Commodities Versus S&P 500 And The New World Order (Crashing Currencies And Flight To Commodities) The End Of US Dollar Hegemony?

Here is Dvorak’s New World Symphony, an appropriate piece the global turmoil that has taken place after Russia’s invasion of Ukraine.

Here is the ratio of the S&P 500 index against the Bloomberg Commodity Price Index. This ratio is plotted against The Federal Reserve’s balance sheet of assets. Notice the decline in the Commodity Ratio in 2022, even ahead of the Russian invasion of Ukraine.

Global currencies, on the other hand, have been really crushed since the Russian invasion of Ukraine. The Japanese Yen, China’s Renminbi and Europe’s Euro relative to the US Dollar are falling due to a variety of reasons. Covid lockdown in China, Japan’s insistence on monetary easing while other Central Banks are tightening and the Euro with Russia threatening nuclear war.

WTI Crude is back to $100 a barrel. Critical metals are down today related to a slowing global economy and wheat is up 2.75%.

Could it be that US Dollar hegemony is nearly over and commodity-backed currencies are the way of the future?

Slippin’ Into Darkness! Dallas Fed Manufacturing Index Plunges To 1.1 As M2 Money “Slows” To 11% YoY (Will The Fed Reinstate Its “Low Rider” Interest Rate Policies?)

Slippin’ into darkness!

M2 Money stock YoY skyrocketed during the Covid mini-recession, peaking at 21% during February of 2021. The Dallas Fed manufacturing outlook grew to 38.1 in March 2021.

However, as M2 Money growth has slowed 11%, the Dallas Fed manufacturing outlook has plunged to near zero.

So, with the economy faltering (and REAL wage growth in negative territory), will The Fed reinstate its “Low Rider” interest rate policies?

The US Treasury 10Y yield is down -12.5 basis points (never a good sign as investors buy Treasuries in a flight to safety).

Crude oil is down below $100 again and is down -5.61% today on … problems everywhere. ALL metals are down.

Cryptos are getting clobbered today as well.

Between Biden’s “Going green!” policies and The Fed’s allegedly trying to fight inflation, markets are getting trashed.

Fauci’d! Office Occupancy Remains Low At 42.8% While Office Prices Soar +16.2% With Fed Stimulus (Average Time To Foreclosure In Hawaii Is Over 7 Years??)

Do you want to see a magic trick? Like how governments shut down the US economy resulting in collapsing office occupancy rates while the price of office buildings rose dramatically (+16.3% since Q2 2020)?

Kastle’s “Back to work barometer” is showing that the 10 city average occupancy rate in the US is now only 42.8% as remote working has caught on. And the fear of yet another Covid mutation is keeping office occupancy below 50%.

Even Washington DC, home of Dr. Anthony Fauci, has only a 37.5% occupancy rate. Of the top 10 cities, Austin TX has the highest office occupancy rate at 62.4%.

So, the magic trick is not why America is so slow to return to the office, but why commercial office prices are rising so fast. Ah, Federal government STIMULYTPO! Aka, The Federal Reserve has been overstimulating the economy since 2008 and particularly since 2020 and Covid.

Speaking of a magic trick, here is how government’s make the average time to foreclosure up to over 7 years in Hawaii and 4.4 years in New York. In simple terms, you can buy a home in New York, never make a mortgage payment and live rent free for an average of 4.4 years.

Of course, the states with the longest average times to foreclosures at JUDICIAL foreclosures states (seen here is gray). Hawaii is now a judicial foreclosure state. That is, you must line up for a judge to hear your case.

So, the government’s magic trick is to 1) shut down local economies in fear of Covid, 2) provide excessive fiscal and monetary stimulus to combat the shutdown, 3) watch office building prices soar with stimulus as office occupancy remains below 50%.

Do you want to see a magic trick? Watch The Fed try to tighten monetary easing and NOT crash the economy.

Update for 04/25/2022. 10Y Treasury yields DOWN 8.7 bps.

And commodities are tanking. WTI oil is down 5%, iron ore is down almost 7%.

And the Dow is diving with increased expectations of Fed monetary tightening, but the expectations (green line) have been declining this morning.

Fed Fireball! Mortgage Rates Climb To Highest Level Since 2009 As Fed Attacks Inflation And Markets Get Crushed (S&P 500 Index Down 7% In April, Bitcoin Down 11%)

Its Saturday and I am dreading markets opening on Monday. But here is where we sit today.

The 30-year mortgage rate has soared to 5.29%, the highest level since 2009 at the beginning of Obama’s Presidency. Since 2009, we have seen the purchasing power of the US Dollar decline further (orange line) while inflation (blue line) has soared. M1 (yellow) and M2 (green) has been growing since the financial crisis, but really took-off with the Covid outbreak in 2020 and The Fed’s massive overreaction coupled with Federal government stimulus.

