Freddie Mac Mortgage Report

Interactive Chart here. 

Employment Picture Not As Rosy as Commonly Reported

The survey of business establishments has shown steady growth in employment and the smaller survey of households has shown virtually no job growth since March.

This pattern held again for the November jobs report released Friday. Employment was up in the establishment survey by 263k, but the household survey dropped 138k. The divergence since March now stands at an enormous 2.7 million jobs.One reason is double counting in the establishment survey, with over 900k of the jobs added in the last year being workers with second jobs, not additional people employed.

To be sure, it is still a hot employment market for workers with some 10 million job openings. Count us as skeptical that this rosy jobs market will continue much longer.

The economy is hemorrhaging full-time jobs – we’ve lost over 2,600 full-time jobs every day since May.

National Debt at $31 Trillion: Does Anyone Care?

Our national debt has soared to a record $31.3 trillion. Yet our federal budget deficit fell sharply in fiscal year 2022. The national debt continued to rise in FY2022 because the government spent more money than it received in revenues.

The budget deficit for FY2022 fell sharply because federal spending to fight the COVID-19 pandemic declined significantly, but it was still a large deficit. The budget shortfall declined to $1.375 trillion, compared to the 2021 deficit of $2.776 trillion.

President Biden has been trying to take credit for the huge decline in the budget deficit, but in fact his policies prevented the budget deficit from falling even further. America's growing national debt is the result of simple math — each year, there is a mismatch between spending and revenues. When the federal government spends more than it takes in, we have to borrow money to cover that annual deficit. And each year’s deficit adds to our growing national debt.

Historically, our largest budget deficits were caused by increased spending around national emergencies like major wars or the Great Depression.

Today, our deficits are caused mainly by predictable structural factors: our aging baby-boom generation, rising healthcare costs and a tax system that does not bring in enough money to pay for what the government has promised its citizens.

Inverted Yield Curve: Largest Gap Since 1981

An inverted yield curve is often seen as a warning that a recession is looming. Longer-term yields are usually higher than shorter-term yields because investors want to guard against the risk of unexpected inflation and rate increases.

The yield on the 10-year Treasury note dropped to 0.78 percentage points below the two-year yield, the largest negative gap since 1981, before easing slightly. The inversion reflects both surprising positive news on inflation as well as the view that the Federal Reserve will continue to raise interest rates and keep them at elevated levels.

Credit Card Debt is on the Rise

You do not want to get caught in the debt trap. Credit Card Debt is the most damaging to your financial freedom and welfare. See Getting Out of Debt or I'm In Debt. How Do I Get Myself Out of This Mess.

Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data. Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019. 

An increase in credit card balances was also a boost to the total debt balances, with credit card balances up $38 billion from the previous quarter. On a year-over-year basis, this marked a 15 percent increase, the largest in more than twenty years. Here, we take a closer look at the variation in credit card trends for different demographics of borrowers using our Consumer Credit Panel (CCP), which is based on credit reports from Equifax.

Read full article here.

What Behavioral Finance Can Teach Us About Investing

By J.P. Morgan Wealth Management

Birds and bees are great – but so are brains. In the last few decades, behavioral finance has emerged as a field of study that merges psychology and finance. It’s a subset within the field of behavioral economics, which was developed by, we assume, super smart dudes named Daniel Kahneman and Amos Tversky.

In 1979, they proposed the idea of prospect theory, which argues that people make decisions based on the potential value of gains and losses rather than the utility of a decision itself. Their empirical findings challenged the assumption that human rationality prevailed in modern economic theory – and in 2002, Kahneman even won the Nobel Memorial Prize in Economic Sciences. (See, we were right, they are super smart.)

To put it simply: investors are humans. We feel greed, fear, hope, excitement – all sorts of emotions impact our behavior on the micro and macro levels. It is precisely because we are human that we often make irrational decisions.

Behavioral finance is what happens when emotions, self-awareness and investing come together. It can help us understand these cognitive biases, as well as strategies for managing them. Here are four of those biases investors may feel:

• Overconfidence bias: The tendency to see ourselves as more knowledgeable than we actually are. This is common in investing. Overconfidence leads to rash and irrational behavior – like trying to time the market (or eating a really spicy pepper), even though markets are categorically unpredictable, and this has consistently proven to be a losing strategy in the long term.

