It was a surprise to see 6.29 million home sold SAAR in September. That is a 7% MoM growth rate.
The median price of existing home sales GROWTH slowed to 15.85% YoY (it was over 24% for the last two months).
And INVENTORY of existing homes for sale remains MIA.
Perhaps President Biden can issue an executive order forcing households to place their homes up for sale if they refuse to get vaccinated for Covid. /sarc
Has The Federal Reserve lost control of the economy? And inflation? The answer is likely yes. Why?
The Covid crisis has been played by the Federal government as an excuse for insane levels for spending coupled with massive monetary stimulus from The Federal Reserve.
As an example of The Fed losing control is US savings. The Fed’s model is to drive savers into consumption, therefore raising production and increasing GDP growth. But alas, The Fed can’t overcome the fear faced by consumers with Covid, Covid shutdowns, and rapidly rising prices.
(Bloomberg) — Consumers in Europe and the U.S. aren’t rushing to spend more than $2.7 trillion in savings socked away during the pandemic, dashing hopes for a consumption-fueled boost to economic growth on both sides of the Atlantic.
In the wake of lockdown easing during the northern hemisphere’s summer holiday season, excess savings in euro-area bank balances declined only marginally in August, and Italy still recorded an increase, according to calculations by Bloomberg Economics. In the U.S. there has also been no drawdown, the figures show.
The absence of a consumption surge that had been anticipated by some economists may speak against the prospect of a lasting inflation shock feared by central banks. While higher balances could help households cope with skyrocketing heating bills, tepid demand might temper businesses’ ability to push through permanent price increases.
In the USA, we see accumulated savings despite near-zero deposit rates at banks.
To be sure, The Fed reacted (or overreacted) to the Covid outbreak by increasing the money supply and their purchase of Treasuries and Agency MBS as the Federal government went on a wild spending spree.
But with trillions in Stimulypto Federal spending and Fed money printing, the bottlenecks in the economy (which apparently weren’t known before … ) have contributed to massive price increases that aren’t going away any time soon.
Notice how Fed monetary policies changed after the housing bubble burst and ensuring financial crisis/Great Recession. Before 2008, The Fed periodically whipsawed their Fed Funds target rate. But since late 2008, we have seen hardly any move from The Fed (except for 2017-2020 while Trump was President). For Obama,
Here is a look at The Fed’s record under Obama, Trump and Biden. The Fed raised their target rate only once under Obama until Trump was elected. Then The Fed raised rates 8 times. Then began lowering them again (5 times) leading to a big drop when Covid stuck. So for Trump, The Fed changed their target rate 13 times compared to 1 rate change under Obama and none under Biden.
And the above chart is only The Fed’s target rate. My point is that Yellen failing to raise rates under Obama has resulted in this over DC-Stimulypto we are seeing today.
Note the difference in Fed policies BEFORE the financial crisis. We need to return to a normal Fed policy rather than the hyper-inflationary zero-rate, QE policies since 2008.
M2 Money velocity (GDP/M2 Money) remains near an all-time low.
But given DC’s spending spree and all-time lows for M2 Money Velocity, The Fed is going to need to keep purchasing trillions in debt at low interest rates. The abnormal Obama years (Bernanke/Yellen) are the NEW abnormal. Or should I say abby normal policies?
Dr. Frederick FrankensteinAre you saying that I put an abnormal brain into a seven and a half foot long, fifty-four inch wide GORILLA?
So, yes, Bernanke and Yellen put into place abnormal policies that Powell is following into the world’s largest economy (or gorilla).
Only Igor and The Federal Reserve would pick such abnormal policies that ultimately lead to massive misallocations and inflation.
On a side note, do Biden and Transportation Secretary Pete Buttigieg really believe that they can fix the backed-up ports that are flooded with cargo thanks to Stimulypto? By Christmas??
Not with natural gas prices up 90% since January 4th!
The US Producer Price index (Final Demand) rose to a blistering rate of 8.6% YoY.
Will this translate to higher consumer prices? Of course it will.
When The Fed or the Biden Administration says that inflation is transitory and will be fixed once we unclog the shipping pipes, remember this warning from the UN that global warming will wipe out entire nations if not reversed by 2000. So, it is too late! I am buying a gas-guzzling Cadillac Escalade with a monster V-8 engine!! (Not really, I am more of a Ford kind of person).
At least the Atlanta Fed’s President Raphael Bostic finally admitted that inflation isn’t as transitory as he previously believed. The Fed dumped trillions in liquidity into an economic system that was unprepared for it, and he is surprised that prices are going nuts?
