Fed Reverse Repo Usage Rises to Record for Fourth Straight Day As Turkish Lira Volatility Hits All-time High And US Current Account Balances Rise To 2006 Levels

(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.

Mele Kalikimaka!

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

China Contagion (Not Wuhan Virus, But Real Estate), Kaisa Down 13%, Evergrande Down 4.32%, Shimao Down 6.40%, Chinese Estates Down 30.42%

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.

Transitory? Temporary? What Happens When The COVID Stimulus Is Removed? GameStop, Bitcoin, Ethereum, Gold And M2 Money

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.

What’s Wrong With This Picture? Fed Reverse Repo Usage Continues To Grow Along With Fed’s Balance Sheet (Reverse Repos At All-time High)

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.

So will Powell get back in the saddle again and actually do his job?

Turkish Lira Freefall Accelerates Despite Central Bank Intervention (Turkey’s 10Y Yield At 21.50%, Very Venezuela-Like With Inflation At 21.31%)

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???

I love this ZeroHedge headline: “Turkey Halts All Stock Trading As Currency Disintegrates, Central Bank Powerless To Halt Collapse.” Yes, it would help if Turkey’s Central Bank was RAISING rates rather than cutting them in order to stem the tide of inflation. It is like Turkey’s Central Bank is steering their ship of state INTO an F5 tornado.

Then again, US Fed chair Powell seems to be taking his time in cooling US inflation by … doing nothing.

Here is Turkish President Erdogan meeting with Venezuelan President Nicholas Maduro. “Together we can destroy both economies!”

Freddie Mac Mortgage Rate Rises To 3.12%, REAL Mortgage Rate At -3.689% (REAL Home Price Growth At 14.12% While REAL Wage Growth At -1.94%)

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.

Let’s see if it pays off.

Fire! U.S. November Housing Starts RISE 11.8% MoM (Powell Is The God Of Hellfire!)

Fed Chair Jerome Powell is the God of Hellfire!

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!

Powell Says Foreign Buyers Distorting Yield-Curve Readings (Gold Rises On Powell Head Fake As US Dollar Declines)

Like John Belushi from The Blues Brothers, Fed Chair Jerome Powell is saying that the markets lackluster response in terms of bond yields to his “hawkish” announcement yesterday “isn’t his fault.”

(Bloomberg) Federal Reserve boss Jerome Powell appears unperturbed by the fact that longer-term bond yields remain low even as officials lay the ground work for tighter policy and inflation is ticking higher.

While the drop in longer-term rates may be viewed by some as indicative of where so-called terminal rates for U.S. policy might ultimately lie, Powell on Wednesday emphasized the impact of ultra-low yields in places like Japan and Germany in helping to keep them anchored.

“A lot of things go into the long rates and the place I would start is just look at global sovereign yields around the world,” Powell said at a news conference following the Fed’s final scheduled policy meeting for the year, which saw officials ramp up the pace of stimulus withdrawal and boost predictions for rate hikes in 2022. The Fed Chair noted that rates on Japanese and German government bonds are “so much lower” than those on Treasuries and that with currency hedging taken into account American debt provides investors with a higher yield. “I’m not troubled by where the long bond is,” he said.

This stands as something of a contrast to the view expressed back in 2005 by one of Powell’s predecessors. Back then, Fed chief Alan Greenspan described a decline in long-term bond yields even in the face of six policy rate increases as a “conundrum.”

Or it could be that no one REALLY believes that Central Banks will ever cut interest rates, despite surging inflation.

The US Treasury 10-year yield dropped 7 basis points overnight and remains just south of 1.50%. The Eurozone remains below 1% (with Germany at -0.358% and France at -0.009% at the 10-year mark). Japan is at 0.039%. This is what Powell means by low global rates keeping US long-term rates down.

The 10-year Treasury term premium (measured before Powell’s head fake on raising rates) has returned to pre-Biden levels.

Meanwhile, global equities futures are up across the board (well, except for Mexico).

Gold rose on Powell’s “Tomorrow” talk while the US Dollar fell.

The Fed could have raised their target rate if they were REALLY interested in cooling inflation. The Taylor Rule remains at 14.94% while The Fed is stalled at 0.25%. Even if you don’t like the Taylor Rule, it still highlights how ridiculous Fed Stimulypto is.

Well, we do have a government-propelled economic recovery, but at a cost of declining REAL wages thanks to the highest inflation rate in 40 years.

Hold That Tiger! Fed Keeps Rate At 0.25% But Doubles Pace Of Tapering To $30 Billion A Month (3 Rates Hikes Forecast For 2022, 3 In 2023) Dow Rises Over 300 Points

The Fed’s new theme song is “Hold That Tiger” meaning that despite soaring inflation rates, The Fed kept their target rate at 0.25%. Way to really pull a Volcker and raise rates to choke off inflation. … NOT!

However, The Fed doubled the pace of tapering to $30 billion a month. Median forecast shows three rate hikes in 2022, three in 2023.

The reaction? The Dow rose 363 points as of 3:36pm EST and the 10-year Treasury yield rose a measly 1.9 bps as markets celebrate The Fed DOING NOTHING TO CURB INFLATION.

Here is Fed Chair Jerome Powell singing “Tomorrow” from the musical Annie. Since Powell and The Gang love to kick the can down the road.