Fed Minutes Flag Chance of Earlier Hikes, Balance-Sheet Rundown (When Jay Powell Speaks, People Listen [Dow Drops, 10Y T-yield Increases])

Federal Reserve officials said a strengthening economy and higher inflation could lead to earlier and faster interest-rate increases than previously expected, with some policy makers also favoring starting to shrink the balance sheet soon after.

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” according to minutes published Wednesday of the Dec. 14-15 meeting of the U.S. central bank’s policy-setting Federal Open Market Committee, when it pivoted to a more aggressive inflation-fighting stance.

“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said.

The S&P 500 stock index extended declines following the release and was on track for its biggest loss in more than a month. Treasuries also extended losses and the dollar pared its decline.

At the conclusion of the December meeting, the FOMC announced it would wind down the Fed’s bond-buying program at a faster pace than first outlined at the previous meeting in early November, citing rising risks from inflation. The new schedule puts the central bank on track to conclude purchases in March.

And with the minutes released, the Down dumped.

And the 10-year Treasury yield jumped 5.3 bps on the release.

When Jerome Powell speaks, people listen.

CoreLogic: Home Prices Rise Record 18.1% In November (When Will Fed Take Its Foot Off The Pedal??)

Home price growth especially strong in Mountain West and Southeastern states
By November 2022, annual home price growth is predicted to slow to 2.8%

Yes, US home prices continue to rage with CoreLogic’s home price index rising 18.1% YoY.

Their forecast for 2022 is only 2.8% YoY likely due to forecast mortgage rate increases and fiscal stimulus wearing out.

Arizona, of course, is leading at 28.6% YoY. Florida is in second place followed by Idaho.

Slowdown? Let’s hope the slowdown doesn’t turn into a Matchbox and lead to declining home prices.

Pfizer’s Covid Booster Shot for Younger Teens Wins FDA Clearance, Stock Drops (But Pfizer Underperformed S&P 500 Index Since Fed COVID Stimulus)

You would think that an FDA approval to give booster shots to millions of new patients would send their stock soaring. It didn’t Pfizer dropped along with the S&P 500 index.

Despite the growth of COVID cases in the US (blue dashed line), Pfizer stock has only gone up by “only” 88% since March 2020. The S&P 500 index rose by 100%.

I under what Pfizer’s performance would be if The Fed wasn’t blowing a hurricane wind at the back of the market.

Just Hedge Funds And The Blues: Why Can’t Hedge Funds Beat The S&P 500 (Or The Federal Reserve)?

Just hedge funds and the blues. Or hedge funds got the blues in 2021.

2021 saw the S&P 500 index generate a return of 28.7%. Much of it thanks to The Federal Reserve “stimulypto” or excessive monetary easing.

This image has an empty alt attribute; its file name is spxfarbast.png

But only three hedge funds beat the S&P 500 index: Senvest, Impala and SR. Thanks to fees (trading and management), the other hedge funds underperformed the S&P 500 index. And underperformed The Fed!

Melvin Capital was the worst performing hedge fund of the ones examined.

Yes, hedge funds had the blues in 2021 with only 3 hedge funds beating the S&P 500 index.

Welcome to 2022!!

US Treasury Yield Curve Now Back Where It Stated With Biden At The Helm (Inflation Crushing America And The Yield Curve)

It has been almost a year since Joe Biden has been President of the United States and a Democrat majority took control of The House and Senate. And what has happened to the US Treasury yield curve slope over the past year?

The yield curve is back where it started. There was the “honeymoon effect” where the curve slope rose. After all, Biden was Obama’s Vice President for 8 years and The Democrats has promised so much in the 2020 election. But by early April, the reality of the massive Federal spending (combined with Fed Stimulypto) began showing what was feared: inflation (blue line) started to grow at a rapid rate of speed. With inflation now at 6.8% YoY,

In fairness to Biden, The Federal Reserve has been overstimulating the economy since The Federal Reserve since Ben Bernanke and the Fed Open Market Committee (FOMC) dropped the hammer on The Fed Funds Target Rate once the rate hit 5.25% in September 2007. They kept cutting it reached 25 basis points (or 0.25%) in December 2008. In August 2008, Bernanke and Company began their “Quantitative Easing” or asset purchasing programs. Between The Fed’s Target Rate and QE, The Fed has continued to overstimulate markets ever since. Under Biden, The Fed Funds Target Rate remains at 0.25% and The Fed’s Balance sheet has grown to $8.79 Trillion (bigger than the entire economies of Japan and Germany put together!).

