The Great Reset … In Asset Returns (Commodities Soaring, Treasuries Tanking, Home Price Growth Still 4x Soaring Mortgage Rates)

Numerous elites like Klaus Schwab of The World Economic Forum (and Davos fame) are calling for a “Great Reset” in global economies. But perhaps “The Great Reset” in taking place in asset markets … and not in a good way.

Consider what has happened since President Biden was elected. The S&P 500 total return index (green index) has risen thanks to The Federal Reserve’s balance sheet expansion (orange line) with COVID. Until 2022 when the expectation of Fed rate hikes surged from 3 in late December 2021 to 9.4 expected rate hikes over the next 12 months (yellow line).

The US Treasury total return index (white line) has gotten crushed with The Fed’s signals of rate hikes and quantitative tightening (QT). Call it “White Line Fever.” The commodity total return index (blue line) has surged as The Fed’s expected rate hikes have risen from 3 to 9.4 in 2022.

Is The Fed causing a Great Reset in housing? In 2022, we see the surge in Fed rate hike expectations leading the 30-year mortgage rate to be nearly 5%. The last Case-Shiller home price index was for January and it was still raging at 19.17% YoY growth. Let’s see if The Fed’s QT will slow down home price growth. But home prices are growing at 4x 30-year mortgage rates.

I hope that Klaus Schwab and the global elites pick us up on our way down. But probably not.

So let’s see if The Fed still is going to withdraw its “Snake Juice” from the market.

Alarm! Massive Divergence Between US Treasury Yield Curve And Near-term Forward Spread (Biden Considers Releasing HUGE Oil Release To Control Inflation)

Alarm!

There is a massive divergence between the collapsing US Treasury 10Y-2Y yield curve and the near-term forward spread. The near-term forward spread is the difference between the implied
interest rate expected on a three-month Treasury bill six quarters ahead and the current yield on a three-month Treasury bill.

As we already know, the 10Y-5Y yield curve has inverted signaling a coming recession.

This divergence between the Treasury yield curves and the near-term forward spread is occurring as US inflation hits the highest rate in 40 years.

Now President Biden is considering “Releasing the Kraken!” That is, releasing a huge amount of crude oil from the nations Strategic Petroleum Reserve (SPR) in order to combat inflation. If the purpose of Biden’s executive orders were to limit fossil fuel production and consumption, why doesn’t Biden simply rescind his executive orders and allow the construction of the Keystone Pipeline?

The Powellenburg Omen! Will Powell Pop The Asset Bubble Created By The Fed’s Repeated Policy Errors? (Blackrock Rises, NVR Homes Gets Crushed)

As of today, Jerome “Nero” Powell and The Gang at The Federal Reserve have not trimmed the Fed’s balance sheet and have only raised their target rate once under President Biden.

Here is the Hindenburg Omen, named for the catastrophic explosion on May 6, 1937 at Lakehurst Naval Air Station in New Jersey. The Hindenburg Omen was flashing red before the stock market correction of late 2007-2009. But, the Hindenburg Omen has flashed red repeatedly since the financial crisis, yet the S&P 500 index has kept rising. The reason? Repeated policy errors by The Fed leaving monetary stimulus in place for too long leading to a bubble forming in the stock market.

The Shiller CAPE (Cyclically-adjust price-earnings) ratio is at the second highest level since the 1800s. The highest point was the infamous Dot.com bubble and bust in 2000/2001.

Since The Fed continues to say “We have a plan!” to slow/shrink The Fed’s balance sheet and raise their target rate … it has not done anything yet (other than a 25 basis point bump at the March meeting).

I am not advocating technical analysis for stocks, but the Bollinger Band analysis for the S&P500 index is showing the S&P 500 index near the top band indicating that a decline in likely.

Today, the US equity market in essentially flat given the massive uncertainty about the Russia/Ukraine situation and whether the US economy is slipping into darkness. But this morning, Federal government blessed companies (healthcare, solar energy and Blackrock) are doing quite well, while homebuider NVR is taking it on the chin thanks to hints that The Fed will raising rates.

Now, NVR (Northern Virginia Homes, Ryan Homes) had explosive earnings growth in their February 1, 2022 report.

But the market is pricing in the crushing Fed rate hikes that are expected.

So, will Foul Powell pull a Volcker and raise rates and crush the economy (and stocks)? Or will Foul Powell And The Fed gang let inflation burn out of control, but preserve the massive asset bubbles?

Fed Expected To Raise Rate 8+ Times Over Next 12 Months Leading To Surge In 2-year Treasury Yield And Mortgage Rates (Powell’s Money Gun To Slow Rate Of Fire)

This is the chart from hell as The Fed is expected to take interest rates higher.

At least mortgage rates are down slightly today.

With 8+ rate hikes forecast over the next twelve months. Meaning that Powell’s Fed money gun is going to slow.

Pelosi Cola! Latest Congressional Spending Spree Includes 21% Increase In Congressional Staff Allowance While Social Security Increases (COLA) By Only 5.9% (Pelosi/Schumer Prioritize DC Staffers Over Retirees)

US Speaker of the House and American Oligarch Nancy Pelosi together with Senate Majority Oligarch Charles Schumer passed yet another massive spending bill that seemingly benefited them and not the American middle class.