The consumer price index increased 0.4% from August, according to Labor Department data released Wednesday. Compared with a year ago, the CPI rose 5.4%, matching the largest annual gain since 2008. Excluding the volatile food and energy components, so-called core inflation rose 0.2% from the prior month.
Price Pressures Persist
U.S. headline inflation rose more than forecast in September.
Source: Bureau of Labor Statistics, Bloomberg survey
The median estimate in a Bloomberg survey of economists called for a 0.3% monthly gain in the overall measure and a 0.2% advance in the core rate.
A combination of unprecedented shipping challenges, materials shortages, high commodities prices and rising wages have sharply driven up costs for producers. Many have passed some portion of those costs along to consumers, leading to more persistent inflation than many economists — including those at the Federal Reserve — had originally anticipated.
The pickup in price growth seen last month reflected higher food and shelter costs. Meantime, measures of used cars and trucks, apparel and airfares cooled.
U.S. equity futures fluctuated and Treasury yields were little changed following the report.
Hotels, Rents
The CPI data reflects crosscurrents in the economy. Hotel fares fell, reflecting the impact of the delta variant on travel, but inflation is broadening out beyond categories associated with reopening.
Higher home prices are now starting to filter through in the data. Rent of primary residence jumped 0.5%, the most since 2001, while a measure of homeowners’ equivalent rent posted the biggest gain in five years. Shelter costs, which are seen as a more structural component of the CPI and make up about a third of the overall index, could prove a more durable tailwind to inflation.
Non-reopening components in CPI have larger contribution to September increase
The report will likely reinforce the Fed’s inclination to soon start tapering its asset purchases, especially as the supply-chain challenges plaguing businesses show little signs of abating. Minutes from last month’s Federal Open Market Committee meeting — out Wednesday afternoon — will provide further insight on policy makers’ views toward progress on employment and inflation goals for tapering.
A New York Fed survey out Tuesday showed U.S. consumers’ expectations for inflation continued to rise in September, with 1-year and 3-year expectations accelerating to record highs.
American consumers are also experiencing higher prices for new vehicles and household furnishings and supplies, which increased by a record 1.3%, the report showed. And looking ahead, elevated energy prices are set to take an additional bite out of workers’ paychecks.
While we know that apartment rents are growing at 15.5% YoY, the CPI for Owner’s Equivalent Rent only rose by 3.2% YoY.
Everyone seems worried about it. Bridgewater Associates co-Chief Investment Officer Greg Jensen says spiraling prices that choke off growth are a “real risk” that many portfolios are massively overexposed to. A “fairly strong consensus” of market professionals believe that some kind of stagflation is more likely than not, according to a Deutsche Bank AG survey. And while Goldman Sachs Group Inc. urged investors to buy the dip, strategists said “stagflation” was the most common topic in client conversations.
Wherever you fall on the debate, alarm bells are ringing as energy prices head toward multiyear highs and persistent shortages crimp supply chains worldwide. That’s fueling price pressures and pushing up bond yields just as economic growth is cooling and central banks such as the Federal Reserve weigh scaling down pandemic-era stimulus. And after a second straight month of disappointing U.S. jobs gains, the stakes are rising heading into this week’s inflation report.
“The reality that inflation is more persistent and sustainable than the ‘transitory’ camp thought, and that inflation and its causes are in turn slowing economy growth,” said Peter Boockvar, chief investment officer for Bleakley Advisory Group.
Energy Epicenter
Much of the stress is emanating from the energy market, where West Texas Intermediate crude oil broke above $82 per barrel for the first time since 2014 on Monday amid a power crisis from Europe to Asia. Prices of coal and natural gas have also jumped, with demand ahead of winter whittling worldwide stockpiles.
The commodity surge has thrust stagflation fears front-and-center in markets, given that higher energy prices have the potential to pinch consumers, according to Principal Global Investors. Gains in consumer spending are already expected to slow, leading Goldman economists to slash U.S. growth estimates over the weekend.
“The idea was already starting to take shape. The increase in commodity prices has just formalized those fears,” said Seema Shah, Principal’s chief global strategist. “While there have been complaints around higher food prices, higher lumber prices, higher clothes prices, it’s the increase in household bills that has really put fear into peoples’ minds, because it is so visible and rising gas prices are difficult to substitute away from for an average household.”
Murky Bond Picture
Sky-high commodity prices have filtered through to the Treasury market, where yields on benchmark 10-year notes broke above 1.6% for the first time since June last week. Driving the gain is an increase in breakeven inflation rates, while so-called real yields — often viewed as a proxy of growth expectations — have retreated so far this month.
