Fed Dead Redemption! Blackstone’s $69 Billion Real Estate Fund Hits Redemption Limit (Equity REITs DOWN -23.6% In 2022, Mortgage REITs DOWN -28.6%)

As The Federal Reserve continues its assault on inflation by raising their target rate, Blackstone Inc.’s $69 billion real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback at a top profit driver for the firm and a chilling indicator for the property industry.

Blackstone Real Estate Income Trust Inc. has been facing withdrawal requests exceeding its quarterly limit, a major test for the one of the private equity firm’s most ambitious efforts to reach individual investors. The news, in a letter Thursday, sent Blackstone stock falling as much as 10%, the biggest drop since March.

You can see the problem facing commercial real estate. Since December 31, 2021, NAREIT’s all-equity REIT index has fallen -23.6% while NAREIT’s mortgage REIT index has fallen -28.6%. It looks like Blackstone’s Real Estate Income Trust has a decline coming.

If I look at NCREIF’s commercial property index, we can see that The Fed helped boost CRE values. But what will happen if and when The Fed actually shrinks its balance sheet.

I call The Fed’s attempts at cooling inflation “Fed Dead Redemption” since it resulted in redemptions from real estate funds.

Good November Jobs Report Points To Higher Mortgage Rates, Likely More Rate Hikes Coming From The Fed (REAL Wage Growth At -2.2% YoY, US Yield Curve Inverted For 109 Straight Days)

Unlike yesterday’s ADP jobs report (only 127k jobs added), the official Federal government report shows 263k jobs added. I like the ADP report, but The Fed pays attention to the BLS numbers. So, …

U.S. employers added 263,000 jobs in November, and the nation’s unemployment rate stayed the same at 3.7 percent, according to data released Friday by the Labor Department. Meanwhile, average hourly pay for workers rose 5.1 percent from a year earlier, to $32.82 from $31.23. But the US headline inflation rate at the last reading was 7.7% YoY that equates to -2.2% REAL Average Hourly Earnings YoY.

Mortgage rates fell to 6.51 yesterday, but expectations of Fed rate hikes (WIRP) and the 10-year Treasury yield are up today. In fact, the 10-year US Treasury yield is up 10 basis points this morning. This will likely translate to higher mortgage rate today.

Inflation is still the humming dragon crushhing the US middle class and at last report stood at 7.7% YoY. Average hourly earnings YoY rose to 5.1% in November, which is good. But inflation takes a huge bite out that number, resulting in -2.2% YoY REAL average hourly earnings.

And the US 10Y-2Y Treasury yield curve has been inverted for 109 straight days.

Here is the rest of the jobs report.

The biggest gainer? Motion picture and sound recording industries followed by logging (with rising energy prices, people have to heat their homes somehow).

US Adds 127k Jobs In November, Lowest Since August ’21 As Fed Tightens (On The Fed’s Good Ship Follypop!)

ADP’s jobs added in November shows a continued downward trend in private jobs added as The Fed merrily tightens its monetary follicy.

On the good ship Follypop!

104 Days Later! US 10Y-2Y Yield Curve Remains Inverted For 104 Staight Days, Mortgage Rate Falls As Fed Tightens (Ethereum Rises > 4%)

Yes, The US Treasury 10Y-2Y yield curve remains inverted, for the 104th straight day. And Bankrate’s 30-year mortgage rate has dropped -57 basis points since November 3, 2022.

This comes after a gruesome Pending Home Sales and mortgage applications reports today.

At least Ethereum is up over 4% today!

US Pending Home Sales Fall -36.7% YoY In October, MBA Purchase Applications Fall -31.22% YoY As Fed Tightens

The Federal Reserve continues to remove the monetary punch bowl despite the global yield curve inverting and The Fed fighting Bidenflation.

On the mortgage front, mortgage applications decreased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 25, 2022. This week’s results include an adjustment for the observance of the Thanksgiving holiday.

The Refinance Index decreased 13 percent from the previous week and was 86 percent lower than the same week one year ago. The unadjusted Purchase Index decreased 31 percent compared with the previous week and was 41 percent lower than the same week one year ago.

On the housing front, US pending home sales fell for a fifth month in October as demand continued to sag under the weight of high mortgage rates.

The National Association of Realtors index of contract signings to purchase previously owned homes decreased 4.6% last month, according to data released Wednesday. And fell -36.7% YoY.

All together now. Look at pending home sales YoY and mortgage purchase applications SA compared with M2 Money YoY.

Is this part of The Great Reset??

US Home Price Growth Slows To 10.65% YoY In September As Fed Tightens

The Covid outbreak of early 2020 begat a massive surge in monetary stimulus which has dissipated. Notice that home price growth is dissipating as well.

Also causing problems for housing is NEGATIVE REAL WAGE GROWTH. While the US is suffering from inflation and decling real wage growth, trading partner Germany has even a worse REAL WAGE GROWTH problem.

Where? Florida is doing great!!

Do I detect a trend?

World Yield Curve Inverts For First Time Since At Least 2000 (US Yield Curve Has Been Inverted For 107 Straight Days) Drums Along The Potomac??

Do I hear Drums Along The Potomac or East River??

The hawkish drumbeat from central bankers is raising fears of a downturn, with global bonds joining US peers in signaling a recession, as a gauge measuring the worldwide yield curve inverted for the first time in at least two decades.