• Herd behavior bias: When investors follow others rather than make their own decisions based on financial data (e.g. the Dutch tulip market, or stockpiling a meme stock because all your friends are doing it). People follow herds because it feels safer, or because of the FOMO (fear of missing out) they get from being on the sidelines.

• Anchoring bias: When an arbitrary benchmark – such as a stock’s purchase price – anchor’s one's decision-making process (“I won’t sell at $X because I bought at $Y!”). With anchoring bias, people tend to hold investments that have lost value because they’re anchoring its value to the price they bought it at, not market fundamentals.

• Loss aversion: When making decisions, people are more sensitive to losses than they are to gains. Robert Johnson, a professor of finance at Creighton University, argues that loss aversion can cost us money. "The biggest financial mistake people make is taking too little risk, not too much risk," he says. Loss aversion helps explain why: Losses hurt more than gains are enjoyed.

The good news? With just a little bit of strategy and discipline, these biases are easy to overcome. One of the best ways to do this is to put your investing on auto-pilot. In a strategy known as dollar-cost averaging (DCA), an investor puts the same amount of money into the market, at regular intervals, no matter what. For example: $100 on the 15th of every month for a year, automatically, no matter what.

Since DCA is a fixed investment strategy, it neutralizes market performance as a decision factor. This can help you breathe easy instead of constantly making decisions based on anxiety, hunches or best-guesses. Sure, sometimes you might buy a little high. Other times a little low (party time!). But consistency is exactly what diversifies your purchase price – leveling out both losses and your anxiety. For this reason, DCA is an incredibly useful psychological tool for putting investments on auto-pilot.

Often finance and investing is thought of as a pure “numbers play,” but we humans just can’t do anything without putting our heart into things. So understanding why you make decisions, and how to rethink them when necessary, is one of the most important money skills you can learn.

The Science is Settled!

 

Climate: Just Who Owes Who?

See also: Biden Forces America to Pay Climate Reparations

I've written about the business and purpose behind climate change before. The climate change movement is really just a climate change shake down. This crusade isn’t about changing the temperature of the earth. Even the most well-meaning environmental activist can’t really believe that building windmills and driving Teslas is going to cool the planet.

This all about money. Hundreds of billions of dollars of government handouts.

The one resolution of agreement among the politicians from 100 nations at the “Cop 27” climate conference in Egypt was that rich nations owe poor nations “climate reparations.” This is the looney concept that America is responsible for the supposed man-made warming of the planet by burning fossil fuels over the last hundred or so years. Joe Biden and his goof ball sidekick John Kerry were all to eager to buy into this “blame America first” narrative and write a 10-figure check to atone for our sins.

The conference in Egypt erupted into wild applause in the final hours when the multi-billion wealth transfer from American taxpayers to corrupt foreign governments like Venezuela was announced.

Wait!!! Biden thinks WE owe the rest of the world money for burning fossil fuels? Really? What have poor nations ever done for us? These supposed satanic fossil fuels have been the power source that liberated the world from human misery. They turned the lights on. They powered our factories, our transportation system, our technology industry, our homes, our hospitals our schools. This was a crime against humanity?

Fossil fuels made America rich and made the U.S. the bread-basket of the world helping end hunger and famine while developing drugs and vaccines that eradicated deadly diseases across the planet. They were the fuels used to help America win three world wars (counting the Cold War) on foreign soil against murderous fascist/communist regimes. To paraphrase Jack Nicholson in A Few Good Men: “A simple THANK YOU [from the rest of the world] would suffice.”

Over the last fifty years the United States has donated more than half a trillion dollars (more than the rest of the world combined) for disaster and foreign aid to seemingly every area of the rest of the world. Who owes whom money?

Oh, and was it mentioned that China and India skipped out of the conference this year. These are by far the two largest polluting nations (see chart). And they want no part of this war on fossil fuels. A climate change deal without China and India signing on would be like a peace agreement during the middle of World War 2 - except the bad news is that Germany and Japan aren’t on board.

Inflation is a Monetary issue

Two recent articles I've come across explain the phenomenon of inflation very well. Or pick up a book if you want more depth. Money Mischief would be a place to start. 

