The Federal Reserve, in their war on inflation (partly caused by excessive monetary stimulus since late 2008 under Nobel Laureate Ben “The Mad Money Printer” Bernanke) has led to large losses on their Treasury holdings as rates rise. The bill, of course, goes to Janet Yellen and The US Treasury. Ultimately, that burden is paid-for by US taxpayers.
Another casualty of The Fed’s tightening and reduction in M2 Money supply are … the mortgage and housing markets. The US mortgage rate has soared to 7.04% (highest since 2000) and mortgage DEMAND has fallen to the lowest level in recorded history.
Here is my chart from yesterday showing the inversion of the US Treasury 10yr-2yr curve and decline in the S&P 500 index as The Fed tightens.
And then we have this chart showing the most-extreme foreign Treasury outflow since March 2020.
At least The Fed is predicted to start cutting rates again in March 2020.
Yes, Biden and Powell have reenacted Kevin’s famous chili spill. And Ben Bernanke, the creator of QE from late 2008 was just award the Nobel Prize in economics for distorting financial markets.
Sweet home DC! At least for the ruling elites. For the rest of us mortals, Bidenflation is crushing our finances.
To combat Bidenflation, The Fed has signaled that they will continue to raise interest rates. But at what cost?
(Bloomberg) — The world’s leading central banks are finally pushing their interest rates into restrictive territory, causing fears of overkill in financial markets and stoking chatter that policymakers may need to pivot at some point.
And with the withdrawal of monetary stimulus comes the slowdown of US M2 Money growth (green line). And with that slowdown, we see a declining stock market and an inverted US Treasury yield curve.
Of course, Biden could reverse his green energy agenda and allow for oil and natural gas exploration … again. Or begin building nuclear power plants again. But nooooo.
Another peril is rising mortgage rates.
Here is the S&P 500 against global liquidity.
Speaking of Freddie King, here is Joe Biden’s favorite song: hideaway.
As the Biden Administration touts “affordable housing,” we are seeing the 30-year mortgage rate rise above 7% as The Federal Reserve fights inflation … caused by the Biden Administration. Meanwhile, US home prices are falling.
The Biden Administration launched a war on domestic energy production, resulting in crude oil prices rising 74% under Biden and regular gasoline prices rising 62.4%.
As Biden pleaded with OPEC to increase oil production, he was embarrassingly rejected. Hence, West Texas Crude Oil prices have begun to rise again along with gasoline prices (pink box).
How about unemployment and the 10yr-2yr yield curve?
New CEO Koerner sought to reassure employees in Friday memo
Shares fall to a fresh record low, gauge of credit risk rises
It is like the Lehman Brothers debacle in 2008 all over again.
(Bloomberg) — Credit Suisse Group AG was plunged into fresh market turmoil after Chief Executive Officer Ulrich Koerner’s attempts to reassure employees and investors backfired, adding to uncertainty surrounding the bank.
The stock, which had already more than halved this year before Monday’s sell-off, fell as much as 12% in Zurich trading to a record low that values the firm at less than $10 billion. That was accompanied by a spike in the cost to insure the bank’s debt against default, which jumped to its highest ever.
Koerner, for the second time in as many weeks, had sought to calm employees and the markets with a memo late Friday stressing the bank’s liquidity and capital strength. Instead, it focused attention on the dramatic recent moves in the firm’s stock price and credit spreads, and investors rushed for the exit when trading reopened after the weekend.
One notable difference between 2008 and today is that Credit Suisse’s equity was flying high in June 2007 then crashed a the global banking crisis went into full motion. We then saw Credit Suisse’s credit default swaps soar in early 2009. But today Credit Suisse’s equity is a pale imitation of its former self, but its credit default swap is now higher than it was at its peak in early 2009.
Credit Suisse is now trading lower than its European rival Deutsche Bank (aka, The Teutonic Titanic).
Yes, this brings back sickening memories of the 2008-2009 global financial crisis. Let’s see how The Federal Reserve, ECB and Bank of Switzerland handle this debacle, particularly with M2 Money growth so low.
It appears that we are in another Lehman debacle. Or should I say “Lemur Bros.”
Between going green and the war in Ukraine, Germany is seeing economic distress (high inflation) and a -7.89% Real 10yr yield. At least the US is seeing “only” a -4.43% REAL 10yr Treasury yield.
Like the US, I wonder who in Germany studied game theory? That is, going green leaves nations vulnerable to foreign nations oil and natural gas supplies. Like Russian natural gas.
The Nash equilibrium is a decision-making theorem within game theory that states a player can achieve the desired outcome by not deviating from their initial strategy. In the Nash equilibrium, each player’s strategy is optimal when considering the decisions of other players.
Unfortunately, the US and Germany have deviated from the initial strategy are are paying dearly with skyrocketing energy prices. Particularly as we enter the winter season.
So, who blew up the Nordstream natural gas pipeline going from Russia to Germany?
Fire! European stock valuations have dropped to lowest since 2012.
The US Dollar index is soaring (not helping Europe) as The Federal Reserve tightens monetary policy to combat the inflation fire.
Meanwhile, the Atlanta Fed’s GDPNow real-time forecast for Q3 is at least above zero (barely) at 0.271%.
Fed officials continued to hammer home the central bank’s hawkish outlook, with Atlanta President Raphael Bostic saying he backs raising rates by a further 1.25 percentage points by the end of this year. Meanwhile, the People’s Bank of China said it will accelerate usage of targeted loans.
Bond volatility is increasing.
The US Treasury 10-year yield was down -20 basis points yesterday and is up +10 basis points today. This is the Fed’s Rollercoaster effect.
The Dow is down another 400 points today as The Fed’s Sugar Rush is ending. Perhaps The Federal Reserve main building in Washington DC should be renamed “The Sugar Shack.”
In related news, apparently the Biden Administration is going to replace Treasury Secretary Janet Yellen with … anybody else??
Meanwhile I will have a bottle of wine to kill the pain of inflation and Fed tightening.
Banks get to park money at The Federal Reserve overnight in the form of repurchase agreements (or repos). But as inflation is raging in the US, banks have parked a record $2.366 TRILLION at The Federal Reserve.
The MOVE bond volatility index keeps rising as inflation roars and The Fed fights back,
The US bond volatility index is now almost as high as during the Covid Crisis and approaching financial crisis levels.
It was not immediately clear why buyers had submitted requests for capacity when Russia has given no indication since it shut the line that it would restart any time soon.
Russia, which had supplied about 40% of the European Union’s gas before the Ukraine conflict, has said it closed the pipeline because Western sanctions hindered operations. European politicians say that is a pretext and accuse Moscow of using energy as a weapon.
But German inflation, using CPI, is only 7.9%. Something has to give!
On the western front (US), the US Treasury 10yr yield is up +10.2 bps. And sovereign yields in Europe are all above 10 bps.
Confounded Interest - Anthony B. Sanders 
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