“If we look at the composition within the TIPs market, we see an increase in breakevens to the detriment of real yields,” BMO strategist Ian Lyngen said on the firm’s “Macro Horizons” podcast. “We read this as the market’s focus on longer-term inflation has taken some of the optimism out of the growth profile going forward.”
Morgan Stanley strategist Andrew Sheets disagrees. Breakeven rates are still below their May peaks, while the cross-asset landscape is distinct from the stagflationary setup of the 1970s, he argued. Data compiled by Bloomberg shows gross domestic product is forecast by economists to rise 5.9% this year, 4.1% next year and 2.4% in 2023.
“Asset pricing also couldn’t be more different. Over the last century, the 1970s represented an all-time high for nominal interest rates and an all-time low for equity valuations,” Sheets wrote in a note Sunday. “Today we’re near a low in yields and a high in those valuations.”
Stocks Still Serene
Equity investors so far seem unperturbed. That’s the view of Matt Maley, chief market strategist for Miller Tabak + Co., given that the S&P 500 is just 3.9% lower from its all-time high. However, the mood music could change as the third-quarter reporting season kicks off and corporate executives sound off on supply chain issues and rising input costs, he said.
“The key should be this earnings season,” Maley said. “If a lot of companies start talking about margin pressures, the stock market will start pricing in stagflation rather quickly.”
So far, balance sheets have been resilient. Operating margins for the S&P 500 clocked in at 14.4% last quarter, a record high, with companies in many cases actually benefiting from the inflation uptick.
But should stagflation fears start to meaningfully rattle equity markets, shares of companies with higher pricing power — the ability to pass on costs — should profit, according to Goldman, after several weeks of underperformance.
“Stocks with strong pricing power have recently lagged but appear attractive if stagflationary concerns continue to build,” strategists led by David J. Kostin wrote. “If inflation remains high alongside a weakening economic growth outlook, firms with strong pricing power should be best positioned to maintain profit margins despite slowing revenue growth and rising input costs.”
Not to mention real-time GDP of 1.3%. And falling!
Of course, there will be cries in Washington DC to spend trillions … and trillions … and trillions.
Initial jobless claims dropped below their recent range last week, falling to the second lowest level since the COVID-lockdowns crushed the economy. Only 326k Americans filed for jobless benefits for the first time last week, down from 364k last week and below the 348k expectation.
Continuing claims also declined from the previous week, again largely from Pandemic Unemployment Assistance and Pandemic Emergency Claims programs ending.
On a related note, Challenger job cuts were down -84.9% YoY. But for September, there was a surge in low-paying retail jobs and transportation jobs as Panademic stimulus ran out and governments have pretty much stopped their destructive government shutdowns of economies.
Central banks are turning “hawkish” in the face of inflation.
(Bloomberg) — Treasuries fell, sending 10-year yields to a three-month high, as traders braced for a testing week of heavy bond auctions and continued to digest the prospect that central banks in the U.S. and Europe will step up the pace of policy tightening.
The yield on 10-year Treasuries reached 1.51%, the highest since June, before settling at 1.48%. The yield has climbed 16 basis points over the past week as the Federal Reserve signaled it may start reducing its asset purchases in November and raising rates as soon as next year. Yields on two- and five-year Treasuries hit their highest levels since early 2020, with a combined $121 billion of the securities set to be sold Monday. A seven-year auction is due Tuesday.
While Treasuries briefly extended the selloff after a report showed durable goods orders exceeded economists’ forecasts, they started to pare losses after U.S. equity futures soured.
Bond yields increased across the globe last week as central banks move to reduce pandemic stimulus. The Bank of England surprised markets by raising the prospect of increasing rates as soon as November, and Norway delivered the first post-crisis hike among Group-of-10 countries. In the U.S., traders pulled forward wagers on an interest-rate increase to the end of 2022 following last week’s Fed meeting.
On the equity side, FAANG stocks trail the S&P 500 as 10-year Treasury yield climb.
We have the 10-year Treasury yield climbing above the S&P 500 dividend yield.
The stock market mildly rebounded from yesterday’s mild correction, but a glaring problem remains: S&P 500 real earning yields are negative.
With all the Federal government fiscal stimulus and Federal Reserve monetary stimulus, we are seeing inflation and that inflation is eating away at S&P 500 earnings yield.
The S&P 500 is still well above key technical support levels.
However, the Buffet ratio is raging along with Fed stimulus.
And the Hindenburg Omen is flashing RED!
The mystery of the Flying Fed is whether they will withdraw their massive monetary stimulus or not.
Confounded Interest - Anthony B. Sanders 
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