The Heat Is … Off! FHFA Home Prices YoY, Smart Money Flow Index Slow With Fed Unwinding

As the late Glenn Frey almost sang, The Heat Is Off.

As The Fed unwinds its $4+ trillion balance sheet, the Smart Money Flow Index and the FHFA Purchase Only Home Price Index YoY are declining.

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In other words, the housing asset bubble is Already Gone.

I wonder if it is time for Fed Chair Jerome Powell to emulate Frank Booth from “Blue Velvet” and take another hit of oxygen.

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Monsters In The Gelatin! Fed’s QE Unwind Reaches $364 Billion As Fed Funds Rate Continues To Climb (Volatility Express!)

Since the beginning of the QE unwind — or “balance sheet normalization,” as the Fed calls it — in October 2017, the Fed has now shed $364 billion.

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Of course, The Fed still have a long way to go to unwind its $4 trillion balance sheet. But The Fed is, at the same time, raising its target rate (although through confusing messaging).

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The S&P 500 index and the NAREIT All Equity (Real Estate Investment Trust) indices are soaring along nicely with The Fed’s balance sheet expansion (aka, low interest rates), but are experiencing rather dramatic volatiity in the face of a shrinking balance sheet and rising Fed target rate.

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And yes, volatility is increasing with Fed unwind and target rate increases.

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SMART Money Flow Index? The decline coincides with The Fed’s unwinding on its Treasury positions.

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Bubble you ask? Instead of “bubble” or “collapse,” the Fed uses “valuation pressures” and “broad adjustment in prices.”

To quote the late, great Isaac Hayes from Reindeer Games, “There are monsters in the gelatin!!”

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Leveraged Loan Funds Heading For The Exit (Bloom Is Off The Rose For Corporate Subprime)

Yes, the bloom is off the rose for another “subprime” debt product, this time leveraged loans and leveraged loan funds.

Leveraged loan is debt from companies with below investment grade credit ratings. Leveraged loans are typically secured with a lien on the company’s assets and are generally senior to the company’s other debt.

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Rising interest rates and an excessive amount of corporate debt outstanding aren’t helping.

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Fed Gov Brainard Sees Gradual Fed Hikes Still Appropriate in ‘Near Term’

Despite gloom on the housing front, declining core inflation and a volatile (and declining) stock market, Fed Gov Lael Brainless still wants to keep raising interest rates.

(Bloomberg) — Federal Reserve Governor Lael Brainard said U.S. economic momentum is strong and a gradual approach to interest-rate increases remains appropriate for now.

“The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded,’’ Brainard said Friday at a conference at the Peterson Institute for International Economics in Washington. “That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves.”

Party on, Lael. Party on Jerome.

 

 

 

Fed Changes Course … Again To “Wait And See” Strategy As Dow Continues To Tank (UMich Buying Conditions For Housing Lowest Since 2008)

The Dow is falling again. This time on the less-than-awesome jobs report. 155k jobs added versus the expected 198k jobs added.

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Resulting in a decline to the Dow.

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Yesterday, the Dow sell-off eased after The Wall Street Journal reported that the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favoring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.

And the the University of Michigan Buying Conditions for Houses fell to it lowest level since December 2008. Although the might be Michigan getting destroyed by Ohio State 62-39.

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In other words, The Fed is signalling “Hard to starboard!!!”

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Puerto Rico On The Prairie! ILLinois Has Worst Muni Spread In Nation (ILLinois Just Got Jammed!)

ILLinois, the fiscal Puerto Rico on the Plains, now has the highest (or worst) muni bond spread of the 50 states at 174.5 basis points. And their AVAT (average volume at time) is also leading the US at 756.6%.

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Chicago reminds me of the Pawnee City Council with Councilman Jeremy Jamm in control.

“Illinois, you just got jammed!”

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Crypto Market Crash Is Causing Startups to Shutter Operations (As Paris Burns)

As Paris continues to burn after French Prime Minister Macrony tried to raise fuel taxes in an attempt to curb greenhouse gas emissions,

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the cryptocurrency market continues to see its bubble continue to burst.

(Bloomberg) — The plunge in the cryptocurrency market is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth.

