President-elect Joe Biden is scaring the world to death with his $11 trillion spending fantasy coupled with his $2 trillion Covid stimulus package. And The Federal Reserve has a lot of printing to do to pay for Biden’s spending fantasies (that Speaker Pelosi will undoubtedly approve). All has led to US inflation expectations to rise to 2.11%.
Bitcoin has finally backed-off its meteoric rise just as gold has backed-off its meteoric rise back in July.
Bitcoin rose with Fed money printing but backed-off as money printing slowed. Note: The rapid rise in money printing was pre-Biden and largely due to Covid and government shutdowns.
Bloomberg Galaxy was down 7.5% on Friday while Bitcoin is down slightly today. ZCash is the big loser today with Monero as the only gainer.
But with Biden’s prodigious appetite for spending other people’s money, we can see fear in the eyes of taxpayers.
President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator (Mark Calabria), a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.
One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations.
Well, there are only so many options to increase affordable housing that are in the realm of reason: 1) increase loan-to-value ratios on purchase (insured mortgages) and 2) lower the credit score required. Fannie and Freddie already have a sizeable affordable housing mission. so short of shutting down Fannie and Freddie, and expanding the FHA (aka, SUPER HUD), Fannie and Freddie may be cajoled into expanding their affordable housing mission.
After the housing market crash (and ensuring financial crisis), lenders and government insurance companies reduced the mortgage originations by low credit score borrowers. Yet home prices started to grow again despite the lack of originations by low credit score borrowers. In fact, the FHFA purchase only home price index YoY is almost back to the housing bubble peak of 2005.
Home price growth corresponds to changes in The Fed’s balance sheet, particularly in surges in the balance sheet (QE3, Covid).
It’s also an historic imbalance of housing supply and demand, exacerbated by low interest rates helped by The Federal Reserve’s policies.
Granted, the demand is driven by historically low interest rates, but it’s also driven by demographics, as a large number of Millennials are reaching prime home buying age. (Thanks to Rick Sharga!)
Wharton’s Susan Wachter is likely the replacement for Cato’s Mark Calabria to be the US housing finance Mandarin.
Today’s Covid-19 impacted jobs report was lousy. The economy lost 140k jobs. The good news is that the unemployment rate remained at 6.7%.
Another piece of good information is that average hourly earnings YoY rose to 5.1% YoY in December from 4.4% in November. The bad news is that home prices (Case-Shiller 20) rose at almost 8% YoY.
Venezuela currently has an inflation rate of almost 2,500 percent, according to Steve Hanke. This corresponds to Bloomberg’s Cafe con Leche index of the cost of a cup of coffee with milk (or espresso with scalding milk) which is now 1.767 MILLION Bolivars in Caracas Venezuela (or 5,790% for the last 12 months).
In 2017, with the bolivar in freefall, Maduro vowed that the nation would create a cryptocurrency called the Petro, backed by reserves of oil, gas, gold and diamonds. The Petro launched in 2018.
The Washington Post economic reporter Matt O’Brien said that “The petro might be the most obviously horrible investment ever… The petro is about creating something useless – that’s why only foreigners can buy them, but only Venezuelans can spend them“.
Which brings me to non-Venezuelan cryptocurrencies or “electronic tulip bulbs.” Like the tulip bulb craze that swept Holland in the 1600s, cryptocurrencies are a highly speculative investment. Take a look at Bitwise, a cryptocurrency fund that trades at 197.392% Fund Percent Premium. Sounds more like Pennywise, the clown from Stephen King’s “It” franchise. It fell from $139 on 12/16/2020 to $60.39 on 12/31/2020. That is a quite a loss.
Bitcoin, for example, experienced a flash crash, but has rebounded.
But while Bitcoin is down, Ethereum is way up.
Cryptocurrencies have a place for processing, for example, financial transactions. Or oil transactions like Venezuela is trying to do. And if you want to play the volatility game, cryptos may be your cup of tea … or oil.
And the gift gets better with pending home sales at 16% YoY.
The pending home sales YoY are not included in the Atlanta Fed GDPNow forecast for Q4, but housing starts, existing home sales and new home sales are included.
US home prices, according the S&P CoreLogic Case-Shiller US National Home Price Index, rose 8.41% YoY in October.
My old home town of Phoenix AZ is growing at 12.7% YoY. The slowest growing city? New York City at 6% YoY.
I am still trying to recover from pneumonia due to Covid-19 in one of the economic shutdown states, Virginia.
Speaking of Covid, The Federal Reserve responded to Covid with expanding their balance sheet … again … helping to drive the 30 year mortgage rate to near all-time lows.
