Slipping Into Darkness! Bidenflation And Fed’s Reaction Causing Social Security And Pension Funds To Get Clobbered (Mortgage Rates Keep Climbing)

US President Biden went green and signed executive orders on his first day to limit oil and natural gas exploration of Federal lands and offshore (also, killed the Keystone Pipeline), helping to drive up energy prices and food prices. These orders begat inflation (also caused by the massive Covid relief by the Federal government). The highest inflation in 40 years begat The Federal Reserve signalling a tightening of Fed monetary policy … to fight the problem caused by The Fed in the first place … too much monetary stimulus for too long. Fiscal and monetary fanaticism and ignorance is forever busy and needs feeding

There was an interesting article on MarketWatch entitled “Bond rout exposes Social Security’s insanity.” The headline was “Every dollar of yours that’s invested in the Social Security trust fund is invested in low-yielding government bonds.”

Yes, another disastrous consequence of The Fed’s lax monetary policy since 2008, helping to push Treasury yields extremely low. And REAL Treasury yields into negative territory.

But here we sit today with The Fed threatening to trim their balance sheet and raise rates … to combat the inflation they helped create in the first place. Now we have the 10-year Treasury Note price falling like a paralyzed falcon with expected hate hikes going above rate hikes by February 2023 (based on Fed Funds Futures prices).

Most pension funds also invest heaving in US Treasuries, along with agency Mortgage-backed Securities (AgencyMBS).

Plus we have the Treasury curve slipping into darkness.

Speaking of “Slipping Into Darkness,” mortgage rates are soaring.

Meanwhile, Biden, Fed economists and Congress are merrily partying at some DC nightclub.

What is hip? NOT Biden, Pelosi, Schumer or Powell.

The Big Short 2? Subprime Credit-Driven Bubble Versus Fed Loose Policy Driven Bubble (Will The Fed Burst Yet Another Housing Bubble? Michael Burry Thinks Not)

The book and movie “The Big Short” revolved around the 2005-2007 housing bubble driven by lending to borrowers with subprime credit (and little or no underwriting). As we know, Bear Stearns, Lehman Brothers and other investment banks too large positions in subprime asset-backed securities (SABS) that became highly toxic once the demand for high-yield subprime ABS dried up. The decline in US home prices coupled with soaring 90-day mortgage delinquencies led to the failure of Bear Stearns and Lehman Brothers along with Fannie Mae and Freddie Mac being put into conservatorship by their regulator.

Fast forward to today. Mortgage originations by credit scores of 620 or less have shriveled while home price growth YoY is even higher than the subprime mortgage crisis of 2005-2007. So, is the US facing another “Big Short” scenario? Yes and no.

The answer is no in that lenders have tightened their credit box sufficiently so that investment banks are no longer buying large quantities of subprime credit paper. The answer is yes if we consider that the current housing bubble is fueled by extraordinary monetary stimulus due to Covid (as well as rampant Federal government stimulus spending).

Following the Federal Reserve of Dallas’ lead, here is a chart of REAL home price growth YoY against REAL average hourly earnings YoY. I added REAL Zillow house rents YoY as well.

Look at the affordability gap during the Subprime Bubble of 2004-2006 and then the Fed Bubble of 2020 to today. Both bubbles show a disconnect between REAL home prices and REAL wages. REAL Zillow home rents are not as high as REAL home price growth, but still how a huge gap in rent affordability.

So, what can upset the apple cart? How about Jay and The Gang jacking up mortgage rates making home affordability even worse (unless it slows home price growth).

Thanks to The Fed’s propose quantitative tightening, mortgage rates are soaring and mortgage costs along with them. Mortgage costs, thanks to The Fed driving up housing prices AND mortgage rates, are substantially higher than during the subprime mortgage housing bubble.

The Fed’s whipsaw approach helped crash home prices during the subprime mortgage crisis by dropping rates too fast at first (helping to ignite a housing bubble) then raising rates too fast (helping to crash housing prices).

Now, Michael Burry of The Big Short fame (portrayed by Christian Bale) thinks that The Fed has no intention of fighting inflation meaning that he doesn’t think The Fed will raise rates all that much. “The Fed’s all about reloading the monetary bazooka. So it can ride to the rescue & finance the fiscal put,” Burry added.

Yikes! Time for investing in cryptocurrencies like Bitcoin and Ethereum?

This scene from the film “The Big Short” won’t be happening again. But I agree that no one is paying attention … again.

UMich Buying Conditions For Housing Remain Depressed As Mortgage Rates Continue To Rise (Thanks A Boatload, Powell!)

Mortgage interest rates continue their meteoric rise (along with home prices), the result of which is a tanking of consumer confidence in home buying.

The University of Michigan survey of consumers about buying conditions for housing remains depressed due to rising mortgage rates and surging home prices.