Milton Friedman’s priceless lessons on inflation

Inflation – it’s on everyone’s mind. Everyone is talking about how inflation is the highest it has been in forty years. With the slowing economy, what was said to be a “transitory” phase has turned into “stagflation.”

Some are blaming the government. The government is blaming the war. Republicans are blaming the Democrats, and the left is blaming greedy corporations. As the blame game and alarm rage, it remains a fact that most of us don’t know what inflation is. Few know what causes it. Fewer know how it can be curbed.

Under the circumstances, it pays to listen to the respected American economist Milton Friedman as he deconstructs this “alarming” phenomenon. The Nobel Laureate, speaking at the University of San Diego and the San Diego Chamber of Commerce in 1978, busted some well-established myths and shed light on the causes and cures. 

Read entire article.

Central Bankers Dodging Blame

The great Milton Friedman repeatedly explained that rising prices are an inevitable consequence of easy-money policies by central banks.

That’s a lesson everyone should have learned about 50 years ago when the Federal Reserve unleashed the inflation in the 1960s and 1970s (also blame Lyndon Johnson and Richard Nixon for appointing the wrong people).

Read entire article

Stock and Bonds Down for Year, Even with Recent Rally

I guess my portfolio (13% Bond, 70% Stock and 17% Cash) isn't doing to badly, with a YTD return (including dividends) of 3%. About 25% of my stocks are either in, or were, in energy. I sold about half my holdings a few months ago and invested in income producing ETFs.

Real Wages Down

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

Inflation Eases to 7.7%. But Still High

 

As Milton Friedman said: Inflation is a monetary issue. Think the money supply had anything to do with that? And what caused this? Spending by Congress and Quantitative Easing by the Fed.

The Push Toward Socialization

Just when you thought it couldn't get any worse. Democrats are now pushing two very bad ideas: 1) Do away with the "gig" economy, as California has done with its draconian restrictions on independent contractors; and 2) nationalize the oil and gas industry. 

The attack on American's right to work

From National Review (subscriber only): 

The Department of Labor wants to effectively outlaw gig work. The Golden State has been there, done that, and the results aren’t pretty.

The Biden administration has effectively declared war on gig work, with its Department of Labor proposing a new federal regulation inspired by California’s controversial AB 5 law that would limit people’s ability to be classified as independent contractors and work as they choose.

This proposal, if successful, would cruelly upset millions of lives. At least 57 million Americans are currently involved in gig work, a number expected to grow to more than 86 million within the next five years.
More on GIG ECONOMY

The End of Freelancing?

AB 5, which essentially bans independent contract and freelance work, was one of the most hated bills to emerge from the Sacramento sausage-making process in recent memory.

Using the aforementioned “ABC test” developed by the California Supreme Court, the law establishes who can legally work on a contractual basis and who must be a hired employee. The classification bar set by the test is so high that few freelancers can clear it. Consequently, almost every independent contractor has to become a hired employee, form their own business, or lose their job.

This is no accident: The aim of AB 5 was to force employers to put their gig workers on the payroll, along with all the costs — unaffordable for many businesses and organizations — that are associated with doing so.

In his public statements about the newly proposed regulation, Secretary of Labor Marty Walsh has resorted to the same duplicity that California lawmakers used first in passing, and then in defending, the indefensible AB5. In a recent press release, for example, Walsh said the rule is needed to safeguard “our nation’s most vulnerable workers,” ensuring that they are not deprived of “their federal labor protections.”

As Bloomberg Law reports, “The US Labor Department’s new proposed worker classification test has parallels to California’s ‘ABC test’ [a provision of AB 5], which presumes workers are employees instead of independent contractors under the law.”

How to make the energy market collapse

From a newsletter by Michael Shellenberger

The energy crisis is worsening. The U.S. has fewer than 30 days of diesel and other distillate fuels, the lowest level since 1945. Supplies are so low that there will be shortages and price spikes within six months unless the U.S. enters recession, experts warn. In response, the Biden administration is releasing more oil from the Strategic Petroleum Reserve. But the reserves are of crude oil, not refined oil products such as diesel. And the releases are stifling investment in future oil production. “People are depleting their emergency stocks,” warned Saudi Arabia’s energy minister earlier this week. “Losing emergency stocks may become painful in the months to come.”

