Powell’d! S&P 500 Index Drops -2.35% On Failure Of Fed Pivot (“Very Premature To Be Thinking About Pausing)

Markets are getting stranger than the Paul Pelosi hammer attack.

The S&P 500 index tanked -2.35% after Powell and The Fed failed to pivot.

Federal Reserve Chair Jerome Powell opened a new phase in his campaign to regain control of inflation, saying US interest rates will go higher than previously projected, but the path may soon involve smaller hikes.

Addressing reporters Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected.”

Powell said is it would be appropriate to slow the pace of increases “as soon as the next meeting or the one after that. No decision has been made,” he said, while stressing that “we still have some ways” before rates were tight enough.

“It is very premature to be thinking about pausing,” he said.

Fed Funds Futures data point now to a June peak in the target rate of 5.055%, then a decline.

US 30Y Mortgage Rate Rises To 7.22% As Fed Combats Near 40-year High Bidenflation, BUT 10Y Treasury Yield DOWN -12 BPS This AM (US Treasury 10yr-3mo Curve Falling Further Into Inversion)

US 30-year mortgage rates are above 7% as The Federal Reserve slowly withdraws its Covid-related monetary stimulus and attempt to combat near 40-year highs in inflation under Biden (aka, Bidenflation).

However, the US Treasury 10-year yield is down -12 basis points this morning.

And we have an important predictor of recession, the Treasury 10yr-3mo yield curve.

And if the Republicans win The House (and maybe the Senate) at the midterms, Biden can blame Republicans for the recession.

Joe Biden, Hunter and Biden’s brother James must be singing “Damn, it feels good to be a Biden!

Fed Is Losing Billions, Wiping Out Profits That Funded Spending (Agency MBS Prices Falling While Duration And Convexity Soar)

As I told my Chicago, Ohio State and George Mason University finance and real estate students, repeatedly, “Watch out when The Fed begins to tighten monetary policy. It will be a bloodbath for taxpayers.”

Well, here we are. I argue that Biden’ green energy knucklehead policies are driving inflation, or it could be the insane level of Federal spending that Obama economist Larry Summers warned us about, or rising wages (in part due to Federal spending) is to thank for inflation. Or all of the above.

Regardless of the cause, the bond market is enduring its worst selloff in a generation, triggered by high inflation and the aggressive interest-rate hikes that central banks are implementing. Falling bond prices, in turn, mean paper losses on the massive holdings that the Fed and others accumulated during their rescue efforts in recent years.

Rate hikes also involve central banks paying out more interest on the reserves that commercial banks park with them. That’s tipped the Fed into operating losses, creating a hole that may ultimately require the Treasury Department to fill via debt sales. The UK Treasury is already preparing to make up a loss at the Bank of England.

The Reserve balance has crashed into negative territory.

And Fed losses are skyrocketing.

Agency MBS prices are up today, but are down since August 2022. But risk measures duration and convexity are zooming upwards.

Bloomberg Recession Probability Is 100% Over Next 12 Months, Conference Board Registers Third Straight Negative Read (Here Comes The Night!)

To quote Van Morrison, “Here comes the night.”

Bloomberg’s recession probability over next 12 months is … 100%.

And how about the Conference Board’s Leading index of 10 economic indicators YoY? Third negative read ALWAYS followed by recession.

The Federal Reserve may be forced to pivot. This may be one reason why the Dow is up 565 points today (+1.86%) as recession and pain become ever more likely.

Look at commercial banks deposits. Wonder why liquidity is drying up?

And to paraphrase Van Morrison, Biden/Pelosi/Schumer please go.

And to paraphrase Van Morrison, Biden/Pelosi/Schumer please go. Powell too.

Need to hear Them’s “Gloria” for the weekend.

This One’s Going To Hurt You! US Dollar Continues To Rise, Hurting Investors (US Dollar UP 25.2% With Bidenflation)

This one’s going to hurt you for a long, long time.

