Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
I have another use for VIX … to wipe out stock market gains. VIX is the S&P 500 volatility index, also known as “The Fear Index.”
Over the last 35yrs, the whole life of VIX history, there have only been 2 prior episodes of VIX trading >60: The 1st was during GFC, the collapse of Lehman, the 2nd episode occurred during Covid and we had a 3rd occurrence: that was last Monday.
VIX … wiping out stock returns!
We know several things about the yield curve. First, it goes negative before recessions. Second, it is related to the inverse of The Fed’s target rate (blue line).
How about the US mortgage rate? Generally, US Mortgage rates are inverse to the 10Y-3M yield curve, but lately the US mortgage rate (pink circle) have declined with the 10Y-3M yield curve.
The yield curve does forecast recessions, but is unreliable in forecasting mortgage rate movements.
The Fed’s theme song: Keep on printing!
Look at this chart of the S&P 500 index against M2 Money stock.
And this chart of Case-Shiller home prices against M2 Money.
Bottom line? The Fed has to keep on printing money. Otherwise, the US economy will collapse like a cheap building.
Here is Fed Chair Jerome Powell creating assets bubbles.
The wheels are coming off Bidenomics. Code for corporate welfare and massive government spending. Coupled with misguided and burdensome regulations, we got gut wrenching inflation.
The result? A disastrous stock market showing yesterday.
What has Biden/Harris’ economic agenda wrought? Record high personal debt and record low savings rates.
Like the Go-Go’s song Manic Monday, it is a manic Monday for stocks. The awful jobs report from last Friday is reverberating through markets. The VIX (fear index) soared to 52.2 this morning.
MY fear is that Congress will go wild and start (mis)spending trillions of dollars again on hare-brained projects like green energy (and electric cars) when our electric grid can’t support the increase in electric cars.
US 2s/10s yield spread is now flat for the 1st time since 2022 on aggressive repricing of Fed rate cuts. US 2y yields have plunged by 70bps to 3.69% since last Wed while US 10y yields only dropped by 40bps in the same time.
Voters are head-over–heels for Kamala Harris, a dim-witted Marxist authoritarian.
Remember the TV show “The Biggest :Loser”? That show was about weight loss.
Now The Federal Reserve has posted a record loss of $114 BILLION IN 2023.
The cause of the loss? Massive expansion of The Fed’s balance sheet coupled with rising interest rates. The two year track record of The Fed is truly appaling. With a bloated balance sheet, rising interest rates have caused staggering losses.
The Fed is the biggest loser!
And the biggest losers!
What’s it going to be? Mortgage rate increases or balance sheet (MBS) reductions?
Since the Covid outbreak in early 2020, The Fed went wild with rate cuts and massive and unpredented balance sheet expansion.
Let’s look at The Fed’s puchase of agency MBS and mortgage rates. From 2020 2022, The Fed continued to buy agency MBS. But in 2022, all hell broke loose as The Fed went crazy RAISING rates, but slowly began unwinding their balance sheet. The result? Mortgage rates began to climb. In fact, the US conforming mortgage rate for 30 years has risen 102% since early 2022. The Fed is only slowing unwinding their MBS holdings.
Despite the struggles in the residential housing market, the COMMERCIAL mortgage market is a trainwreck.
What will The Fed do?? After all, nothing from nothing beats nothing.
This scene from the film “McCabe and Mrs. Miller” sums up our political plight quite nicley. Politicians spend like crazy to stay in power (Biden/Harris) are excellent examples). Politicians promises endless money, then shoot the economy. The US is broke and relies on printing money and boowed funds to stay afloat. Harris wants to raise taxes on everyone to fund her plans like even MORE emphasis of failed green energy schemes and endless foreign wars. I doubt if Harris could defend her spending plans in light of the US already $35 TRILLION in debt.
Even more worrisome if thev fact that DC politicians have promised entitlements (Social Security, Medicare, etc. totalling $217.63 Trillion. Or 623% higher than the rapidly increasing national debt.
Biden/Harris raised thr national debt by 25% in less than 4 years. And Harris wants to increase spending! Harris wants illegal immigrants put on Social Security and Medicare, further bankrupting those entitlement programs.
Let’s see Harris explain her indefensible budget (like raising taxes and not hurting economic growth).
Nothing from nothing should be the slogan of Bidenomics.
Conference board’s leading economic indicators remains negative YoY at -4.8.
Worried? What if I told you that the promises of unfunded entitlements from the Federal government now exceeed the TOTAL national assets of the US??
Way to go, Joe! But he had plenty of help from Congress.
After May’s MoM deflationary impulse (thanks to a plunge in energy costs), June was expected to see a modest 0.1% rise (and we have seen energy prices starting to rise again). Sure enough, headline PPI printed HOT at +0.2% MoM (and May was revised higher), pushing the YoY print up to 2.6% (well above the 2.3% expected)…
That is the highest PPI since March 2023.
Core PPI rose by 0.4% MoM (double the 0.2% exp), sending the YoY price rise up by 3.0% (also the hottest since March 2023)…
The jump in PPI was driven by a resurgence in Services costs as Energy remains deflationary (for now)…
The June rise in the index for final demand can be traced to a 0.6-percent increase in prices for final demand services. In contrast, the index for final demand goods decreased 0.5 percent
Perhaps worse still, the pipeline for PPI (intermediate demand) is accelerating…
On the housing side, buying conditions for housing tanks to all-time low.
Confounded Interest - Anthony B. Sanders 
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