Well, this isn’t good. But it is consistent with the highest inflation rate in 40 years and The Federal Reserves’ counterattack. Basic mortgage applications are now down to their lowest level since 1997 as mortgage rates rise.
Mortgage applications decreased 4.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 14, 2022.
The Refinance Index decreased 7 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 38 percent lower than the same week one year ago.
Bear in mind that these numbers are for the week of October 14, so the home purchase season is in the “house latitudes.” That is, the slow season for home sales. The refinancing applications index has dropped thanks to Fed tightening.
Joe Biden reminds me of Dennis Reynolds from “Its Always Sunny In Philadelphia.” And his D.E.N.N.I.S System. But Biden’s System is blatant politics. With the midterm elections in November and Democrats looking a bit behind, Biden is pulling out the political guns by 1) ramping up student loan forgiveness … again and 2) releasing 10-15 million MORE barrels from the Strategic Petroleum Reserve to lower gasoline prices. Particularly after his failed attempts to get the Saudis to pump more oil (too bad Biden put the kabash on US energy exploration and cancelled the Keystone pipeline).
Having said that, we can see that BEFORE the latest SPR order, the US Strategic Petroleum Reserve, meant to cope with national emergencies like … Russia dropping a nuke on the US, has declined -36% under Nuclear Joe.
At the same time, regular gasoline prices are UP 62% under Biden and the all-important diesel fuel prices are UP 101.4% under Biden.
Of course, expect The B.I.D.E.N System to do everything in its power to destroy the economy if Republicans win the midterms. Including no more SPR release.
I love to teach, but my students at Chicago, Ohio State and George Mason would fall asleep when I would discuss repurchase and reverse repurchase agreements (or REPOs and Reverse REPOs). But repos and reverse repos are a critical part of the banking system.
In short, the Repo market is a window into what’s going on behind the scenes.
As Bidenflation soars, and The Fed counterattacks, we see Fed’s repo market remains elevated. Note that The Fed’s balance sheet (orange line) is only slowly being reduced.
Right now, the risk lurking in the shadows is Balance Sheet Runoff. The Fed, the markets, the regulators, have limited experience with the Fed shrinking the balance sheet. Bottom line: there’s a risk that Balance Sheet Runoff will breaking something.
The global stock market is up again today, despite Fed tightening and a war in Ukraine. The Dow is up 1.38% and the S&P 500 is up 1.75%.
Likely cause? Rumors that The Fed and other global central banks will pivot sooner than later.
It is likely that The Fed will pivot to prevent a crash and the stock market in pricing in that pivot.
Bernanke, Yellen and Powell are NOT Paul Volcker. In fact, I am coining a new nickname for Fed Chair Jerome Powell: Pivot Powell.
Bloomberg Economics sees near certainty downturn will start
Tightening conditions, inflation, hawkish Fed weigh on outlook
A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms.
The latest recession probability models by Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all time frames, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update.
The forecast will be unwelcome news for Biden, who has repeatedly said the US will avoid a recession and that any downturn would be “very slight,” as he seeks to reassure Americans the economy is on solid footing under his administration.
And with that terrible news for the economy, the Fed Funds Futures market is hinting at a March 2023 pivot from The Fed.
The good news? The stock market is up BIG today. Likely because investors feel that the stock market has been oversold. The NASDAQ Composite Index lies beneath the Ichimoku Cloud.
And the NASDAQ is close to the bottom Bollinger Band.
The US Empire State Manufacturing Survey General Business Conditions SA index fell to -9.1 in October, continuing a downward trend along with the downward trend in Fed M2 Money stock growth.
And the global sovereign debt market is showing fear as 10-year sovereign yields drop -10 basis points. The UK 10-year is down -36.8 bps! The US is down only -6.6 bps this morning.
The US CPI for electricity is up 24% under Nuclear Joe as The Fed continues to leave their balance sheet relatively untouched.
You might have to bail on the stock market to stay warm this winter, but it is a shame that the S&P 500 index is down -25.3% in 2022 as The Fed counterattacks Bidenflation.
Diesel, the lifeline of the shipping industry, is UP 100% under Biden (that is, diesel prices have doubled) while the inventory of diesel fuel has declined by -37.5% under Biden.
The US 30yr Mortgage rate just hit a new high since 2000 as The Federal Reserve counterattacks the highest core inflation rate (6.60%) since 1982.
According to the Taylor Rule (which The Fed has chosen to ignore), a 6.60% core inflation rate implied a Fed target rate of 12.40%. Not likely since Fed Funds Futures data points to …
A maximum target rate of 4.963% at the May 2023 FOMC meeting, significantly lower than the needed rate of 12.40%. The Fed is like the world’s worst bar bouncer.
Rather than accepting blame for the horrific inflation rate crushing the American middle class and low wage workers, Biden is twisting the night away.
The University of Michigan’s consumer sentiment index for housing for October just fell to its lowest level since 1992 as The Fed counterattacks against Bidenflation, causing mortgage interest rates to rise.
Of course, despite slowing home price growth, expensive home prices are really hurting along with expensive rents. But how sustainable are high home prices when REAL average hourly earnings growth is negative??
* Fed Swaps Lean Toward Back-to-Back Three-Quarter-Point Hikes * Hotter-than-expected September inflation data spark shift
(Bloomberg) — The market for wagers on the Federal Reserve’s policy rate is leaning toward pricing back-to-back 75 basis point rate hikes in the next two central bank meetings after consumer prices rose more than forecast in September.
The rate on the November overnight index swap contract rose to 3.86%, more than 75 basis points above the current effective fed funds rate, while the one referring to December climbed to 4.50%. A total of 142 basis points of rate hikes are now priced in for the next two policy meetings, just short of consecutive three-quarter-point hikes.
Prior to the inflation data, OIS markets were leaning toward the central bank cooling the pace of tightening to a 50 basis point move in December. At Wednesday’s close, swaps priced in around 130 basis points of hikes over the remaining of the year, which is equivalent to 55 basis points for December.
The market also priced in a higher eventual peak for the policy rate, with the March 2023 contract touching 4.864%.
The CPI data was “clearly a shock for the markets and the markets are off because of it,” Seth Carpenter, chief global economist at Morgan Stanley said on Bloomberg television. “There is persistence, particularly in the services side of inflation.”
Excluding food and energy, the Consumer Price Index increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second straight month.
The Fed has raised its policy rate five times since March, most recently to a range of 3%-3.25% in September, after dropping the lower bound to 0% two years earlier at the onset of the pandemic.
The Fed Funds Futures data is pointing further Fed rate hikes with a turnaround in March 2023.
And with that awful inflation report and the likely Fed counterattack, the two year US Treasury yield has risen to 4.4361%, the highest since The Great Recession and banking crisis.
Fed Fireball! Comin’ at ya!!
Biden and Powell should appear on Saturday Night Live as the joint Debbie Downer. Or Democrat Downer.
Confounded Interest - Anthony B. Sanders 
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