Bankrate’s 30Y mortgage rate is down slightly today to 5.06% as the 2-year Treasury yield declines and the anticipated rate hikes have fallen to 9.19.

As I mentioned earlier, mortgage credit availability hasn’t recovered from the “Covid Correction.”

PPI Final Demand Prices Highest In History As 2Y Treasury Yield Declines, Mortgage Rates Steady At 5.14% (All Roads Lead To … Joe And Jay)

Harry Truman once uttered the phrase “The buck stops here.” Joe Biden’s catchphrase should be “It’s Russia’s fault!”

Well, all roads led to Joe and Jay. Here is a chart of Producer Price Index (Final Goods) prices YoY, now the highest in history. At least, gasoline prices are declining to $4.083 (they were $2.40 when Biden was installed as President). But inflation is out of control and the 30-year mortgage rate is now 5.14% (mortgage rates were 2.82% in February 2021 just after Biden took control).

Just in case you wonder why I follow Fed Funds Futures data so closely.

Equity markets are up strongly today as markets sense a weakening in resolve by The Federal Reserve (number of expected rate hikes dropped at 10AM EST).

It appears that we have a “Powell in the headlights” problem.

Fed’s Dual Mandate Derby! Misery Index Hits All-time High (Flexible Price Core Inflation Losses At 21.82% Overwhelming Employment Gains)

The Federal Reserve’s two goals of price stability and maximum sustainable employment are known collectively as the “dual mandate.” Unfortunately, inflation is running away (bad) from employment gains (good). Sort of like “The Good, The Bad and The Ugly.” But just the Good and The Ugly combine to create the Misery Index.

Here is the Atlanta Fed’s CORE flexible CPI YoY for March. The good news? Flexible Core CPI YoY was a little lower than the historic high reading in February. The bad news? We are still talking about 21.82%+ rise in prices (down from 23.56% in February).

If I use the Atlanta Fed’s flexible consumer price CORE index combined with the U-3 unemployment rate, we see that March’s inflation report plus U-3 unemployment is generating a misery index that was last seen in July 2008 during The Great Recession. Unless we consider the July 2021 reading of 31.3%, so we have seen two horrible misery index readings under Biden.

If we look at the Misery Index since 1967, we now have the GOAT (Greatest of All-time) Misery.

Now, inflation under Presidents Ford and Carter (red line) were higher than the flexible core price index (blue line) in the 1970s and 1980. But flexible core price CPI YoY is substantially higher than March’s CPI growth of 8.5%.

The bottom line is that inflation losses are far outweighing the employment gains, resulting in elevated misery.

Misery. We are all feeling it.

Inflation Nation! Real Average Weekly Earnings Growth Lowest Since 2007 (-3.6%) While Mortgage Payments UP 50% (US Treasury 2Y Yield Dumps 12 Basis Points)

Feeling hot, hot, hot! Inflation, that is.

US real average weekly earnings growth YoY is down to -3.60%. That is the lowest since 2007 and is worse than The Great Recession and financial crisis of 2008.

And look at this chart of mortgage payments under Biden. The US was actually experiencing DECLINING mortgage payments YoY in 2019 and 2020. But under Biden’s leadership, mortgage payments have increased by 50% making housing even MORE unaffordable for the middle class and lower-income households.

And now for something kind of scary. The US today suffered a 12 basis point decline in the 2-year Treasury yield, generally a bad sign for the economy. As if we needed more bad news for today.

Highest inflation in 40 years, worst wage growth since 2007 and rising mortgage payments. We will need all the luck we can get.

Bidenflation SOARS To 8.5%, Real Average Hourly Earnings Growth Falls To -3% YoY, Mortgage Rates Rise To 5.14% (The Four Horsemen Of The Inflation Apocalypse?)

The US inflation numbers were released this morning and they are grim. Inflation YoY grew to 8.5%.

With 8.5% YoY inflation, REAL average hourly earnings growth fell to -3% YoY.

And with The Fed intent on extinguishing their part of the inflation, Bankrate’s 30Y mortgage rate rose to 5.14%.

Energy is the biggest culprit (fuel oil up 70.1% YoY) thanks to the double whammy of 1) Russia’s invasion of Ukraine and 2) Biden’s restrictions on oil and natural gas production. Food at home is up 10% YoY.

Here is a colorful chart of MoM growth in prices.

The Taylor Rule model now says that The Fed Funds Target Rate should be 11.90%. Hence, Fed Stimulypto is still in place with the signal that rates will increase.

How about WTI Crude and Brent Crude soaring over 4% today?

Once again, the Four Horsemen of the Inflation Apocalypse (Biden, Powell, Pelosi, Schumer) overstimulated the economy and financial markets with excessive monetary stimulus (Powell) and excessive Federal spending (Biden, Pelosi, Schumer) where demand soared for products and supply naturally hasn’t caught up.

