Fear The Talking Fed! Mortgage Payments Rise 43.4% YoY As Fed Jawbones Monetary Tightening (But Still Has Not Shrunk Balance Sheet Yet)

Mortgage rates have increased dramatically under “Middle Class Joe” as The Federal Reserve attempts to choke-off inflation caused by … The Fed coupled with Biden’s energy policies (hope you are enjoying those high gasoline and diesel prices!) and the Federal government’s staggering spending spree under Pelosi, Schumer and McConnell.

Thus far, The Federal Reserve has leveled-out out their Treasury Note and Bond purchases, increased their Agency Mortgage-backed Securities (AgMBS) holdings, but strangely have reduced their holding of Treasury Inflation-Protected Securities (TIPS) in the face of rising inflation.

And while The Fed Funds Target rate is a lowly 1%, it is projected to rise to 2.890% by the February 1, 2023 FOMC meeting. That should send mortgage rates up.

As if mortgage rates haven’t skyrocketed already, thanks to The Fed’s jawboning about having to raise rates and extinguish inflation.

With sizzling mortgage rates (cooling a bit as the global economy slows), home mortgage payments have risen +43.4% YoY.

Now we have President Biden trying to scare us about the Monkey Pox, yet leaves the southern border wide open. One would think that Biden would shut the borders (as if the surge in Fentanyl, sex trafficking and other diseases aren’t reason enough. But I do predict another massive spending bill from Biden/Congress to combat Monkey Pox and the resurgence of Covid variants.

Meanwhile The Fed jawbones fighting inflation with monetary tightening in the future, even if they jawboning causes mortgage rates to soar and mortgage payments to spiral.

Weekend Update! Commodities Versus S&P 500 Index (How To Hedge Against The Fed And Biden’s Policies)

We have a double whammy facing investors, The Federal Reserve wanting to take away the monetary punch bowl and Federal energy policies that are crushing middle-class households and lower-wages workers.

But how do you hedge against The Federal Reserve tightening and Biden’s reckless energy policies?

Take a look at investing in commodities (S&P GSCI Commodity-Indexed Trust and the Bloomberg Commodity Index) versus the S&P 500 Total Return index since The Fed began signaling that they would take away the monetary punch bowl.

Yes, commodities like food and gasoline/diesel prices are up dramatically under Biden’s energy policies (not to mention the USA’s proxy war with Russia).

The Fed seems determined to remove the Fed “Snake juice” from the economy.

Inflation Fightin’ Fed? Fed Can’t Fight Food And Energy Inflation, But They Can Crash The Housing Market (To Tame Total Inflation, Fed Would Have To Raise Rates To 21.38%!)

Inflation Fightin’ Fed?

Kansas City Fed President Esther George said The Fed isn’t focused on impact of rates on stocks (or pension funds, apparently).

The inflation that is crushing Americans is due to energy and food price increases. That is, the non-core inflation. Under Biden, food is up 63%, gasoline is up 92% and diesel prices are up 112%. But The Fed doesn’t consider food and energy prices, per se.

If we look at the Taylor Rule considering fighting inflation including food and energy, The Fed would have to raise their target rate to … 21.38%.

Now, The Fed can clearly cool-off the housing market by raising rates. In fact, my fear is that they go too far and crash the housing market. The Fed will NEVER get to 20% again like we last saw under Volcker in 1981. 20% rates certainly cooled home prices back then and Fed rate hikes helped crash the housing market in 2008.

So, when The Fed says they want to be the inflation-fightin’ Fed, we must be aware what The Fed can and cannot do. They can’t tame the inflation beast in the form of food and energy prices (unless they crash the economy), but they can crush home prices.

Fear The Talking Fed! US Industrial Production/Capacity Utilization Rise In The Face Of Inflation (M2 Velocity Near All-time Low As M2 Money YoY Still Sizzling At 9.85% YoY)

Most of us are painfully aware of rising food prices, particularly with the US fighting a proxy war with Russia. Wheat prices have doubled under Biden and the Russian invasion of Ukraine.

But inflation is everywhere. Rising home prices, rising gasoline and diesel prices, etc. When Jeep can see a Wagoneer for $100,000+, you know we have inflation.

The surprise this morning was retail sales, up 0.9% MoM (though still less than expected), despite rising prices. Odd since REAL wage growth is negative.

But the other bit of good news this AM is that US industrial production rose +1.1% MoM in April. And US Capacity Utilization is rising dangerously towards 80%, it is at 79% in April.

You will notice that Fed monetary tightening occurs when capacity utilization hits 80%, indicating an overheated (or OVERSTIMULATED) economy. Yes, we still have The Fed Funds Target Rate (Upper Bound) at only 1% and The Fed Balance Sheet still near $9 trillion. So, Fed stimulypto is still in play.

Meanwhile, M2 Money Velocity is near its historic low and M2 Money YoY is still sizzling at 9.85% YoY.

Wheat prices have doubled under Biden, and you can see how wheat futures soared when Russia invaded Ukraine.

So, despite The Fed’s intent to tighten, The Federal Reserve and Fed government are still overstimulating the economy. But what happens when the stimulus is gone?

Fear the Talking Fed!

Medusa Touch! Goldman’s Blankfein Warns Of Recession, Fed Reverse Repos Soar With Inflation, Stock Futures Down While S&P 500 Forward 12-Month P/E Ratio Falls To Pre-Covid (2016) Levels

Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”

I am not surprised. Take a look at The Fed’s Overnight Reverse Repo operations. As inflation surged in 2021 and 2022, banks are parking more funds at The Fed. Fear?

