The Case-Shiller National home price index “slowed” to 18.81% YoY in November as The Fed continues its monetary stimulypto. Notice that The Fed is easing even when there is limited inventory available. Result? Hideous home price inflation.
Which metro area is growing the fastest, making housing even more unaffordable for renters? Phoenix AZ is growing at a 32.2% YoY clip while Washington DC is the slowest growing metro area at 11.1% YoY. The second faster growing metro area in Tampa FLA.
Phoenix AZ is growing at the fastest rate in the nation as The Fed still has its monetary stimulus at FULL SPEED AHEAD.
The stock market has never started a year falling as quickly as it is now.
The S&P 500 has dropped 11% — heading into correction territory — in the first 16 trading days of 2022 in its worst-ever start to a year, according to Bloomberg data that goes back over nine decades.
The downturn comes as traders brace for the Federal Reserve to tighten monetary policy and a surge in U.S. Treasury yields weighs on the outlook for stocks. A host of technical signals also suggest that more volatility may be coming up ahead.
“The Fed pulled the punchbowl, liquidity has evaporated, and the S&P and NDX broke below their 200dma for the first time since the Covid outbreak,” said Rich Ross, technical strategist at Evercore ISI.
A bear market down to the 3,800 level is likely for the S&P 500, Ross said, given “the dramatic erosion of the technical backdrop, in conjunction with the highest inflation, tightest policy, and most uncertain political and geopolitical condition in years” — not to mention its historic rally since 2020.
The Shiller CAPE ratio is extremely high …. not surprising how much air The Fed pumped into the market tires.
Is this the bubble burst many were expecting once The Federal Reserve starting raising rates?
Well, if today’s market opening is an indication, the answer is yes. The NASDAQ Composite Index is down 1.36% and West Texas Intermediate Crude Oil futures prices are down 2%.
The S&P 500 index is down over 10% since January 3rd.
Drawdown is taking place.
But if you think the US equities are deflating, look at European equities. The Euro Stoxx 50 index is down 4.04%.
COVID and its omicron variant (as well as government reactions such as mask and vaccination mandates) are wreaking havoc on the global economy, but particularly in the USA where the Federal government dumped trillions of dollars in fiscal stimulus along with The Federal Reserve’s monetary stimulus into an economy not prepared for it. The result? INFLATION.
But global supply chains are nearing a turning point that’s set to help determine whether logistics headwinds abate soon or keep restraining the global economy and prop up inflation well into 2022, according to several new barometers of the strains.
Just a week before the start of Lunar New Year, the holiday celebrated in China and across Asia that coincides with a peak shipping season, economists from Wall Street to the U.S. central bank are unveiling a string of models in the hope of detecting the first signs of relief in global commerce.
From Europe to the U.S. and China, production and transportation have stayed bogged down in the early days of 2022 by labor and parts shortages, in part because of the fast-spreading omicron variant.
Among the big unknowns: whether solid demand from consumers and businesses will start to loosen up, allowing economies to finally see some easing in supply bottlenecks. Fresh indicators from the private and official sectors are in high demand because there’s still much uncertainty in industries overlooked by mainstream economics before the pandemic.
Once the realm of trade and industrial organization experts, supply chains “have shifted to center stage as a critical driver of sky-high inflation and a stumbling block to the recovery,” Bloomberg Chief Economist Tom Orlik said. “The profusion of new indices and trackers won’t unblock the arteries of the global economy any quicker. They should give policy makers and investors a better idea of how fast — or slowly — we are getting back to normal.”
The Bloomberg Economics Index
Bloomberg Economics’ latest supply constraint index for the U.S. shows that shortages have trended modestly lower for six months. Even so, strains remain elevated, and the wave of worker absenteeism is adding to the problems at the start of 2022.
Port traffic tracked by Bloomberg shows container congestion continues to rankle the U.S. supply chain from Charleston, South Carolina, to the West Coast. The tally of ships queuing for the neighboring gateways of Los Angeles and Long Beach, California, continued to extend into Mexican waters, totaling 111 vessels late Sunday, nearly double the amount in July.
Source: Bloomberg, IHS Markit, Genscape
Note: Data counts the total number of container ships combined in port and in offshore anchorage area.
