Category: Volatility

US Beginning Credit Super Cycle (Bidenomics = Inflation, Rising Debt, Rising Delinquencies) Mortgage Rates UP 158% Under Bidenomics

Thanks to Bidenomics, code for massive Federal spending on green energy initiatives and payoffs fo large donors, we have agonizing inflation and consumers are borrowing more and more to cope with inflation. And with the increased use of debt comes …. drumroll … delinquenices!

Let’s start with mortgage loans, the overall delinquency rate is 63bps, near record lows, likely due to the huge home appreciation of the last few years which padded the equity cushion for most homeowners. Even the youngest cohort (18-29 years old) has a delinquency rate only 30bps higher than the aggregate. Unlike the 2007-2011 period, the credit cycle is not playing out in the real estate market.

The US conforming mortgage rate is UP 158% under Bidenomics.

Let’s move on to some forms of consumer loans, where the story is a little more daunting.

Auto loans are definitely the epicenter of the credit cycle. While the overall average is a still somewhat tame 2.41%, younger borrowers are not keeping up. Younger borrowers have delinquency rates that are 1-2% higher than the average while the inverse is true for older borrowers. Eighteen-to-thirty-nine year-old borrowers have the highest delinquency rate in 13 years.

Somehow, I sense that used car lots are going to start filling up again as these vehicles get repossessed. This should put downward pressure on used car prices, bringing that element of inflation down. This is one of the channels through which monetary policy works.

Lastly, I’ll take a look at credit card delinquencies.

Here is where we can really see the stresses building.

  • First, the overall delinquency rate has about doubled from 2.5% to 5% over the last couple years.
  • Second, older borrowers have seen a tick up in delinquency rates, a feature we don’t really see in other credit products.
  • Third, one in 12 younger 18-29 year-old borrowers are 90+ days late making their credit card payments.

Credit Card Delinquency Rate across all commercial banks hit 2.77% in the 2nd quarter, the highest level in more than a decade.

In conclusion, we are in the early days of a consumer credit cycle. Younger borrowers are the weakest link in this analysis, and this makes me wonder where rates go when student debt payments turn back on at the end of the month.

Bidenomics 101 (Mortgage Rates) Conforming 30Y Rate UP 155% Under Biden, Home Prices UP 32% (Fed Balance Sheet Still Exceeds $8 Trillion, UP 10% Under Vacation Joe)

Under Bidenomics, there is still too much Fed monetary stimulus in the form of >$8 trillion on its balance sheet. While the biggest surge in Fed activity occurred with Covid, The Fed has added 10% to its balance sheet under Billions Biden.

Despite not backing off the assets purchases by The Fed, conforming 30Y mortgage rate is still up 155% under Bidenomics.

Yes, The Fed is raising its target rate to cool inflation, but doing little with its balance sheet.

The Case-Shiller national home price index is up 32% under Vacation Joe!

It seems prices are out of control and The Fed refuses to trim its balance sheet. But don’t worry, Vacation Joe is probably on yet another vacation while Maui and Flordia suffer and The Ukraine war is seeing bodies pile up. Meanwhile, he still hasn’t visited East Palestine Ohio like promised.

Burning Down The Housing Market! Mortgage Demand Decreased in Weekly Survey Purchase Applications “Lowest Level Since April 1995”

The Talking Heads said it best. Bidenomics is burning down the housing market. Bidenomincs (or trying to recover from Yellenomics) is responisble for interest rates rising to flight inflation and the collapse of mortgage lending. And she was … Janet Yellen.

Mortgage demand (applications) decreased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 18, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 35 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 30 percent lower than the same week one year ago.

The spread betweenn Bankrate’s 30 year rate at 7.62% and the effective rate on mortgage debt outstanding at 3.595% has exploded as mortgage rates jump.

Today’s mortgage rates are up to 7.49%. OMG!

Bidenomics (code for making large donors wealthier and the middle class getting the boot) and catch-up for Yellenomics (rates too low for too long), and Powell are helping to burn down the housing market.

Hellzapoppin Under Bidenomics! Conforming 30-year Mortgage Rate UP 163.5% (Federal Debt UP 19% Or >$5 Trillion Under Biden While Unfunded Liabilities Are Now At $193 TRILLION)

Hellzapoppin under Bidenomics! And it isn’t a musical, but a tragedy.

