US Core Inflation Jumps By Most Since 1991 (While Rent Inflation Fell To Lowest Rate Since 2015)

Well, The Federal Reserve finally got its wish: INFLATION!

U.S. consumer prices rose in July by more than expected on a bounce in auto and apparel costs. The so-called core figure, which excludes volatile food and fuel costs, climbed 0.6% from the prior month, the biggest surge in almost three decades, according to a Labor Department report Wednesday. The headline figure also increased 0.6%, following the same gain in June. The trend reflects a rebound in demand for goods and services from the depths of the pandemic-induced lockdowns earlier this year.

But on a YoY basis, core inflation rose only 1.6%.

But rent inflation fell to 2.8% YoY, the lowest since 2015.

Market Value Of World’s Equities Above Dollar Value Of Global Economy (When Central Bank QE Velocity Approaches Zero)

Well, ain’t this a kick in the head.

The market value of the world’s equities has risen above the dollar value of the global economy, which some investors say is a sign of overheated markets. Total stock-market capitalization reached $87.83 trillion on Sunday, compared with the 2019 gross domestic product of all countries at $87.75 trillion. With this, stock values have returned to where they were earlier this year, even though the Covid-19 pandemic has dragged many countries into recession.

This is not that surprising given that US GDP never really recovered from the housing bubble / financial crisis Q4 2007 – Q2 2009. And all the money printed via QE only created massive asset bubbles, not a vibrant economy.

Neel Kashkari doubles down on a zero velocity strategy.

Good News! Jobless Claims Fall More Than Expected As Mortgage Rates Fall To All-time Lows

(Bloomberg) U.S. applications for unemployment benefits fell more than expected last week to the lowest since the pandemic started, in a broad decline across nearly all states, suggesting the labor market is improving.

Initial jobless claims in regular state programs fell by 249,000 to 1.19 million in the week ended Aug. 1, Labor Department data showed Thursday. The median forecast in a Bloomberg survey of economists called for 1.4 million.

U.S. unemployment claims fall more than estimated ahead of July jobs report

Mortgages rates have found another record low, potentially boosting a housing market that has been a bright spot for a shaky U.S. economy.

The average for a 30-year fixed loan fell to 2.88%, the lowest in nearly 50 years of record keeping by Freddie Mac. It was the eighth time since the coronavirus started roiling financial markets that rates have dropped to a new low.

The previous record was 2.98% last month, when borrowing costs fell below 3% for the first time. The lower rates are “giving potential buyers more purchasing power and strengthening demand,” Sam Khater, chief economist at Freddie Mac, said in a statement on Thursday.

Mortgage borrowing costs have plunged in 2020

The record-low rates have propped up home prices and fueled a housing recovery in an economy battered by the pandemic.

This is definitely helping affordability,” said Tendayi Kapfidze, chief economist at LendingTree. “It’s also attracting a lot of people into the market who otherwise might not have been so quick to act.”

But if Covid cases retreat, will The Fed stop printing?

Dr. Fauci: “OK Mr. Soros, I will combat the good news with a statement that says the virus may never be eradicated and a third wave is just around the corner.”

Negative Rates Next? Gold Surges As US Dollar Tanks, Fed Remains Silent (Bizarro World)

The Federal Reserve Open Market Committee (FOMC) decided to do nothing, except say that ZIRP (zero interest rate policies) are going to continue for a long time. And that MORE fiscal stimulus is needed. As long as Mayors and Governors continue their economic lockdown policies, more monetary and fiscal stimulus will be needed.

Where does The Fed go from here (given that Covid-19 seems to be growing still)? The implied Fed policy rate looks to be negative by 2021.

Gold is surging as investors figure out that our fiat currency cannot support the reckless spending in Washington DC.

Let’s see what Fed Chair Jay Powell (aka, Thurston Powell III) comes up with. Hint: Fed buying stocks and going to negative rates.

US Dollar Forms Death Cross, Inverted From Gold Spot (Bond Bulls Still Stampeding)

The U.S. dollar’s decline may be just getting started, according to a widely-watched technical indicator. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its major peers, formed a death cross pattern on Friday, with its 50-day moving average dropping below its 200-day one. The gauge has tumbled more than 3% this month amid concern over the spread of the coronavirus in the U.S. and wrangling between lawmakers over the next stimulus package.

