It seems everything Biden touches turns to stone. This used to be called “The Medusa Touch” but I changing that to “The Biden Touch.” And that includes housing. Or we can simply sing along with the late Jimmy Buffet and “Wasting aways again in Bidenville.”
And near 7% mortgage rates aren’t helping (as The Fed continues its fight against Bidenflation).
New home sales crashed 11.3% MoM (after April’s 4.7% drop was revised up to a 2.0% MoM rise). That is the biggest MoM drop since Sept 2022…
Source: Bloomberg
This is the biggest YoY drop since Feb 2023, taking the SAAR down to the same level as it was in 2016…
Source: Bloomberg
Median new home price fell 0.9% YoY to $417,400 – lowest since April 2023 – (with the average selling price at $520,000) with a big downward revision for April from $433k to $417k!…
Source: Bloomberg
For the first time since June 2021, median existing home prices are above median new home prices…
Source: Bloomberg
As BofA warned yesterday:
“The US housing market is stuck, and we are not convinced it will become unstuck anytime soon. After a surge in housing activity during the pandemic, it has since retreated and stabilized. We view the forces that have reduced affordability, created a lock-in effect for homeowners, and limited housing activity will remain in place through our forecast horizon “
At the same time, the supply of available homes increased to 481,000, still the highest since 2008.
Source: Bloomberg
New home sales are catching down to the reality of mortgage rates continuing to hold above 7%…
Source: Bloomberg
It seems homebuilders finally gave up filling that gap in anticipation of an imminent Fed rate-cut to save the world.
Will Biden double down on his failed policies tonight in the CNN Presidential debate? Perhaps Joe can sing “Double Shot of Bidenomics.”
The jointly signed letter, first reported by Axios, says the economic agenda of U.S. President Joe Biden, a Democrat, is “vastly superior” to Trump’s, the former Republican president seeking a second term.
Read the source article from Reuters for the rest of the Marxist clown show. What Joe Stiglitz and other Leftist economists are cheerleading in the excessive post Covid spending spree that Biden and Congress went on. There is a different between a free market system and government directed spending, usually on large donors.
One source of crippling inflation under Biden is (wasteful) government spending, up 37.7% under Biden. Federal debt is up a nauseating 50% under Biden. These levels of spending and debt are NOT sustainable!
Another souce of inflation under Biden has been The Federal Reserve. With Covid. The Fed entered like gangbusters dropping their target rate to 25 basis points and massively increasing their balance sheet. Call this BIDEN 1. Then to squelch inflation, The Fed raised their target rate and slowly started to unwind the balance sheet. We saw a slowing of inflation. Nothing to do with Biden, although I am sure he will take credit for it at Thursday’s debate with Trump.
Inflation was growing rapidly in Biden 1, but inflation started to slow (Biden 2) as The Fed rapidly raised their target rate.
But, below the hood of the last one we see some more interesting dynamics evolving as revenues and employment decline while prices re-accelerate…
Source: Bloomberg
This is the 25th straight month of contraction (sub-zero) for the Dallas Fed Services index and judging by the respondents’ comments, there is a clear place to point the finger of blame:
Poor national leadership and lack of confidence have eroded the business environment.
The Federal Reserve’s recent announcement of no rate cuts in the near future is concerning regarding the immediate and lag effect it could have on the local economy. We have received direct feedback from many of our clients in various industries, and they are increasingly concerned. They are freezing hires and spending, with many reducing spending. The primary reason is the economic stagnation locally and nationally affecting their businesses.
People are adjusting to new economic realities. Few are expecting salary increases and are instead making lifestyle adjustments to deal with higher living costs. Reality is also setting in for the apartment owners we serve. They understand rents aren’t going up and interest rates aren’t coming down. As rate caps expire and loans mature, lenders are having to adapt as well. Ultimately, a lot of private equity (much in the form of individual retirement savings put into syndications) is getting wiped out.
We need a rate cut before we will see any revenue improvement from home sales.
As elections draw near, the political environment worsens, creating more uncertainty in our business.
We feel inflation and fear of more inflation plus the rise in cost of living are holding consumers back. Hopefully we will adapt to the new realities soon.
