The benchmark small cap index, the Russell 2000, has hit the lowest levels since November 2020, when the world was still without a vaccine and shut down from Covid. And before Biden’s/Congress wild spending spree and debt volume explosion creating massive inflation causing The Fed to hike rates.
Speaking of over, under, sideways, down under Bidenomics, mortgage rates are up 181% and home prices are up 32.3% under Biden.
Bidenomics is a windfall for the donor class (high rate of return on campaign contributions) while the middle class gets beaten to a pulp. Waiting for Biden to lean over and creepily whisper “It’s working!” Even though it is clearly not working, at least for the middle class.
Evidence that Bidenomics is not working and destructive? Try the surging income needed to buy a house under Biden. Home prices are rising faster than median household income. As in $111,000 income needed to buy a house, while median household income is only $78,000. So, housing is simply unaffordable under Bidenomics. The Biden era is outlined in pink.
Mortgage purchase applications have collapsed to 1994 levels.
Meanwhile, stressed households are seeing credit card delinquencies at the highest level since 1991.
And thanks to Uncle Spam (given how Uncle Sam is destroying the middle class it is now Uncle Spam), 2023 interest payments are the same as the total debt from 1980! Spam, which the Federal government has devolved into, is very high in fat, calories and sodium and low in important nutrients, such as protein, vitamins and minerals.
2022 was a bad year for investments under Bidenomics. 2023 year to date is showing huge gains for Bitcoin, the NASDAQ and gold. Bringing up the rear are long duration Treasuries and REITs (real estate investment trusts), both earning negative returns thus far of less than -10%.
Let’s start with personal savings as a percentage of disposable income. It has been in the red (meaning very low) under Billions Biden.
And The Fed is really in the red under Biden’s inflation rattling spending with losses leading to a surge in remittances.
And then we have the growth in the Federal deficit as a % of GDP in the red.
And the S&P 500 is in the red since August.
Even Biden’s pro-censorship buddies in the tech world are in the red since July.
On the black side of the ledge, Bitcoin (along with gold) are through the roof.
The first inflow to golf since May ’23.
But at least Bidenomics has helped the donor class get wealthier and has helped the lessers get part-time jobs.
Yes, Bidenomics is a highway to hell for the 99%. But a stairway to heaven for the donor class and 1%. And the donor class (and defense/banking/tech/drug industries) have Biden under their thumbs.
My foolish US Senator Sherrod “The Mad Marxist” Brown claimed that he hasn’t noticed illegal immigrants.
Of course, Senator Brown could travel with Biden to the border to witness military age men crossing the border under Biden/Mayorkis “:Operation US Chaos.”
Biden’s leading “economist” Lael Brainard loves to brag about the strong economy under Bidenomics, and then pulled a brain freeze when asked about crashing savings rates as consumers struggle with inflation.
The good news? One of The Fed’s favorite inflation indicators – Core PCE Deflator – slowed to 3.7% YoY in September (its lowest since May 2021). Headline PCE was flat at 3.4% YoY. Both were in line with expectations… But 3.4% is still far too high compared to The Fed’s target of 2%.
Source: Bloomberg
Now for the bad news. However, while the YoY data slowed, Core PCE rose by 0.3% MoM – the biggest MoM jump in four months.
Services inflation excluding housing and energy accelerated to 0.4%, from 0.1% in the prior month.
The overall PCE price index, meanwhile, rose 0.4%, bolstered by higher energy prices.
Even more focused, is the Fed’s view on Services inflation ex-Shelter, and the PCE-equivalent shows that it is slowing/trending lower but very much still stuck at high levels (and rose a large 0.4% MoM)…
Personal Consumption soared 0.7% MoM while incomes grew at only 0.3% MoM…
Source: Bloomberg
Focusing on the income side alone, private workers wages plunged to 3.9%, down from 4.5% and the lowest since Feb 2021.