Between The Federal Reserve’s outrageous overreaction to Covid (printing like there was no tomorrow), and Biden’s massive spending spree (lots of moldy (green) spending, we have see horrid inflation.

And The Fed trying (sort of) to combat inflation, we see that 30-year CONFORMING mortgage rate for 80% LTV or lower credit borrowers is up 163.5% under Bidenomics.

Under Bidenomics, public debt (owed by the US Treasury) is up 19% or greater than $5 triillion. Now wonder Biden throws are billions like it is water.

I seriously want the Biden Administration (and almost every member of Congress) why we are sending billions of dollars to Ukraine while barely giving Maui fire victims barely anything. The US is already $33 trillion in debt with >$193 trillion in unfunded liabilites. I want to ask Biden and Congress HOW the US is going to afford $193 trillion in unfunded liabilites?

Of course, NO ONE wants to face the reality of the disastrous fiscal poliicies of Washington DC politicians. Not McConnell, not McCarthy, not Schumer and especially not Billions Biden. Remember 10% for The Big Guy where Democrats argue that is meaningless. Or mini-me, Robert Reich (Clinton’s labor secretary) who claimed that the US economy is the best he has ever seen! Yes, Reich, for the top 1%. Of couse, no one will ask fools like Reich how we will pay for $33 trillion in debt and the $193 trillion in unfunded liabilies … and fund a war in Ukreiane in seeming perpetuity.

My good friend Jesse has an excellent write-up on the upcoming KC Federal Reserve annual retreat at Jackson Hole, WYO. This retreat is just the US banking version of The World Economic Forum and Klaus Schwab. Know-it-all unelected elitists controlling our lives.

Another Brick In The Mall! Downtown San Fran Office Tower Sells At 66% Off As CRE Crisis Claims Another Victim

Bidenomics represents another brick in the mall. Or office space!

Understanding the backdrop of the crime-ridden progressive metro area of San Francisco, alongside the mass exodus of businesses and residents, and the record-high vacancy rate of office towers, we asked a very important question earlier this summer: What are office buildings worth?

We quickly found out in June that one downtown San Francisco office building sold for roughly 70% less than its previously estimated value, an ominous sign of what would come as the commercial real estate market dominos appear to be falling. 

Now Sixty Spear St., an 11-story building that is 30% occupied and is expected to be entirely vacant by summer 2025, has been sold to Presidio Bay Ventures for $40.9 million, about a 66% discount versus the most recent assessed property value of $121 million, according to local media SFGATE. 

“We acknowledge the formidable challenges that confront San Francisco,” Cyrus Sanandaji, founder and managing principal of Presidio Bay, who is now the office tower’s proud new owner. He remains a bull on the San Francisco office market and wants to expand the building’s square footage from 157,436 to 170,000 square feet and transform it into a “Class-A trophy office building with exceptional design and hospitality-driven amenities.”

All we have to say to Sanandaji’s CRE bet is good luck. The crime-ridden metro area covered in poop must come to terms with City Hall’s horrendous progressive policies that have entirely backfired and led to an exodus of businesses and people. Until Mayor London Breed can instill law and order once more — the ability for the downtown area to thrive once more will remain challenging. 

Marc Benioff, the chief executive officer of Salesforce, the city’s largest employer and anchor tenant in its tallest skyscraper, warned last month that the metro area is in danger. He offered a grim outlook: The downtown area is “never going back to the way it was” in pre-Covid times when workers commuted to offices daily.

“We need to rebalance downtown,” Benioff said, adding Breed needs to initiate a program to convert dormant office space into housing and hire additional law enforcement to restore law and order. 

… and documenting how the downtown area has rapidly transformed into a ghost town is Youtuber METAL LEO, who walks around with a video camera, revealing empty stores, malls, and towers. 

Besides Sixty Spear, SFGATE provided data on other recent tower transactions: 

The 13-story 180 Howard St. building, known for being the headquarters of the State Bar of California, sold for about $62 million after being expected to sell for about $85 million.

The offices at 350 California St. reportedly sold for roughly 75% less than its previously estimated value in May, and the 22-story Financial District edifice mostly sits empty. Just a few weeks later, nearby 550 California changed hands for less than half of what owner Wells Fargo paid for the building in 2005.

