Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Another day under Biden/Yellen.
Last night, “Republicans” joined Democrats to allow unlimited Federal spending and debt for the next two years. Way to go “Benedict McCarthy”!
But today, we saw that ISM Manufacturing printed at 46.9 for May, the 7th consecutive month of contraction.
Meanwhile, the Biden family twists the night away while Americans are ravished by inflation caused by bad energy policies and runaway Federal spending.
The new flag of the National Republican Party!
After the unexpected resurgence in April, Chicago PMI plunged in May from 48.6 to 40.4 (against expectations of 47.3). That is the ninth straight month below 50 (in contraction)…
Source: Bloomberg
That is the longest streak of prints in ‘contraction’ since the Great Financial Crisis.
Under the hood, none of the underlying drivers were higher MoM…
This continues a trend of ‘soft’ survey data disappointing notably.
Resident Biden and Congress unleashed inflation of the unsuspecting American middle class. Now real estate is starting to feel the pain of Fed monetary tightening.
For March, the S&P CoreLogic Case-Shiller 20 metro home price index actually fell -1.15% YoY as The Fed continues to tighten its monetary noose on the US economy.
The biggest losers in terms of home prices? The west! Los Angeles, Denver, Phoenix, Portland, Las Vegas, San Diego, San Francisco and Pramila Jayapal-ville, Seattle.
On the commercial real estate side, quarterly returns were all negative in Q1 2023. Especially office space.
California Governor Gavin Newsom (Nancy Pelosi’s newphew). “Watch me make housing values collapse!” Abracadabra!
It is not a surprise that the ill-advised COVID economic shutdowns would harm small businesses that large corporations.
Yes, The Fed’s M2 Money printing press went wild with COVID emergency refief. And so did the discrepancy between the top 1% and the bottom 50% in terms of “Share of Total Net Worth Held.” The top 1% is in blue and the bottom 50% is in red. M2 Money is in green.
Compared to pre-COVID, the top 1% increased their share of total net worth from 29.7% to 31.9%, an increase of 7.4% since January 2020. The bottom 50% fell from 30% to 28.5%, a -5% decline. An elitist wonderland!
And The Biden family keeps raking in the money far about Joe’s salary.
And I assume Fed Chair Jerome Powell and Treasury Secretary Janet Yellen also made fortunes from COVID relief.
US Treasury Secretary Janet Yellen changed the drop dead date on a US default from June 1 to June 5, daring Speaker McCarthy to step over the line. The debt ceiting is so urgent that Biden went on vacation to Delware for Memorial Day weekend. In fact, Biden and Yellen expect McCarthy to dance.
White House and Republican negotiators tentatively narrowed differences but were still clashing Friday on key issues as the Treasury Department signaled extra time was available before a potential US default.
Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debts up until June 5 if lawmakers fail to act on the US debt ceiling. That set a more pointed date for a potential default but is also four days later than her previous comments eyeing trouble as soon as June 1.
The new so-called X-date buys negotiators for House Speaker Kevin McCarthy and President Joe Biden more time to strike a deal. The negotiating teams haven’t met in person since Wednesday but spoke late into the night Thursday and were in regular communication throughout the day Friday.
Yes, there isn’t really a crisis folks. Treasury collects tax dollars continuously so Treasury can prioritze debt payments and other disbursements. The only crisis is in the minds of the media.
Deputy Treasury Secretary Wally Adeyemo warned Friday that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.
We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”
The accord would also include a measure to upgrade the nation’s electric grid to accommodate sham renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.
The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act (big whoop). Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.
What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.
Treasury’s cash balance is at a low point and The Administration threatens Social Security recipients and veterans of delayed payments … while Biden goes on vacation for Memorial Day weekend to honor veterans??
Of course, Yellen know that all The Fed has to do to increase M2 Money growth again.
Meanwhile, bankrupties among large companies are highest since 2010.
In the mortgage market, current coupon nominal spreads 9Agency MBS 30Y coupon over Treasuries) are soaring.
Meanwhile, to honor US veterans, Biden goes on Memorial Day weekend and threaten veterans with delays in veteran benefits. Sigh.
Is Joe Biden REALLY Reverend Kane from Poltergeist II??
So much for Treasury Secretary Janet Yellen’s proclamtion that inflation is transitory and would subside to under 2%. April’s core inflation (PCE Deflator) rose to 4.7% YoY. Despite M2 Money growth crashing to -4.6% YoY.
