The core Personal Consumption Expenditures (PCE) deflator numbers for November were released this morning and the print was a whopping 4.7% YoY, the highest rate since 1989.
Meanwhile, U.S. consumer spending, adjusted for inflation (aka, REAL personal spending), stagnated in November as the fastest price gains in nearly four decades eroded purchasing power. Stagnated to 0.
Purchases of goods and services, after adjusting for higher prices, were little changed following a 0.7% gain in October, Commerce Department figures showed Thursday.
And as Paul Harvey would say, here is the rest of the story.
Core PCE growth YoY of 4.68% implies a Fed Funds target rate of 11.84%. Powell and the gang have the target rate at 0.25%. But the Taylor Rule doesn’t take into account the latest FEAR raging in Washington DC … the Omicron variant. Just another excuse for The Fed to do nothing and let asset bubbles blow out of control.
The good news is that US Real GDP grew at 2.3% QoQ in Q3 thanks to massive Federal government and Federal Reserve stimulus. The bad news? Prices are growing at rate of 6% QoQ, three times higher than the growth of real personal consumption.
Runaway inflation, cooling personal consumption. This is the definition of “stimulyltpo”: the excessive spending by Washington DC in conjunction with excessive monetary stimulus from The Federal Reserve.
(Bloomberg) — The amount of money that investors are parking at a major central bank facility climbed to yet another all-time high as supply-demand imbalances continue to dog U.S. dollar funding markets.
Eighty-one participants on Monday placed a total of $1.758 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.705 trillion from Dec. 17, New York Fed data show.
Demand for the so-called RRP has climbed further as principal and interest payments from government-sponsored enterprises has entered short-end funding markets. However, that cash is expected to exit the overnight space by the end of the week as the Treasury ramps up its issuance of Treasury bills now that Congress has increased the debt limit.
Overall volume has been rising this year as a flood of cash continues to overwhelm the U.S. dollar funding markets due to central-bank asset purchases and the drawdown of the Treasury’s cash account, which is pushing reserves into the system. The larger takeup looks set to persist even as the Fed tapers its asset-purchase program — something it began this month — because the supply-demand imbalances in short-end securities are likely to persist.
Then we have the Turkish Lira volatility hitting an all-time high.
And finally we have the US Current Account Balance rising to levels last seen in 2006 just after the peak of the US housing bubble.
The Federal Reserve’s zero-interest rate policies (ZIRP) has The Fed Funds Target Rate at a measly 25 basis points or 0.25%. While this is great for some, it is disastrous for savers. Once we subtract off the inflation rate (CPI YoY), we find that the REAL 90-day Certificate of Deposit (CD) rate is a horrifying -6.74%.
I don’t think that Congress or the Biden Administration really think about how their spending may contribute to inflation and crush savers. Or the American worker who is seeing NEGATIVE real average hourly earnings growth (yes, Biden said that Americans have more money this holiday season … but not if we account for reduced spending power, also known as inflation.
Here is US Treasury Secretary Janet Yellen singing “Goodbye Savers.”
Goodbye Savers Will we ever meet again Feel sorrow, feel shame Come tomorrow, feel lots of pain
While the Chinese Wuhan virus (aka, the Fauci Flu) has plagued the world, another Chinese “export” is also suffering what is known as contagion: China’s real estate sector.
Real estate companies Evergrande, Kaisa, Shimao and Chinese Estates are falling like a rock today.
But it has been a steady decline since Q1 2021 except for Chinese Estates. But they have resumed their death dive.
On the debt side, Evergrande is down to 18.856 while Kaisa has lost less (but still quite a bit) and Shimao’s bond look almost like a good investment, relative to Kaisa and Evergrande. But they are all sucking wind. Maybe they all have the Fauci Flu?
Let’s see if this latest Chinese “export” washes ashore in the USA.
I love how The Federal Reserve talking heads, the media, economists like Paul Krugman, all refer to inflation as “transitory” and excessive liquidity as “temporary.”
Let’s look at a variety of alternative investments to the S&P 500, GameStop, Bitcoin, Ethereum and Gold after The Federal Reserve’s and Federal government massive (over)reaction to COVID in early 2020. Gold is the first asset to surge after M2 Money surged, but has declined since. Game Stop had a big surge (likely due to positive vibes on Reddit), but has been volatile and generally falling since “The Surge.” Bitcoin had a delayed surge as did Ethereum. Despite fear about government regulation, Ethereum in particular remains elevated.