Kuehne+Nagel’s Disruption Indicator
Kuehne+Nagel International AG last week launched its Seaexplorer disruptionindicator, which the Swiss logistics company says aims to measure the efficiency of container shipping globally. It shows current disruptions at nine hot spots is hovering near “one of highest levels ever recorded,” with 80% of the problems happening at North American ports.
Flexport’s Guages
Another freight forwarder, San Francisco-based Flexport Inc., last year developed its Post-Covid Indicator to try to pinpoint the shift by American consumers back to purchasing more services and away from pandemic-fueled goods. The latest reading released Jan. 14 “indicates the preference for goods will likely remain elevated during the first quarter of 2022.”
Flexport has a new Logistics Pressure Matrix with a heat map showing demand and logistics trends, and much of those numbers are still flashing yellow or red. Flexport supply chain economist Chris Rogers said in a recent online post that similar grids for Asia and European markets will be part of the research.
The Federal Reserve’s Stress Monitor
Adding their stamp to the burgeoning genre of supply stress indicators were three Ph.D. economists from the Federal Reserve Bank of New York, with the launch its Global Supply Chain Pressure Index. Rolled out earlier this month, it shows that the difficulties, “while still historically high, have peaked and might start to moderate somewhat going forward.” The New York Fed said it plans a follow-up report to quantify the impact of shocks on producer and consumer price inflation.
Morgan Stanley’s Index
Less than a week later came the Morgan Stanley Supply Chain Index. It lined up with the Fed’s view that frictions have probably peaked, though some of improvement ahead will come from a slowdown in the demand for goods.
“Supply disruptions remain a constraint to global trade recovery, but as firms continue to make capacity adjustments to address them, capacity expansion could mitigate these,” Morgan Stanley economists wrote in a report Jan. 12.
Citigroup’s Tool
Citigroup Inc. last week released research that was less optimistic yet complementary to the New York Fed’s work, which Citi said doesn’t factor the role of surging demand as a contributor to the supply disruptions. Sponsored Content The Collaboration Disconnect Atlassian
Co-written by Citi’s global chief economist Nathan Sheets, a former U.S. Treasury undersecretary for international affairs, the bank’s analysis “gives a more complete, and intuitive, picture of the current situation.” While strains may ease in coming months, Citi said, “these supply-chain pressures are likely to be present through the end of 2022 and, probably, into 2023 as well.”
The Keil Institute’s Flows Tracker
In Germany, the Kiel Institute for the World Economy updates twice a month its Trade Indicator, which looks at flows across the U.S., China and Europe. Its latest reading Jan. 20 shows that along the key trading route between Europe and Asia, there are 15% fewer goods moving than there would be under normal times. The last time the gap was that large was in mid-2020, when many economies were reeling from initial lockdowns, Kiel said.
More recently, “the omicron outbreak in China and the Chinese government’s containment attempts through hard lockdowns and plant closures are likely to have a negative impact on Europe in the spring,” says Vincent Stamer, head of the Kiel Trade Indicator, said in a post last week. “This is also supported by the fact that the amount of global goods stuck on container ships recently increased again.”
Baltic Dry Index
The Baltic Dry shipping cost index indicates that costs for shipping materials such as iron ore have decline to where it started under Biden, despite West Texas Crude Oil spot prices begin considerably higher thanks to Biden’s anti-fossil fuel policies.
So as the world comes out of Omicron (and whatever COVID variant rises to take its place), we should see a normalization in the supply chain. And with Intel building a new chip factory in New Albany Ohio (aka, outskirts of Columbus). the supply chain woes will eventually subside.
Then again, there is always the Russia-Ukraine tension that may erupt into a disaster. I suggest that President Biden sent Hunter Biden to Moscow to negotiate on behalf of The Ukraine.
It has been a tough 7 days for Bitcoin, Ethereum and the NASDAQ composite index as The Fed is anticipated to raise their target rate AND engage in quantitative tightening.
While the NASDAQ composite index has been deflating over past 7 days, Bitcoin and Ethereum plunged in recent days. What is going on??
The Russell 2000 value (white) and growth (green) indices are both deflating.
With regards to anticipated Fed rate increases, Fed Funds Futures are signaling almost 4 rate hikes in 2022 and 4 by the February 2023 meeting.
Then we have the massive increase in The Fed’s balance sheet after COVID struck in early 2020. Now, with the S&P 500 skyrocketing (until 7 days ago), why is The Fed buying sooooo much Agency MBS??