In response, influential Democrats, including a leading U.S. Senate candidate, a former Department of Energy official, and an influential energy expert, are urging the U.S. government to socialize America’s oil and gas firms.

At a Houston conference last week, Jason Bordoff, Dean of Columbia University’s Climate School, called for the “nationalization” of oil and gas companies. “Government must take an active role in owning assets that will become stranded,” he said, “and plan to strand those assets.” By “strand” Bordoff meant “make financially worthless.” Bordoff made the point at least twice during the confrerence. Bordoff’s call shocked many in the audience. “Jason is smart, well-informed, and well-connected to the Biden Administration,” said someone who was at the conference, “so these comments are scary.”

The calls come on the heels of two other Democrat-led efforts to expand U.S. government control over oil and gas production. One is a piece of legislation called “NOPEC,” which passed the Senate Judiciary Committee in May. The bill would change U.S. antitrust law to revoke a policy of sovereign immunity, which protects OPEC+ members from lawsuits. If NOPEC became law, the U.S. attorney general could sue Saudi Arabia and other OPEC members in court. The result could be a disruption of global supplies of oil and other commodities if nations retaliated against the U.S.

The other is an effort led by Treasury Secretary Janet Yellen to cap the price of Russian oil sold on global markets, which I and many other experts have warned since June is unworkable, because China and India have said they would circumvent it, and could backfire, resulting in far higher oil prices. Last week, analysts with Rapidan Energy told the same Houston conference that the December 5 implementation of the Russian price cap could reduce global supplies of oil by 1.5 million barrels per day. Such an amount would create an oil price shock.

Earlier this month, Bordoff told the World Economic Forum, which has called for a “Great Reset” to quickly move from fossil fuels to renewables, that climate change required a “massive transition” that is “going to be messy, it’s going to be disruptive.” Said Bordoff, “I think part of the broader macro environment that's happening now is one of more disruptive change because of climate impacts, but also more disruptive change because of geopolitics coming out of the pandemic, coming out of this conflict, completely rethinking what the World Economic Forum is all about.”

We live in a society full of insufferable narcissists

by Kaylee McGhee White

Reposted from the Washington Examiner

I have written extensively over the past year about the victims of gender ideology: the children and young adults struggling with the normal pangs of maturation who get swept away by a movement that promises them identity and community, and the parents who feel helpless as they desperately try to drag them back to reality.

But let’s be clear about something: Not everyone in this movement is a victim. All you have to do is watch some of the videos highlighted by accounts like Libs of TikTok, and you’ll realize that many of these gender ideologues are unabashed activists who would love nothing more than to shove their crazed distortion of reality down your throat. They know that what they are preaching is nonsensical, and they relish the idea of forcing you to conform to it.

Here’s a perfect example of this kind of narcissism, which runs rampant in leftist circles:

This is a young man who is so obsessed with himself and his new identity that he felt the need to create a video complaining about customers who fail to refer to him by his preferred “they/them” pronouns. Never mind his Adam’s apple and visible male proportions. He expects you to disavow what you’ve seen with your own eyes and submit to his version of reality, in which he’s not a male but a gender-fluid unicorn who has defied the heteronormative patriarchy to reach a new level of diversity and inclusion. As Jeb Bush would say, please clap.

There’s a comedic element to all of this in that it’s so obviously absurd that one wonders whether even the young man is able to take himself seriously. But the thing is, I’m past the point of finding any of this funny. I don’t laugh anymore when I read stories about corporate offices adding ridiculous pronoun options like “fae/faer” and “bun/bunself” to their email signatures, or about how college campuses are overrun with students who expect you to start a conversation by asking, “What are your pronouns?”

And that’s because I recognize videos like this one as the threat that it is. Gender ideologues like this young man don’t want respect or even basic courtesy. They want submission, and they’re determined to get it.

