My State Of The Union Rebuttal: WTI Crude UP 126% Since Jan 1, Gasoline Prices UP 61% (GDP Near Zero, Inflation Still Rising)

President Biden is giving his first State of the Union address tonight with rebuttals from Iowa Governor Kim Reynolds and The Squad’s Rashida Talib (yes, a Republican is giving the rebuttal to Biden’s SOTU speech, and a Democrat is rebutting a Democrat President??)

Let’s look at a short list of Biden’s economic triumphs. I will ignore Biden’s catastrophic Afghanistan withdrawal and his weak response to the Russian invasion of Ukraine.

If you want higher oil and gasoline prices, Biden is a tremendous success.

If you like rampant government spending, then Biden is your man. Home price growth is up to 18.84%, making housing unaffordable for millions of American families.

Wages? They are up, but declining after 7.5% YoY inflation. And GDP is almost zero.

Biden can only point to rising average hourly wages, but not REAL average hourly wages.

Inflation? Highest in 40 years, due to excessive Federal spending, The Fed’s crazy printing and Biden’s energy mandates.

I am scratching my head to think of accomplishments for Biden to mention in the SOTU. But I am sure that he will say something positive. Otherwise, Biden’s SOTU speech should be the Billy Preston song “Nothing from Nothing.“

Russian Stock Market Drops Over 30% As Their 10-year Yield Rises To 15.23%, Ruble Crashes And UK Natural Gas Rises 51% (As Biden Throws The Booklet At Russia)

We now know that Russia has invaded Ukraine and President Biden really threw the booklet at Putin in a speech today. Rather than removing Russia from the SWIFT banking system which would have really hurt Russia’s trade with Europe, he gave a surprisingly cogent speech about the US and NATO agreeing to do … not much. He did warn us that energy prices would rise (which he helped do when he took office) and told energy companies not to gauge consumers.

The reaction in Russia? Their stock market tanked over 30% (not because of Biden’s speech, but because of negative costs of war).

Russia’s 10-year sovereign yield rose to 15.23%.

The Russian Ruble crashed and burned.

UK natural gas prices rose 51% today.

And while 17 Euro nations have negative 2 year sovereign yields, Russia has 2-year sovereign yield of 28.65% which is nothing compared to Ukraine’s 75% 2-year yield (in US Dollars).

The SWIFT system, or Society for Worldwide Interbank Financial Telecommunication, facilitates financial transactions and money transfers for banks located around the world. The system is overseen by the National Bank of Belgium and enables transactions between more than 11,000 financial institutions in more than 200 countries around the world. Removing Russia from the SWIFT system would really hurt Russian trade with Europe. I assume that Europe is scared of soaring energy costs, so probably doesn’t want Russia removed from SWIFT.

Queue Creedence Clearwater singing “Lookin’ Out My … Limo Window.”

Putinesca! European Markets Tank, Energy Prices Explode, US 10Y Treasury Yields Plunge 13.3 BPS After Russia Invades Ukraine (Russian 5Y CDS Soars To 917)

I admit, I follow market data to get a signal of what is happening to mortgage rates and I got one. With Putin and Russia invading Ukraine, markets are in turmoil

WTI Crude is up 8.14% this morning, Brent Crude is up 8.45% and NBP (UK) Natural gas is up 40%.

Europe is having a bad day equity market-wise. Eurostoxx 50 was down 4.92%. The US Dow is braced for a 2.5% opening.

Now to bonds. The 10-year Treasury yield is down 13.3 bps this morning. Sweden and UK are down 10 bps as well.

How about the new Russian front? Ukraine’s 10y yield rose 691.0 bps while Russia’s 10Y yield rose 435 bps.

Russian 5Y Credit Default Swaps (CDS) leaped to a Greek-like 917.

Well, it looks like the sanctions imposed by Winken (US VP Harris), Blinken (US Secretary of State) and Nod (US President Biden because he always looks half-asleep) apparently didn’t work as intended.

Putin finally made up his mind.

Fed Monetary Stimulytpo Now Almost 14 Years Old And Still Running Strong! Top 1% Share Of Net Worth Now Higher Than Bottom 50%, Income Inequality Getting Worse

It has been almost 14 years since The Federal Reserve under Ben Bernanke unleashed zero interest rate policies (ZIRP) and quantitative easing (QE) in late 2008. And Fed monetary stimulypto is still running strong after almost 14 year of monetary mismanagement and asset bubble stimulation.

The Federal Reserve under Bernanke and Yellen raised their target rate exactly once under President Obama before the election of Donald Trump. After Trump was elected, The Fed raised their target rate 8 times, lowered it 5 times. There have been no rate hikes under Biden.

There seemingly never-ending Fed monetary stimulus has resulted in the top 1% seeing their share of total net worth soar relative to the share of net worth of the bottom 50%. But note that starting in 2014 just as The Fed was engaged in QE 3. But the real divergence occurred after The Federal government heaped trillions in fiscal stimulus on top of the skyrocketing monetary stimulus.

In terms of income inequality (as measured by the GINI coefficient), it just keeps getting worse and worse.

Let’s see if The Fed actually delivers by reducing their monetary stimulypto.