Let’s see how The Federal Reserve is going to compete with other central banks when 19 European nations have negative 2-year sovereign yields. Call them the “Nervous 19.” Note that France has the lowest 2Y yield of the big 3 (France -0.664%, Germany -0.593% and Italy -0.092%).
True, The Fed’s reaction to COVID shutdowns was more extreme than the ECB’s reaction.
The ECB’s main refinancing rate is 0% and The Fed’s target rate is 0.25%.
Unlike the US with its 4 expected rate increases, the Eurozone is pricing in only 1 rate increase for 2022 … in October.
The ECB’s monetary policy is as stiff as French President Emmanuel Macron.
The banner headline is … US existing home sales declined 4.6% MoM in December. But that isn’t the interesting news. The interesting news is the mystery of the missing housing inventory. While various pundits told us that inventory would be returning … it isn’t. And the median price of existing home sales is up 14.85% YoY with insane Fed stimulus still in play.
That was December. What will January bring with rising mortgage rates? Freddie Mac’s 30-year commitment rate rose to 3.56% today.
When will housing inventory for sale start to increase? Probably about the same time The Fed ACTUALLY starts raising interest rates and paring back on the monetary stimulus.
Treasury Secretary Janet Yellen is having trouble with the curve (yield curve, that is). It keeps inching up, meaning that Treasury’s cost of debt financing is inching up too.
As Treasury yields keep rising, so does the problem of financing the massive Federal debt load. Here is a chart showing the interest outlays in the Federal budget against the cost of Federal funding at the 10-year and 2-year tenors.
Now, The Fed is predicted to raise their target rate 4 times in 2022 (according to Fed Funds Futures data) and it looks like a whopping 100 basis points (or 1%). Holding the rest of the yield curve constant, this will considerably flatten the 10Y-3M Treasury curve. Resulting in a more expensive refinancing of the Federal Debt load.
If we look at The Fed’s System Open Market Holdings (SOMH), we can see that The Fed’s holdings are primarily Treasuries with non-Treasuries (primarily agency mortgage-backed securities) not maturing (or running off) until 2050.
The majority of The Fed’s COVID expansion was picked-up by The Fed (light blue line).
How about the Treasury Inflation-protected Securities curve? Negative yields across the tenor range.
With Congress trying to spend trillions more (since Build Back Broke failed, Democrats are producing MORE spending legislation with the voting act included, of course), Treasury is going to have progressively more trouble with the (Treasury) curve.
Massive Federal stimulus (both fiscal and monetary) have led to bidding wars among the wealthiest Americans. Despite clamoring for The Fed to increase rates and speed-up the shrinking of The Fed’s balance sheet, nothing has happened … yet.
(Bloomberg) — Home buyers willing to spend almost a $1 million are competing the most for a piece of the red-hot U.S. housing market.
Homes priced between $800,000 and $1 million saw the highest rate of bidding wars at 64.6%, followed by 62% for homes between $1 million to $1.5 million and 61.7% for homes above $1.5 million, according to December data from Redfin Corp.
“Buyers should anticipate that they may not win a house until their sixth or seventh bid,” Candace Evans, a Redfin team manager in New York, said in a statement. “If you’re the type of person who falls in love with a house, this is not your market.”
Salt Lake City had the highest bidding-war rate of 37 U.S. metropolitan areas analyzed, with 74% of offers facing competition in December, the firm said. Tucson had a 73.1% bidding-war rate and followed by 71.1% for San Diego.
Prospective buyers are competing for homes as relatively cheap mortgage rates and a proliferation of remote-working opportunities in the wake of the Covid-19 pandemic boost demand for homes in smaller cities. The number of available homes in several of the hottest markets continue to shrink.
Nearly 60% of home offers written by Redfin agents across the U.S. faced competing bids in December, the firm said. It was the lowest rate in 12 months but an increase from 54% in December 2020 as pandemic-driven demand for housing remains strong.
Vacation homes, which are often pricey and have increased in popularity due to Covid-19, may have contributed to bidding wars in the high-end market, Redfin said. Townhouses had a bidding-war rate of 62% followed by 61.3% for single-family homes, the firm said.
Now its a race against the clock as potential home buyers try to beat Powell and the Gang as they raise mortgages rates.
Yes, Federal stimulus has made the top 1% increase their share of total net worth that includes $800,000+ homes.
Confounded Interest 