But against gold …

(Bloomberg) — Bond investors keep getting bombarded with fresh reasons to stay bullish after another record-breaking week in Treasuries.

As the five-year yield plumbs near all-time lows, the 10-year benchmark is again testing levels notched in the depths of the pandemic despair. Leveraged-funds keep pulling back their bearish bets to the lowest since early 2018.

With U.S-China tensions raging again, Wall Street is telling clients to stay constructive and investors are finding it tough to wager against securities they deem the most overvalued in decades.

And Fed policies are likely to keep Treasuries yielding less than the inflation rate.

Why does this remind me of Kevin’s Famous Chili?

Natural Born Crisis Killers? TED Spread Down To 13.29 While Gold Soars To $1,900

There is no doubt that The Federal Reserve panicked over Covid-19 by setting interest rates near zero and printed money like there is no tomorrow. The TED spread is now at 13.92, about where it was pre-Covid breakout.

(Wikipedia) The TED spread is an indicator of perceived credit risk in the general economy, since T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders, therefore, demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases. Boudt, Paulus, and Rosenthal show that a TED spread above 48 basis points is indicative of economic crisis.

Well, the TED 3-month spread is only 13.29 which is far below the 48 basis point spread indicative of an economic crisis.

But The Fed hasn’t killed gold speculation. In fact, The Fed is likely scaring everyone into buying gold and silver.

Happy TED day!

Atlanta Fed GDPNow Q2 At -34.7% QoQ, M2 Stock Soaring, M2 Velocity Likely To Be A Disaster (Fed Buying German Automaker Bonds)

More like Constitution Avenue Freeze Out.

US Q2 GDP will be released on July 30th. At that time, M2 Money Velocity will be officially released (Nominal GDP / M2 Money Stock).

Let’s see where are today. The Federal Reserve is printing money at a rate of 25% YoY. Meanwhile, the Atlanta Fed GDPNow forecast for Q2 is -34.7% QoQ. This will be the WORST M2 velocity is history.

Even worse, the 10 year Treasury yield is near its all time low (orange box). Meaning that mortgage rates are near their all-time low as well.

Meanwhile, The Federal Reserve is merrily purchasing corporate bonds … with the largest two of the top four purchases being German automakers, Volkswagen and Daimler (Mercedes). Japanese auto maker Toyota is at 6th and German automaker BMW is at 8th.

Negative M2 velocity and The Fed buying foreign bonds? Add in Joe Biden’s Federal spending wish list of over $10 TRILLION …

What you say, Janet (Yellen) darling?

US Existing Home Sales Bounce Back In June (+20.7% MoM) While FHFA Home Price Index Declines -0.3% MoM In May

Weird, whacky stuff in housing news.

Let’s start with the FHFA’s home price index for May. It fell -0.3% MoM.

Existing home sales rose 20.7% MoM in June after falling -9.7% in May. Nice rebound!

Inventories of existing homes for sale remains low. Median price for existing home sales rose 3.5% MoM in June.

If existing home sales continue their recovery, sweet dreams are made of this.

Cleanup On Constitution Avenue? A $1 Trillion Glut of Bonds Is Dwarfing Central-Bank Demand

The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead. The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in many countries, according to Bloomberg calculations. By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.

The Treasuries market alone could see more than $1 trillion in net bond supply in the six months through Dec. 31, and strategists are predicting sales will comprise fewer bills and more longer-dated notes.

So far, domestic buyers have supported U.S. debt. But some of the market’s most loyal investors appear to be stepping away just when they’re needed most. Pension funds typically buy Treasuries to match their long-term liabilities, yet a proxy for their purchases of longer-maturity bonds — holdings of so-called stripped Treasuries — has fallen consistently since February.

With Senator Schumer (D-NY), Nancy Pelosi (D-CA) and Presidential hopeful Joe Biden (D-DE) all screaming for trillions in spending, this will only get worse.

Wipe out?

One Central Bank Is NOT Like The Others (Fed Erupts With Asset Purchases, M2 Money Grows At 24.9% YoY)

Yes, there are many central banks around the globe. But the US Federal Reserve is leading the way with a staggering 24.9% YoY growth in M2 Money Stock. M2 growth barely exceeded 10% during the US financial crisis and Great Recession.

In terms of Treasury holdings, the Fed is beating all other major central banks.