Slipping Into Darkness! Bidenflation And Fed’s Reaction Causing Social Security And Pension Funds To Get Clobbered (Mortgage Rates Keep Climbing)

US President Biden went green and signed executive orders on his first day to limit oil and natural gas exploration of Federal lands and offshore (also, killed the Keystone Pipeline), helping to drive up energy prices and food prices. These orders begat inflation (also caused by the massive Covid relief by the Federal government). The highest inflation in 40 years begat The Federal Reserve signalling a tightening of Fed monetary policy … to fight the problem caused by The Fed in the first place … too much monetary stimulus for too long. Fiscal and monetary fanaticism and ignorance is forever busy and needs feeding

There was an interesting article on MarketWatch entitled “Bond rout exposes Social Security’s insanity.” The headline was “Every dollar of yours that’s invested in the Social Security trust fund is invested in low-yielding government bonds.”

Yes, another disastrous consequence of The Fed’s lax monetary policy since 2008, helping to push Treasury yields extremely low. And REAL Treasury yields into negative territory.

But here we sit today with The Fed threatening to trim their balance sheet and raise rates … to combat the inflation they helped create in the first place. Now we have the 10-year Treasury Note price falling like a paralyzed falcon with expected hate hikes going above rate hikes by February 2023 (based on Fed Funds Futures prices).

Most pension funds also invest heaving in US Treasuries, along with agency Mortgage-backed Securities (AgencyMBS).

Plus we have the Treasury curve slipping into darkness.

Speaking of “Slipping Into Darkness,” mortgage rates are soaring.

Meanwhile, Biden, Fed economists and Congress are merrily partying at some DC nightclub.

What is hip? NOT Biden, Pelosi, Schumer or Powell.

The Biden Inflation Scorecard! House Price Growth UP 69%, Food UP 58%, Gasoline UP 72%, Diesel Fuel UP 154%, Fed Bal Sheet UP 21% (Mortgage Rates UP 83.3%)

Under President Biden’s Reign of Error, inflation is the highest in 40 years. But Powell and The Fed are still overstimulating the economy, and Congress is contributing to the inflation disaster with short-sighted political policies and spending (flooding the economy with stimulus spending helping to drive up prices). Even Democrat US Senator Elizabeth Warren gets it.

Here is Biden’s inflation scorecard in one chart. Under Inflation Joe, foodstuffs are up 58%, gasoline is up 72%, diesel fuel is up 154%, and green energy element Lithium is up 645% (no wonder electric car manufacturer Telsa is raising their prices 10%). Of course, The Federal Reserve keeps on expanding its balance sheet, UP 50.3% under Inflation Joe.

House price growth is up 69% and the 30-year mortgage rate is UP 83.3% and currently is at 5.28%. The orange line is the growth path.

Yes, prices have risen even more after Russia Invaded Ukraine on February 24, 2022. But most of the inflation was baked-in prior to the Russian invasion. Sorry Jen Psaki, but you are wrong about inflation being all Putin’s fault.

Reversal Of Fortune! How Fed Monetary Stimulus And Federal Covid “Relief” Made The 1% Wealthier And The Bottom 50% Worse Off (Fed Anticipated To Raise Rates By 100 BPS At Next Two Meetings)

The Covid epidemic was bad enough with the government shutdowns and deaths. But was even worse is that all the Fed monetary stimulus and Federal government stimulus “relief” led to a reversal of fortune. In that, the share of net worth held by the top 1% grew and the gap between the 1% and bottom 50% hit an all-time high.

Now that the 1% have fed at the Federal trough, The Fed is anticipated to raise rates by 100 basis points at the next two meetings.

Remember, REAL average hourly earnings are getting crushed under Biden and his pro-1% policies.

This is a nightmare for the American middle-class and lower-wage households.

US Existing Home Sales Decline -2.7% In March As Available Inventory Remains MIA (Median Price YoY At 15.23% YoY As Fed Keeps Foot On Monetary Accelerator)

US existing home sales declined -2.7% MoM in March and are down -3.8% YoY.

The median price of existing home sales are still sizzling at 15.23% YoY while inventory available still remains MIA by historic standards.

While mortgage rates have been smoking, existing home sales growth slowed compared to February as the US begins its Spring/Summer buying season.

WHO is buying homes? There are considerably purchases by investors as of Q4 2021 taking advantage of Fed stimulypto.