Customers are concerned about the election, so they are holding off on large purchases.
The lack of building activity is shutting down the appliance industry.
Affordability has become an ever-increasing problem for new car dealers. The price increases of new cars combined with higher interest rates have put new cars out of reach for more and more people.
[Car] inventories continue to swell, and interest rates remain high. Our grosses are off, and margins continue to decline. Profits are down 20 percent from the prior year.
The economy is slowing. The consumer is more cautious and more reluctant to purchase at higher prices and payments.
And finally, this seemed to sum up just how business-owners feel in general about the current occupant of The White House:
“Our outlook depends heavily on the presidential election.
S&P/Case-Shiller released the monthly Home Price Indices for April (“April” is a 3-month average of February, March and April closing prices). The pace of appreciation has slowed from the previous month, reflecting the toll of 7% mortgage rates and low inventory.
This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.3% annual gain for April, down from a 6.5% annual gain in the previous month. The 10-City Composite saw an annual increase of 8.0%, down from an 8.3% annual increase in the previous month. The 20-City Composite posted a year-over-year increase of 7.2%, dropping from a 7.5% increase in the previous month. San Diego continued to report the highest annual gain among the 20 cities in April with a 10.3% increase this month, followed by New York and Chicago, with increases of 9.4% and 8.7%, respectively. Portland once again held the lowest rank this month for the smallest year-over-year growth, with a 1.7% annual increase in April. … The U.S. National Index, the 20-City Composite, and the 10-City Composite upward trends decelerated from last month, with pre-seasonality adjustment increases of 1.2%, 1.36% and 1.38%, respectively.
After seasonal adjustment, the U.S. National Index and 10-City Composite posted the same month-over-month increase of 0.3% and 0.5% respectively as last month, while the 20-City reported a monthly increase of 0.4%.
“For the second consecutive month, we’ve seen our National Index jump at least 1% over its previous all-time high,” says Brian D. Luke, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “2024 is closely tracking the strong start observed last year, where March and April posted the largest rise seen prior to a slowdown in the summer and fall. Heading into summer, the market is at an all-time high, once again testing its resilience against the historically more active time of the year.
“Thirteen markets are currently at all-time highs and San Diego reigns supreme once again, topping annual returns for the last six months. The Northeast is the best performing market for the previous nine months, with New York rising 9.4% annually. Sustained outperformance of the Northeast market was last observed in 2011. For the decade that followed, the West and the South held the top posts for performance. It’s now been over a year since we’ve seen the top region come from the South or the West.
Of course, Fed Money Printing is helping drive home price growth. Perhaps too much!
Here is Jerome Powell, Chairman of The Fed Bubble Blowing Machine!!
I am no forune teller, but this doesn’t look to good for old Joe (Biden).
Existing home sales fell -2.8% YoY in May.
US existing home sales fell for the third straight month in May (-0.7% MoM vs -1.0% exp). This left home sales down 2.8% YoY (YoY sales have not increased since July 2021)…
Source: Bloomberg
The total home sales SAAR is push back towards COVID lockdown lows once again at 4.1mm, but prices accelerated to a new record high…
Source: Bloomberg
“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” NAR Chief Economist Lawrence Yun said in a statement.
“Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months.”
And given that mortgage rates remain stubbornly above 7%, existing home sales show no signs of improving anytime soon…
Source: Bloomberg
The supply of homes on the market increased 18.5% from the same month last year to 1.28 million, but it’s still well below the level seen before the pandemic when mortgage rates were much lower.
Source: Bloomberg
About 67% of the homes sold were on the market for less than a month in May, roughly flat from the prior month, while 30% sold above the list price. Properties remained on the market for 24 days on average in May, compared with 26 days in April, NAR’s report said.
This prediction only got warmer two months later when, inexplicably, Japan’s Norinchukin bank, best known as Japan’s CLO whale, was quietly added to the list of counterparties for the Fed’s Standing Repo Facility, a/k/a the Fed’s foreign bank bailout slush fund.