ETCDEV, the startup that led development on Ethereum Classic, which is among the top 20 coins with a market capitalization of about $400 million, announced this week that it’s shuttering operations due to a funding crunch. ConsenSys, one of the largest crypto-related software startups based in New York, said it’s planning a reorganization.

Many of the companies are suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.

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So, are Paris and cryptocurrencies burning? Yes!

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Sea of Red: Global Sell-off Continues As Dow Sheds 600 Points (Bond Yields Down, Commodities Down, Gold UP)

As of 11am EST, global equity markets are a sea of red.

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The Dow is down 600 points (2.4%) while the EU is down around 3%.

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After the big sell-off on Tuesday, we often see a rally the next day. But not today. It is a continuation of the trade tensions between the US, China and other trading partners.

And nervous investors are pulling out of equites and jumping into the safe zone (sovereign debt) pushing prices up and yields down.

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Even commodities are taking a beating as well … except gold.

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Calling The Fed, ECB, BOJ, PBOC!

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Venezuelaization: Chicago Levies PlayStation Tax To Pay For Bankrupt Municipal Pension System And Massive Deficits

Chicago IL (should be ILL) is the poster child for an insane pension program (mostly to municipal workers and public school teachers). But not only in the city of Chicago, but the state of ILLinois as well.

Consider that the unfunded liability in the state’s combined retirement systems has risen in 11 of the state’s past 12 years—despite a roaring stock market, despite a steady increase in contributions that now amount to a stunning $8 billion or so a year, and despite passage several years ago of a plan that markedly reduces benefits for those hired after Jan. 1, 2011. Between 2004 and 2016 (the last year for which audited financials are available) unfunded liability quadrupled, to $123.8 billion, according to the Illinois Commission on Government Forecasting and Accountability, the Legislature’s financial watchdog unit.

Quadrupled!

So, how will Chicago ILL and the State of ILL pay for this pension morass? TAX ANYTHING THAT MOVES!!!!!!!

Chicago is one of the most heavily taxed cities in the country. In addition to holding the title for the highest sales tax nationwide, the city also levies additional taxes on bottled water and cell phones.

The amusement tax was actually passed several years ago and included almost all forms of entertainment. Whether residents are looking to spend an evening at the theater, see a concert, cheer on their favorite sports team, go to a nightclub, or even catch a movie, they are on the hook for an additional 5 percent tax.

The city has had to get creative when it comes to extorting money from its residents.

In 2015, the amusement tax was expanded as city officials realized they could bring in additional revenue with the creation of a “cloud tax.” Capitalizing on the popularity of streaming services, the city began instituting a 9 percent tax for using platforms like Netflix, Hulu, Spotify, and others. And thanks to the inclusion of the streaming services, the amusement tax now brings in about $12 million annually. It also applies to anyone whose billing address is within city limits.

The city of Chicago is currently operating on a $400 million deficit. It’s no wonder, then, that the city has had to get creative when it comes to extorting money from its residents. The amusement tax was created as a means of decreasing the deficit and aiding the city in paying for additional expenditures, which essentially means that Chicago dwellers are once again on the hook for the government’s poor decisions.

To make matters worse, Chicago is also a city with a horrible reputation for government corruption, and especially corruption within the local police force. When Democratic Mayor Rahm Emanuel approved the additional tax on streaming services, it was done so with the explicit purpose of helping to fund the $530 million increase given to Chicago’s police force. However, even with the increased funding, Chicago law enforcement has still been unable, or unwilling, to combat the city’s skyrocketing crime rates.

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According to a new report by Moody’s Investors Service, Illinois’ unfunded pension liabilities equaled 601 percent of state revenues in 2017, a U.S. record!!

And now PlayStation begins collecting amusement tax from Chicago users.

Nicolas Maduro: “I approve of Chicago’s message!”

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Trouble In River Cities! Eurozone GDP, China Manufacturing PMI Diving

While the US economy is humming along nicely, there is trouble brewing in River Cities (that is, the Yangtze River in China and The Rhine River in Europe).

Both the Eurozone GDP forecast and China Manufacturing PMI are falling like a paralyzed falcon.

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Yes, we got trouble in River Cities … overseas.

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