Category: Yield Curve

Economic Vertigo! US Interest Payments Expected To Keep Rising Under Marxist Harris (And Why The Fed MUST Try To Lower Interest Rates)

After watching the Democrat hate fest last night (Aka, the Democrat National Convention), I was not shocked that the DNC platform looked like a playbook to destroy the US economy. High taxes, endless spending, more regulations, etc. Not a word about the staggering side of the US debt load … with Harris’ economic plan projected to add a whopping $25 trillon in debt to the already massive $35+ trillion debt load.

And not a mention that US interest payments on the national debt already exceeds defense spending. And is booming!

Of course, Harris’s economic vision is a continutation of Biden’s disastrous visions (which are Obama’s vision of US obliteration). Most politicians in Congress are millionaires (including Bernie Sanders) and won’t suffer from their insane “progressive” policies. Watching last night’s DNC hatefest was like watching nasty 2nd graders having a party.

Of course, the drove of anti-American, anti-properity speakers spewing venom (I hate Hillary’s flat-tone speaking style) like Hillary, Jaime Raskin (aka, Rasputin), AOC, etc. all failed to acknowledge to acknowledge the already monstrous size of the US debt ($35+ trillion) or the massive size of the unfunded promises ($218+ TRILLION). Of course not.

The handle the staggering interest payments that will crowd out other spending, The Federal Reserve will be forced to lower rates.

Of course, Democrats will wheel out “economists” like Robert Reich who say that the debt doesn’t matter.

That’s Biden/Harrisnomics! Leading Economic Indicators Down For 29th Straight Month (Outside Of Great Financial Crisis, The Worst Decline In LEI Since Mid ’70s!!!)

That’s Biden/Harrisnomics!

US Leading Economic Indicators down for their 29th straight month – at a level worse than the trough of COVID lockdowns…

…and the head of The Conference Board says ‘nothing to see here’…

“The LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals recession ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

For context, outside of the great financial crisis, this is the worst decline in LEI since the mid ’70s!!!

And what is behind the ‘no recession’ call… US equity strength!!

Thank The Feral Reserve for the equity spike!

So, to summarize – almost all the macro data signals weakening growth for years… but because stocks are up (and credit spreads down), there’s no recession anywhere on the horizon!!??

Too Much Debt? Harris Proposing $1.7 Trillion In Spending Despite The US Begin $35+ Trillion In Debt And $218+ Trillion In Unfunded Liabilities (National Assets Of $213 Trillion Less Than Unfunded Liabilities Of $218+ Trillion)

Too much debt? Kamala Harris doesn’t think so. She is proposing economic policies costing $1. 7 trillion without sufficicent offsets. Harris is putting the US on the path to default, following numerous other badly managed nations, like Ukraine and Greece. And much of Latin America.

The US is already at $35+ trillion with unfunded liabilties totalling $218+ trillion. Of course, the Biden Administration is attempting to cut Medicare for seniors and raise the price while handing out unlimited benefits to illegal immigrants.

In July, Ukraine avoided defaulting on $20 billion in loans by reaching a preliminary agreement with private creditors.

.Given the financial burden of war, the country suspended interest payments on international debt over the last two years, which was set to expire on August 1, 2024.

Without this new debt restructuring, this default would have ranked among the 10 largest in recent history. The last time Ukraine defaulted on its debt was in 2015, after Russia’s invasion of Crimea.

This graphic, via Visual Capitalist’s Dorothy Neufeld, shows the largest sovereign debt defaults since 1983, based on data from Moody’s via Aswath Damodaran.

The Top 10 Sovereign Debt Defaults

Below, we show the biggest sovereign debt defaults between 1983 and 2022:

Greece’s $264.2 billion default in 2012 stands as the largest overall, unfolding when the country was mired in recession for the fifth consecutive year.

The country defaulted again just nine months later, making it the fourth-largest ever. Leading up to the crash, Greece ran significant deficits despite being one of the fastest-growing countries in Europe. Furthermore, in 2009, the newly elected prime minister revealed that the country was $410 billion in debt—substantially more than previous estimates.

With the second-highest default recorded, Argentina failed to repay interest on $82.3 billion in foreign debt in 2001. Like Greece, it is a repeat offender, defaulting numerous times since independence in 1816. Today, Argentina is the largest debtor to the International Monetary Fund, despite being Latin America’s third-largest economy.

Following next in line is Russia’s 1998 default on $72.7 billion in loans, coinciding with a currency crisis that erased more than two-thirds of the ruble’s value in a matter of weeks. That year, several other countries including Venezuela, Pakistan, and Ukraine defaulted on their debts after the Asian Financial Crisis of 1997 spurred instability in global financial markets.