But if that was the first, and still distant, sign that something was very wrong at one of Japan’s biggest banks (Norinchukin is Japan’s 5th largest bank with $840 billion in assets) today the proverbial canary stepped on a neutron bomb inside the Japanese coalmine, because according to Nikkei, Norinchukin Bank “will sell more than 10 trillion yen ($63 billion) of its holdings of U.S. and European government bonds during the year ending March 2025 as it aims to stem its losses from bets on low-yield foreign bonds, a main cause of its deteriorating balance sheet, and lower the risks associated with holding foreign government bonds.”
See, what’s happened in Japan is not that different from what is happening in the US, where as the FDIC keeps reminding us quarter after quarter, US banks are still sitting on over half a trillion dollars in unrealized losses, as a result of the huge jump in interest rates which has blown up the banks’ long-duration fixed income holdings, sending them trading far below par and forcing banks (and the Fed, see BTFP) to come up with creative ways of shoving these massive losses under the rug.
And while Japanese rates have barely budged – the BOJ only just raised rates for the first time in decades in April – the move is already cascading into the form of huge losses for domestic banks, which have been hammered twice as hard due to their holdings of offshore debt which until 2021 was viewed as risk free, only to blow up in everyone’s face two years ago when the bull market since the early 1980s ended with a bang.
Enter Norinchukin: according to the Nikkei, the company’s net loss for the year ending March 2025, which was previously forecast to top 500 billion yen, will rise to the 1.5 trillion yen level with the bond sales.
“We plan to sell low-yield [foreign] bonds in the amount of 10 trillion yen or more,” Norinchukin Bank CEO Kazuto Oku told Nikkei, an amount just above $60 billion.
Facing a problem that is very familiar to all US banks, Oku said the bank “acknowledged the need to drastically change its portfolio management” to reduce unrealized losses on its bonds, which totaled roughly 2.2 trillion yen as of the end of March. Oku explained bank’s intention to shift its investments, saying, “We will reduce [sovereign] interest rate risk and diversify into assets that take on corporate and individual credit risk.”
Now, if Nochu, as it is affectionately known by bankruptcy lawyers, was a US bank circa one year ago, it would not have to sell anything: it could just pledge all of its sharply depreciated bonds at the Fed’s BTFP facility, and get a par value for them.
Unfortunately, Nochu is not US but Japanese, and it is not 2023 but rather 2024, when the high-rate disaster of 2023 was supposed to be over. Supposed to be… but instead it’s only getting worse. Regular readers will hardly need it, but for novices Nikkei gives the following quick primer: “Interest rates in the U.S. and Europe have risen and bond prices are down. This reduced the value of high-priced (low-yielding) foreign bonds that Norinchukin purchased in the past, causing its paper losses to swell.”
So faced with no other options, Nochu is doing the only thing it can: an orderly liquidation of tens of billions of securities now, when they are still liquid and carry a high price, in hopes of avoiding a disorderly liquidation and much worse, in a few months when the bond market freezes up.
And yes, the Japanese rates canary is quite, quite massive: as of the end of March, Norinchukin had approximately 23 trillion yen of foreign bonds (about $150 billion), amounting to 42% of its total 56 trillion yen of assets under management.
To get some sense of the scale, according to the Bank of Japan, outstanding foreign bonds held by depositary financial institutions amounted to 117 trillion yen as of the end of March. Norinchukin, which is a major institutional investor in Japan, holds as much as 20% of the total on its own! And those asking, yes: once Nochu begins selling, all others will have to join the club!
But why start the selling now? Because, as we warned last October when we predicted that the next bank crisis will be in Japan, the Japanese mega-bank now believes interest rate cuts in the U.S. and Europe are likely to take longer than it previously expected, it will try to significantly cut its unrealized losses by selling foreign bonds in fiscal 2024.
And so, Norinchukin plans to sell over 10 trillion yen in foreign bonds, in addition to its normal trading activities.
The rest of the story is filler: in attempt to divert attention from the 10 trillion yen elephant in the room, the Nikkei then wastes time discussing the bank’s other “alternatives” to wit:
The company is now considering investment alternatives, including equities, corporate bonds, corporate loans and private equity, as well as securitized products such as corporate loan-backed securities and mortgage-backed securities. By diversifying its portfolio, it aims to prevent unrealized losses from expanding to the point where they become a concern for management. It will also try to replace some low-yielding foreign government debt with other such bonds offering higher interest rates.