Today’s Fed Funds Futures data is pointing to another rate hike or two.
With Core PCE at 4.7%, the Taylor Rule suggested Fed Funds Target rate is now 10.57%. So, The Fed is only about half way there.
Damn it, Janet, people are suffering from the ravages of inflation and you laugh.
Peggy Lee sang it best about the US economy under Biden: Is that all there is?
According to the Bureau of Economic Analysis (BEA), US GDP QoQ rose slightly to an anemic 1.3%. Actually, this is a terrible print given the trillions in Federal spending after Covid.
Even worse, Core Inflation (PCE core prices) rose to 5%. So, unlike what Treasury Secretary Janet “Transitory” Yellen said, core inflation remains high despite M2 Money growth crashing.
Here is the rest of the story.
Before conservatives have a meltdown over the comments that will be forthcoming from Biden’s Press Secretary Karine Jean=Pierre, bear in mind that she was senior advisor and national spokesman for hard-left progressive advocacy group MoveOn.org.
She will feel obligated to howl and scream about the debt ceiling and budget with idiocy like “the economy will crash and burn if you cut Biden’s proposed budget.” Gee, for the trillions that Biden has spent, we only got 1.3% GDP growth. So her logic will be “President Biden spent trillions and we got only 1.3% GDP growth! Imagine if we spend less????”
What happened to Biden? He used to be a “reasonable” Senator (reasonable for a racist Democrat, that is), willing to negotiate with the opposition on budgetary issues and the debt ceiling. Now we have “Progressive Joe” who is acting like crazy Progressive Congresswoman Pramila Jayapal from Seattle. {Aka, Seattle’s Worst!} But his newly found Progressive identiy is leading down a terrible path. Rating agencies are putting the US of credit watch because of Biden’s newly found Progressive back bone. (Progressive means progressing towards full blown Communism).
The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.
Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification. Meantime, DBRS Morningstar placed the US ratings of AAA under review “with negative implications.”
Markets have been showing increasing nervousness over the standoff, with Treasury-bill yields slated to mature early next month surging past 7%, while the S&P 500 Index has declined for two days. Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs.
Fitch’s warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” said Lily Adams, a spokesperson from Treasury.
Biden’s childish refusal to reduce his insanely huge budget (crammed with pork for large donors and Progressives) is causing ripples to be felt overseas. Look look at the Japanese Yen.
Pramila Jayapal, Joe Biden’s intellectual soulmate.
I have gotten a flood of emails and text messages asking about what happens if Biden defaults on the US debt. In short, Biden has made a career out of spending money, as has Speaker McCarthy. They both have an incentive to raise the debt ceiling, but whether it is cuts to Biden’s insane budget (higher than Covid-era spending) and wants to raise taxes on the middle class to pay for it. McCarthy wants a trimmed budget (aka, back to pre-Covid spending levels) and NOT raises taxes. They will eventually agree somewhere in the middle (US Congress member Pramila Jayapal will be outraged, but then again, she is ALWAYS outraged like Senator Elizabeth Warren) and AOC.
The Federal Reserve has taken a brief respite from fighting inflation that they helped cause. But with $188 TRILLION in unfunded entitlements promised by politicians, The Fed will undoubtedly start buying assets again (aka, QEInfinity) and the debt ceiling will keep being raised. In essence, the DC merry-go-round is broken and politicians will keep pushing it around until it collapses.
For the moment, The Federal Reserve is reducing M2 Money (green line). With it, the US Dollar (blue line) has declined. Gold (white line fever) is on the rise along with The Fed’s effective funds rate.
WTI crude is up over 1% this AM. And gold is up 2.29%. Heating oil is up 3.56%.
Face it, I have no confidence in Treasury Secretary Janet Yellen, one of the biggest propronents of MMT (modern monetary theory or borrow and spend without consequences). Yellen is NOT making lose my blues.
Cryptos are down this morning across the board.
Remember when former Fed Chair and current Treasury Secretary Janet Yellen said that inflation was transitory? As usual, Yellen was wrong. Look at April’s new home sales. Up 4.1% since March even through M2 Money growth has collapsed.
The Taylor Rule, based on Core CPI of 5.25% (persistent, not transitory inflation Janet) suggest a Fed target rate of 11.78%. The Fed is at 5.25% and likely to pause rate hikes and maybe even lower rates again.
Confounded Interest - Anthony B. Sanders 
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