As The Fed Tightens To Fight Inflation, The US Banking System Growth Grinds To A Halt, Bank Deposits Decline -0.6% YoY (SBF’s Lemonade Stand Isn’t Helping)

The US has an inflation problem. Both headline and core inflation YoY remain high compared to the previous 40 years. And The Federal Reserve is resolute in trying to curb inflation to 2%.

But as The Fed counterattacks inflation by raising their target rate, we are seeing a problem forming at the nation’s commercial banks. The growth in deposits YoY is now -0.6%. Commercial bank holdings of Treasuries and Agency MBS are declining as well. Agency MBS holdings are down -4.6% YoY and Treasuries and Agency holdings are down 0.0%.

How about M2 Money growth and M2 velocity? M2 Money growth has fallen to 1.3% YoY while M2 velocity has not been the same since the Covid sugar splash by The Fed and Federal government.

While inflation is creating havor for commercial bank deposit growth, it is interesting to follow the adventures of a spoiled child from MIT and his multi-billion dollar lemonade stand with all the controls of a child.

Once again, how did regulators get this SOOOOO wrong? And why didn’t investment advisors look at the balance sheet of FTX and Alameda Research. Yes, the media loves to report on FTX orgies, but the FTX fiasco points to something far more sinister. Were Sam Bankman-Fried and his paramore Caroline Ellison fronting this operation on behalf of some other parties?

Here is the FTX bankruptcy declaration in the State of Delaware. It appears like a massive case of fraud to me. And perhaps worse. Here is a nice summary from Zerohedge.com.

I recall one of Woody Allen’s best lines. When asked what an investment manager does, the response was “they manage your money until nothing is left.” Sounds like SBF has a great future on Wall Street! And Caroline Ellison should have known better than to post things like “Here are what I think about some things: controlling most major world governments.”

Rent Crisis! 41% in U.S. Couldn’t Pay Rent November (Bank MBS Holdings Collapse With Fed Tightening)

Interesting story on Alignable.

Due to high inflation, reduced consumer spending, higher rents and other economic pressures, U.S.-based small business owners’ rent problems just escalated to new heights nationally this month, based on Alignable’s November Rent Poll of 6,326 small business owners taken from 11/19/22 to 11/22/22.

Unfortunately, 41% of U.S.-based small business owners report that they could not pay their rent in full and on time in November, a new record for 2022. Making matters worse, this occurred during a quarter when more money should be coming in and rent delinquency rates should be decreasing. But so far this quarter, the opposite has been true.

Last month, rent delinquency rates increased seven percentage points from 30% in September to 37% in October. And now, in November, that rate is another four percentage points higher, reaching a new high across a variety of industries.

All told in Q4 so far, the rent delinquency rate continues to increase at a significant pace, up 11 percentage points from where it was just two months ago.

Well, this is not good.

And on the mortgage front, not all is quiet.

Commercial bank holding of Agency mortgage-backed securities (MBS) has collapsed with Fed tightening and mortgage rate increases.

Ain’t that a lot of bad news for real estate and the mortgage market.

Bad Sign! What Interest Rates Are Telling Us (US 10Y-2Y Curve Inverts To -80 Basis Points, Euro 10Y Yields Falling, Fed Funds Rate Priced At 2.301% By January 2024)

What interest rates are telling us is a bad sign.

With an impending railroad strike that can torpedo the US economy (but if that is possible, why is the Biden Clan vacationing in Nantucket for Thanksgiving weekend when Joe should be talking with railroads and the unions to not let this happen?), let’s see what interest rates are telling us.

First, the US Treasury 10Y-2Y yield curve continues to descrend into the abyss (now at -80 basis points).

Second, the latest Fed Dot Plot (from September, new one will be issued during December) show that The Fed thinks that their target rate, while rising in 2023, will likely start falling again in 2024.

Third, since it is Thanksgiving Day, US bond markets are closed. But in Europe, the 10-year sovereign yields are falling, a sign that the ECB is reversing course by increasing monetary stimulus and/or a European are slow down.

Fourth, US mortgage rates have cooled since peaking (locally) at 7.35% on November 3, 2022 and now sit at 6.81%, a decline of 54 basis points. A clear sign of cooling.

Fifth, how about Fed Funds Futures data? It is pointing to a peak Fed Funds Target rate of 4.593% at the June FOMC meeting. Then a decline in rates to 2.301% by January 2024.

Now, go and enjoy your Thanksgiving dinner with friends and family (up 20% since last year), courtesy of Jerome Powell, Joe Biden, Nancy Pelosi and Chuck Schumer.

Going Down! November’s UMich Buying Conditions For Houses Plunges To Lowest Reading In History (The Fed Giveth And The Fed Taketh Away)

We’re going down!

November’s consumer sentiment survey from University of Michigan is one for the books. It printed at 33.0, the lowest in the history of the survey that goes back to 1977.

This chart shows how The Fed and Federal government threw trillions at the Covid economic shutdowns and the aftermath (green line).

BTW, the great blues tune “Going Down” was written by Don Nix of Alabama State Troupers fame.

US New Home Sales Surprise To The Upside, Median Price Up 8.2% MoM (It’s Now Clear That QE Was a Colossal Policy Mistake)

The good news today is new home sales surprised to the upside and grew 7.5% MoM in October. The bad news? Some are now realizing that The Fed’s QE program was a colossal policy mistake because there’s no convincing evidence that central banks’ purchases of trillions of dollars of bonds and other financial assets helped any economy. But it did help create massive asset bubbles!

