Fragility! The Federal Reserve Is Slow-Walking Its Shrinking Of Mortgage-backed Securities As M2 Money Growth Goes Negative (Mortgage Purchase Demand Down -37% Since Last Year And Down -45% Since February 5, 2021)

Starting in 2009 with the housing bubble burst and ensuing financial crisis, The Federal Reserve bought agency mortgage-backed securities (MBS) in an effort to provide stability to the then suffering housing and mortgage markets. Flash forward to today and The Federal Reserve still has $2.62 TRILLION in Agency MBS in its System Open Market holdings. And declining very slowly.

All this is happening as M2 Money growth YoY has gone negative and both mortgage rates and home price growth are slowing.

Is the US mortgage market that fragile that requires The Fed to support it?

The answer is yes if we look at the Mortgage Bankers Association weekly applications index. The Refinance Index increased 18 percent from the previous week and was 75 percent lower than the same week one year ago. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 37 percent lower than the same week one year ago.

I noticed that Biden didn’t mention how mortgage purchase applications since he was installed as President have fallen -45%. Mortgage refi applications have dropped -88% since February 5, 2021.

At least the US house payment to income ratio has declined since the peak. But still higher than at the peak of the US housing bubble in 2006.

US Treasury’s Disastrous 3-Year Auction! High Rate Rises To 4.073% As Allotment To Dealers And Brokers Collapses (Stop Through Yield Crashes To Lowest Level In Years)

After Jerome Powell raved about the strong US labor market and oddly ignored the staggering crowding-out of US interest payments on its massive debt, the US Treasury’s 3-year debt auction was … a Hinderburg moment.

First, the high yield at today’s auction of 3-year Treasury notes was 4.073%. This occured as the allotment to brokers and dealers collapsed along with M2 Money growth YoY.

Then we have this horrible chart of the 3Y auction stop through, crashing into uncharted waters. A stop-through indicates when the highest yield the Treasury sold in the auction is below the highest yield expected when the auction began – the “when issued” level.

Here is the rest of the auction story.

The Tighten Up! Banks Tightening Credit Boxes As Median Age Of US Homebuyers Rises From 31 To 47

The Federal Reserve is doing Archie Bell and The Drells “Do The Tighten Up!”

Over the fourth quarter, significant net shares of banks reported having tightened standards on C&I loans to firms of all sizes.

Banks also reported having tightened all queried terms on C&I loans to firms of all sizes.

Actually, banks are tightening standards across the various credit boxes.

And as banks tighten up their credit box, we are seeing the median age of US homebuyers rising from 31 to 47 years.

As banks tighten, we are seeing a slow down in the growth rate for C&I lending and 1-4 unit mortgage lending.

This is reminding me of Germany where you save for your entire life to buy a home.

Somehow, I don’t think Biden will mention any of this is his State of the Union address tonight.

US Treasury 10-year Yield Rises 10 Basis Points To Start The New Week (10Y-3M Curve Still Inverted At -106 Basis Points As Implied Probability Of June Rate Hike Rises)

Last week’s strange jobs report (massive discrepancy between the Establishment and Household data) did push expectations of further Fed rate hikes up. In fact, the US Treasury 10-year yield is up 10 basis points this morning.

The US Treasury 10Y-3M yield curve remains inverted at -106 basis points while the implied Fed rate hike for the June 2023 FOMC meeting jumps to over 5%.

Mortgage rates? Likely to rise.

About That Surprisingly Strong Jobs Report: 3.30% Growth In Jobs Added On YoY Basis As Fed Slow Walks Shrinking Balance Sheet (Negative REAL Hourly Earnings Growth Not Something To Brag About)

The Hill has an interesting story: 5 takeaways on a surprisingly strong jobs report.

“The U.S. economy added 517,000 jobs in January, more than doubling Wall Street expectations and turning up its nose at prognosticators of an imminent recession. The unemployment rate dropped to 3.4 percent, the lowest level since 1969. Analysts were expecting it to move in the opposite direction, ticking up to 3.6 percent.”

Yes, I was expecting U-3 unemployment to increase to 3.6% as well. What happened? Seasonal adjustments (BLS doens’t provide non-seasonally adjusted data). But the shocking headline (mostly due to seasonal adjustements) was not as surprising if we consider that jobs added in January grew at 3.309% year-over-year. Well, THAT isn’t all that surprising. Particularly since The Fed is slow walking its shrinking of The Fed balance sheet.

And with over 100 MILLION not in the labor force (apparently, the US labor force never really recovered from the Wuhan China virus), the U-3 unemployment rate touted by the media is misleading.

Bear in mind that employment is a LAGGING indicator. For example, the unemployment rate was 4.7% in November 2007 just prior to the beginning of the 2008-2009 Great Recession. So Biden’s bragging about the lowest unemployment rate since 1969 is meaningless in predicting recessions.