Things are so bad that some building owners are just walking away from properties:

And defaulting… 

As the CRE crisis spreads, remember last week: Baltimore Sun Editorial Board Tells Everyone ‘Keep Calm’ Amid CRE Panic … this will only mean bad news for commercial real estate-small banks that could threaten financial stability and either cause a recession or make a recession more severe. 

If you’re curious where we could be in the CRE crisis cycle, a recent analysis by CoStar Group shows 55% of office leases signed before the pandemic that were active during Covid haven’t expired, meaning vacancies will continue to rise. 

Here’s what could be next: The collapse of WeWork will only cause more pain for CRE markets nationwide. The coworking company occupies 16.8 million square feet across the US. 

Bidenomics: The Good, The Bad And The Ugly (Atlanta Fed GDP At 4.12% For Q2, Bank Credit Growth Goes Negative, Confernce Board Leading Indicator Goes Negative, REAL Gross Domestic Income Growth = -0.82%)

Bidenomics, which is also Yellenomics (the former Fed Chair and current Treasury Secretary) has The Good, The Bad and The Ugly to say for it.

First, The Good! The Atlanta Fed’s GDP Now real time GDP tracker has Q3 GDP at … 4.12%. Pretty good, but bear in mind that there is still more than $8 trillion in Fed Monetary Stimulus outstanding (aka, Yellenomics).

Second, The Bad. Bank credit growth is now negative.

As lenders are tightening credit standards for commercial and industrial loans.

The ugly? There are several candidates for this dishonor.

One, The Conference Board’s leading economic indicators is down -10.

Two, REAL median weekly earnings growth remains negative at -3.57% YoY.

Third, auto loan and credit card balances are at $1.5 TRILLION making further consumer credit more difficult to finance GDP growth.

Fourth, Real Gross Domestic Income growth was negative in Q1 2023.

I could go on and on about the negatives of Bidenomics (e.g., massive distortion of Federal spending towards green energy and big donors). Isn’t the earth moving closer to the Sun in its elliptical orbit?? HOW is spending trillions on green energy work as we move closer to the Sun??

I am waiting for Bill Gates to recommend firing nukes at the Sun to reduce the extreme heat as Earth moves closer to the Sun.

Merrick “The Mouse That Roared” Garland throws up roadblocks to protect “Stonewall Biden.”

Biden’s Mortgage Market! Mortgage Demand Falls -3.1% Since Last Week, Purchase Demand Falls -3% And Down -27% Since Last Year

The US mortgage market is livin’ la vida Biden! And for the US mortgage market, la vida Biden in ugly.

Mortgage applications decreased 3.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 4, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 3.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week and was 37 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 27 percent lower than the same week one year ago.

Here is a chart of mortgage purchase applications with Biden’s record in the orange box.

Prepayment rates with rising mortgage rates (to try to cool Bidenflation) are now low by historic standards.

Here is a photo of Joe Biden (or is that Boss Tweed of NYC’s Tammany Hall)? Doesn’t matter because they are both the same corrupt person.

Economic Rollerball! US Regional/Small Bank Shares Drop After Moody’s Cuts Ratings, Warns on Risks (Bidenomics Favors Large Firms, Not Small Firms)

  • Rating company downgrades 10 lenders, citing dimmer outlook
  • U.S. Bancorp, BNY Mellon among six firms facing potential cuts

Not surprising given that Bidenomics is nothing more than giving big bucks to big corporations, including banks. Regional/small banks? Not so much.

US bank stocks declined after Moody’s Investors Service lowered its ratings for 10 small and midsize lenders and said it may downgrade major firms including U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp.

Higher funding costs, potential regulatory capital weaknesses and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday.

“Collectively, these three developments have lowered the credit profile of a number of US banks, though not all banks equally,” the rating company said.

Moody’s Sees Problems Ahead for US Banks

Rating company issues raft of downgrades, outlook

Source: Moody’s

Shares declined for firms that had their ratings cut, including M&T Bank Corp., down 3.2%, and Webster Financial Corp., which lost 1.3%. Moody’s also adopted a “negative” outlook for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp. and Citizens Financial Group Inc. Among those, PNC was down 2.2% and Capital One lost 2.4%.

Investors, rattled by the collapse of regional banks in California and New York this year, have been watching closely for signs of stress in the industry as rising interest rates force firms to pay more for deposits and bump up the cost of funding from alternative sources. At the same time, those higher rates are eroding the value of banks’ assets and making it harder for commercial real estate borrowers to refinance their debts, potentially weakening lenders’ balance sheets.

