fed’s noose is tightening on the economy.

Weekend Update! Gasoline Prices UP 101% Under Biden, Mortgage Rates UP 89%, Foodstuffs UP 58% (Crude Oil Futures UP 142%)

This is not the legacy that will endear President Biden to voters. Regular gasoline prices have risen 101% under Biden.

But it not just gasoline and diesel that are soaring (while the rest of us are sore!), CRB Foodstuffs are up 58% under Biden while the 30-year mortgage rate is up 89% under Biden.

And this morning, WTI crude futures are up +1.71%.

And up 142% under Biden.

Prices are sizzling and clobbering the American middle class and low wage workers. But former Federal Reserve Chair and current US Treasury Secretary Janet Yellen never saw it coming.

Biden’s just killing us. And Powell is making up for Yellen’s keeping monetary stimulus too high for too long. Price? Mortgage rates are soaring.

March Madness! Case-Shiller National Home Price Index Soars To +20.55% YoY In March (Fastest In History) As Fed Keeps Monetary Stimulus In Place

Yes, its the housing market’s version of “March Madness!”

The Case-Shiller National Home Price Index for March was released this morning and it was a doozy. The Case-Shiller National home price index YoY accelerated to a whopping +20.55%.

And at +20.55%, it is the fastest price growth in history! Even the peak of the infamous 2000s housing bubble was only +14.51% in September 2005.

Why do we have historic highs in home price growth? The Federal Reserve’s monstrous Covid stimulus (green line) is still in place.

Washington DC is the slowest growing metro area in the US while Tampa FL, Phoenix AZ, Miami FL and Dallas TX are all above 30% YoY.

Let’s see what happens when The Fed FINALLY removes its Covid stimulus as mortgage rates rise.

Remember, Janet Yellen (who left monetary stimulus in place for too long under Obama) is now US Treasury Secretary.

US Q1 Real GDP Worse Than Expected -1.5% QoQ, Price Inflation Worse Than Expected 8.1% QoQ (At Least Personal Consumption Was Up 3.1%)

Today’s US Real GDP was worse than economists expected.

US Real GDP Annualized QoQ printed at -1.5%. And GDP prices QoQ printed at 8.1%, also higher than expected.

At least Personal Consumption printed higher than expected at 3.1%.

Import prices (goods) led the way at 20.9%. Part of Biden’s brilliant strategy of reducing domestic oil production and import expensive energy from overseas?

Consumers are spending more, but the personal savings rate is down to the lowest level since 2013 at 6.2% as consumers try to cope with inflation.

US Q1 GDP Forecast -1.3%, Atlanta Fed’s GDPNow Q2 Tracker Only +1.8% (M2 Money Velocity Remains Near All-time Low)

The US Q1 GDP report is due out tomorrow morning. The forecast is for -1.3% decline in GDP.

The Atlanta Fed GDPNow real-time GDP tracker is for 1.806% for Q2. If this holds, then recession fears will diminish.

Even though the US may avoid consecutive negative GDP quarters, M2 Money Velocity (GDP/M2 Money) got crushed by The Fed’s reaction to Covid back in 2020.

Talk about a bad return on “the people’s money”.

Slowing? US Closed House Sales Down -9.50% YoY As Mortgage Rates Rise On Fed Tightening (New Listings Down -5.7% YoY)

US home prices were growing at a near 20% YoY rate for the latest Case-Shiller National home price index report. But mortgage rates have soaring like a SpaceX missile shot.

The result? Closed sales for April 2022 are down -9.5% YoY.

Of course, I am moving to one of the metro areas in the USA where closed sales fell only -1.10% YoY in April: Columbus Ohio. I should move to San Diego CA where closed sales fell -21.4% YoY.

Of course, the US still suffers from lack of available inventory for sale.

April new listings are down -5.7% YoY. Columbus Ohio didn’t change from April ’21. San Diego is down -18.4% YoY for new listings.

Rising mortgage rates? Inflation? What a total fiasco.

Inflation Fightin’ Fed? Fed Can’t Fight Food And Energy Inflation, But They Can Crash The Housing Market (To Tame Total Inflation, Fed Would Have To Raise Rates To 21.38%!)

Inflation Fightin’ Fed?

Kansas City Fed President Esther George said The Fed isn’t focused on impact of rates on stocks (or pension funds, apparently).

The inflation that is crushing Americans is due to energy and food price increases. That is, the non-core inflation. Under Biden, food is up 63%, gasoline is up 92% and diesel prices are up 112%. But The Fed doesn’t consider food and energy prices, per se.

If we look at the Taylor Rule considering fighting inflation including food and energy, The Fed would have to raise their target rate to … 21.38%.

Now, The Fed can clearly cool-off the housing market by raising rates. In fact, my fear is that they go too far and crash the housing market. The Fed will NEVER get to 20% again like we last saw under Volcker in 1981. 20% rates certainly cooled home prices back then and Fed rate hikes helped crash the housing market in 2008.

So, when The Fed says they want to be the inflation-fightin’ Fed, we must be aware what The Fed can and cannot do. They can’t tame the inflation beast in the form of food and energy prices (unless they crash the economy), but they can crush home prices.

Fear The Talking Fed! US Industrial Production/Capacity Utilization Rise In The Face Of Inflation (M2 Velocity Near All-time Low As M2 Money YoY Still Sizzling At 9.85% YoY)

Most of us are painfully aware of rising food prices, particularly with the US fighting a proxy war with Russia. Wheat prices have doubled under Biden and the Russian invasion of Ukraine.

But inflation is everywhere. Rising home prices, rising gasoline and diesel prices, etc. When Jeep can see a Wagoneer for $100,000+, you know we have inflation.

The surprise this morning was retail sales, up 0.9% MoM (though still less than expected), despite rising prices. Odd since REAL wage growth is negative.

But the other bit of good news this AM is that US industrial production rose +1.1% MoM in April. And US Capacity Utilization is rising dangerously towards 80%, it is at 79% in April.

You will notice that Fed monetary tightening occurs when capacity utilization hits 80%, indicating an overheated (or OVERSTIMULATED) economy. Yes, we still have The Fed Funds Target Rate (Upper Bound) at only 1% and The Fed Balance Sheet still near $9 trillion. So, Fed stimulypto is still in play.

Meanwhile, M2 Money Velocity is near its historic low and M2 Money YoY is still sizzling at 9.85% YoY.

Wheat prices have doubled under Biden, and you can see how wheat futures soared when Russia invaded Ukraine.

So, despite The Fed’s intent to tighten, The Federal Reserve and Fed government are still overstimulating the economy. But what happens when the stimulus is gone?

Fear the Talking Fed!