Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
We know several things about the yield curve. First, it goes negative before recessions. Second, it is related to the inverse of The Fed’s target rate (blue line).
How about the US mortgage rate? Generally, US Mortgage rates are inverse to the 10Y-3M yield curve, but lately the US mortgage rate (pink circle) have declined with the 10Y-3M yield curve.
The yield curve does forecast recessions, but is unreliable in forecasting mortgage rate movements.
The slowing US economy has a silver lining: Treasury and mortgage rates are declining. And the is spurring faster mortgage prepayments.
Mortgage applications increased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending August 2, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 6.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6 percent compared with the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.3 percent compared with the previous week and was 11 percent lower than the same week one year ago.
The Refinance Index increased 16 percent from the previous week and was 59 percent higher than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.55 percent from 6.82 percent, with points decreasing to 0.58 from 0.62 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The deciine in rates led to an increase in MBS convexity.
Watch out! Mortgage convexity continues to rise!
Meanwhile, Kamala “The Kommie” Harris laughs.
The Fed’s theme song: Keep on printing!
Look at this chart of the S&P 500 index against M2 Money stock.
And this chart of Case-Shiller home prices against M2 Money.
Bottom line? The Fed has to keep on printing money. Otherwise, the US economy will collapse like a cheap building.
Here is Fed Chair Jerome Powell creating assets bubbles.
Bidenomics (actually Biden/Harrisnomics) is all about huge payoffs to large, powerful donors. A good example is The Chips Act, intended to bring chip manufacturing back to the US from Taiwan, China, etc. Biden/Harris doled out $8.5 BILLION to Intel … which just laid off 15% of it’s labor force or 15k workers.
Intel has suspended dividends and its stock price has crashed from above $45 in March now down to $21.48, a 53% loss in 4 months.
Bear in mind that a Harris Presidency would be more of the same wasteful, Communist-style centralized economic (mis)management. Perhaps even worse.
And on that dreadful jobs report on Friday, the VIX fear index soared (white line) to its highest level since March 2023.
The US commercial real estate sector is dying, like an episode of The Twillight Zone.
Example? This is 135 W 50th St in NYC. In 2006, this building sold for $332 million. Yesterday it sold for $8.5 million at auction. A 97% discount!
It is mostly smaller banks with large CRE exposure.
Here is Biden/Harrisnomics in one chart! Treasury (interest) payments are growing faster than other government outlays and a larger than the entire Defense outlays. Leading outlays include Medicare/Medicaid and Social Security.
Here is Treasury Secretary Janet Yellen symbolically gorging on a foot-long sub. No one spends like unelected government bureaucrats!
Sigh. We got jolted!
And yet, the same data rigging observed last month took place once again, because a quick look at the breakdown shows that while private jobs saw another broad drop in openings across private sectors…
… this was almost fully offset by the relentless surge in government job openings.
Yes, while May was indeed revised lower, June saw another bizarre jump in government job openings, surging to a near record 1.094 million, driven by a 118K spike in State and Local job openings.
Putting it all together, while private sector job openings plunged to a level seen back in late 2018, government job openings are just shy of a record high!
Ignoring the data manipulation, in the context of the broader jobs report, in June the number of job openings was 1.373 million more than the number of unemployed workers (which the BLS reported was 6.811 million), down from last month’s 1.581 million and the lowest since the summer of 2021.
Said otherwise, in April the number of job openings to unemployed dropped to just 1.24, a sharp slide from the March print of 1.30, the lowest level since June 2021 and now officially back to pre-covid levels.
But wait there’s more: confirming that if one ignores the clearly manipulated jump in government job openings (“quick, let’s hire a ton more TSA agents and deep state apparatchiks to make it seems that Kamalanomics is working”), a quick look at the number of quits – an indicator closely associated with labor market strength as it shows workers are confident they can find a better wage elsewhere – showed a plunge in June, dropping by 121K, the most since July 2023, to just 3.282 million, the lowest since August 2020!
Finally, the piece de resistance was the number of actual hires, which in June also tumbled to just 5341, down a massive 314K in one month, the biggest monthly drop since February 2023…
… dragging the total to just 5.3 million, the lowest level since the depts of the covid lockdowns.
Finally, no matter what the “data” shows, let’s not forget that it is all just estimated, and it is safe to say that the real number of job openings remains still far lower since half of it – or some 70% to be specific – is guesswork. As the BLS itself admits, while the response rate to most of its various labor (and other) surveys has collapsed in recent years, nothing is as bad as the JOLTS report where the actual response rate remains near a record low 33%
In other words, more than two thirds, or 70% of the final number of job openings, is estimated!
And at a time when it is critical for Biden, pardon Kamala, to still maintain the illusion that at least the labor market remains strong when everything else in the economy is crashing and burning, we’ll let readers decide if the near record number of government job openings at a time when hiring and quitting are both crashing, is an accurate reflection of a strong labor market, or is merely a reflection of a debt-funded deep state gone full tilt. We’ll know the answer on Friday.
Up until 2022, the US Treasury yield curve behaved normally. In fact, as late as May 6th, 2022, the US Treasury 10Y-3M yield curve was at +227 basis points. Denote by the orange line in the following chart. That date corresponded with peak Fed balance sheet.
Then the massive spending by Biden/Harris/Congress hit the fan and inflation soared. The Fed counter attacked by raising rates and began scaling back their balance sheet. The 10Y-3M yield curve has been negative ever since.
What’s it going to be? Mortgage rate increases or balance sheet (MBS) reductions?
Since the Covid outbreak in early 2020, The Fed went wild with rate cuts and massive and unpredented balance sheet expansion.
Let’s look at The Fed’s puchase of agency MBS and mortgage rates. From 2020 2022, The Fed continued to buy agency MBS. But in 2022, all hell broke loose as The Fed went crazy RAISING rates, but slowly began unwinding their balance sheet. The result? Mortgage rates began to climb. In fact, the US conforming mortgage rate for 30 years has risen 102% since early 2022. The Fed is only slowing unwinding their MBS holdings.
Despite the struggles in the residential housing market, the COMMERCIAL mortgage market is a trainwreck.
What will The Fed do?? After all, nothing from nothing beats nothing.
This scene from the film “McCabe and Mrs. Miller” sums up our political plight quite nicley. Politicians spend like crazy to stay in power (Biden/Harris) are excellent examples). Politicians promises endless money, then shoot the economy. The US is broke and relies on printing money and boowed funds to stay afloat. Harris wants to raise taxes on everyone to fund her plans like even MORE emphasis of failed green energy schemes and endless foreign wars. I doubt if Harris could defend her spending plans in light of the US already $35 TRILLION in debt.
Even more worrisome if thev fact that DC politicians have promised entitlements (Social Security, Medicare, etc. totalling $217.63 Trillion. Or 623% higher than the rapidly increasing national debt.
Biden/Harris raised thr national debt by 25% in less than 4 years. And Harris wants to increase spending! Harris wants illegal immigrants put on Social Security and Medicare, further bankrupting those entitlement programs.
Let’s see Harris explain her indefensible budget (like raising taxes and not hurting economic growth).
Confounded Interest - Anthony B. Sanders 
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