Activists have worked with Big Tech companies to censor and de-platform users who “misgender” people like Deputy Secretary of Health and Human Services Rachel Levine. Multiple teachers and professors who have refused to use students’ preferred pronouns have been punished and, in some cases, even fired. Two middle school students in Wisconsin were even subjected to a Title IX complaint for failing to use a peer’s preferred pronouns correctly. And in the United Kingdom, British police warned citizens that they could find themselves at the center of a criminal investigation for misgendering someone.

There is no such thing as the tolerant Left. How could there be, when the people who make up the movement are such insufferable narcissists?

Economic Projections: Like the Weather Forecast

Why economic forecasts are unreliable. Or maybe it's the CBO. The Fed and most economist have not done very well, historically. This chart shows projections for inflation compared to actual inflation. 

Inflation Reduction Act: Will Never Reduce Inflation

Joe Biden signed into law the horrific Inflation Acceleration Act – which, as you know, increases government taxes and spending by roughly ANOTHER $750 billion. One of the groups that betrayed taxpayers and fiscal sanity in this fight was the inaptly named Committee for a Responsible Federal Budget. To believe this bill will lead to a “responsible federal budget” is about as divorced from reality as to believe that this is an “inflation reduction act.”

Yet here is the statement that Maya McGuineas of CFRB put out to the press:

• This legislation focuses on lowering health care and energy costs, raising revenue, and reducing deficits and is exactly what the doctor ordered.

• Senator Manchin deserves tremendous credit for pushing this fiscally responsible reconciliation bill.

I'm speechless. The Heritage Foundation reports that the bill will INCREASE the deficit by “at least $110 billion through 2031.” The bill raises $300 billion for corporate give-always for the climate change industrial complex, includes a massive expansion in the entitlement state with the added Obamacare subsidies, and fails to cut even a penny from a single domestic program.

Sadly, the CFRB has a history of supporting multi-trillion dollar bailout bills and CFRB OPPOSED the Trump tax cut of 2017 – which ended up RAISING revenues and helped create the strongest American economy in decades.

CFRB has again exposed itself as "bipartisan." Bipartisan? They supported the most partisan bill in modern times: every Democrat voted for this bill and not a single Republican, CFRB is now officially a front group that gives aid and intellectual support to the tax and spend forces on Capitol Hill.

Prices Surge 8.5 Percent

By Jack Crowe

National Review

Inflation surged 8.5 percent in July compared to the same month last year, down slightly from the four-decade high reached in June, the Labor Department announced Wednesday.

The Consumer Price Index, a key measure of the cost of goods and services, dropped slightly due to a decline in record-high fuel prices which drove the previous month’s historic inflation spike. The increase also beat expectations as economists surveyed by Dow Jones expected headline CPI to increase 8.7 percent year-over-year in July.

Excluding volatile food and fuel prices, core inflation rose 5.9 percent annually and 0.3 percent monthly.

The average national fuel price stood at $4.010 per gallon as of Wednesday, down from a record-high $5.016 in mid-June.

Despite the slight relief offered by declining fuel prices, the Federal Reserve is still expected to further raise interest rates to bring inflation closer to its target of 2 percent.

Voters across the country consistently rank inflation as one of their top priorities going into November’s midterm elections. Republicans have consistently highlighted the Biden administration’s aggressive spending, arguing that the $1.9 trillion Covid-relief bill passed weeks after Biden took office overheated an already hot economic recovery.

While Biden has repeatedly denied that the package contributed to record inflation, even calling the idea “bizarre,” the moniker attached to the Democrats’ latest spending bill — The Inflation Reduction Act — at least nods toward voters’ concerns, though non-partisan analysts have said the legislation’s impact on inflation will be negligible.

The $433 spending bill, which passed the Senate over the weekend and is expected to be signed by Biden this week after passing the House, includes $369 billion for climate initiatives and another $80 billion to double the size of the IRS. It also imposes a 15 percent corporate tax on businesses worth more than $1 billion.

Markets reacted positively to the Wednesday CPI numbers, with Dow Jones up more than 500 points as of 8:50 a.m. CDT and government bonds down sharply.

Inflation Reduction Act Will Not Reduce Inflation

From the Tax Foundation. Full analysis here. 

Reconciling the reconciliation bill: The Inflation Reduction Act, successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation.