We are seeing the S&P 500 futures down today after a nice rally on Friday. The &P 500 forward 12-month P/E ratio is back to pre-Covid, pre Federal spending surge, pre Fed monetary Stimulypto of 2016.

Goldman Sachs see the 10-year Treasury yield rising to 3.3%. That bodes ill for 30-year mortgage rates, perhaps push mortgage rates up another 40 basis points to 5.80%.

And NASDAQ is having its worst year since 2008.

Its The Medusa Touch of Big Government.

Dark Night! Consumer Sentiment And Home Buying Sentiment Plunge With Bidenflation And Fed Monetary Tightening

A picture is worth a thousand words.

Nothing has been the same since Covid and The Federal Reserve’s massive overreaction to the government shutdowns of the economy.

Notice how the University of Michigan Consumer Sentiment Index (white line) has plunged since Covid and the ensuing rise in inflation. University of Michigan’s Buying Conditions for Houses has also plunged to new depths.

Yes, Bidenflation is just killing us.

Rising inflation (highest in 40 years) and hottest home price bubble (even hotter than the infamous housing bubble of 2005-2007) AND rising mortgage rates have placed a damper on home buying sentiment.

The theme song for the Biden economy is The Blasters’ Dark Night.

Meanwhile, the middle class is left with leftovers.

Putting Cryptos In A Crypt? Bitcoin Rallies, Ethereum Down As Cryptos Collapse (Microstrategy Bond Plunges To $78.34)

Call this “Nobody’s Everything.” Crytpocurrencies are getting clobbered. But then again, the S&P 500 is not doing so well. But crypto stalwarts Bitcoin and Ethereum have down even worse.

At the dollar strengthens, Bitcoin has gotten pummeled.

But at least Bitcoin rose this morning along with Bitcoin Cash. And XRP. But the others are getting clobbered.

Microstrategy bonds are getting crushed.

Blue Monday Or Stagflation? Commodities Signal Stagflation (WTI Crude DOWN 2.72%, Iron Ore DOWN 5%, S&P 500 Futures DOWN 1.7%, 10Y Treasury Yields Rise To 3.20% Then Sinks)

As the US is engulfed in inflation while The Federal Reserve is engaged in trying to fight inflation (well, sort of), we are seeing markets taking a shellacking, particularly commodities.

One indicator of a slowdown is declining commodity prices. Crude oil futures are down around -2.5%. Iron Ore is down -5% and steel rebar is down -3.21%.

Inflation numbers are due out Wednesday and are forecast to be 8.1% YoY (based on headline CPI). But combined with a slowing global economy, we get the dreaded “STAGFLATION.”

Meanwhile, the S&P 500 index futures are down around 1.726% for Monday open. Asian markets already got clobbered with the Hang Seng down almost -4%.

On the bond side, the 10Y Treasury Note yield rose to 3.20% early in the morning, but has retreated to 3.1447% as of 8:40am EST.

Both stock and bond market volatility measures are increasing.

So, is it a Blue Monday effect? Or global stagflation?

Time for supplemental income under the Biden Administration.

Cooler Kings! As Biden Keeps Going Green And Fed Raises Rates, Everything Is Cooling (Mortgage Rates UP, Venture Capital Down 53%, Stocks Crushed, Etc)

The Biden Administration and The Federal Reserve together should be called “The Cooler Kings” in that their policies are putting a Big Chill on the mortgage market and equities.

Mortgage rates are skyrocketing thanks to the Federal Reserve.

The 30-year fixed-rate mortgage averaged 5.27% for the week ending May 5, according to data released by Freddie Mac FMCC, -1.62% on Thursday. That’s up 17 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.

House price growth to wage growth is below the all-time high, but remains above housing bubble levels of 2005-2007.

The Refinitiv Venture Capital Index is down 53% since November ’21 as The Fed cranks up interest rates.

Well, at least commodities are soaring under “The Cooler Kings.” Pretty much everything else is sucking wind.

Home prices are actually falling in some cities, like Toledo Ohio, Detroit Michigan, Rochester NY, and Pittsburgh PA. Even La-La Land (Los Angeles CA) is seeing a drop in median listing price since 2021 of -5.0%.

The question, of course, is whether The Federal Reserve will back off its plans to aggressively raise interest rates in lieu of crashing stock market, venture capital, and possibly home prices.

This is Scorcher VI: Global Meltdown.

Does Biden and The Fed Feel Like We Do?

Fear The Talking Fed! Fed Jacks Target Rate Up By 50 BPS, 9 More Rate Hikes A Comin’ (Yield Curve Rises)

Well, the Fed’s talking heads have been saying a 50 basis point hike was coming in May … and it appeared!

And it looks like 9 rate hikes are a comin’ by February 2023.

The Fed’s Dot Plots shows a cooling of Fed rate hikes by 2024 and beyond.

Here is the path of Balance Sheet peel-off.

The US Treasury actives curve is up by 14 bps at the 10-year tenor and up 17 bps at the 2-year tenor.

The plan will see $30 billion of Treasuries and $17.5 billion on mortgage-backed securities roll off. After three months, the cap for Treasuries will increase to $60 billion and $35 billion for mortgages.

I could read the Fed’s speech on their decision, but since The Fed has been so highly politicized, I don’t really care what they say. Only what they do.