What are you talking about? What diversification? Once the selling begins, the bank will be lucky if it can get even a fraction of the proceeds it hopes for (because all the other banks won’t just be standing there twiddling their thumbs, as they wait to see how massively Nochu reprices the market).
And it’s not just banks: if and when the selling begins by a bank that holds 20% of all foreign bonds in Japan, the liquidation cascade will quickly spread to Mrs Watanabe. According to the U.S. Treasury Department, Japanese investors held $1.18 trillion of U.S. government bonds as of March, the largest slice among foreign holders.
Needless to say, but the Nikkei does so anyway, “Massive sales by Norinchukin could have a sizable effect on the U.S. bond market.”
And since we now know what is happening, it is only a matter of time before everyone else frontruns Norinchukin.
What happens next will be even uglier: since the bank will no longer be able to mask its fixed income losses under the guise of accounting sleight of hand, the bank’s financial results for the period ending March 2025 will “deteriorate significantly as a result of the huge divestment of foreign bonds and turn paper losses into real ones.” As of May, Norinchukin put its final loss at more than 500 billion yen, but this is now expected to reach the 1.5 trillion yen level.
A little more context: back in the immediate aftermath of the global financial crisis, in the year ending March 2009, Norinchukin posted a final loss of about 570 billion yen due to impairment of securitized products. The forecast loss for this fiscal year is expected to top the previous record by roughly 1 trillion yen. Nevertheless, Oku said that putting the losses on the books in the year ending next March will “improve [the bank’s] finances and portfolio, thus enabling to move into the black in the period ending March 2026.”
Spoiler alert: no it won’t… and that’s why the bank is now scrambling to share the pain with even greater fools, i.e., “investors.”
According to the Nikkei, Norinchukin Bank is considering raising 1.2 trillion yen to shore up its finances. It has already started discussions with Japan Agriculture Cooperatives, one of its main investors, and others. Of course, the question of who in their right mind would lend the bank good money to plug an even bigger hole that is about to open up, is anyone’s guess.
But that won’t stop the bank from doing what it has to, now that it has picked the liquidation route: and once the selling flood begins, it won’t end as these flashing red headlines from Bloomberg just confirmed:
*NORINCHUKIN TO SELL US, EUROPEAN SOVEREIGN BONDS GRADUALLY
*NORINCHUKIN ALSO WEIGHS LOCAL, OVERSEAS BONDS, PROJECT FINANCE
*NORINCHUKIN EYES ASSETS INCLUDING CLOS, STOCKS AFTER BOND LOSS
There’s a name for this: a firesale, but – drumroll – a “gradual” one, because that’s how firesales supposedly go in Japan.
Luckily, the one thing nobody has to guess, is what happens next: as the wonderful movie Margin Call laid out so very well, once you realize that the music has stopped, you have three choices: i) be first, ii) be smarter, or iii) cheat. In the case of Japan’s Norinchukin, it has decided the time has come to liquidate before everyone else. We wonder how “everyone else” will take this particular news…
One month after the May Consumer Sentiment printed at a record 7-sigma miss to expectations, consumer sentiment once again “unexpectedly” slumped, this time from an upward revised 68.8 to 67.6, the lowest print since last November, and the biggest 3-month drop in sentiment (-13.8 points) going back to the covid lockdowns.
… which was not only a 5-sigma miss to the median estimate (an improvement from last month’s 7-sigma)…
… but also the biggest miss of 2024.
The collapse in sentiment was broad based, and hammered both current conditions – which plunged from 69.6 to 62.5, the lowest since 2022 and badly missing estimates of 72.2 – and also expectations, which dropped from 68.8 to 67.6 (and also far below the 72.0 estimate).
The decline in sentiment coincides with signs that the labor market, which has driven consumer spending over the last year, is also falling apart. The unemployment rate rose to 4% last month, the highest in more than two years, while jobless claims unexpectedly soared following a firing frenzy out of California.
“While lower-income families have, as a group, seen notable wage gains in a strong labor market, their budgets remain tight amid continued high prices even as inflation has slowed,” Joanne Hsu, director of the survey, said in a statement.