Among the major tax changes are a 15 percent corporate minimum tax, drug price controls, IRS tax enforcement, and a tax hike on carried interest to pay for increased spending on energy and health insurance subsidies as well as deficit reduction. See a more comprehensive list here.

According to our model, the bill would raise about $304 billion in net revenue from 2022 to 2031, but would do so in an economically inefficient manner, reducing long-run economic output by about 0.1 percent, eliminating about 30,000 full-time equivalent U.S. jobs, and reducing average after-tax incomes for taxpayers across every income group in the long run.

What about inflation? On balance, the long-run impact on inflation is uncertain but likely close to zero.By reducing long-run economic growth, the bill may worsen inflation by constraining the productive capacity of the economy.
By increasing spending faster than it raises revenue between 2023 and 2025, the bill would increase deficits and worsen inflation, especially in the first two years. See our full analysis.

See Also: Heritage Foundation Says Taxes Would Hit Both Rich and Poor

New Legislation Will Raise Taxes on Everyone

Families earning less than $400,000, according to Joe Biden were not going to pay even “a dime of new taxes” under his tax plan. 

This was Joe Biden’s signature promise. It was the 2020 campaign’s equivalent to George H W Bush’s “read my lips, no new taxes” pledge back in 1988. 

Anyone who believed Joe probably deserves to pay more taxes. 

Anyway, here are the facts. Congress’s official budget and tax scorekeeper, the Joint Committee on Taxation, finds taxes rising in every income bracket. It’s a $17 billion a year whack at the lower and middle-class Americans. 
 

America's Horrific Long-Term Fiscal Forecast

Some people think America's main fiscal problem is the gap between the two lines. In other words, they worry about deficits and debt.

But the real problem is government spending. And that's true whether the spending burden is financed by taxes, borrowing, or printing money. Full story here.

GDP Got Eaten By Inflation

Technically, because GDP was negative for two quarters, it's a recession. However, there are caveats to current economic conditions, which mean if it is a recession, it's very mild. And there's still that pesky 2yr/5yr bond rate inversion (2.9/2.72).

It's inflation that is the beast, which will undo everything.  The GDP Price Index came in at an 8.7% increase, well above expectations of an 8.0% gain and compared to the unrevised 8.2% rise seen in Q1.

By Kelly Evans

The Exchange, CNBC

Why was real GDP negative in the first half of this year? Because inflation ate up all the gains.

The bombshell report this morning showed that real GDP shrank again in the second quarter, by 0.9% annualized, after a 1.6% drop in Q1. But wait, how can real GDP be shrinking while the labor market at the same time added 2.7 million jobs, and the unemployment rate fell from 4% to 3.6%? Because inflation ate up all the real economic gains.

Nominal GDP--actual dollars before any adjustment for inflation--surged by a whopping 6.6% in the first quarter, and 7.8% in the second quarter. That's twice the size of what we used to see in the sluggish expansion of the 2010s. Turns out, it's way more than this economy can actually handle. So the huge nominal GDP boom we've had is all simply going into higher prices; the inflation rate was over 8% in the quarter, and that's how you end up with a negative "real" print.

Was the U.S. actually in recession, meaning the end of a business cycle? Probably not, as we've already discussed. The economic indicators, from the labor market to retail sales to industrial production, were all higher in May than January, and so far for June as well. Just yesterday, new orders for durable goods--a key leading indicator--came in stronger than expected. Orders have steadily risen this year, running as of last month at a 6% annualized pace--which would not be happening at the end of a business cycle. As for leading gauges of the labor market, new jobless claims actually fell last week, to a modest 256,000.

What this all shows is an economy that was overheated by monetary and fiscal stimulus, not one that was too soft or too weak. How else do you end up with 8% surging nominal GDP last quarter, on top of last year's whopping 10% gain? Certainly you don't get that from supply-chain constraints or high oil prices. And because we couldn't handle it all quickly enough as "real" economic gains, instead we simply got higher prices. 

Inflation caused negative real GDP.

Fully Funding Education

In the race for Texas governor, Beto O'Rouke keeps claiming that he'll fully fund education. But it's already over-funded, and without the legislature, he can't do anything. Empty promises. Currently, more than $60 billion is spent on Texas education (not including universities). 

