Today’s existing home sales were … gruesome. While EHS month-over-month were down only -1.5%, on a year-over-year basis EHS was down a staggering -23.79%.
If you look at the declining growth rate of M2 Money (green line) and rising mortgage rates (yellow line), we can see why the housing market is struggling.
How about median price? That dropped to 8.07% YoY as inventory for sale remains lower than before Covid and Covid stimulypto.
US 30-year mortgage rates rose to 7.20% yesterday, the highest rate since 2000. Why?
Core inflation is rising and its the highest since 1992. Diesel prices, the all-important fuel for the transportation industry, is rising again after a brief respite and is near the all-time high.
But will mortgage rates continue to rise? That depends on The Federal Reserve. Will they continue to try to combat inflation (largely caused by … The Federal Reserve and voracious Federal spending under Biden/Pelosi/Schumer (The Three Amigos).
As of today, investors in Fed Funds Futures are pointing to a peak of Fed tightening in May 2023, then a slow decline in rates.
While this is The Fed Funds rate, it is likely that mortgage rates will continue to rise to May 2023 then level out at 9%-9.25%.
I really miss teaching college students. An example of a test question I gave was the first chart: who was The President when all hell broke loose (pink box)? 1) Joe Biden, 2) Donald Trump or 3) Millard Fillmore?
The answer, of course, is Joe Biden.
Doesn’t Millard Fillmore, the 13th President of the United States, look like actor Alec Baldwin after too many cheeseburgers and chocolate milkshakes at In-N-Out Burger?
Bear in mind that the are numerous wildcards in play, like the Russia/Ukraine war and the probability the China will invade Taiwan in the near future.
Well, this isn’t good. But it is consistent with the highest inflation rate in 40 years and The Federal Reserves’ counterattack. Basic mortgage applications are now down to their lowest level since 1997 as mortgage rates rise.
Mortgage applications decreased 4.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 14, 2022.
The Refinance Index decreased 7 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 38 percent lower than the same week one year ago.
Bear in mind that these numbers are for the week of October 14, so the home purchase season is in the “house latitudes.” That is, the slow season for home sales. The refinancing applications index has dropped thanks to Fed tightening.
I love to teach, but my students at Chicago, Ohio State and George Mason would fall asleep when I would discuss repurchase and reverse repurchase agreements (or REPOs and Reverse REPOs). But repos and reverse repos are a critical part of the banking system.
In short, the Repo market is a window into what’s going on behind the scenes.
As Bidenflation soars, and The Fed counterattacks, we see Fed’s repo market remains elevated. Note that The Fed’s balance sheet (orange line) is only slowly being reduced.
Right now, the risk lurking in the shadows is Balance Sheet Runoff. The Fed, the markets, the regulators, have limited experience with the Fed shrinking the balance sheet. Bottom line: there’s a risk that Balance Sheet Runoff will breaking something.
The global stock market is up again today, despite Fed tightening and a war in Ukraine. The Dow is up 1.38% and the S&P 500 is up 1.75%.
Likely cause? Rumors that The Fed and other global central banks will pivot sooner than later.
It is likely that The Fed will pivot to prevent a crash and the stock market in pricing in that pivot.
Bernanke, Yellen and Powell are NOT Paul Volcker. In fact, I am coining a new nickname for Fed Chair Jerome Powell: Pivot Powell.
The US CPI for electricity is up 24% under Nuclear Joe as The Fed continues to leave their balance sheet relatively untouched.
You might have to bail on the stock market to stay warm this winter, but it is a shame that the S&P 500 index is down -25.3% in 2022 as The Fed counterattacks Bidenflation.
Diesel, the lifeline of the shipping industry, is UP 100% under Biden (that is, diesel prices have doubled) while the inventory of diesel fuel has declined by -37.5% under Biden.
The US 30yr Mortgage rate just hit a new high since 2000 as The Federal Reserve counterattacks the highest core inflation rate (6.60%) since 1982.
According to the Taylor Rule (which The Fed has chosen to ignore), a 6.60% core inflation rate implied a Fed target rate of 12.40%. Not likely since Fed Funds Futures data points to …
A maximum target rate of 4.963% at the May 2023 FOMC meeting, significantly lower than the needed rate of 12.40%. The Fed is like the world’s worst bar bouncer.
Rather than accepting blame for the horrific inflation rate crushing the American middle class and low wage workers, Biden is twisting the night away.
Bidenflation is just killing us. Now rising prices and The Fed’s counterattack are killing retail sales for American consumers.
US retail sales were sluggish last month, suggesting shoppers are becoming more guarded about discretionary purchases in the worst inflationary environment in decades.
The value of overall retail purchases were little changed in September after an upwardly revised 0.4% gain in August, Commerce Department data showed Friday. Excluding gasoline, retail sales were up 0.1%. The figures aren’t adjusted for inflation.
The median estimate in a Bloomberg survey of economists called for a 0.2% advance in retail sales. Seven of 13 retail categories declined last month, according to the report, including a drop in receipts at auto dealers, furniture outlets, sporting goods stores and electronics merchants. The value of sales at gas stations fell 1.4%, reflecting cheaper fuel prices, but they’re now climbing.
At least Export Prices YoY are down below 10%! I hope exporting inflation to the world isn’t Secretary of State Antony Blinken’s idea of good foreign policy.
My favorite headline of the day is “Macron Reminds Biden to Think Before Speaking: “Biden’s Reckless Rhetoric puts World at Risk”“
* Fed Swaps Lean Toward Back-to-Back Three-Quarter-Point Hikes * Hotter-than-expected September inflation data spark shift
(Bloomberg) — The market for wagers on the Federal Reserve’s policy rate is leaning toward pricing back-to-back 75 basis point rate hikes in the next two central bank meetings after consumer prices rose more than forecast in September.
The rate on the November overnight index swap contract rose to 3.86%, more than 75 basis points above the current effective fed funds rate, while the one referring to December climbed to 4.50%. A total of 142 basis points of rate hikes are now priced in for the next two policy meetings, just short of consecutive three-quarter-point hikes.
Prior to the inflation data, OIS markets were leaning toward the central bank cooling the pace of tightening to a 50 basis point move in December. At Wednesday’s close, swaps priced in around 130 basis points of hikes over the remaining of the year, which is equivalent to 55 basis points for December.
The market also priced in a higher eventual peak for the policy rate, with the March 2023 contract touching 4.864%.
The CPI data was “clearly a shock for the markets and the markets are off because of it,” Seth Carpenter, chief global economist at Morgan Stanley said on Bloomberg television. “There is persistence, particularly in the services side of inflation.”
Excluding food and energy, the Consumer Price Index increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second straight month.
The Fed has raised its policy rate five times since March, most recently to a range of 3%-3.25% in September, after dropping the lower bound to 0% two years earlier at the onset of the pandemic.
The Fed Funds Futures data is pointing further Fed rate hikes with a turnaround in March 2023.
And with that awful inflation report and the likely Fed counterattack, the two year US Treasury yield has risen to 4.4361%, the highest since The Great Recession and banking crisis.
Fed Fireball! Comin’ at ya!!
Biden and Powell should appear on Saturday Night Live as the joint Debbie Downer. Or Democrat Downer.
Confounded Interest - Anthony B. Sanders 
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