How about housing? Home prices are growing at 19% YoY while rents are growing at 12.65% YoY.

Energy prices have risen dramatically under Biden. Gasoline is up 46% despite a slight reprieve recently. WTI crude prices are up 64%.

How about food? Beef prices are up 20% and chicken prices are up 10%.

On a positive note, the S&P 500 index has soared … thanks has soared during Biden’s term thanks to Fed stimulus and Federal spending on COVID.

The Build Back Better Act if passed (in its entirety or on a piecemeal basis) will lead to even MORE inflation.

Perhaps Biden’s spokesperson Jen Psaki can recreate the Biden Administration as a lovable, hilarious family like the comic strip Gasoline Alley with old Joe Biden as Skeezix. And insider-trading star, House Speaker Nancy Pelosi as the family matriarch.

The Great Distortion! Since COVID And Fed Hysteria, First Gold Then Bitcoin, Then Ethereum Surged While The US Dollar Declined Then Rallied

The global economy has certainly been turned on its head by the COVID outbreak in early 2020. Not so much by the virus itself, but by Central Bank hysteria in terms of rate lowering and balance sheet expansion. Which The Fed has not yet unwound.

Let’s look at what has happened since the mini-recession caused by COVID in early 2020. The shortest recession in US history, a measly 2 months. The Fed expanded its balance sheet from $4.17 million in February 2020 to $8.79 million today. That is, The Fed over doubled the size of their balance sheet in reaction to the shortest recession in US history. Overreaction much?

What has happened since the mini-recession and The Fed’s massive overreaction?

First, gold (gold line) surged then calmed down. Then cryptocurrency Bitcoin (while line) surged, then calmed down, then surged again only to calm down again. Then crypto Ethereum surged, calmed, surged, calmed. Meanwhile the US Dollar Index crashed only to start rising again.

The Fed’s overreaction and failure to withdraw excessive stimulus has led to the rise of alternatives to the deflating dollar due to inflation.

When will The Fed ACTUALLY start removing the overreaction stimulus? Let’s get it started.

Perhaps only April Ludgate can kill The Fed’s overreaction stimulus.

GameStop: Rage Against The (Financial) Machine? Or Bidenflation? (Meme Stocks, Gold And Cryptos)

2021 has been a very weird year. Inflation has boomed (highest in 40 years) after the election of Joe Biden as President of the USA (call it Bidenflation). Then we have The Federal Reserve barely acting on the booming inflation (keeping rates at 25 basis points while withdrawing the COVID-related monetary stimulus).

Then we have the rise of cryptocurrency Ethereum and the surge meme stocks such game store GameStop, a favorite of the internet site Reddit.

Given the volatility of GameStop (Reddit-inspired), you can see the strange shape of GameStop’s volatility surface.

By contrast, gold is now where it was was at the beginning of 2021 and the surge of Bidenflation.

Here is volatility surface for gold.

So, there are a number of meme stocks (GameStop is just one example), gold, silver, cryptos such as Bitcoin and Ethereum. But gold seems to be placid with respect to inflation, but the meme stocks and cryptos seem to be motoring. Or is it rage against the financial machine? Or rage against Bidenflation??

The US stock and bond markets are closed today and tomorrow, Christmas day.

Have a Merry Christmas! And celebrate the “Santa Pause” as Powell refuses to raise rates to combat inflation until 2022.

U.S. Inflation-Adjusted Spending Stagnates To 0% Growth As Prices Surge (Core PCE Deflator Rises To 4.7% YoY, Highest Since 1989 Implying A Taylor Rule Rate Of 11.84%)

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.

Tiny bubbles? How about HUGE bubbles!

Stimulypto! US Q3 Price Index Grows 3X Personal Consumption (Real GDP +2.3% QoQ)

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.

Let’s see if Christmas season is jolly with Sewage Joe trying to scare everyone about Omicron.

Inflation And Fed Crushing Savers (REAL 3M CD Rate At -6.74%)

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