T-R-O-U-B-L-E! Mortgage Purchase Applications DOWN 14% From Same Week Last Year, Refi Applications DOWN 68% (Yet Fed STILL Has Its Huge Foot On Monetary Gas Pedal) This One’s Gonna Hurt You For A Long, Long Time

There is one song that sums up the mortgage banking industry with proposed tightening of Fed monetary stimulypto: T-R-O-U-B-L-E.

Mortgage applications decreased 5.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 15, 2022.

The Refinance Index decreased 8 percent from the previous week and was 68 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 14 percent lower than the same week one year ago.

All together now, mortgage rates are up 76% under Biden.

And yes, The Federal Reserve STILL has its enormous foot on the monetary gas pedal (with hints that they will remove it “soon.”

The number of ARMs increased 14.9% from the previous week.

Between Bidenflation and Powell and the Gang tightening monetary policy, This One’s Gonna Hurt You (For A Long, Long Time).

People Get Ready! Agency MBS Prices Drop Like A Rock As Mortgage Rates AND Duration Risk Soar (Energy Prices Drop Over 5% On Covid Shutdown In China)

People Get Ready! For The Federal Reserve to actually withdraw its massive stimulus.

I generally discuss that negative impact of rising mortgage rates on the housing market, but today I am focusing on the decline in agency mortgage-backed security prices due to rising mortgage rates.

Here is the uniform MBS price for a 3.5% coupon security. It is falling like a rock with anticipated Fed monetary tightening.

And duration risk is going to the moon! (That is, accelerating rapidly).

FNCL 3.5 coupon MBS has a WAC of 4.206 and a WAM (or WARM) of 359. Not to mention a factor 0.997.

At least energy prices are cooling thanks to China grinding to a halt with the latest Covid epidemic.

I wish The Fed would back off its allegedly ambitious tightening and soothe me.

But hold on, Powell and The Fed are coming with their sword of destruction.

US 1-Unit Housing Starts Drop -1.72% YoY As Mortgage Rates Soar While Apartment Starts Rise 7.5% MoM (Bullard Says Fed Could Raise Rates By 75 BPS At May Meeting, Japanese Yen To US Dollar Crashes)

We have Federal Reserve of St Louis President James “Bully” Bullard saying that The Fed could raise rates by 75 basis points in May, the Japanese Yen to Dollar is crashing as mortgage rates continue to soar.

Here is a nice summary of The Fed’s massive balance sheet expansion in reaction to Covid (orange line) and the resulting soaring of home prices. Then The Fed signals that they will remove the “punchbowl” and mortgage rates have boomed. And not in a good day.

Today we have the US housing starts report. In a nutshell, 1-unit housing starts (single-family detached) declined -4.4% YoY as mortgage rates skyrocket.

5+ unit (aka, apartment stats rose 7.49% MoM in March while 1-unit starts declined by -1.72% MoM. 1-unit permits fell by -4.81% MoM while 5+ units starts rose by 10.89% MoM.

Soaring home prices coupled with soaring mortgage rates equals … apartment living.

Bear in mind that The Fed STILL have massive monetary stimulypto outstanding!!

Now you to can lease an apartment next to Patrick Bateman from “American Psycho.” And listen to Huey Lewis and The News through the paper-thin walls.

US Mortgage Rates Rise To 5.25%, Up From 2.88% Under Biden (Fed May Boost Rate 50 BPS At Next Meeting)

Fortunately, I refinanced my home mortgage while Trump was still President. When Biden was installed as President, the 30-year mortgage rate was 2.88% (according to Bankrate). It has now risen to 5.25%.

The Federal Reserve is now expected to raise their target rate as much as 50 basis points at the next meeting on May 4, 2022. This chart shows the anticipated rate hikes coming our way, peaking in summer 2023.

Fed Funds Futures are pricing in a 50 bps rise at the May meeting.

The good news is that the US Treasury actives curve is upward sloping, but is showing fatigue in the forward rates between 7Y and 10Y.

On the hard asset front, precious metals are up over 1% with silver and platinum leading the way.

Inflation Joe And Slow-Walking Jay! REAL Fed Funds Target Rate Lowest In History As Bidenflation Crushes Middle Class And Low Wages Workers (REAL Home Price Growth Is Now LOWER Than The Peak Of The 2000s House Price Bubble!)

Inflation Joe and Slow-Walking Jay. The bullies of the middle class and low-wage workers.

