Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Sometimes I wonder if The Federal Reserve Board of Governors pays attention to economic news. For example, the Atlanta Fed’s GDPNow forecast for Q2 was released today at -0.002%. So what does The Fed do? They raised their target rate by 75 basis points to 1.75%.
Apparently, The Fed has chosen to fight inflation rather than help the economy.
I just read that President Biden has never been more optimistic about the US economy than he is now.
Well, today’s closing bell is not optimistic and is downright bearish.
The US Treasury 10-year yield rose … ANOTHER … 11.3 basis points as rumors circulate that The Fed might actually raise their target rate by 75 basis points.
And the venerable Dow (DJIA) is down -152 points today.
Markets are anticipating an increase of The Fed Funds target rate from 1% to 1.568%, less than the rumored 75 basis point increase being bandied about.
At least Columbus Ohio home prices are growing slower than the national average.
If Biden is wildly optimistic about the economy, then he needs to get out of The White House and talk to average Americans and not people like Robert De Niro.
US home prices are still skyrocketing as The Federal Reserve kept its massive foot on the monetary accelerator pedal.
CoreLogic’s home price index grew at a 20.9% YoY pace in April, but is expected to slow to 5.6% YoY in late 2022.
Remember peeps, The Fed still have its staggering monetary stimulypto in place.
The Fed is signaling its withdrawal of stimulus, causing mortgage rates to soar.
Given the slowdown of the US and global economy, we shall see if The Fed keeps to its tightening plans. As of today, the market is expecting The Fed to raise its target rate from 1% to 3.819% by February 2023. That is a 291% increase in The Fed’s target rate.ng
The Fed trying to tame inflation (caused by The Fed and Biden’s energy policies and Congressional spending) is like Curly trying to eat oyster stew.
The US Treasury 10Y-5Y yield curve has gone into negative territory (which usually occurs before a recession). At the same time, US mortgage rates are climbing like Tom Cruise in “Top Gun: Maverick” to 5.87% as The Fed tightens its choke hold on markets.
The 10Y-5Y Treasury curve typically goes negative before a recession.
And then we have today’s PPI report (Producer Price Index), rising 10.8% YoY as M2 Money stock starts to decline a bit.
Here is a better view of mortgage rates under Biden/Powell.
I hate this chart from John Burns.
Biden/Powell/Pelosi/Schumer are collectively “Mr Freeze.”
Off to bad start this week. The 10-year Treasury yield rose 11 basis points at 8am EST while the S&P 500 E-mini futures are down -2.5%.
And then we have this scary chart of mortgage rates. Bankrate’s 30-year mortgage rate is now up to 5.78%.
And then we have Bitcoin. Bitcoin is struggling as The Fed tightens the noose on the US economy with expected Fed rate hikes and a rising US Dollar.
I’ve got a whole lotta anxiety over this week.
The dynamic duo.
Up, up and away in our inflationary balloon!
Regular gasoline prices have breached the $5 a gallon barrier, the highest in recorded history. And it is even worse in states like California where regular gas prices have been above $7 per gallon.
Bankrate’s 30-year mortgage rate is now 5.78%, the highest since 2008. And rising really fast as The Fed tightens the monetary noose.
Speaking of noose tightening, the 2-year US Treasury Note yield is rising awfully fast.
The US Treasury 10Y-2Y curve slope just flattened to 8.819 bps and challenging the 0% grade awfully fast.
The US Dollar is soaring as US inflation soars, consumer purchasing power (green line) collapses along with M2 Money Velocity.
There is little doubt that soaring inflation, gasoline and food prices have hurt Biden’s popularity as well as the Democrats popularity ahead of the upcoming mid-year elections. People for the most part vote with their wallets.
According to estimates by Bloomberg Economics, US households will spend $5,200 more this year than they did last year on the same consumption basket.
That breaks down to $433 extra in expenditures every single month. That is what is called “the inflation tax.” And it hurts.
Call this The Inflation Tax Blues.
President Biden met with Federal Reserve Chairman Powell to discuss how to control the inflation that is crushing the middle class and low-wage workers.
Here is a good example of why Biden is worried. There is a mid-term election on the horizon and people are angry and scared. Housing, generally the largest asset owned (or rented) by a household is simply unaffordable thanks, in part, to the over-stimulation of the economy by 1) The Federal Reserve in terms of money printing and 2) the Federal government in terms of fiscal stimulus in response to the Covid outbreak in March 2020.
In nominal terms, the gap between US home prices (Case-Shiller National Home Price Index YoY – US Average Hourly Earnings YoY) is near the all-time high.
Yes, home price growth exploded upwards when The Fed rapidly expanded their balance sheet in response to the Covid outbreak … and only now are considering shrinking the balance sheet.
In terms of house prices, CoreLogic has a nice chart depicted the odds of home prices dropping over the coming year. I circled Columbus Ohio because that is where I am moving (knock on wood).
And then we have the 30-year mortgage rate rising with The Fed’s expected tightening of monetary policy. That will certainly make housing even less affordable, unless house price growth cools dramatically.
You might as well face it, we’re addicted to gov.
Doctor, doctor (Yellen), we’ve got a bad case of UNAFFORDABLE HOUSING.
German inflation hit another post-World-War-II record high, piling pressure on The ECB’s need to exit from crisis-era stimulus after numbers from Spain also printed hotter than expected.
Driven by soaring energy and food costs, this morning’s data showed consumer prices in Europe’s largest economy surged 8.7% YoY – far hotter than the +8.1% expected (the highest since the start of the monthly statistics in 1963).
And top of that, the German 10-year Bund rate rose +9.4 BPS this morning, although Finland, Hungary and Slovakia all rose above +10 BPS.
While US markets are closed today in honor of Memorial Day, the US Treasury curve (10Y-2Y) has stabilized at 25.8 basis points after the initial shock of The Fed finally raising rates for the first time under Biden.
Then there is this headline: Biden to Meet Powell to Discuss Economy Amid Inflation Pain. So much for Fed independence. I wonder if Powell will say “Joe, have you ever considered canceling your executive orders on oil and natural gas exploration?”
Or perhaps Powell can bring Randy Newman to The White House to sing “Mr. President, have pity of the working man.”
OR maybe Biden can tell Powell to pause monetary tightening to avoid mortgage rates from rising to disastrous levels.
The numbers keep getting worse.
The University of Michigan Consumer Survey showed a decline in May to 58.4 (100 is baseline). Soaring inflation is a likely culprit.
But the truly horrible survey result is the UMich Buying Conditions for Houses, plunging to 45. The reason? Crazy, expensive house prices courtesy of The Federal Reserve and rising mortgages (also, courtesy of The Federal Reserve).
The buying conditions for houses is now the lowest in the history of the University of Michigan consumer survey. In fact, consumer sentiment for housing is far lower than during the awful housing bubble burst of 2008 and the subsequent financial crisis.
And the US economic surprise index has turned negative.
Here is Fed Chair Jerome Powell wielding his monetary bat called “Lucille.”
US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.
The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.
It hurts to be in the middle class under Biden.
Confounded Interest - Anthony B. Sanders 
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