Portfolio Return as of 05/06/22:
2020: 25.65%
2021: 29.15%
YTD: 5.79%

Thursday, May 12, 2022

US Producer Prices Surge 11 Percent on Higher Food Costs

Wholesale prices in the U.S. soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for consumers and businesses in the months ahead.

The Labor Department said Thursday that its producer price index (PPI) — which measures inflation before it reaches consumers — climbed 0.5% in April from March. That is a slowdown from the previous month, however, when it jumped 1.6%.

The cost of groceries in the past 12 months is up 10.8%, the largest 12-month increase since November 1980, The Wall Street Journal reports, citing Labor Department consumer price index (CPI) data. Grocery costs rose 1% in April after increasing by 1.5% in March; they have risen by 1% or more in the past four months. Dairy prices, led by milk, shot up the most in April, by 2.5%.

The April year-over-year increase in the April PPI declined from the 11.5% annual gain in March, which was the biggest increase since records began in 2010.

The producer price data captures inflation at an earlier stage of production and can sometimes signal where consumer prices are headed. It also feeds into the Federal Reserve's preferred measure of inflation, the personal consumption expenditures price index.

Thursday's figures came just a day after the government released consumer price data for April, which showed that inflation leapt 8.3% last month from a year ago. That increase is down slightly from the four-decade high in March of 8.5%. On a monthly basis, inflation rose 0.3% in April from March, the smallest increase in eight months.

Still, there were plenty of signs in the consumer price report that inflation will remain stubbornly high, likely for the rest of this year and into 2023. Rents rose faster as many apartment buildings have lifted monthly payments for new tenants. Prices for airline tickets jumped by the most on records dating to 1963. And food prices continued to rise sharply.

Sources: AP and NewsMax

Wednesday, May 11, 2022

Inflation slows slightly, mortgage applications up

Inflation slowed in April after seven months of relentless gains, a tentative sign that price increases may be peaking while still imposing a financial strain on American households.

Though it wasn't much, markets responded positively.

The Consumer Price Index (CPI) rose 0.3% month-over-month (m/m) in April, above the Bloomberg consensus estimate calling for a 0.2% gain, and compared to March's unrevised 1.2% increase. The core rate, which strips out food and energy, increased 0.6% m/m, topping forecasts of a 0.4% rise and compared to March's unadjusted 0.3% increase. 

Compared to last year, prices were 8.3% higher for the headline rate, above estimates of an 8.1% increase but a deceleration from the prior month's unrevised 8.5% rise. The core rate was up 6.2% y/y, north of projections of a 6.0% gain, and down from March's unrevised 6.5% rise.  

Nationally, the price of a gallon of regular gas has reached a record $4.40, according to AAA, though that figure isn’t adjusted for inflation. The high price of oil is the main factor. A barrel of U.S. benchmark crude sold for around $104 early Wednesday morning. Gas had fallen to about $4.10 a gallon in April, after reaching $4.32 in March.

Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans arguing that Biden’s $1.9 trillion financial support package last March overheated the economy by flooding it with stimulus checks, enhanced unemployment aid and child tax credit payments.

In other news, the MBA Mortgage Application Index rose 2.0% last week, following the prior week's increase of 2.5%. The second-straight weekly increase came as a 2.0% drop in the Refinance Index was more than offset by 4.5% gain in the Purchase Index. The average 30-year mortgage rate resumed its jump, rising 17 basis points (bps) to 5.53%, up 242 bps versus a year ago.

Monday, May 9, 2022

ICYMI: Recent Headlines

Why Some Rate Quotes Are So Different And Why "Points" Are On The Rise
It was yet another tough week for the mortgage market with rates rising to their highest levels since 2009, but how high have they actually risen?


Energy up nearly 50% YTD as crude oil climbs to $110 per barrel
WTI crude futures (CL1:COM) jumped 4.9% for the week to $109.77/bbl, July Brent futures (CO1:COM) also added 4.9% to $112.39/bbl, and gasoline futures (UGA) in New York settled at a record high $3.76/gal, three weeks before the start of the U.S. summer driving season.

Losing the People? Then Change the Rules
Court-packing—the attempt to enlarge the size of the Supreme Court for short-term political purposes—used to be a dirty word in the history of American jurisprudence.

The Disinformation Governance Machine
Right out of 1984. Homeland Security Secretary Alejandro Mayorkas announced on April 27 the creation of the “Disinformation Governance Board.”

The Nation's Top Scientists Lied
Scott Atlas stated the simple fact that immunity is higher than those with antibodies, whereupon Dr. Fauci criticizes him without contradicting what was actually said. Stating a simple scientific fact is not ‘extraordinarily inappropriate.’ What is going on?

Fed’s interest rate history: A look at the fed funds rate from the 1980s to the present
Interest rates are on the rise, but they’re still historically cheap. That’s partially because the federal funds rate — a key borrowing benchmark set by the Federal Reserve — has remained below its historic average for the past 16 years. In fact, the Fed’s key rate spent nine of those years at the rock-bottom level of 0 percent, first from 2008 through 2015, and then from March 2020 to March 2022.

