Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
While some economists are cheering the post-COVID economic recovery, I am not among them. Rampant inflation and bad economic policies are plaguing the non 1% of the population.
For example, new home sales dropped -23.1% YoY in October. As consumer sentiment for housing crashed to 63 (baseline of 100).
Why are consumers bummed-out about buying housing? How about rapidly accelerating new home prices???
Renters in the US are getting clobbered by inflation.
The US Zillow Rent Index All Homes YoY + CPI YoY is one measure of renter misery.
The classic misery index (CPI YoY + U-3 unemployment rate) is 10.80%.
Then there is inflation in food prices, gasoline, heating oil, natural gas, etc.
While Biden is releasing the Strategic Petroleum Reserves (SPR) in order to mitigate the problem that he created by terminating the energy pipelines and oil/natural gas drilling permits in the name of “Going Green!” But on the announcement of tapping the SPR, crude oil futures actually rose.
But never fear! Biden claims that his $5 TRILLION Build Back Better Boondoggle (BBBB) will ease inflation … over 10 years. And he claims that “17 Nobel Prize winners in economics have said that my plan will “ease inflationary pressures.”” I sincerely doubt that any of them actually read the 2,500 page BBBB. Rather, they likely just read the White House talking points and said “Hey, that sounds good!” Mo money, less problems?
Here is Joe Biden breaking the legs of America’s renters. Or is that multi-millionaire Nancy Pelosi?
Welcome to The Fed’s Gilded Age … for housing! The gilded age refers to the thin-veneer of gold covering up problems in the late 1800s.
Today’s gilded age is largely fueled by The Federal Reserve’s uber-easy monetary policies combined with absurd Federal government policies. The result? Thanks to inflation, REAL home prices are growing at 14.6% YoY while REAL hourly earnings are declining (-0.41% YoY).
Redfin predicts a more balanced housing market in 2022. Part of their rationale is that they predict mortgage rates will rise to 3.6%. This growth in the mortgage rate is predicted to slow home price growth to 3.2% from double digit growth currently.
While this scenario is plausible, it will require a change in direction of the 10-year Treasury yield which has been declining since 1981. 5.39% YoY inflation may encourage The Fed to raise rates.
Today’s REAL 30-year mortgage rate is -3.08% while the REAL 10-year Treasury yield is -4.67%. It will require a reduction in inflation AND an increase in the nominal rate to get to 3.6%.
With the Freddie Mac 30-year survey rate at 3.10, will a 50 basis point increase in mortgage rates send the market crashing? Not likely.
After all, the US economy is under the thumb of The Federal Reserve.
The Marty Stuart/Travis Tritt song “This One’s Gonna Hurt You (For A Long, Long Time)” seems appropriate for the plight of the middle and lower income classes in the face of high inflation. How do you spell the combination of President Biden’s policies and The Fed’s inaction on inflation? T-R-O-U-B-L-E … for the middle and lower income classes.
Over the past year, since the election of Joe Biden, the household consumption bundle (food, rent, heating, gasoline) have all risen dramatically in terms of prices. Food is up 33%, heating oil is up 89%, regular gasoline is up 61%, and effective apartment rents are up 33%.
Meanwhile, the 1% are sitting high on a mountain top obvious to the pain caused by The Federal Reserve and Biden Administration. Here is the growth in wealth by the 1% since the housing bubble burst and financial crisis compared with the bottom 50%.
A problem facing renters is the rapid growth of home prices particularly since the COVID epidemic. At least M2 Money has “slowed” to 12.80% YoY while home prices are raging at almost 20% YoY. But hopefully home price growth will slow with declining M2 growth.
Compendium of Fed Chair Jerome Powell and President Biden on vacation.
When something is wrong with the economy.
Banks park funds at The Federal Reserve in an attempt to soothe themselves.
Nothing has been the same since the housing bubble of the 2000s, the resulting banking meltdown and the takeover of the economy by The Federal Reserve.
And since the 2000s housing bubble and financial crisis, The Federal Reserve has taken control of the economy resulting in M2 Money Velocity crashing to historic lows.
UBS ran a simulation that shows stocks could lose up to 50% under rare stagflation scenario.
And The Fed says “Hold on, we’re coming!”
My reaction to Biden’s Build Back Better spending spree and The Fed keeping rates repressed.
As inflation seems unstoppable by The Federal Reserve, we are seeing the US Dollar, Gold and Ethereum soaring in price.
Persistent inflation is here to stay.
Yup, The Fed is firing blanks.
Wu-Xia employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. It can be used to summarize the macroeconomic effects of unconventional monetary policy (ZIRP + QE). The Shadow Rate is now -1.7021%.
And you wonder why we have inflation and house prices going into orbit?
With inflation also going into orbit, we see that breakeven 10 year inflation rate rising above the 5Y5Y (nominal forward 5 years minus US inflation-linked bonds forward 5 years). In other words, the US has abnormally high inflation and is expected to grow and NOT be transitory.
The Shadow knows … that the US is hyperstimulated. And inflation isn’t going away anytime soon.
Combine vaccine mandates that lower the workforce and the flood of economic and monetary stimulus by the geniuses in Washington DC, and we have a Thanksgiving problem.
The supply-chain crunch is about to hit another part of American life: Thanksgiving dinner.
Supplies of food and household items are 4% to 11% lower than normal as of Oct. 31, according to data from market-research firm IRI. That figure isn’t far from the bare shelves of March 2020, when supplies were down 13%.
For grocery shoppers this holiday season, it means that someone with 20 items on their list would be out of luck on two of them.
Although U.S. supermarket operators started purchasing holiday items early, aiming to avoid shortages, many holiday essentials are already in short supply.
Turkeys are very low in stock. By the end of October turkeys were over 60% out of stock—lower than the same time last year by more than 30 percentage points. A spokesperson for Butterball LLC, one of the largest U.S. turkey processors, said the company has been experiencing similar labor and supply challenges as other organizations and industries.
Even if you can find a turkey, prices on foodstuffs in general are up 36% from last year.
And to get to the grandparents’ house of Thanksgiving, gasoline prices (regular) are up 24.5% from last year.
You can always shop at Neiman Marcus for a half Thanksgiving dinner for … $376 + $32 shipping. Not for the average American, more for NYC and DC elitists like Biden’s OCC nominee Saule Omarova who wants to bankrupt energy companies.
Biden could lower inflation by 1) stop mandating vaccines, 2) stop shutting off energy pipelines and oil exploration, 3) stop spending trillions of dollars other than Social Security, Medicare and defense.
Frankly, Thanksgiving has gotten so expensive due to Biden’s Reign of Error that I am thinking of alternatives to turkey. Like a Jersey Mike’s turkey and provolone sub.
Yes, the US economy has been greatly overstimulated by the Federal government (fiscal stimulus) and The Federal Reserve (monetary stimulus). This has caused inflation that we haven’t seen in a long time.
How overstimulated in the economy? The REAL 10-year Treasury yield (nominal less CPI YoY) is now -3.9364% and the 30-year REAL mortgage rate is -2.30%.
When will Federal stimulypto end?
Cryptocurrencies are a runaway train. In particular, Ethereum has gone from $129 on April 1, 2020 to $4,358 today.
Yes. March 2020 is when Covid struck and The Federal Reserve counterattacked.
Has volatility increased for the cryptos? Of course. The skew to the upside is steep on Bitcoin.
Confounded Interest - Anthony B. Sanders 
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