But back to the surprising new home sales report where economists forecast a -5.5% MoM decline but +7.5% MoM materialized. Notice that The Fed’s balance sheet has barely come down after it exploded upwards with Covid. So, like with the velociraptors in Jurrasic Park, The Fed Balance Sheet is still out if force.

Not surprisingly, the median price of new home sales are up 8.2% MoM (since September).

The Fed’s minutes for their last FOMC meeting will be out at 2pm EST. Let’s see if they discuss WHY they haven’t reduced their balance sheet by much which is contributing to asset bubbles.

Here is The Fed’s Dots plot from the September meeting. I get the impression that The Fed thinks that their target rate will be coming down in 2024 and after.

US Mortgage Rates Plunge for a Second Week, Hit Two-Month Low, Purchase And Refi Applications Rise (But Purchase Apps Down 86% YoY, Refi Apps Down 41% YoY)

The global economic slowdown has one nice unintended consequence: as the 10-year Treasury yield softens, mortgage rates decline.

US mortgage rates retreated sharply for a second week, hitting a two-month low and providing a bit of traction for the beleaguered housing market.

The contract rate on a 30-year fixed mortgage decreased 23 basis points to 6.67% in the week ended Nov. 18, according to Mortgage Bankers Association data released Wednesday. 

Rates have plunged nearly a half percentage point in the past two weeks, the most since 2008, as recession concerns mount, inflation shows signs of cooling and a number of Federal Reserve officials say it may soon be appropriate to slow the pace of monetary tightening.

The slide in borrowing costs helped stir demand as the group’s index of applications to buy a home climbed 2.8%. That marked the third-straight increase since the gauge stumbled to the weakest level since 2015.

The pickup in demand allowed the overall measure of mortgage applications, which includes refinancing, to rise for a second week, but it still remains depressed. The index of refinancing activity edged up from a 22-year low.

The Refinance Index increased 2 percent from the previous week and was 86 percent lower than the same week one year ago. The unadjusted Purchase Index increased 9 percent compared with the previous week and was 41 percent lower than the same week one year ago.

But you need an electron microscope to see the increase in both purchase and refi apps.

One indicator of a slowing global economy is the decline of FANG (Facebook, Amazon, Netflix, Google) with declining liquidity.

Alarm! Yesterday’s PUT/CALL Ratio Was Highest In History (1.46, Higher Than 2001 And 2008!) REAL M2 Money YoY Plunges To Lowest Since 1980 And Jimmy Carter

Alarm!

Yesterday’s PUT/CALL ratio was the highest in history at 1.46. That is higher than 2001 and 2008.

REAL M2 Money YoY has crashed to its lowest level since 1980 and Jimmy Carter.

And the train keeps on rollin’.

Instead of Little Games, The Federal Reserve is making this BIG GAMES.

Existing Home Sales Update: REAL Median Home Price Growth At -1.17% YoY, REAL Wage Growth At -3.0% YoY, REAL 30yr Mortgage Rate At -0.5254% (How Bad Is US Inflation??)

The US housing market is slowing, to be sure. Yesterday’s existing home sales (EHS) report revealed that US EHS were down -28.43% YoY and the median price of EHS slowed to 6.6% YoY.

But that is just the surface of the EHS report for October. Once I removed inflation (CPI YoY) from the numbers, we are left with REAL median price of EHS growth of -1.17% and REAL average hourly earnings YoY of -3.0% YoY. The REAL 30-year mortgage rate is -5.25%. That reveals how horrible inflation is in the US.

It is important to note that EHS numbers are lower in October than they were before Covid stimulypto (my name for the massive spending spree by Congress and massive injection of monetary stimulus by The Fed. Even the REAL 30-year mortgage rate is negative at -0.5254%.

On a side note, how come fraudulent former Stanford student Elizabeth Holmes gets 11 years in prison for her Theranos scam, but Sam Bankman-Fried only gets a House hearing with Maxine “Dirty” Waters as Chair by losing a far greater amount? Could the fact that SBF and his co-founders at FTX contributed $300,351 to nine members of the House Financial Services Committee, according to Federal Election Commission records?

I guess Elizabeth Holmes did not make the requisite pay-offs.

Philadelphia Fed’s Business Outlook Plunges To -19.40% YoY, Lowest Since 2012 (It’s NOT Always Sunny In Philadelphia)

Call out The Birds Of War! Aka, The Federal Reserve.

The Philadelphia Fed’s Business Outlook plunged to 1-9.40% YoY, the worst since 2012. Notice how the Philly Phed Plunge is related to M2 Money growth YoY.

Birds of war!

Buying Typical US Home Now Requires Income of Over $100,000, Up 46% YoY (19 Straight Months Of Negative REAL Wage Growth Isn’t Helping)

Redfin had an interesting post where they showed that the “typical” US home now requires income of over $100,000.

Of course, it is easy to blame the figure on rapidly rising mortgage rates and Federal Reserve tightening.

But the rest of the story (as Paul Harvey used to say) is that US REAL wage growth has been NEGATIVE for 19 straight months. This alone makes housing unaffordable for the middle class and low wage workers.

Good day!

Again, why are Biden and Trudeau wearing Mao jackets in Bali? And why is Biden looking like a robot?? Biden does look like he is saying “Take me to my leader, Pei.”