The “temporary” stimulus has resulted in the lowest M2 Money velocity in history. And we will have to see if the “temporary” excess liquidity in the financial system is truly temporary.
Here is a chart to show the “Stimulytpo” effect on commercial and industrial loans which surged (including PPP loans) but have simmered down to pre-COVID levels.
The earnings for GameStop were terrible (down 39.7% YoY). But at least Christmas season is upon us and maybe GameStop will surge with a good retail spending season.
But what happens to markets if the Federal government “stimulypto” is removed? If it ever is.
I love listening to Fed talking heads (or Fear The Talking Fed). They mostly seem to acknowledge that inflation is a problem and that the excessive monetary stimulus should be reduced.
But then I see the chart of The Fed’s balance sheet and The Fed’s reverse repo operations.
Then we have Federal Reserve Governor Christopher Waller saying that Th Fed could start raising interest rates as early as its March 15-16 meeting, after deciding to end asset purchases sooner than planned. My question is … why wait until the March meeting?
Is it fear of the Omincron Variant (which sounds like a Frederick Forsyth thriller)? Does The Fed not want to rock the boat prior to the Christmas season? The US is at or near full employment, so what is the real reason for delaying a rate increase until March or June? Or the fear that Congress won’t pass Biden’s Build Back Better Act?
Fed Funds Futures infer that one rate hike will occur at the June Fed Open Market Committee (FOMC) meeting and one at the November meeting.
Turkey (the nation, not the bird) is now the Venezuela of Europe/Middle East, where insane government policies are destroying both nations.
(Dow Jones) — Turkey’s central bank intervened to arrest the plunge in the country’s currency, which lost as much as 8% of its value against the dollar on Friday in an ongoing crisis that is straining the country’s financial system.
The crash followed another decision by the central bank on Thursday to cut interest rates under pressure from President Recep Tayyip Erdogan, who favors lower rates as a part of a vision to grow the Turkish economy. Mainstream economists have urged the government to raise interest rates to control Turkey’s rising inflation, which reached more than 21% last month, according to official statistics.
The ongoing plunge is putting increasing pressure on ordinary Turks who have seen their savings evaporate, and adding to pressure on the banking system which has high levels of foreign-currency-denominated loans to repay within the next 12 months.
Wow. Turkey’s 10-year sovereign yield rose 42 BPS today to 21.590%. Turkey is looking like the Venezuela of Europe and the Middle East.
The Turkish sovereign curve in their home currency is humped.
But the Turkish yield curve (in US Dollars) looks more like the US Treasury actives curve.
The Turkish Lira is crashing against the US Dollar.
Meanwhile, the Central Bank of Turkey is cutting their repo rate as inflation soars. WTF???
The Freddie Mac 30-year mortgage commitment rate rose to 3.12%. But once we subtract the gut-wrenching inflation rate, the REAL 30-year mortgage rate is -3.689%.
The nominal Freddie Mac 30-year commitment rate rose to 3.12% which is still lower than 3.18% back on April 1, 2021 after surge in rates following Biden’s taking the office of Presidency in January.
Meanwhile, the REAL Case-Shiller National home price index (CS National YoY – CPI YoY) is growing at the fastest rate in history. Great if you already own a home, but lethal if you are renting and want to move to homeownership.
Meanwhile, REAL wage growth is at -1.94% YoY.
Well, Chairman Powell and The Gang failed to raise the Fed Funds Target Rate yet again, but let us know that they will tighten someday soon. The Fed Funds Futures are signalling a rate hike at the June 2022 meeting and another at the November meeting.
While The Fed couldn’t care less about the Taylor Rule, it is still interesting to note just how out of touch The Fed FOMC is with reality. The Taylor Rule indicates that their target rate should be 16.94% rather than the current target rate of 0.25%.
Keeping the target rate unchanged in the face of gut-wrenching inflation is a bold strategy, Cotton.
The Federal Reserve’s massive stimulus combined with Federal spending has led to US housing starts rising 11.8% in November. Housing starts remain elevated compared to pre-COVID levels.
1-unit starts rose 11.29% while 5+ (multifamily) starts rose 12.1% in November. All areas in the US saw growth except for the Midwest where starts fell by 7.27%.
Yes, with Powell leaving rates untouched … again … in The Fed’s effort to … not scare markets. Inflation be damned. Powell is the God of Hellfire!
Confounded Interest - Anthony B. Sanders 
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