But wait there’s more, because if that was the “stag” part of the report, the UMich report also confirmed that the “flation” isn’t far behind, as the inflation outlook continued its recent deterioration, to wit: 1 Year inflation expectations remained unchanged at 3.3%, beating estimates of a drop back 3.2%, while 5-10 Year inflation expectations rose from 3.0% to 3.1%, the highest since November.
If that wasn’t enough, the slide in sentiment suggests restrained consumer demand in coming months. The university’s measure of buying conditions for durable goods decreased to the lowest level since December 2022, a glowing testament to just how tapped out the US consumer truly is.
In short: the verdict for Bidenomics is in, and it’s a complete disaster, as for Powell’s recent laughable comment that he can’t see the “stag” nor the “flation”… well, Fed chair, they just bit you on the ass.
On top of a poor consumer sentiment report, the PPI Final Demand index was down … again.
The US is on a “Highway to Hell!” thanks to flawed economic policies under Biden.
First, interest and mortgage rates under Biden have soared driving buying conditions for housing to all-time lows. Combine sky-high home prices with high mortgage rates and we have as serious affordability crisis.
Second, on the interest rate front, the 30-year Treasury bond is on track for the 3rd worst annual return since 1919 and Russia’s invasion of Ukraine. Not not the current invasion, but the 1919 invasion.
Third, China is dumping their holdings of US Treasuries and Agency Debt at record rates.
Of course, mortgage rates hit 18% in 1981. So, the term high mortgage rates is relative. The US had low rates for too long (Bernanke/Yellen) and mortgage rates are now in the 7% range, up 165% under Biden. And home prices are up 34% since Biden was sworn-in as President. Wow! Mortgage rates up 165% and home prices up 34% under Biden’s Reign of Error.
Following yesterday’s release of Biden’s $7.3 trillion budget, the Biden administration bragged about lowering the deficit by $3 trillion over the next decade – an average of 0.8% of GDP over that period.
This would consist of roughly $2.6 trillion over 10 years in additional spending programs, offset by around $4.8 trillion in tax increases over the same period. Most of the tax and spending proposals have been included in prior budget proposals from the White House, according to Goldman’s Alec Phillips, however there are several new items.
The budget would increase the corporate alternative minimum tax on book income from 15% to 21%, raising $137 billion over the next decade. It also limits a corporation’s ability to deduct employee pay exceeding $1mm/year, raising $272 billion over 10 years. The largest proposed tax increases include; raising the corporate minimum tax from 21% to 28%, as well as a series of tax increases on high-income earners, including new Medicare taxes, and a new 25% minimum tax on incomes over $100 million, raising $500 billion over the next decade.
Of course, it has zero chance of passing under the current Congress – but that’s not the point.
As one DC strategist wrote in a morning email noted by CNBC‘s Brian Sullivan, the budget deficit will still grow by another $16 trillion over the next decade – and that’s with aforementioned tax hikes.
Without them, the deficit grows to $19 trillion.
In short, talk of ‘$3 trillion saved’ is total bullshit in the grand scheme of things, given how much the national debt will grow in the best case scenario.
“No family budget or business could exist with this kind of math,” says Sullivan.
Yes Brian, no family budget could exist with this kind of math AND SPENDING!
And the national debt is rising by $1 TRILLION every 100 days. Before Spending Joe’s budget!
The “core services” PCE price index spiked to 7.15% annualized in January from December, the worst month-to-month jump in 22 years (blue line), according to index data released today by the Bureau of Economic Analysis. Drivers of the spike were non-housing measures as well as housing inflation. More on each category in a moment.
The bad behavior of core services inflation that we have been lamenting since June – and which was confirmed earlier this month by the nasty surprise in the CPI – is why Fed governors have said this year in near unison that they’re in no hurry to cut rates, but have taken a wait-and-see approach. And now the concept of rate hikes is cropping up in their speeches again.
For example, Fed governor Michelle Bowman said in the speech yesterday, that she was “willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.”
Even year-over-year, core services inflation has now reversed and accelerated to 3.5%.
This reversal of fortune may be big enough to lead The Fed to raise rates.
Confounded Interest - Anthony B. Sanders 
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