“Rising funding costs and declining income metrics will erode profitability, the first buffer against losses,” Moody’s wrote in a separate note explaining the moves. “Asset risk is rising, in particular for small and midsize banks with large CRE exposures.”

Some banks have curbed loan growth, which preserves capital but also slows the shift in their loan mix toward higher-yielding assets, Moody’s said.

Banks that depend on more concentrated or higher levels of uninsured deposits are more exposed to these pressures, especially banks with high levels of fixed-rate securities and loans.

Deposits are declining as The Fed hikes rates.

So, Bidenomics reminds me of the film “Rollerball” where big corporations run the government and run a game akin to Rome’s gladiator fights.

Bidenomics? US Treasury Rates Rise As US Fiscal Deficit Back To Financial Crisis Levels As Tax Revenues Collapse

US Treasury yields are up today along with 30-year mortgage rates. There is a lot happening in bond markets.

It’s been a tumultuous week for yields, with the Bank of Japan’s policy tweak, and the Treasury increasing its funding needs. But Fitch was the weatherman with its US downgrade, telling us about the downpour we can see for ourselves just by taking a glance at the fiscal data. In short, the US faces a perfect storm of a vertiginous fiscal deficit, a near-historically swollen debt load, ballooning interest-rate costs and collapsing tax revenues.

First, the deficit. It’s close to historical wides, bigger than it’s ever been outside of a recession, and almost as wide as it was in the depths of the GFC. It’s the largest in the world in GDP terms, and it is currently heading in the wrong direction. This heaps more pressure on the government debt-to-GDP level, already uncomfortably high at 112%.

Second, tax revenues. These have seen almost their largest annual fall ever, in an economy that’s supposed to be growing at 2.4%.

And then there’s rising interest-rate costs. The total interest expense as a percentage of tax revenue is expected to rise sharply in the next year or two, and make new highs by the end of the decade. However, these CBO forecasts should be taken with a grain of salt as they are based on a 10-year yield of only 3.8% (the ten-year average has been higher than that in every decade bar the 2010s and 2020s).

My former student at University of Chicago’s MBA program, Kevin Smith of Crescat Capital, has this charming chart of state and local income tax receipts collapsing.

There is a view the Treasury is already implementing YCC, based on the fact it has been skewing its issuance towards bills and away from coupons. But issuing more bills is simply the easiest and fastest way for the Treasury to replenish its account at the Fed (the TGA). It was run down to almost zero in the lead-up to the debt-ceiling limit, and has now risen to over $500 billion.

This level of bill issuance is not unusual. The Treasury has an implicit target of about 20% for the amount of bills outstanding as a percentage of total debt. As we can see from the chart below, bills have often been more than 20% of debt outstanding over the last 30 years. Moreover, the Treasury announced this week it was raising its coupon-issuance amounts.

According to the stealth YCC thesis, less longer-dated Treasury issuance implicitly caps longer-term yields, but this has not historically been the case. As the chart above shows, the yield curve typically steepens – not flattens – when there is greater bill issuance – the opposite of what is desired by YCC.

We see the same relationship if we look the duration of US government debt outstanding. When the average duration falls – as it would if issuance is skewed toward bills – the yield curve tends to steepen. The current average duration held by the public is consistent with a steeper, not a flatter, yield curve.

This sounds counter-intuitive. If issuance drives yields, then more issuance at the front-end of the curve versus the longer end – equating to a fall in duration – implies the yield curve should flatten.

But the fact the relationship is the other way implies it’s likely that demand is the more dominant driver of yields in the medium term. There is ready-made demand for bills, from MMFs, etc, so when supply increases, demand rises to meet it, suppressing the yield-curve impact.

It’s thus hard to argue the Treasury is engaging in yield curve control. But that does not detract from the rising possibility it will need to be implemented in some shape or form eventually.

Banks and the Fed are reducing their Treasury holdings, while foreigners now collectively own about $5 trillion less USTs – about 10% – than they did in 2021. At the same time the “Treasury put” means large fiscal deficits are likely to become a feature, not a bug. That means inflation is likely to become embedded.

Fiscal profligacy and elevated price growth are a combustible mix and a road to prohibitively high yields via rising term premium. Yield capping thus starts to look like the endgame.

