The first headline I saw when I turned on Bloomberg.com was “DOJ Officials Find More Classified Documents at President Biden’s Home.” This is an improvement! So far, the task has been handled by Biden’s private attorneys who don’t have proper security clearance; at least the Justice Department is finally getting involved!
But back to the US yield curve. It is now the most inverted in 30+ years as M2 Money growth stalls. Inverted yield curves have preceded recessions in the past.
But as China reopens and Europe is experiencing a warmer winter than expected (meaning that Europe has sufficient natural gas reserves) and US inflation cooling,
we are seeing market-implied odds of a recession falling in January.
I am still betting on a recession in the second half of 2023.
First, US default risk as measured by credit default swaps remains elevated (primarily because Biden and Democrats refused to cut wasteful spending or reign in non-retirees on Social Security). And NY Fed’s Reverse Repos remain elevated.
And then we have Citi’s economic surprise index for the US at -17 as The Fed slows money growth to 0%.
I wish I knew a place where inflation and insane Federal government spending and policies doesn’t exist.
The Thrill Is Gone from the US housing market as M2 Money growth fells to 0%.
US Existing Home Sales fell -1.5% from November to December (MoM) to 4.02 SAAR units sold. That translates to a depressing -34% decline since December 2021 (YoY).
On the positive side, these numbers are better than expected (-3.4% MoM expected). Still, these numbers are pretty dismal.
Existing home sales MEDIAN PRICE fell to $366.9k as M2 Money growth vanishes. And inventory of existing homes for sale remains lower than pre-Covid levels.
Let’s see what Powell and the Gang (aka, The Federal Reserve Board of Governors) does with interest rates going forward.
Today, the 10-year Treasury yield is up 7.1 basis points, but the real action is in Europe where sovereign yields are up 11.5 bps in France, 9.8 bps in Germany and 18.6 bps in Italy.
Mortgage applications increased 27.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 13, 2023. But mortgage applications are 60% lower than the same week last year.
The Refinance Index increased 34 percent from the previous week and was 81 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 25 percent from one week earlier. The unadjusted Purchase Index increased 32 percent compared with the previous week and was 35 percent lower than the same week one year ago.
Here are the stats.
One lender in particular, Wells Fargo, smells blood in the economic waters, and has cut back mortgage originations.
Just remember, mortgage applications generally rise in the first part of the year until May, then start slowing until the last week of the year. This is called seasonality. But despite the fast growth this year, purchase applications are still down -35% compared to last year at this time.
We got trouble in Potomac City! No, I’m not talking about the numerous Top Secret documents that Biden carelessly left in his garage in Delaware and the UPenn Biden Center. And they found more over the weekend. I’m talking about the US Treasury 10Y-2Y yield curve being inverted for 135 straight days. And thanks to inflation, REAL wage growth has been negative for 21 straight months.
All this is happening while M2 Money growth (green line) stalls to 0% YoY.
Swaps 5Y are rising as The Fed withdraws monetary stimulus.
Newly-minted US House Speaker Kevin McCarthy faces a daunting task: trying to avoid a US debt default. As I have discussed many times before, nothing has been the same since the US housing bubble and near-collapse of the banking system that produced an expensive bailout of seemingly all financial institutions. After 2008, Federal spending has gone out of control. The budgetary hawks (or pigeons) in the US House of Representatives (with Pelosi, Boehner, Ryan then Pelosi again) went on Federal spending sprees of epic proportions.
The Manhattan Institute has a nice chart showing the explosion in the Federal budget since 2008. Of particular note, interest payments on the Federal debt has increased by a staggering 192%. On the non-interest spending front, Social Security and Health Entitlements have increased by 140% while Nondefense Discretionary Spending has increased 76%.
The massive increase in Federal debt interest is due to both increased Federal spending and rising interest rates thanks to The Federal Reserve raising rates to fight inflation.
But what will McCarthy and House Republicans recommend cuts in? Tighter restrictions on who qualifies for Social Security and particularly Social Security Disability payments?
The odd factoid is that Defense and Wars budget is up less than 1% from 2008 to 2032. So, Ukraine military aid is coming from somewhere, but not from the Defense budget. Is Ukraine another entitlement program?
Rest assured that after debate, the House will pass a budget and, provided that virtually nothing was cut, the Senate will gleefully agree to more spending and “Top Secret Documents” Biden will sign it.
After he parks his gorgeous Corvette Sting Ray, that is.
Its that time again when Congress does its Kabuki Theater drama about raising the US debt limit. Of course, everyone in Congress and the Biden Administration want to spend trillions of dollars so they will hike the debt limit.
With the US government facing the danger of a payments default later this year, Congress has a variety of paths to avert economic disaster and boost the debt ceiling.
All of them would likely involve going right up to the market-rattling brink, according to current and former lawmakers and aides.
The timeline kicks off within weeks, when Treasury Secretary Janet Yellen is expected to advise that the government will deploy extraordinary accounting measures to avoid running out of cash. Those steps are forecast to be exhausted after July.
Republicans now in control of the House are demanding deep spending cuts as the price for an increase in the ceiling, while President Joe Biden and congressional Democrats reject such an outcome.
Nothing has been the same since the financial crisis of 2008 and the ascension of all-time big spender Nancy Pelosi as House Speaker. Budget deficits have never been the same. The last budget surplus was under House Speaker Newt Gingrich. But since the financial crisis of 2008, Federal spending seems to have increased its trajectory.
Note that mandatory spending (Medicare, Social Security, etc) is growing like a wild fire while discretionary spending is seemingly flat. So, it mandatory spending that Congress will pretend to cut.
Yes, it is Medicare for our aging population that has blown out of control.
Then we have defense spending. The Ukraine spending should come from this pot, but forces decisions to make between Ukraine and taking care of our Navy (to compete with the growing Chinese navy).
Of course, as The Fed fights inflation, we are seeing the COST of Federal debt soaring since Covid.
Yes, Congress NEEDS to cut back the spending, particularly on Social Security and Medicare (not to mention Ukraine spending), but it is all Kabuki theater. Queue the screams of “Republicans will take away …”.
I wish everyone in Congress were like Kentucky U.S. Senator Rand Paul, not the other spendaholic Kentucky Senator.
Confounded Interest - Anthony B. Sanders 
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