Surprise! US Existing Home Sales RISE 6.7% In January As Inventory Available Shrinks To Lowest Level Since 1981 (Panic Over Fed Rate Increases??)

Surprise! US existing home sales in January rose to 6.50 million units SAAR versus the expected 6.10 million units. That is a 6.7% increase over December.

The disturbing news is the continued lack of available inventory that peaked in Q4 2007 and has continued its decline to today … the lowest level of available inventory since 1981. Despite the Fed’s massive stimulus that they allegedly will take away. Median price of existing home sales rose to 15.4% YoY. Making homes affordable should NOT be a slogan for The Federal Reserve, the Biden Administration or Congress.

The massive Federal stimulypto (fiscal and monetary) has helped push existing home sales to 6.50 million units SAAR in January. What will happen after The Fed withdraws it stimulus??

What is surprising is that with declining REAL wage growth, we saw a surge in home buying in January.

Remain calm, all is well!

The Shadow Knows! Wu-Xia Shadow Fed Rate Is -0.1974% As Inflation (7.5%) Dwarfs Wage Growth (5.1%) And Q1 GDPNow Falls To 1.285%

The Shadow Knows!

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 -0.1974%.

The good news? The Atlanta Fed Wage Growth tracker is showing a 5.1% wage growth. The bad news? Inflation is ruining that growth at a whopping 7.5% rate leaving REAL wage growth at -2.4%.

And the Atlanta Fed’s GDPNow Q1 forecast is a measly 1.285%. Apparently, the fiscal and monetary stimulypto has worn out.

And liquidity in the equity market has seemingly vanished.

The Biden Administration and Congress need a distraction from the awful inflation news caused by Biden’s energy policies, sheer wasteful spending and Federal Reserve policy errors (too much monetary stimulus for too long).

Jay The Revelator! Minutes Show Fed Ready To Raise Rates, Shrink Balance Sheet “Soon” (Mortgage Rates SOAR To 4.23%)

Jay “The Revelator” Powell has told us in The Fed minutes that The Fed is ready to raise rates and shrink the balance “soon.” Sort of like saying “Shock and Awe” is coming.

The minutes of the recent Fed Open Market Committee (FOMC) have been released. Yet they only mention “soon.” Just like when my wife asks me to take out the trash and I reply “soon.” At which point she realizes that I have no intention of doing it.

The REAL 10-year Treasury yield is now -5.44%.

And the 30-year mortgage rate has risen to 4.23% while the REAL 30-year mortgage rate has fallen to -3.7%.

Jay The Revelator sings “Soon!”

US Inflation Surges To 7.5% YoY, REAL Weekly Wage Growth Falls To -3.1% YoY (Taylor Rule Now Suggests Fed Funds Target Rate Of …18.90%)

As expected, US inflation surged from 7.0% in December to 7.5% in January.

REAL average weekly earnings growth YoY fell to -3.1%.

Energy prices YoY lead the wage (fuel oil UP 46.5% YoY). Used cars and trucks UP 40.5%. At least food is up “only” 7%.

At 7.5% CPI, the Taylor Rule suggests that The Federal Reserve should have their target rate be 18.90%.

At least CORE inflation is “only” 6% YoY.

How about rent CPI? The owner’s equivalent rent of residences rose to 4.09% YoY. Seems a little misleading since home prices nationally are growing at 18.81% YoY.

Fed Funds Futures data points to 6-7 rate HIKES over the coming year. BRACE FOR IMPACT!!

Yes, this is Powell’s famous chili recipe if The Fed actually starts to raise rates and pare back the balance sheet stimulus.

Inflation: What The Fed Sees (3%) Versus What Main Street Feels (18%) Bare Shelves?

Inflation is literally burning a hole though the pockets of Americans. The Flexible Price CPI is raging at 18% YoY. The Dallas Fed has their preferred measure of inflation, the trimmed mean CPI, is growing at only 3.05% YoY. The classic measure of inflation, CPI YoY, is growing at 7.12%.

That is of course if you can find things to buy at the grocery store.

I remember when Fleetwood Mac played at Bill Clinton’s first inauguration party. Perhaps Fleetwood Mac can play at the midterm election party commemorating the rampant inflation under Biden’s “leadership”: Bare Shelves.

Inflationville! US Jobs Added Surprises At +467k, But REAL Hourly Wage Growth FALLS To -2.36% YoY Thanks To Inflation

Well, the COVID hysteria from the Biden Administration and the media preparing us for a horrible jobs report was … incorrect. In fact, the January jobs report was “exceptional”. 467,000 jobs were added and average hourly earnings growth ROSE to 5.7% YoY.

The bad news? Thanks to surging inflation, REAL average hourly earnings growth YoY FELL to -2.36%.

Unemployment ROSE to 4.0% from 3.9% as more people dropped out of the labor force in January. On the bright side, labor force participation rate rose to 62.2% from 61.9%.

Leisure and hospitality employment (one of the most vulnerable to inflation) expanded by 151,000 in January, reflecting job gains in food services and drinking places (+108,000) and in the accommodation industry (+23,000).

The reaction in the bond market? US 10-year yields are up 6.9 basis points as Eurozone is up across the board.