Weekend Update: 2022 A Tough Year For Bonds, Mortgages Tighten, Mortgage Demand Backs Off As Rates Surge (Bond Volatility On The Rise)

2022 has been a tough year for bond investors and the mortgage industry.

Doubleline’s Jeff Gundlach observed that the 2 Year Treasury yield is up 125 bp over the past month or so. I commented that the 2 Year Treasury Yield is up 179 bp since December 31, 2021 and the 30-year mortgage rate is also up 179 bp since the end of 2021. Yes, 2022 has been a dismal year for bonds and the mortgage market.

The ICE BofA MOVE index, a yield curve weighted index of the normalized implied volatility on 1-month Treasury options, has risen in 2022 along with the 30-year mortgage rate as the normally dormant Federal Reserve finally waking-up and trying to fight inflation.

Mortgage demand backs off due to anticipated Fed rate hikes.

The latest Fed Dots Plot reveals that Fed Open Market Committee members are expecting Fed Funds rate increases in 2023, but remaining the same in 2024 (FOMC median projection). Then falling in the longer term.

With home prices and rents soaring with Federal Reserve stimulus, let’s see how home prices and rents react to The Fed raising rates. My models forecast a slowdown in late summer 2022 to 6% home price growth YoY as The Fed actually implements their quantitative tightening.

Inflation? CPI YoY is the highest in 40 years and FLEXIBLE Core CPI is 20% and the highest since … Lyndon B. Johnson was President (the flexible price index only goes back to 1968). Actually, Flexible Price inflation is even higher than it was under LBJ. Perhaps this is one of those accomplishments that Biden staffer are complaining never gets discussed.

On a side note, Sheila Bair has stepped down as CEO of government mortgage giant Fannie Mae.

The Financial House is a Rockin’ … but not in a good way.

Can The Fed ACTUALLY Tighten Monetary Policy? Or Is This ANOTHER Fed Policy Error? We’ve Got A BAD Case Of Unaffordable Housing

Can The Federal Reserve ACTUALLY tighten monetary policy? Let’s look at the facts.

Under Biden, we have seen inflation rise from 1.4% to 7.9% (the latest inflation numbers will be out Monday). And we have seen Treasury public debt rise from $27.8 trillion to $30.346 trillion (actually, $30.371 trillion in real-time). Meanwhile, REAL average hourly earnings are declining. Well done, Washington DC! You deserve the Washington ~~Redskins~~ Commanders.

With real GDP growth less than 1%, a war raging in Ukraine, and 20% flexible price growth, the US economy is in a shambles, relying on The Federal government and The Federal Reserve to continues its insane level of spending and stimulus.

I am going against the box on this one and think The Fed will back off by summer when they realize that they have made another in a long line of policy errors.

Doctor, doctor (Yellen, US Treasury Secretary), we’ve got a bad case of UNAFFORDABLE HOUSING thanks to BAD government policies.

Biden’s Fastest Economic Recovery In History? Or Recession? Flexible Inflation Rate Hits 20% And Q1 GDP Stalled At <1% (Real Average Hourly Earnings Dive To -2.72% YoY) As Fed Drive Rates Up

Government response to COVID in the form of business shutdowns resulted in massive job losses, then as governments opened the economy up again, job gains were incredible. The Hill had an article discussing the whipsaw in jobs entitled “Biden is delivering the fastest economic recovery in history. Why hasn’t anyone noticed?”

Well, the US have gone from “fastest economic recovery in history” to real GDP growth of less than 1% (Atlanta Fed GDPNow for Q1). In addition, the flexible price CPI less food and energy is a whopping 20%.

You can see “The Biden Miracle!” in the following chart. Hires (red line) dropped with Covid shutdowns, then spiked when governments opened economies again. Throw in the trillions of Federal government Covid stimulus and trillions in Fed monetary support, the Biden Miracle sees less like a miracle and more like an extremely expensive way to add jobs. But the interesting problem facing the Administration is the massive spike in job openings relative to hires (again, governments opening-up plus Federal Stimulypto).

Now for a real downer of a chart. Inflation is so toxic that REAL average hourly earnings YoY is down -2.72%. Hardly the best economic growth in history.

Now we have Jerome Powell and The Blackhearts threatening quantitative tightening starting in May. Here is The Fed’s theme song “We love printing money.”

But The Fed is already slowing the growth of monetary base, although this Fed Stimulypto is still growing much faster than pre-Covid.

At least the 10Y-2Y Treasury curve is back above 0 bps as the Atlanta Fed’s GDPNow Q1 forecast falls to under 1%.

Remember, The Fed is planning on shrinking the balance sheet by $95 billion. The Fed’s balance sheet is just shy of $9 trillion. Which is around 1% per month.

With rising expectations of Fed quantitative tightening (QT), residential mortgage rates keep climbing.

Despite a slowing economy teetering on recession and a war raging in Europe, The Fed is tightening monetary policy. Allegedly to fight red-hot inflation.