US Industrial Production At -3.58% YoY With Capacity Utilization At 75.54% (Both Improving), Stock Market Declines On Biden’s $1.9 TRILLION Stimulus

Enter Biden/Harris.

President elect Joe Biden is touting a $1.9 trillion Covid relief package once he is seated.

Today’s industrial production reading for December show IP improving from -5.41 YoY in November to -3.58% YoY in December. Capacity utilization increased from 73.39% in November to 74.54% in December. So, Biden is inheriting an improving economy.

Meanwhile, equity markets are down across the board.

The aid package includes $415 billion to bolster the response to the virus and the rollout of COVID-19 vaccines, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities particularly hard hit by the pandemic.

Stimulus payment checks would be issued for $1,400 – on top of the $600 checks delivered by the last congressional stimulus legislation. Supplemental unemployment insurance would also increase to $400 a week from $300 a week now and would be extended to September.

$2,000 per person? Why not $2 million per person now that Democrats control the White House AND Congress? US Federal debt is about $27.8 trillion and rising fast. That is $222,191 per taxpayer.

Why are both Yellen and Powell frowning?

Biden’s team explores ways to oust Fannie-Freddie regulator, Mark Calabria (replace with Wharton’s Susan Wachter?)

President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator (Mark Calabria), a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.

One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations.

Well, there are only so many options to increase affordable housing that are in the realm of reason: 1) increase loan-to-value ratios on purchase (insured mortgages) and 2) lower the credit score required. Fannie and Freddie already have a sizeable affordable housing mission. so short of shutting down Fannie and Freddie, and expanding the FHA (aka, SUPER HUD), Fannie and Freddie may be cajoled into expanding their affordable housing mission.

After the housing market crash (and ensuring financial crisis), lenders and government insurance companies reduced the mortgage originations by low credit score borrowers. Yet home prices started to grow again despite the lack of originations by low credit score borrowers. In fact, the FHFA purchase only home price index YoY is almost back to the housing bubble peak of 2005.

Something is missing from the above chart. Jay Brinkmann (former Chief Economist for the Mortgage Bankers Association) and Alex Pollock (R Street) disagree about what is missing from the chart. I think that the omitted variable is The Federal Reserve’s balance sheet (purchase of Treasuries and Agency Mortgage-backed Securities).

Home price growth corresponds to changes in The Fed’s balance sheet, particularly in surges in the balance sheet (QE3, Covid).

It’s also an historic imbalance of housing supply and demand, exacerbated by low interest rates helped by The Federal Reserve’s policies.

Granted, the demand is driven by historically low interest rates, but it’s also driven by demographics, as a large number of Millennials are reaching prime home buying age. (Thanks to Rick Sharga!)

Wharton’s Susan Wachter is likely the replacement for Cato’s Mark Calabria to be the US housing finance Mandarin.

US Dollar Continues To Decline As Bitcoin And Gold Gain Ground (Dollar Has Been Falling Since The Fed’s Covid Blitz)

Call it The Fed’s Covid Blitz. The Federal Reserve expanded its balance sheet (red line) as a result of the Covid epidemic.

The US Dollar (green) has declined from 102.817 on March 20, 2020 to 89.937 today.

Since the end of November (pink box), Gold and Bitcoin (particularly Bitcoin) have surged.

Silver? Like Gold, it has rallied since the end of November. But Silver was beaten out by Bitcoin as well.

The big winner today? XRP! US regulator has charged Ripple over its XRP asset, saying it’s a $1.3 billion unregistered offering, not a cryptocurrency. And Ethereum is down slightly.

Speaking of Ripple …

Atlanta Fed GDP Forecast For Q4 At 10.4% QoQ, Thanks To Housing (Pending Home Sales +16% YoY!)

Joe Biden is having a marvelous Christmas thanks to Donald Trump. Trump’s gift? A Q4 GDP Forecast of 10.4% QoQ with improving unemployment rate of 6.7%.

And the gift gets better with pending home sales at 16% YoY.

The pending home sales YoY are not included in the Atlanta Fed GDPNow forecast for Q4, but housing starts, existing home sales and new home sales are included.

Merry Christmas and Happy Holidays everyone!