Since the creation of The Federal Reserve System under President Woodrow Wilson, the purchasing power of the US Dollar has collapsed so much that $10 in 1913 in worth 34.8 cents today. But notice that since 1949, the CPI YoY has rarely been negative meaning that prices are pretty much only going up.

Instead of April showers bring May flowers, it is April expected Fed rate hikes (now 10.408 rate hikes by February 2023) bringing declining assets prices. In April so far, the S&P 500 index is DOWN 7%, the 10-year Treasury Note price is DOWN 5%, Bitcoin is DOWN 11%, the 3.5 coupon agency MBS price is down 3.2%.

We are seeing increased volatility in both the equity and bond markets.

Well, Powell and The Fed are hurling fireballs at mortgage rates and asset prices in April.

Equity Markets Get “Powell’d” After Fed Chair Backs Front-Loading Rate Hikes, Says Half-Point on Table (Dow Down Over 600 Points On “Foul Powell” Utterance)

And what an unappetizing table it is!

Federal Reserve Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases, including a half percentage-point hike next month.“

I would say that 50 basis points will be on the table for the May meeting,” Powell told an IMF-hosted panel on Thursday in Washington that he shared with European Central Bank

President Christine Lagarde and other officials. “We really are committed to using our tools to get 2% inflation back,” he said, referring to the Fed’s target for annual price increases.

Central bankers are grappling with some of the highest inflation rates since the 1980s that are being further pressured as Russia’s invasion of Ukraine boosts food and energy prices and China’s coronavirus lockdowns tangles supply chains anew.

Equity markets in the USA and Europe are getting “Powell’d” and “Lagarde’d” today. As of noon today, the Dow is down 628 points (or -1.81%). Euro Stoxx 50 is down -2.24%.

I remember appearing on Fox Business’ Stuart Varney and Company where he asked me what will happen when The Fed starts to raise rates in a serious fashion. I made a ka-boom gesture at which he laughed. Stuart, I wasn’t joking!

Foul Powell on the Prowl, driving up mortgage rates, and driving down equities and bonds.

How Biden And Congress Helped Crush Netflix Stock Price (Declining REAL Earnings Led To Crash In Neflix Subscriptions)

Netflix, the movie and TV show subscription service, suffered an extraordinary decline in its stock price. But like the film “Margin Call” that pretends the Lehman Brothers bankruptcy in 2008 was a surprise, it really is no surprise that Netflix is getting crushed. Why? Thanks to Bidenflation, millions of American households are suffering (REAL average hourly earnings are declining under Biden) and many of those were Netflix subscribers.

Netflix’ earnings per share soared when Biden was first installed as President, likely due to effects of Biden’s/Pelosi’s/Schumer’s Covid stimulus. But alas, fiscal stimulus is short-lived but the negative effects of inflation are long-lasting.

Inflation Joe, the bully of the middle class and low-wage workers. But at least millionaires will get more electric cars charging stations! /sarc

The Big Short 2? Subprime Credit-Driven Bubble Versus Fed Loose Policy Driven Bubble (Will The Fed Burst Yet Another Housing Bubble? Michael Burry Thinks Not)

The book and movie “The Big Short” revolved around the 2005-2007 housing bubble driven by lending to borrowers with subprime credit (and little or no underwriting). As we know, Bear Stearns, Lehman Brothers and other investment banks too large positions in subprime asset-backed securities (SABS) that became highly toxic once the demand for high-yield subprime ABS dried up. The decline in US home prices coupled with soaring 90-day mortgage delinquencies led to the failure of Bear Stearns and Lehman Brothers along with Fannie Mae and Freddie Mac being put into conservatorship by their regulator.

Fast forward to today. Mortgage originations by credit scores of 620 or less have shriveled while home price growth YoY is even higher than the subprime mortgage crisis of 2005-2007. So, is the US facing another “Big Short” scenario? Yes and no.

The answer is no in that lenders have tightened their credit box sufficiently so that investment banks are no longer buying large quantities of subprime credit paper. The answer is yes if we consider that the current housing bubble is fueled by extraordinary monetary stimulus due to Covid (as well as rampant Federal government stimulus spending).

Following the Federal Reserve of Dallas’ lead, here is a chart of REAL home price growth YoY against REAL average hourly earnings YoY. I added REAL Zillow house rents YoY as well.

Look at the affordability gap during the Subprime Bubble of 2004-2006 and then the Fed Bubble of 2020 to today. Both bubbles show a disconnect between REAL home prices and REAL wages. REAL Zillow home rents are not as high as REAL home price growth, but still how a huge gap in rent affordability.

So, what can upset the apple cart? How about Jay and The Gang jacking up mortgage rates making home affordability even worse (unless it slows home price growth).

Thanks to The Fed’s propose quantitative tightening, mortgage rates are soaring and mortgage costs along with them. Mortgage costs, thanks to The Fed driving up housing prices AND mortgage rates, are substantially higher than during the subprime mortgage housing bubble.