As inflation crushes the middle class and low wage workers, we see that the REAL Fed Funds Target Rate (based on headline inflation) is the lowest in history. Notice that the REAL Fed Funds Target Rate tends to hit its lowest negative reading DURING recessions, although The Fed has had a poor track record since the Dot.com bubble burst and the 2001 recession meaning that the REAL Fed Funds Target rate has been in negative territory (that is, the rate of inflation has exceeded The Fed Funds Target Rate for much of the post-2000 era).

The “good” news? Inflation caused by The Fed’s negative interest rate policy (NIRP?) has actually led to REAL home price growth to slow 11.6855% YoY, lower than the peak of the 2005-2007 house price bubble.

With The Fed’s OVERSTIMULATION of markets with historically low REAL Fed Funds Target Rate, we can see that the US unemployment rate is overheated (that is, below the Congressional Budget Office (CBO) Short-term Natural Rate of Unemployment. Yes, it appears that Slow Walking Fed Chair Jay Powell should be raising The Fed’s target rate AND removing (at least) the Covid monetary stimulus.

Inflation Joe is a career politician, so it is not surprising that he is trying to blame Russia for the horrid inflation in the US. However, inflation grew from 1.4% when Biden took office to 7.9% when Russia invaded Ukraine. The latest inflation report was 8.5%, so Russia is only partly to blame for rising prices since February 24, 2022. The rest is due to Inflation Joe, Slow Walking Jay and Congress.

Again, Congress helped drive prices through the roof by massive Federal spending (aka, Covid stimulus “relief”). Hence, the Four Horsemen of the Inflation Apocalypse is appropriate. And now Biden is once again pitching massive government spending (Build Inflation Back Better?).

Here is Joe Biden and his inflation bat, Lucille.

Have a peaceful and pleasant Easter Sunday.

The Big Short 2? Subprime Credit-Driven Bubble Versus Fed Loose Policy Driven Bubble (Will The Fed Burst Yet Another Housing Bubble? Michael Burry Thinks Not)

The book and movie “The Big Short” revolved around the 2005-2007 housing bubble driven by lending to borrowers with subprime credit (and little or no underwriting). As we know, Bear Stearns, Lehman Brothers and other investment banks too large positions in subprime asset-backed securities (SABS) that became highly toxic once the demand for high-yield subprime ABS dried up. The decline in US home prices coupled with soaring 90-day mortgage delinquencies led to the failure of Bear Stearns and Lehman Brothers along with Fannie Mae and Freddie Mac being put into conservatorship by their regulator.

Fast forward to today. Mortgage originations by credit scores of 620 or less have shriveled while home price growth YoY is even higher than the subprime mortgage crisis of 2005-2007. So, is the US facing another “Big Short” scenario? Yes and no.

The answer is no in that lenders have tightened their credit box sufficiently so that investment banks are no longer buying large quantities of subprime credit paper. The answer is yes if we consider that the current housing bubble is fueled by extraordinary monetary stimulus due to Covid (as well as rampant Federal government stimulus spending).

Following the Federal Reserve of Dallas’ lead, here is a chart of REAL home price growth YoY against REAL average hourly earnings YoY. I added REAL Zillow house rents YoY as well.

Look at the affordability gap during the Subprime Bubble of 2004-2006 and then the Fed Bubble of 2020 to today. Both bubbles show a disconnect between REAL home prices and REAL wages. REAL Zillow home rents are not as high as REAL home price growth, but still how a huge gap in rent affordability.

So, what can upset the apple cart? How about Jay and The Gang jacking up mortgage rates making home affordability even worse (unless it slows home price growth).

Thanks to The Fed’s propose quantitative tightening, mortgage rates are soaring and mortgage costs along with them. Mortgage costs, thanks to The Fed driving up housing prices AND mortgage rates, are substantially higher than during the subprime mortgage housing bubble.

The Fed’s whipsaw approach helped crash home prices during the subprime mortgage crisis by dropping rates too fast at first (helping to ignite a housing bubble) then raising rates too fast (helping to crash housing prices).

Now, Michael Burry of The Big Short fame (portrayed by Christian Bale) thinks that The Fed has no intention of fighting inflation meaning that he doesn’t think The Fed will raise rates all that much. “The Fed’s all about reloading the monetary bazooka. So it can ride to the rescue & finance the fiscal put,” Burry added.

Yikes! Time for investing in cryptocurrencies like Bitcoin and Ethereum?

This scene from the film “The Big Short” won’t be happening again. But I agree that no one is paying attention … again.