Over the past year, the dollar has been on a tear: The U.S. Dollar Index, which measures the dollar’s strength against a basket of foreign currencies, is up 18%. And up 25.2% under 80-year old US President Joe Biden (well, he will be 80 in November).

For tourists, a strong dollar is great news. It means you get more for your money abroad.

But for investors, a beefed-up buck is decidedly bad news.

When the dollar strengthens, that means foreign revenues are going to translate into fewer dollars. Those earnings are going to come in lower and any overseas investment you own is going to hurt you in a rising dollar environment.

Double! US Diesel Prices Rising Again (UP 100% Under Biden) As Inventories Have Shrunk By -37.5% (And You Wonder Why Inflation Is Soaring?)

Like in the Sean Connery movie “The Hill,” we are seeing US diesel prices doubling.

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.

And you wonder why inflation is at 40 year highs?

The Perils Of Fed Tightening 3: US Taxpayers Getting Scaled By Fed Losses Thanks To Fed Tightening

The Federal Reserve, in their war on inflation (partly caused by excessive monetary stimulus since late 2008 under Nobel Laureate Ben “The Mad Money Printer” Bernanke) has led to large losses on their Treasury holdings as rates rise. The bill, of course, goes to Janet Yellen and The US Treasury. Ultimately, that burden is paid-for by US taxpayers.

Instead of “Blinded By The Light,” we are getting scalded by Biden’s policies and The Fed.

At least the top 1% made a fortune off of “Big Ben’s” printing press.

Now its time to pay the piper!

Living In An Inverted (Bond) World! 19 Nations Have Negative 10yr-2yr Yield Curves (As US Housing Inventory For Sale In SOARING Out West)

We are living in an inverted (bond) world!

19 nations now have inverted 10yr-2yr yield curves.

And housing inventory for sale growth is soaring out West and in Tennessee?

At least Ohio is seeing a modest increase in housing inventory for sale.

On a parting note (before I watch the Ohio State Buckeyes annihilate the Rutgers Scarlet Knights tomorrow at 3pm EST, reverse repos parked overnight at The Fed just hit an all-time high. Apparently, banks don’t believe Janet Yellen’s inflation is transitory mumbo-jumbo.

Fire! European Stock Valuations Lowest Since 2012 On Strong King Dollar, Atlanta Fed GDPNow Q3 Drops To 0.271% (Bostic Calls For 1.25 MORE Rate Increase)

Fire! European stock valuations have dropped to lowest since 2012.

The US Dollar index is soaring (not helping Europe) as The Federal Reserve tightens monetary policy to combat the inflation fire.

Meanwhile, the Atlanta Fed’s GDPNow real-time forecast for Q3 is at least above zero (barely) at 0.271%.

Fed officials continued to hammer home the central bank’s hawkish outlook, with Atlanta President Raphael Bostic saying he backs raising rates by a further 1.25 percentage points by the end of this year. Meanwhile, the People’s Bank of China said it will accelerate usage of targeted loans.

Bond volatility is increasing.

The US Treasury 10-year yield was down -20 basis points yesterday and is up +10 basis points today. This is the Fed’s Rollercoaster effect.

The Dow is down another 400 points today as The Fed’s Sugar Rush is ending. Perhaps The Federal Reserve main building in Washington DC should be renamed “The Sugar Shack.”

In related news, apparently the Biden Administration is going to replace Treasury Secretary Janet Yellen with … anybody else??

Meanwhile I will have a bottle of wine to kill the pain of inflation and Fed tightening.

When Temporary Seems Permanent: Overnight Repos Hit All-time High, $2.366 TRILLION (MOVE Bond Volatility Index Near Covid Recession High)

When temporary seems permanent?

Banks get to park money at The Federal Reserve overnight in the form of repurchase agreements (or repos). But as inflation is raging in the US, banks have parked a record $2.366 TRILLION at The Federal Reserve.

The MOVE bond volatility index keeps rising as inflation roars and The Fed fights back,

The US bond volatility index is now almost as high as during the Covid Crisis and approaching financial crisis levels.