As part of the $1.5 trillion omnibus spending bill released Wednesday, the $5.9 billion fiscal 2022 Legislative Branch funding portion would substantially boost the office budgets of House members to pay staff more.

This legislation would provide $774.4 million for the Members Representational Allowance, known as the MRA, which funds the House office budgets for lawmakers, including staffer salaries. This $134.4 million, or 21 percent, boost over the previous fiscal year marks the largest increase in the MRA appropriation since it was authorized in 1996, according to a bill summary by the House Appropriations Committee. For paid interns in member and leadership offices, the House would get $18.2 million.

Unfortunately, retirees received a Social Security Cost of Living Adjustment (COLA) of only 5.9%.

This is especially unfortunate given at inflation is growing at 7.9%. If we remove food and energy (two important categories for consumers and retirees), core inflation is growing at 6.4% YoY. As such, Social Security COLA doesn’t even keep pace with CORE inflation, let alone food and energy costs.

In August, Speaker Nancy Pelosi announced staffers’ salaries could exceed those of lawmakers. Members in both the House and Senate, with the exception of leadership, make an annual salary of $174,000. Staffers can make up to $199,300.

The Hill has a nice summary of the latest Pelosi/Schumer Spendapalooza, “Lawmakers feast on pork in omnibus.”

After an 11-year drought, congressional earmarks are back with vengeance.

The $1.5 trillion, 2,741-page omnibus spending package is loaded with funding for lawmaker pet projects, some of which could help incumbents in this fall’s elections.

The legislation includes more than 4,000 earmarks, according to a list of projects provided to The Hill by a Senate Republican aide that spanned 367 pages.

One of the biggest winners was New York — thanks to Senate Majority Leader Charles Schumer (D-N.Y.), who is up for reelection this year.

Schumer’s name is attached to 59 earmarks totaling nearly $80 million in the omnibus’s transportation and housing and urban development (HUD) section alone, according to a review by The Hill. He successfully requested funding for the projects either individually or with other lawmakers from his home state.

Is wild-spending Pelosi actually “The Bride of Chucky (Schumer)”?

Who Benefits The Most From Federal Reserve Stimulypto? (Hint: NOT The Bottom 50% Of Population)

Following the financial crisis of 2008/2009, The Federal Reserve began their dramatic purchase of assets such as Treasuries and Agency mortgage-backed securities (AgencyMBS). And then Covid struck and The Fed went berserk with asset purchases.

So, who benefited the most? The top 1% or the bottom 50%?

Answer? The top 1%. The share of total net worth spiked dramatically after the Fed infusion.

Even the bottom 50% benefited with The Fed’s Covid stimylpto, but no where near how the top 1% benefited.

World Economic Forum’s elitist Klaus Schwab approves of this message!

On an unrelated note, the US Treasury yield curve is strongly UPWARD sloping, while Russia’s and Ukraine’s yield curves are inverted and collapsing.

Consumer Confidence Plunges As Inflation Worsens (UMich Conditions For Buying Homes Declines To 70)

As inflation worsens, the University of Michigan survey of consumers fell again as US inflation worsens.

On the housing front, buying conditions for houses fell to 70 as a result of soaring home prices.

MY confidence in Biden and Congress has certainly declined.

Friday Update: US Mortgage Rate Rises To 4.32% As 10-year Treasury Yield Breeches 2% (6+ Rate Increases Baked Into Fed Futures Data)

Good morning!

US 30-year mortgage rates rose to 4.32% (Bankrate) as the 10-year Treasury yield broke through the 2% barrier. This is happening as Fed Funds Futures are pointing toward 6+ rate increases over the coming year.

Actually, Fed Funds Futures are pricing in 7 rate increases over the coming year.

At least all is quiet on the commodities front.

So, it appears that Fed Chair Jay Powell will follow-through with numerous rate hikes over the coming year.

I guess Powell is tired of being a low-rate chump instead of a high-rate champ?

An American Pickle! Nickel Prices SOAR +66.25% As Stock, Bond And Energy Volatility Skyrocket

America is suffering a “nickel pickle.” As the US Federal government pushes their green energy agenda, Mayor Pete Buttigieg (aka, Transportation Secretary) on Monday said “the American people stand to benefit from having more electric vehicles on the road.” Unfortunately, electric vehicles use nickle in their production and guess who produces the most nickel? Russia.

Nickel futures were up +66.25%.

Unfortunately, Russia is the largest miner of nickel. But Brazil is second.

We are also seeing rising volatility of US stocks (VIX) and bonds (MOVE) as Russia’s invasion of Ukraine continues and crude oil prices soar.

While NYM WTI Crude volatility is up +296%, NYM DUBAI Crude is up +4,626.19%, and NYM JKM (Japan/Korea) natural gas volatilty is up 1,900%.

Now, US oil and gas exploration and drilling rig count has almost doubled under Biden as oil price surge.

We are in an American pickle since Russia is a major supplier of oil and natural gas as well as nickel.

On a personal note, I feel good!

Perhaps the US has to send out the bat signal to help reduce energy prices.

Weekend Update: Oil, Commodities, Wheat, Soaring In Price, Mortgage Rates Down (Inflation Forecast To Worsen)

This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).

Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.

The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”

On Friday, the US Treasury 10-year yield declined 11 bps.

And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.

The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.

But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).

And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.

And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.

Its anyone’s guess as to whether The Fed will actually tighten monetary policy.