How it’s done is another matter, whether it’s the Fed co-opted to cap yields as it was in WWII, Treasury buybacks, or financial repression, whereby domestic institutions are forced to hold more government debt. Whatever way, at some point yield curve control in the US is becoming increasingly likely – by stealth or otherwise.

But never fear! Janet “Too Low For Too Long Creating Asset Bubbles” Yellen is still US Treasury Secretary.

Bidenomics! Biden Blames USA Downgrade On Trump (But Economy Added 12.53 Million Jobs After Covid Shutdowns Ended Under Trump While It Took 2 1/2 Years For Bidenomics To Add 12.56 Million Jobs)

Bidenomics is where the Attorney General Garland gives Hunter Biden blanket amnesty and arrests Biden’s Presidential opponent. Welcome to the United Venezuelan States of America!e

The new regime talking points are out – namely that Fitch downgraded the US credit rating from AAA  to AA+ on Tuesday because of MAGA Republicans and all things Trump.

But while Fitch cited “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers” as reasons for the downgrade, the Biden administration is of course blaming Donald Trump and his supporters due to one portion of Fitch’s explanation: “a steady deterioration in standards of governance over the last 20 years,” and that “repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”

Then on Wednesday, Fitch’s Richard Francis told Reuters that the downgrade was ‘due to fiscal concerns and a deterioration in U.S governance as well as polarization which was reflected in part by the Jan. 6 insurrection.’

“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” he said, adding “You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties … the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically.”

And so of course, the Biden administration is blaming Trump.

“This Trump downgrade is a direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness that Americans continue to reject,” said Biden re-election campaign spokesman Kevin Munoz. “Donald Trump oversaw the loss of millions of American jobs, and ballooned the deficit with the disastrous tax cuts for the wealthy and big corporations.”

Ah, so now it’s the Trump downgrade™

Meanwhile, White House spox Karine Jean-Pierre also blamed Trump on Tuesday, saying that the White House “strongly” disagrees with the decision, adding “it’s clear that extremism by Republican officials — from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations — is a continued threat to our economy.”

Former Clinton Treasury Secretary Larry Summers called the decision “bizarre and inept,” while former Obama economic advisor Jason Furman called the move “completely absurd.”

On Wednesday, CNBC wheeled out Jared Bernstein, chair of Biden’s Council of Economic Advisers and former Obama official, who similarly blamed Trump.

“I think again the timing issue is is Jermaine here. The deficit went up every year under President Trump. The debt to GDP ratio rocketed under President trump. It has stabilized admittedly at a higher level under this president but we’re doing all we can to try to ameliorate those tensions,” he said.

Bernstein reflected on the “cognitive dissonance” he felt at the downgrade amid the success of ‘Bidenomics’ commenting that “creditworthiness deteriorated significantly under President Trump for good reasons… and under President Biden, it started to track back up…”

Except that’s the exact opposite of what happened. According to the 100% non-partisan “market”, the creditworthiness of US Treasury debt improved almost constantly under President Trump and worsened dramatically almost immediately upon President Biden’s inauguration:

Treasury Secretary Janet Yellen said that the downgrade was “arbitrary and based on outdated data,” adding “Today, the unemployment rate is near historic lows, inflation has come down significantly since last summer, and last week’s GDP report shows that the U.S. economy continues to grow.”

CNN also blamed Trump, penning the headline: Fitch downgrades US debt on debt ceiling drama and Jan. 6 insurrection.”

The stupidity on CNN and Jared Bernstein are appalling. True, the media and Biden Administration are terrified of losing the 2024 Presidential election, but outright lies and misrepresenation are wrong no matter what.

But the claims that the US was downgraded because Trump’s economy lost miilions of jobs is ridiculous.

Actually, the US economy added 12.53 million jobs after April 2020 (Trump) while Bidenomics created took 2 1/2 years to add 12.56 million jobs. So, Biden took over twice as long to create jobs after Covid than it did under Trump. Simply opening the economy and schools produced that magical claim by Biden. And the National Teacher’s Union and Randi Weingarten worked with Fauci to orchestrate shutting down schools. Blaming Trump for local governments shutting down the economy is pure bunk.

Bidenomics and massive Federal spending is the cause for the downgrade. Not Trump.