Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The US is a movin’ on up to the high side … of energy prices.
Today, WTI crude oil futures broke through the $110 barrier.
The WTI Crude crack spread, the differential between the price of crude oil and petroleum products extracted from it, is up 535% under President “I HATE OIL!” Biden and diesel fuel is up 121%.
WTI crude is up 1% today.
“Crack? I thought crack was something that Hunter did!” – Joe Biden
Rising energy prices, rising home prices, rising mortgage rates, declining hope.
But as The Federal Reserve begins to withdraw it Covid stimulus, existing home sales declined -3.39% in May from April.
But like Covid itself, The Fed’s outrageous monetary stimulus is still in place, helping caused median home prices to rise 14.8% YoY. And inventory for sale is rising, but still remains low.
Jointly, Treasury Secretary Yellen and Fed Chair Powell are “Mr Freeze.”
How crazy was The Federal Reserve’s overreaction to the government shutdowns surrounding the Covid epidemic? While most analysts talk about California, I am going to discuss … Cleveland Ohio as an example of how The Fed can destroy markets.
The Case-Shiller home price index for Cleveland rose 31.5% since January 2020 just before The Fed unleashed its massive monetary stimulus on an unsuspecting city.
But as The Fed starts to tighten monetary policy after Yellen’s too loose for too long policies followed by Powell, foreclosure rates are soaring in Cleveland. In fact, according to Attom Data, 5 of the top 10 zip codes with the worst foreclosure rates in May 2022 were in Cleveland.
Of course, Cleveland is much like much of the rust belt (except Columbus Ohio). The rust belt is losing population along with heavy tax states like New York and Illinois. Destination states? Texas, Florida, the Carolinas and Tennessee.
Then at the national level, Atlanta Fed’s GDPNow real-time tracker fell to 0% growth.
US Treasury Secretary and former Federal Reserve Chain, Janet Yellen, admitted on ABC’s This Week that US inflation is “unacceptably high”and prices are likely to stick with consumers through 2022, and that the US economy is likely to slow down.
“We’ve had high inflation so far this year, and that locks in higher inflation for the rest of the year,” she said Sunday on ABC’s “This Week.”
“I expect the economy to slow,” she said, adding: “But I don’t think a recession at all inevitable.”
US inflation accelerated to 8.6% in May, a fresh 40-year high that signals price pressures are becoming entrenched in the economy. Those figures dashed any hope that inflation was starting to ebb, prompting the Federal Reserve to unleash its biggest interest-rate increase since 1994.
Hey, I thought strangling the US mortgage market and housing markets was supposed to cool the inflation rate, Janet.
On the good news/bad news front, cryptocurrency Bitcoin fell to $17,600 earlier today before rebounding to above $20,000 as the expectation of further Fed rate increases diminished (Yellen admitted the economy is slowing).
Yellen ignored rising mortgage rates which is putting a chokehold on the US housing market.
Hey Janet! So you are admitting that Biden’s energy policies AND massive Congressional spending bills ARE helping to drive prices through the roof and that Fed rate increases won’t tame the savage inflation beast?
Where is Stanford’s John Taylor when we need him?
Even since the housing bubble burst and ensuing financial crisis on 2007-2008, The Federal Reserve under Ben “The Savior!” Bernanke, Janet Yellen and Jerome Powell let their zero/low interest rate policies be too low for too long that anyone with common sense knew would lead to serious problems when The Fed was forced (this time by inflation) to end the massive OVER monetary stimulus. We are now living through The Great Reset of the US economy.
Since Biden was sworn-in as President (or El Presidente) in January 2021, 30-year mortgage rates are up 108% to 6%, regular gasoline prices are up 108% to $5 a gallon nationally. Inflation is up to 8.6% YoY.
Bernanke, Yellen and Powell did not follow any rule per se, just a “seat of the pants” panic button approach. Using the Mankiw specification of the Taylor Rule model, the Fed Funds target rate should be 13.25% based on CORE PCE. Notice starting in 2014, The TR suggested target rate started to be higher than the actual Fed target rate. And since the Covid monetary blast of 2020, the gap between the Taylor Rule and Fed target rate (red area) has grown to near the highest level in history. Even now Mohamed A. El-Erian, Chief Economic Advisor at Allianz, is starting to admit that The Fed’s ZIRP policies are beginning to hurt.
