Better Call Jerome (Powell)!
Yesterday, the Mortgage Bankers Association released their weekly mortgage applications index … and it was dismal for mortgage purchase applications.
Mortgage purchase applications, generally peak each year in mid-April to May, crashed prematurely in late-March by 11.3% WoW.
One reason for the decline is, that in spite of a mortgage rate decline, initial jobless (unemployment) claims hit a historic high of 6.65 million.
Yes, it is hard to shop for a home in a virus lockdown.
Mortgage refinancing applications, on the other hand, soared as the mortgage refinancing threshold has been reached.
Lenders better call Jerome (Powell) for more QE!
The George Mason University Law School is having an online discussion of “The Financial Pandemic: How to Navigate the Crisis to a Soft Landing.” And how The CARES Act – the CARE SYSTEM ENHANCEMENTS, AND ECONOMIC STABILIZATION Act and the various rescue credit facilities and regulatory forbearance programs being launched by the bank regulators will save the economy and financial markets.
First, the coronavirus impacts are not showing up in the Atlanta GDPNow forecast for GDP in Q1.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2020 is 2.2 percent on April 1, down from 2.7 percent on March 27.
After this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management and the construction spending report from the U.S. Census Bureau, the nowcasts of first-quarter real personal consumption expenditures growth and first-quarter real gross private domestic investment growth decreased from 1.6 percent and 4.5 percent, respectively, to 1.3 percent and 2.4 percent, respectively, and the nowcast of first-quarter real government spending growth decreased from 2.2 percent to 2.0 percent.
Second, the lockdowns permeating the US, UK and other countries will have a negative effect on the economy.
But all The Fed’s horses and all The Fed’s men (sic) can’t put the bubbly stock market back together again. The Dow is down another thousand today.
Yes, The Fed and Treasury have enacted numerous programs to counter the job losses associated with the coronavirus and just try to keep the economy going through the crisis.
A liquidity trap is a situation in which, “after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest.”
Well, Buckaroos, we are in a liquidity trap with the 3 month Treasury yield at -0.025%.
A closer look at the T-bill market today.
So here we sit in a classic liquidity trap!
Fed Chair Jerome Powell in a liquidity trap!
Mega thanks to Jesse at Jesse’s Cafe Americain for the jail jpg.
Frankly, I like The Byrds version of Buckaroobetter with the great Clarence White on the Fender Telecaster B-Bender guitar.
The markets are over, under, sideways, down.
Bid-ask spreads on the 10-year Treasury Notes have exploded and is back to financial crisis levels.
A steepening Treasury yield curve bodes ill for stocks … and volatility.
Hedge, hedge, hedge!
We are in a Sea of Red.
Brent Crude is down 12.38% today while agriculture prices are down too.
US, Europe and Asia are in red territory. With the Dow down 3,000 points or nearly 13%.
It seems like a good time to hedge the stock market.
A scene at your local grocery store.
Volatility is spiking in virtually all asset classes.
Even gold the most in over three decades.
Wow. No where to run, no where to hide … from volatility. At least in terms of risky assets. Cash and Treasuries are the places to hide.
The WHO (World Health Organization, not the 60s/70s rock band) announced that the coronavirus is a new PANDEMIC.
Or it is a bubble pop? Not tiny bubbles as Don Ho sang. But a BIG bubble … burst.
Yes, The Federal Reserve and other Central Banks kept their target rate near zero for almost the entire Obama Presidency, then started to raise rates only to lower them again. But the S&P 500 and NAREIT – all equity indices have risen dramatically as well.
A bear market in equities is when prices fall 20% from their peak. Over the past month, we are almost in a bear market.
Is this that fast 20% in history? Nearly.
And there is lots of downward rotation in global equities.
Yes, equity markets are fragile thank to the central banks. And now the bears have been awakened.
If you are watching panic at the Bank of Japan, European Central Bank, and Bank of England, you would think that the Spanish Flu from 1918 that killed between 17 and 100 million people was back.
While we watch the DJIA shed another 800 points in the first 30 minutes of trading, mortgage applications for last week skyrocketed as is there was no coronavirus.
Mortgage applications rose 55.43% from the preceding week. Refinancing applications rose 78.585 (NSA) while mortgage purchase applications rose 7.21%, far less than refinancing applications.
Here is a chart of refinancing applications as mortgage rates tumble.
Let’s see what happens with existing home sales in the next report.
What do you call an expected 3 rate cuts by The Federal Reserve AND fiscal stimulus to combat the coronavirus? STIMULYPTO!!
(Bloomberg) — U.S. stocks turned higher in another wild day on Wall Street, with investors pining for details on the Trump administration’s expected stimulus to combat the coronavirus’s economic impact. Treasuries fell and oil jumped.
The S&P 500 whipsawed from the outset Tuesday, surging 3.5% before turning negative and the rising again. President Donald Trump promised “major” moves to counter the fallout, but he has not communicated his plans to Congress yet. He did say his administration would assist the airline and cruise industries. A 4% rally in European stocks got zapped.
The Dow has recovered a bit from yesterday’s stock slaughter.
The unknown fiscal stimulus (likely reduced tax withholding) in addition to the anticipated three Fed rate cuts coming in March.
Update: after a few speed bumps, the Dow closed up 1165 points. Stocks Jump Most Since 2018 on Stimulus Hope
And the 10-year Treasury yield is up 26 basis points.
Now this is something you don’t see every day. A true market blitzkrieg at opening.
A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.
And the US Treasury 10-year yield plunged 33.3% to 0.429%.
Leaving the entire US Treasury and Dollar Swaps curves below 1%.
Commodities are getting crush too. Thanks in part to Saudi Arabia turning on the oil flow (but not if spot price < extraction cost).
Put skew is in play.
The VIX is at its highest level since the financial crisis.
Where is Jerome Powell and The Federal Reserve?
The Federal Reserve said on Monday that it will increase the amount of money it is pumping into short-term borrowing markets during the current turmoil, reversing an attempt to wean investors off financing it has been providing.
Update at 4:00 pm EST. Dow down 2025 points or 7.83%. For today.