So, the January jobs report isn’t as surprising and strong as talking heads screamed about. I wish BLS would release non-seasonally adjusted (raw) data. But since we have a dysfunctional Federal government, I am not holding my breath.

And I wouldn’t consider averrage hourly earnings growth YoY of 4.42% when headline US inflation is 6.42% particularly brag worthy.

Of course, Biden lied about inheriting inflation from Trump. Inflation was 1.28% YoY in December 2020 just before Biden was sworn-in as President. Then again, Biden lies about everything. At least he just refused to comment on the Chinese Spy Balloons.

Challenger Job Cuts Rise 440% In January As Fed Liquidity Shrinks (US Treasury 10Y Yield Down -3.5 BPS)

President Biden had better give his State of the Union Address before the economy worsens any more.

In January, the Challenger, Gray and Christmas jobs cuts index was a doozy. Jobs cuts rose 440%. This is happening as The Federal Reserve keeps its feet on the monetary brake pedal.

The Challenger report shows a big jump of 135.8 percent in layoff intentions to 102,943 in January, up from 43,651 in December and 440.0 percent higher than the 19,064 in January 2022. Many of the job cuts are in the tech sector, but job cuts are now spreading across the economy as a recession looms.

This morning, the US Treasury 10-year yield is down only -3.5 basis points, but it is Europe where the action is. UK is down -16.2 basis points and Italy is down -14.8 bps. UPDATE: US 10Y yield down -5.3 BPS, Italy 10Y down -29 bps.

Slow Down! ADP Jobs Added Slows To 106k In January, Lowest Since August 2021

The US economy is slowing down. In fact, ADP jobs added just printed at 106k in January, the lowest reading since August 2021. ADP jobs added follows the slow down of M2 Money growth YoY as The Fed tightens its monetary policy.

Do I detect a trend (orange line)?

Speaking of trends, check out ISM Manufacturing New Orders. Lowest since Great Recession of 2008 (if I exclude the government economic shutdown Covid recession).

I doubt that January’s ADP report or the ISM Manufacturing report will be mentioned in Biden’s State of the Union address.

US Mortgage Applications Drop 9% From One Week Earlier, Purchase Apps Up 7% From Previous Week But Down 41% From Same Week Last Year

The January mortgage applications book is closed. And we are off to another year of rising applications until May. Then the downhill slide.

Mortgage applications decreased 9.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2023.

The Refinance Index decreased 7 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 41 percent lower than the same week one year ago.

US mortgage rates have been steadily declining since November 2022.

Happenings Two Months Time Ago! US Case-Shiller National Home Price Growth Slows To 6.77% YoY In November As Fed Retreats (Down -0.54% Since October, 5th Straight Month Of MoM Price Declines)

The Case-Shiller index is out for November 2022. Too bad it is January 31, 2023. Call it “Happenings 2 Months Time Ago.”

On a year-over-year (YoY) basis, the Case-Shiller National home price index slowed to 6.77%. On a month-over-month (MoM) basis, the CS National index fell -0.54%. That is the 5th straight month of home price declines.

In REAL terms, the Case-Shiller National home price index is up only 0.58% YoY as REAL Weekly Earnings growth is negative at -3.1% YoY.

Only San Francisco fell on a YoY basis (down -1.6%). Five metro areas were above 10% and they are all in the South. Atlanta, Charlotte. Dallas, Miami and Tampa.

On MoM basis, every metro area in the Case-Shiller 20 index saw price declines from October to November.

Another sign of a crumbling market.

7 Months Of Night! US GDP Real Disposable Income Fell For 7 Straight Months As Fed Removes Punchbowl (Biden’s Economy Lost $4 TRILLION In Real Disposable Income Since March 2021, A -21% Loss)

Welcome to the wonderful world of Bidenomics, giving the US 40 year highs in inflation leading The Federal Reserve to remove its enormous monetary stimulus (known as “The Punch Bowl.”

I previously pointed out that US Real GDP was actually less than 1% year-over-year (YoY) in 2022, hardly a fantastic number given the trillions in Biden/Pelosi/Schumer spending (Omnibus, Infrastructure, etc) and Powell/Fed’s whopping monetary stimulus in 2020. But real disposable income, the amount households have left to spend after adjusting for inflation, had been falling for 7 straight months.

In fact, REAL disposable personal income peaked in March 2021, shortly after Biden was sworn-in as President in Janaury 2021 at $19,213.9 billion (or $19.214 TRILLION). As of December 2022, real personal disposable income had fallen to $15,213.0 or $15.213 TRILLION. That is a loss of $4 TRILLION since March 2021. Or a -21% Loss in Real Disposable Income.

Here is the campaign video for Joe Biden from 2020.

Biden’s campaign photo.