But if we use total inflation rather than core inflation, the measure that picks up the actual pain that Americans are feeling from rising gasoline prices and mortgage rate, we get a Fed Target rate of 22.10%. Since The Fed’s current target rate is only 1.75%, The Fed has “Room To Move.”
And in a painful. bad way.
Bernanke, Yellen and Powell must think that The Taylor Rule is the New Jersey ham pork roll.
As The Federal Reserve tightens the monetary noose (Fed Chair Powell said Fed ‘acutely focused’ on returning inflation to 2%), the US economy is slowing. In fact, May’s Industrial Production report is half of what was expected. Industrial production declined to 0.20% MoM versus the expected 0.4%. At the same time, capacity utilization rose slightly to 79%., but still below expectations.
Mortgage rates are rising rapidly, but the growth has cooled slightly as the economy cools.
Bitcoin is getting demolished by The Fed’s reaction to inflation.
And “It’s Not Always Sunny In Philadelphia.” Since the Philadelphia Fed’s Business General Conditions has dropped into negative territory with, among other things, The Fed’s monetary tightening. And they’ve only just begun (no Carpenters’ songs!).
Here is Phil Hall’s article on housing and The Federal Reserve’s noose tightening. US housing starts dove -14.4% MoM as mortgage rates soared.
If the Biden Administration and Federal Reserve jointly produced a dating site …
But its most central banks too. Look at German home prices against the ECB’s balance sheet
I couldn’t sleep at all last night … after The Fed cranked up their target rate 75 basis points.
The odds of a recession grew to 71.7% as The Fed hikes rates.
Over the next 24 months, the probability of a US recession is 98.5%.
The NASDAQ index tanked -4% today on the fallout from yesterday’s Fed actions.
Do I detect a trend in The Fed’s latest Dot Plot??
So, will The Fed continue to go head-over-heels on monetary tightening?
Like in the movie The Poseidon Adventure, we can all sing “The Morning After.”
On the heels of The Fed’s 75 basis point surge in the target rate, the US Treasury yield jumped +11.5 BPS as of 8:30 AM EST. The S&P 500 E-mini futures contract is down -1.8%.
As investors brace for a recession, mortgage rates dropped to 6.03%.
Gasoline prices remain near $5 per gallon, diesel prices are near $6 per gallon and The Fed’s massive balance sheet is still in force.
On the housing front, US housing starts plunged -14.4% MoM in May, the biggest decline under Biden.
While housing starts were down -14.4% MoM in May, single-family detached home were down only -9.16%. It was 5+ unit (multifamily) starts that were down -26.83% MoM.
Good morning peeps! Reality is dawning after the market surge yesterday after investors celebrated that The Fed could have raised rates even more.
While expected, it is still unwelcome news.
The Atlanta Fed’s GDPNow real-time GDP forecast for Q2 just sank into negative territory at -0.002%.
Let’s see how Real GDP does if The Fed actually withdraws its stimulus needle.
And consumer purchasing power keeps diving as The Fed keeps printing money.
The Federal Reserve is driving me crazy! US 30-year mortgage rates have hit the 6% level (and is higher with some major lenders).
But the fear of The Fed raising rates even more is causing a rush to lock-in rates.
Mortgage applications increased 6.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 10, 2022. Last week’s results are compared to the prior week, which included an adjustment for the Memorial Day holiday.
The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 18 percent compared with the previous week and was 16 percent lower than the same week one year ago.
The Refinance Index increased 4 percent from the previous week and was 76 percent lower than the same week one year ago.
Is The Fed raising rates so fast a Good Thing? Not for mortgage lenders!
Let’s see what happens today with The Fed. But for right now, we have PANIC IN (FED) NEEDLE PARK!!
Confounded Interest - Anthony B. Sanders 
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