Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The US economy is Slippin’ Into Darkness.
The Fed’s favorite yield curve measure, the implied yield on 3-month T-Bills in 18 months less the 3-month T-bill yield has inverted. Note that this curve inverts prior to a recession.
The new face of reckless Fed policy and Federal spending. 19 straight months of negative REAL earnings growth as America re-elects the same irresponsible fools that are turning the US into Venezuela.
The October Senior Loan Officer Opinion Survey on Bank Lending Practices came out yesterday and its a doozy.
The Net Percentage of Domestic Banks Reporting Stronger Demand for Mortgage Loans is sinking faster than Joe Biden’s oratory skills as The Fed tightens their monetary belts.
Jumbo mortgages, those that are greater than FHFA’s conforming loan limit, are tanking as well.
And today, the University of Michigan (BOOO!!) consumer survey for housing buying conditions fell to the lowest level in recorded history.
Given the latest inflation numbers (improving from disastrous, 8.2% YoY to really horrible, 7.70% YoY), and unemployment rate rising from 3.5% to 3.7%, we now see that Taylor Rule estimate for Fed Funds is now … 13.85%. The US is currently at 4.00%. THAT is a big gap!
Yes, The Fed will not be able to fill the gap between the Taylor Rule and the current Fed Funds Target Rate, without incredible damage being done.
Unfortunately, this is an ACTIVE FAILURE for The Fed which has left monetary stimulus too high for too long since late 2008.
On a personal note, I am glad the midterm elections are over. We saw John Fetterman arguing until he was blue in the face that he loved fracking and will continue to let Pennsylvania frack. Then PA governor-elect Josh Shapiro came out yesterday and said that PA will end all fracking. And we are to believe that Lt Gov Fetterman did not talk with PA Attorney General Shapiro about fracking? To quote Joe Biden, “C’mon man!”
Now that the midterm elections are over (except for counting of million of mail-in ballots, a massive moral hazard risk), President Biden has proclaimed that he isn’t changing any of his horrid policies. And apparently, neither is The Federal Reserve.
Despite the headlines that The Federal Reserve is rapidly downsizing its massive balance sheet of assets, The Fed is just letting their enormous holdings of mortgage-backed securities (MBS) run off. That is, just letting MBS mature. So, The Fed’s System Open Market Holdings of Agency MBS has barely declined.
Here is the table of MBS run-off. The mass of MBS doesn’t start to mature until … 2039. It is Treasuries that are maturing.
So, The Fed is raising its target rate rapidly, although that is likely to reverse course in the first half of 2022.
Meanwhile, mortgage applications fall to lowest level since 1997 with Fed tightening.
“So Mr Bond…let me tell you my plan for global domination.”
Yes, this is an economic double whammy!
First, according to Black Knight, US home values declined -2.6% over the past three months.
Second, the US Treasury 10Y-2Y yield curve remains near 1980s low.
There is a third whammy, rising utility costs (highest in a decade).
Yes, its a double whammy!
The US midterm elections are Tuesday. I was denied an absentee ballot for some reason, but I will get my disabled body over to the local precinct to cast my ballot.
Fortunately for Democrats, the next inflation report is not due out until November 10th. Because the forecast for the next inflation report is ugly.
Headline CPI YoY = 7.9%
Core CPI YoY = 6.5%
These numbers are slightly lower than the last inflation report, but Americans are still suffering mightily under Biden’s Reign of Error.
Diesel fuel prices, the lifeline of the food industry, is up 102% under Biden’s mandates with the inventory of diesel fuel down 36%.
Inflation is relentless like Jason from Halloween.
Inflation is UP 486% under Inflation Joe, The Bully of DC.
I am going for a few Tequila shots on Wednesday.
The mortgage market is really hurting under the stewardship of “Inflation Joe” Biden.
Bankrate’s 30yr mortgage rate hit 7.35% yesterday, up 155% under Biden.
Here is a photo of Inflation Joe taking aim at the mortgage industry and housing market.
President Biden just lost one of his midterm election talking points. “The U-3 unemployment rate the lowest since (garbled) at 3.5%!” Because it now has risen in October to 3.7%.
Private payrolls added 233k jobs in October, which is a -27% decline from September’s revised private payroll figures.
The good news? Average hourly earnings growth is still positive, but fell to 3.7% YoY. But with inflation raging at 8.2% YoY, workers are getting clobbered by inflation.
Here is the rest of the story.
The Fed is now green-lighted to raise rates even higher.
Biden’s campaign promise was to unite rather than divide. But Biden has morphed into Gustaf Holst’s, Mars – Bringer of War! Both domestically and in the Ukraine.
The Bank of England followed the Fed’s 75 basis-point increase with an equivalent hike on Thursday, but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. The pound fell 1.8% to $1.1183.
Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than previously anticipated sapped risk appetite. The dollar gained.
Futures on the S&P 500 fell 1% in the wake of Wednesday’s 2.5% drop. The selloff spread to Europe and Asia, where China’s affirmation of its Covid-Zero stance dashed hopes of a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. tumbled in premarket trading, while Etsy Inc. and EBay Inc. rose.
So, the BofE, Fed and ECB are back to 2008/2009 era central bank rates.
But the US Fed is slow to shrink its enormous balance sheet.
What happened to terminal rates in the US?
And M2 Money velocity (GDP/M2) seems terminal.
Markets are getting stranger than the Paul Pelosi hammer attack.
The S&P 500 index tanked -2.35% after Powell and The Fed failed to pivot.
Federal Reserve Chair Jerome Powell opened a new phase in his campaign to regain control of inflation, saying US interest rates will go higher than previously projected, but the path may soon involve smaller hikes.
Addressing reporters Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected.”
Powell said is it would be appropriate to slow the pace of increases “as soon as the next meeting or the one after that. No decision has been made,” he said, while stressing that “we still have some ways” before rates were tight enough.
“It is very premature to be thinking about pausing,” he said.
Fed Funds Futures data point now to a June peak in the target rate of 5.055%, then a decline.
US 30-year mortgage rates are above 7% as The Federal Reserve slowly withdraws its Covid-related monetary stimulus and attempt to combat near 40-year highs in inflation under Biden (aka, Bidenflation).
However, the US Treasury 10-year yield is down -12 basis points this morning.
And we have an important predictor of recession, the Treasury 10yr-3mo yield curve.
And if the Republicans win The House (and maybe the Senate) at the midterms, Biden can blame Republicans for the recession.
Joe Biden, Hunter and Biden’s brother James must be singing “Damn, it feels good to be a Biden!“
Confounded Interest - Anthony B. Sanders 
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