So where is the offset to hot wages you may ask? Why government workers: wages of govt workers are up 7.8% YoY vs 7.4% in August and approaching the record high of 8.7% in Oct 2021
All of which means the personal savings rate collapsed even further, from 4.0% to 3.4% of DPI…
Source: Bloomberg
The savings rate is down 4 straight months, back near record lows… AND this is after artificial revisions that artificially boosted the savings rate 3 times in the past year (see above chart)
Bidenomics new theme song is “Addicted To Gov.” Bidenomics needs lots of Federal spending and borrowing to survive. But all this spending and borrowing is causing rapid price increases and other distortions.
The US is teetering on World War III with tensions soaring in the Middle East, Ukraine, and southeast Asia. And Biden wanders off to Rehobeth Beach Delaware to relax … while over 200 Americans are still held hostage by terrorist group Hamas. The bad news? Biden is back in Washington DC trying to make the border crisis even worse by demanding funding for “border security” in the form of transporting illegal immigrants to US cities. Is The Squad running The White House??
But on the housing/mortgage front, we have another week of declining mortgage demand/applications as mortgage rate hit almost 8%.
Mortgage applications decreased 1.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 20, 2023.
The Market Composite Index, a measure of mortgage loan application volume, decreased 1.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The Refinance Index increased 2 percent from the previous week and was 8 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was22 percent lower than the same week one year ago.
Mortgage rates followed Treasuries higher, with the 30-year fixed mortgage rate jumping 20 basis points to 7.9 percent – the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of 69 basis points.
Hey Joe, I’ll bet those 200+ US hostages held by Hamas aren’t enjoying ice cream cones.
Back in red? As US fiscal policy deteriorates further thanks to endless Federal spending (not to mention seemingly endless wars under Biden and Nobel Peace Prize winner Obama), we are seeing pain in the bank lending business.
Commercial and industrial (C&I) loan lending standards is tightening (blue line) to levels typically seen in recessions. Even though Barclays HY-10Y spreads remains low.
Bank credit growth remains negative for the twelve straight week.
Billions Biden’s spending spree has led to the budget gap has doubled in the last year.
CDS is now at 55.24, highest after the Covid shock.
Under Biden/Yellen’s economic model, the appropriate themesong is “Hell’s Bells.”
I had a wonderful time speaking at the Passive Investors Conference last night. One question I was asked was “Why doesn’t Powell (the current Fed Chair) pull “a Volcker” to cool inflation. She was referring to former Fed Chair Paul Volcker’s sudden raising of The Fed’s target rate which resulted in a cooling of inflation, but also an increase in the 30-year fixed mortgage rate to 16.63% in 1981.
Notice the trend in the Fed’s target rate and 30-year mortgage rate after Volcker’s rate shock. The trend in both has been downward as inflation was cooled.
But, each Fed Chair ranged from hyperactive to hypoactive (meaning doing little). Volcker and Greenspan saw wild swings in The Fed’s target rate. Bernanke pretty much only lowered rates AND expanded the Quantitative Easing (QE) or asset purchases by The Fed. And nothing has been the same since.
Yellen, now Treasury Secretary, continued Bernanke’s practice of zero interest rate policies (ZIRP) and QE (asset purchases) … until Donald Trump was elected President. In fact, Yellen raise rates only once prior to Trump’s election as President. Then raises rates 8 consecutive times. This is why I call Yellen “TLTL Janet”. Too low for too long Janet.
The she was replaced with DC insider Jerome Powell. Trump’s economy was strong (one explanation for Yellen trying to cool the economy with 8 consecutive rate hikes). But the Covid struck and Powell/Fed Open Market Committee overreacted, lowered the target rate back to 25 basis points and massively expanded the balance sheet. Powell also oversaw a rapid increase in the target rate, very Volckerish! But Powell stopped short of the rate suggested by The Taylor Rule of around 6.5% to 8.17%. The current target rate is 5.50%. So, Powell stopped far short of rates need to cool inflation.
But with Bidenomis came Bidenflation and a reversal of misfortunes for The Fed. They started rapidly raising rates … again.
Mortgage rates continue to climb as The Fed stubbornly won’t reduce its balance sheet.