The US Treasury 10Y-2Y yield curve, on the other hand, has been inverted for 107 straight months.

And in Europe, 10-year sovereign yields are dropping like a paralyzed falcon.

The world and US yield curves are pointing to trouble. And drums along the Potomac (DC) and East River (NYC).

Fed Rollercoaster! Fed Will Slash Rates By 200 Basis Points by Mid-2023 Says Deutsche Bank

Fed Rollercoaster!

Deutsche Bank, my former employer, said that The Fed will slash rates by 200 basis points by mid-2024 after staying hawkish in the short term.

Deutsche Bank increased its view on the terminal rate and now sees it hitting 5.1% in May.

The Federal Reserve will remain hawkish in the short term but will cut benchmark rates sharply after that, according to a Monday note from Deutsche Bank.

The central bank has hiked rates by 375 basis points so far this year, with another half-point increase widely expected next month. Even more tightening will come, with analysts at Deutsche Bank increasing their view on the terminal rate, which they now see hitting 5.1% in May.

“Risks remain skewed to the upside, and we caution that the transition to pausing and eventual cuts may not be entirely linear,” the note said. “If elevated inflation and labor market imbalances persist, or financial conditions fail to tighten, a higher terminal rate could be needed.”

Meanwhile, the economy will slow down amid the aggressive tightening, and Deutsche Bank sees an 80% probability of a recession in the next year.

Analysts anticipate a moderate recession beginning mid-2023, with real GDP falling about 1.25 percentage
points over three quarters and the unemployment rate reaching a peak of 5.5%.

“With a sharp rise in the unemployment rate and inflation showing clearer signs of progress, the Fed should cut rates by 200bps by mid-2024 when it approaches a neutral level around 3%,” analysts said. “QT should cease when the Fed cuts rates, to ensure both tools are not working in competing directions. Balance sheet drawdown could be modified or halted earlier if reserves continue to fall faster than expected.”

The first rate cut will be 50 basis points in December 2023, followed by 150 basis points of cuts into 2024, the note said.

The last Fed Dots Plot shows the next leg of The Fed Rollercoaster.

In the short term, Fed Funds Futures are pointing at another 106 basis point increase by June 2023.

Yes, its The Fed Rollercoaster!

As The Fed Tightens To Fight Inflation, The US Banking System Growth Grinds To A Halt, Bank Deposits Decline -0.6% YoY (SBF’s Lemonade Stand Isn’t Helping)

The US has an inflation problem. Both headline and core inflation YoY remain high compared to the previous 40 years. And The Federal Reserve is resolute in trying to curb inflation to 2%.

But as The Fed counterattacks inflation by raising their target rate, we are seeing a problem forming at the nation’s commercial banks. The growth in deposits YoY is now -0.6%. Commercial bank holdings of Treasuries and Agency MBS are declining as well. Agency MBS holdings are down -4.6% YoY and Treasuries and Agency holdings are down 0.0%.

How about M2 Money growth and M2 velocity? M2 Money growth has fallen to 1.3% YoY while M2 velocity has not been the same since the Covid sugar splash by The Fed and Federal government.

While inflation is creating havor for commercial bank deposit growth, it is interesting to follow the adventures of a spoiled child from MIT and his multi-billion dollar lemonade stand with all the controls of a child.

Once again, how did regulators get this SOOOOO wrong? And why didn’t investment advisors look at the balance sheet of FTX and Alameda Research. Yes, the media loves to report on FTX orgies, but the FTX fiasco points to something far more sinister. Were Sam Bankman-Fried and his paramore Caroline Ellison fronting this operation on behalf of some other parties?

Here is the FTX bankruptcy declaration in the State of Delaware. It appears like a massive case of fraud to me. And perhaps worse. Here is a nice summary from Zerohedge.com.

I recall one of Woody Allen’s best lines. When asked what an investment manager does, the response was “they manage your money until nothing is left.” Sounds like SBF has a great future on Wall Street! And Caroline Ellison should have known better than to post things like “Here are what I think about some things: controlling most major world governments.”

Rent Crisis! 41% in U.S. Couldn’t Pay Rent November (Bank MBS Holdings Collapse With Fed Tightening)

Interesting story on Alignable.

Due to high inflation, reduced consumer spending, higher rents and other economic pressures, U.S.-based small business owners’ rent problems just escalated to new heights nationally this month, based on Alignable’s November Rent Poll of 6,326 small business owners taken from 11/19/22 to 11/22/22.

Unfortunately, 41% of U.S.-based small business owners report that they could not pay their rent in full and on time in November, a new record for 2022. Making matters worse, this occurred during a quarter when more money should be coming in and rent delinquency rates should be decreasing. But so far this quarter, the opposite has been true.

Last month, rent delinquency rates increased seven percentage points from 30% in September to 37% in October. And now, in November, that rate is another four percentage points higher, reaching a new high across a variety of industries.

All told in Q4 so far, the rent delinquency rate continues to increase at a significant pace, up 11 percentage points from where it was just two months ago.

Well, this is not good.

And on the mortgage front, not all is quiet.

Commercial bank holding of Agency mortgage-backed securities (MBS) has collapsed with Fed tightening and mortgage rate increases.