Biden Administration Sneaks Unlawful Immigration Benefits Into Ukraine Aid Request
President Joe Biden recently sent an emergency supplemental funding request to Congress for $33 billion in aid to Ukraine. However, the administration used the opportunity to sneak in unlawful immigration benefits for hundreds of thousands of Ukrainian, Afghan, and Russian immigrants—paid for by the American people and at the expense of lawful applicants who have been waiting years to properly immigrate to the U.S.

Wednesday, May 4, 2022

Is there a housing bubble?

Is there a housing bubble?

U.S. housing affordability fell last month to near the lowest level ever as home prices surge. Mortgage interest rates now exceed 5.2% – up from 3.6% two years ago. And the Fed is raising rates again – as it should – but this too will likely raise mortgage rates.

The average mortgage payment is now $1,800 a month. That’s 70% higher than the pre-Covid high. The only other time home payments were this high was in 2007 on the eve of the Great Financial Crisis.

As the chart below from Black Knight’s mortgage monitor shows, home prices are up 19.9% over this time a year ago. Yes, that’s very good news for homeowners as their home equity surges, but a killer for home buyers – especially first-time buyers.

Loan to income levels are also rising, which makes defaults more likely.

Is any of this sounding familiar? All of this has been artificially inflated by years of artificially low rates, Fed policies of purchasing hundreds of billions of dollars of mortgage-backed securities, and Congress passing out hundreds of billions for taxpayer funded rental assistance. 

It’s all helium pumped into a balloon that could soon pop.


Sunday, May 1, 2022

The GDP contraction was due to inflation

We should note that the entire explanation for the lousy GDP number was the 8.5% inflation rate. As the chart below shows, if we still had 2% inflation we had just recently, the economy would have grown in real terms at a brisk pace. But with the current inflation, the economy has to expand by more than 8.5% just to stay even. 

While some also noted (or bragged about it) that consumer spending stayed strong in Q1, that was also due to inflation. Consumers just spent more money because everything cost more.



Thursday, April 28, 2022

Economy shrinks for first time in two years

The U.S. economy shrank last quarter for the first time since the pandemic recession struck two years ago, contracting at a 1.4% annual rate, but consumers and businesses kept spending in a sign of underlying resilience.

The negative growth rate missed even the subdued Dow Jones estimate of a 1% gain for the quarter. GDP measures the output of goods and services in the U.S. for the three-month period.

Despite the disappointing number, markets paid little attention to the report, with stocks and bond yields both mostly higher. Some of the GDP decline came from factors likely to reverse later in the year, raising hopes that the U.S. can avoid a recession.

The steady spending suggested that the economy could keep expanding this year even though the Federal Reserve plans to raise rates aggressively to fight the inflation surge. The first quarter's growth was hampered mainly by a slower restocking of goods in stores and warehouses and by a sharp drop in exports.

The Commerce Department's estimate Thursday of the first quarter's gross domestic product — the nation's total output of goods and services — fell far below the 6.9% annual growth in the fourth quarter of 2021. And for 2021 as a whole, the economy grew 5.7%, the highest calendar-year expansion since 1984.

The economy is facing pressures that have heightened worries about its fundamental health and raised concerns about a possible recession. Inflation is squeezing households as gas and food prices spike, borrowing costs mount and the global economy is rattled by Russia's invasion of Ukraine and China's COVID lockdowns.

A deceleration in private inventory investment weighed on growth after helping propel GDP in the back half of 2021. Other restraints came from exports and government spending across state, federal and local governments, as well as rising imports.

“This is noise; not signal. The economy is not falling into recession,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory. This cannot persist much longer, and imports in due course will drop outright, and net trade will boost GDP growth in Q2 and/or Q3.”

While recession expectations on Wall Street remain low, there’s further trouble ahead for the economy: In an effort to combat burgeoning price increases, the Federal Reserve plans to enact a series of rate hikes aimed at slowing growth further.

Sources: Associated Press, CNBC

Wednesday, April 27, 2022

Biden Floats $1 Trillion Bailout of Student Loans

 This plan would actually benefit the wealthy more than the poor. 

It might be the biggest giveaway in American history and goes much further than anything Bernie Sanders or Elizabeth Warren have proposed. Biden now wants to cancel more than $1 trillion dollars in student loans – he's already let college graduates delay repayments for years.

This plan makes suckers out of the millions of Americans who have felt honor bound to pay off their debts. Even more lavishly subsidizing higher education will only push tuition even higher and making the next round of student debt even higher. But who would ever pay off a student loan after this blanket forgiveness program.

Who would benefit? The most recent Federal Reserve Survey of Consumer Finances found that only 22% of families had student loan debt and "student debt has consistently been disproportionately held by higher-income families."

Canceling all student loans is supported by 19% of voters according to the latest poll – but times are getting desperate at the White House, and a trillion dollars can buy a lot of votes from the dead beat crowd.  

Of course, 43% of Democrats strongly support extending the student loan payment pause, while only 12% of Republicans do. 



US Producer Prices Surge 11 Percent on Higher Food Costs

Wholesale prices in the U.S. soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for co...