The Fed’s whipsaw approach helped crash home prices during the subprime mortgage crisis by dropping rates too fast at first (helping to ignite a housing bubble) then raising rates too fast (helping to crash housing prices).

Now, Michael Burry of The Big Short fame (portrayed by Christian Bale) thinks that The Fed has no intention of fighting inflation meaning that he doesn’t think The Fed will raise rates all that much. “The Fed’s all about reloading the monetary bazooka. So it can ride to the rescue & finance the fiscal put,” Burry added.

Yikes! Time for investing in cryptocurrencies like Bitcoin and Ethereum?

This scene from the film “The Big Short” won’t be happening again. But I agree that no one is paying attention … again.

PPI Final Demand Prices Highest In History As 2Y Treasury Yield Declines, Mortgage Rates Steady At 5.14% (All Roads Lead To … Joe And Jay)

Harry Truman once uttered the phrase “The buck stops here.” Joe Biden’s catchphrase should be “It’s Russia’s fault!”

Well, all roads led to Joe and Jay. Here is a chart of Producer Price Index (Final Goods) prices YoY, now the highest in history. At least, gasoline prices are declining to $4.083 (they were $2.40 when Biden was installed as President). But inflation is out of control and the 30-year mortgage rate is now 5.14% (mortgage rates were 2.82% in February 2021 just after Biden took control).

Just in case you wonder why I follow Fed Funds Futures data so closely.

Equity markets are up strongly today as markets sense a weakening in resolve by The Federal Reserve (number of expected rate hikes dropped at 10AM EST).

It appears that we have a “Powell in the headlights” problem.

T-Dazzle! Inflation Crushing Households Under $60k, Russian CDS Indicating 99% Probability Of Russia Debt Default Over Next Year (WTI Crude UP 2%+, Wheat UP 3%+)

As we are painfully aware, The Fed’s exaggerated monetary flood combined with Federal stimulus spending has led to horrible inflation.

Yes, despite what government talking heads say, Federal stimulus increases demand for goods, the supply is generally slow to respond resulting in rising prices. Then government policies driving up energy prices also leads to highers prices. Throw in Federal Reserve monetary stimulypto and we have this chart from hell from Penn-Wharton. The chart shows that households earning less that $60,000 experience higher expenses due to rising prices than their gain in earnings.

Speaking of the government push to “go green” I saw an ad for a Mercedes Benz EQ sedan that I admit looked really cool, but no price given. I went to Car and Driver’s website and it said “Starting at $103,360.” I’ll take a hard pass, but you can see why households making over $150,000 per year have rising additional expenses due to price increases. To paraphrase April Ludgate, “Thanks for nothing President Biden and Fed Chair Powell.”

Another chart from hell is the Russian USD Credit Default Swap (CDS) curve. It is spiking at over 20,000.

The one-year Russian CDS is currently at a whopping 20,336 indicating that there is about a 99% of a Russian default over the coming year. As someone who lived through the 1998 Russian credit default scare on Wall Street, this will send a shock wave through credit and Treasury markets.

On the US Treasury front, this chart shows how steeply sloped the US Treasury actives curve has become. Steep until 3 years, then flat. I call this chart “T-Dazzle!” T-Dazzle because I can’t believe how badly the Biden Administration and The Federal Reserve are screwing up the country.

Crude oil? WTI Crude is back to almost $100 per barrel while Brent Crude is at $102.78 per barrel. Wheat is up 3.22% thanks largely to problems related to Russia invading Ukraine (Europe’s bread basket) and a dismal Chinese wheat harvest.

Cryptocurrencies, the alternatives to the US fiat dollar, are rising (in particular, Bitcoin and Ethereum).

Of course, I have to finish up with the soaring 30-year mortgage rate.

Here are Treasury Secretary Janet Yellen and Transportation Secretary Pete Buttigieg trying to convince people that Treasuries are fantastic and to avoid alternatives to fiat currency like Bitcoin, Ethereum, Stablecoin or anything else.

When Fed Gov Brainard Talks, Markets Listen! Brainard Says Fed Will Shrink The Balance Sheet At A Rapid Rate (10Y Treasury Yield Rises 16 BPS As Nasdaq Falls 300 PTS) Mortgage Rates Will SOAR!!

When Federal Reserve Governor Lael Brainard speaks, markets listen

Federal Reserve Governor Lael Brainard said the U.S. central bank will continue to tighten policy methodically and shrink its balance sheet at a rapid pace as soon as May.

Brainard’s hawkish remarks sent bond prices crashing and 10Y bond yields up over 16 bps.

While Bankrate’s 30Y mortgage rate is down slightly today, the surge in the 10Y and 2Y Treasury yields could push mortgage rates above 5% by tomorrow,