Just as 1998 saw a wave of defaults, 2020 was a year marked by major debt upheavals. Due to the pandemic and collapsing oil prices, it was a record year for sovereign defaults, reaching seven in total. Among these, Lebanon, Ecuador, and Argentina saw the largest defaults amid deepening fiscal pressures.

Harris is just another free-spending politician who will eventually lead the US into default. But at least Harris/Walz exude joy.

At least Harris/Walz haven’t adopted (stolen) the phrase “Work makes one free”. 

Big Short Redux CMBS Style, Top AAA-rated CMBS Experienced $40 Million Loss In May (First Time Since 2008 Financial Crisis)

Is this The Big Short, CMBS style?

The delinquency rate on commercial mortgage-backed securities (CMBS) for offices spiked to 8.1% in July, the highest in 11 years.

The delinquency rate of office CMBS loans has QUADRUPLED in 1.5 years.

Delinquencies are currently rising at a faster pace than during the 2008 Financial Crisis.
A top AAA-rated CMBS experienced a $40 million loss in May for the first time since the 2008 Financial Crisis.

While not an office, Edward Hopper painted some great real estate properties!

Kama Kameleon! Fed Loses Record Amount, Bankrupty Filings (Chap 11) Highest In 13 Years, Foreign Investors Pulling Out Of China

Kama Kameleon.

Kamala Harris, despite being VP for almost 4 years, is going to annouce her plans for taming inflation. Why doesn’t she do it now?? What Harris can’t control is The Federal Reserve that is losing money at breakneck speed.

Here is The Fed’s balance sheet.

I shudder to think what Harris will propose to solve the highest bankrupty (Chap 11) rate in 13 years. Probably more Bidenomics (big wealth transfers to large corporations/donors).

Meanwhile, foreigns pulled a record amount of funds from ailing China.

Kamala Harris will say anything to get elected, then fall back on her Communist agenda.

Trouble With The Curve! US Yield Curve Rises Above 0 Slope While Mortgage Rates Fall

We know several things about the yield curve. First, it goes negative before recessions. Second, it is related to the inverse of The Fed’s target rate (blue line).

How about the US mortgage rate? Generally, US Mortgage rates are inverse to the 10Y-3M yield curve, but lately the US mortgage rate (pink circle) have declined with the 10Y-3M yield curve.

The yield curve does forecast recessions, but is unreliable in forecasting mortgage rate movements.

Mortgage Purchase Applications Rise In Latest MBA Survey But Still Down -11% Since Same Week Last Year (MBS Convexity Rising As Rates Decline)

The slowing US economy has a silver lining: Treasury and mortgage rates are declining. And the is spurring faster mortgage prepayments.

Mortgage applications increased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending August 2, 2024.

The Market Composite Index, a measure of mortgage loan application volume, increased 6.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6 percent compared with the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.3 percent compared with the previous week and was 11 percent lower than the same week one year ago.

The Refinance Index increased 16 percent from the previous week and was 59 percent higher than the same week one year ago. 

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.55 percent from 6.82 percent, with points decreasing to 0.58 from 0.62 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The deciine in rates led to an increase in MBS convexity.

Watch out! Mortgage convexity continues to rise!

Meanwhile, Kamala “The Kommie” Harris laughs.

The Fed Money Printing And Stock Prices And Housing Prices (Why The Fed Must Keep On Printing!)

The Fed’s theme song: Keep on printing!

Look at this chart of the S&P 500 index against M2 Money stock.

And this chart of Case-Shiller home prices against M2 Money.

Bottom line? The Fed has to keep on printing money. Otherwise, the US economy will collapse like a cheap building.

Here is Fed Chair Jerome Powell creating assets bubbles.

Manic Monday? VIX Fear Index Soars To 52.2 (Head Over Heels For Harris?)

Like the Go-Go’s song Manic Monday, it is a manic Monday for stocks. The awful jobs report from last Friday is reverberating through markets. The VIX (fear index) soared to 52.2 this morning.

MY fear is that Congress will go wild and start (mis)spending trillions of dollars again on hare-brained projects like green energy (and electric cars) when our electric grid can’t support the increase in electric cars.

US 2s/10s yield spread is now flat for the 1st time since 2022 on aggressive repricing of Fed rate cuts. US 2y yields have plunged by 70bps to 3.69% since last Wed while US 10y yields only dropped by 40bps in the same time.

Voters are head-over–heels for Kamala Harris, a dim-witted Marxist authoritarian.