Biden/Congress have a broken fiscal model where spending is out of control. And The Fed can’t buy all the debt Biden/Yellen want to issue.
US deficits are the third highest on record.
We might as well have Taylor Swift as Fed Chair. And Travis Kelce as Treasury Secretary replacing TLTL Janet.
Bidenomics strikes … again. No, not his inane ramblings about Hamas being “the other team” or that Hamas has to learn to shoot straight. But his policies freezing effects on the economy. Like housing.
Existing-home sales faded in September, according to the National Association of REALTORS®. Among the four major U.S. regions, sales rose in the Northeast but receded in the Midwest, South and West. All four regions registered year-over-year sales declines.
Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – waned 2.0% from August to a seasonally adjusted annual rate of 3.96 million in September. Year-over-year, sales dropped 15.4% (down from 4.68 million in September 2022). … Total housing inventory registered at the end of September was 1.13 million units, up 2.7% from August but down 8.1% from one year ago (1.23 million). Unsold inventory sits at a 3.4-month supply at the current sales pace, up from 3.3 months in August and 3.2 months in September 2022.
The total existing home sales SAAR dropped back below 4mm for the first time since October 2010 (during the foreclosure crisis)…
Source: Bloomberg
Sales fell in all regions except the Northeast in September… and in every price range…
Single-family home sales fell to an annualized 3.53 million pace, the lowest since 2010. Condominium and co-op sales also declined.
“As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” said Lawrence Yun, NAR’s chief economist.
“The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains.”
First-time buyers made up a historically low 27% of purchases, down from the prior month.
Cash sales represented 29% of total sales, matching the highest level in over a decade. Investors, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 18% of the market.
“It would be very unusual to have higher cash compared to first time buyers,” Yun said on a call with reporters.
And, if mortgage rates (and thus affordability) are anything to go by, things are about to get real…
Source: Bloomberg
The median selling price rose 2.8% from a year earlier to $394,300, the highest September reading on record, pushing affordability even lower. But existing home prices are falling relative to new home prices (with the ratio near record lows)…
It looks like The House may elect a RINO as Speaker (Patrick McHenry, RINO-NC) to replace McCarthy. One RINO replacing another RINO … all so The House can continue its insane, inflation inducing spending.
Its the Biden Bop! As Bidenomics continues its blitzkrieg on the US economy with the Federal government massively expanding its debt while households and business cut back on debt.
The US government is the only sector to have notably borrowed on a net basis over the last five years.The market sees that as inflationary, driving yields higher.
The pandemic saw an increase in the borrowing of all sectors. But it was the government that saw the biggest rise in GDP terms, and it is the government whose debt is still considerably higher than it was before the pandemic – the debt-to-GDP ratio is up 16 percentage points over the last five years.
In contrast, the household sector’s leverage is now lower than it was pre-pandemic, while the corporate sector’s is only marginally higher. The US government has become the borrower of first as well as last resort.
The market is picking up on this and is pricing accordingly. We can decompose nominal yields into a sum of expected short rate + real term premium + expected inflation + inflation term premium (see here for more).
Over the last three months, the main driver of rising yields in the US has been expected inflation, followed by the real risk premium. This marks a change from earlier in the year where the principal driver was the expected short rate, i.e. expectations of increases in the Federal Reserve’s policy rate.
Regressing the fiscal balance with the yield components shows that only inflation and the inflation risk premium have a negative sign, i.e. when the fiscal balance falls (greater deficit), expected inflation and the risks surrounding it increase.
Not only does increased government borrowing push up borrowing costs through greater inflation risks. When the sovereign is the only borrower, it crowds out the rest of the economy. With governments’ reputation for inefficiency, this depresses real growth.
The lost decades in Japan were primarily a result of the government stepping in to borrow as the private sector nursed its wounds from the late 1980s financial crash. But that perpetuated and entrenched the situation. With the Treasury now the sole borrower of any significance, the US risks going down a similar, yet more stagflationary path, hindering real growth, and keeping yields elevated.
On the private sector side, bank credit fell again last week.
Confounded Interest - Anthony B. Sanders 
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