Yield Inversions Are Back; Get Very Little Mention In Press

Federal bond yields, when inverted, normally signify an upcoming recession. That's something we've been anticipating for some time, so whether it's a predictor or confirmation, is anyone's guess. It's not the first time yields have inverted in the last year or so. 

It's just something all investors should be aware of, and plan for accordingly. I think the overall market has priced in these facts already, with the DJIA down about 15%, the SP500 down 18%, the NASDAQ100 down 25%, and the Russell down 27%. 

These declines are up from yearly lows, with rebounds of 5% to 10% in the last month or so.

This chart shows the short term bonds have larger yields than the longer term 10-year and 30-year bonds. It should be the other way around. 

It's Not Just Gas: Food Prices Skyrocket

Food prices helped drive the Consumer Price Index up 9.1% in the past year, marking the biggest annual increase in 41 years. According to government statistics, food costs rose 10.4% in the past year — the fastest pace since February 1981.

Driving the increase: Energy prices were responsible for more than half of the monthly gains in headline inflation, with gas prices rising over 11% last month, Axios' Neil Irwin and Courtenay Brown write.

However, the average price of regular-grade gas is falling. As of this morning, it is at $3.92 in the greater Austin area — down from $4.65 a month ago.

Inflation Costs $8,000 in Purchasing Power

The Republicans on the congressional Joint Economic Committee have calculated that from January 2021 through the end of this year, inflation will have cost the typical American family nearly $8,400. If these trends continue, this means that inflation will have erased all of the $6,400 median household income gains that were made under Trump. Here are the highlights:

• Prices increased 13.3 percent from January 2021 to June 2022, costing the average American household $718 last month alone

• Even if prices stop increasing altogether, the inflation that has already occurred will cost the average American household $8,616 over the next 12 months.

• In the United States overall, the monthly inflation cost in June 2022 was highest within transportation ($343), followed by energy ($214), food ($85), and shelter ($81).

• Families in Colorado are facing the highest transportation inflation ($487) and shelter inflation costs ($149); families in California are facing the highest food inflation costs ($111); and families in Texas are facing the highest energy inflation costs ($282).

Full report here. 

Biden Sells Off Strategic Oil Reserve

As shown by the chart below, the Biden administration is selling off US Strategic Petroleum Reserves (SPR) at the fastest pace on record. As of today, we are now at the lowest levels since 1985.

Here is where things get concerning: despite the biggest decline ever in the SPR, total US oil inventories (outside of the government’s emergency SPR) have barely budged off their lows. Let me repeat that. The biggest release of oil ever in the US has barely increased our total domestic inventories.

Low supplies can only mean higher prices (oil was at $97 today, July 15, down from its peak of $130 in March 2022) in the future, if demand remains the same -- or increases. you cannot have economic growth without energy to power that growth, and we will continue to see a humanitarian crisis until governments all over the world work to increase natural gas, nuclear energy, and oil production. If they don’t, shortages, cost-of-living spikes, and disruptions to our food and energy systems are likely to persist.

Biden is set to ask Saudi Arabia (today, July 15) to pump even more, in the latest effort to tame high energy prices that are weighing on the economy. According to the International Energy Agency, the Saudis and UAE are the only two producers with significant spare capacity, holding just under 3 million barrels a day of idle output between them (about 3% of global demand).

"The world has never witnessed such a major energy crisis in terms of its depth and its complexity," IEA Executive Director Fatih Birol warned at an energy forum in Sydney earlier this week. "We might not have seen the worst of it yet. This is affecting the entire world."

No sure I agree totally with that statement, but Biden's policies to date have only made the situation worse. 

Housing Affordability Index Continues to Weaken

On a national scale, housing affordability weakened in May as monthly mortgage payments jumped to 5.31% versus the same time last year at 3.01%. The housing affordability index illustrates a decline, although the real estate market remains robust.

Although there’s been some flattening due to higher rates and fears of a recession, these headwinds could bring the supply and demand back in alignment following months of frenzied home-buying post-pandemic and a seller's market riddled with bidding wars.

Wholesale Inflation Surges to 11.3 Percent

Inflation at the wholesale level climbed 11.3% in June compared with a year earlier, the latest painful reminder that inflation is running hot through the American economy.

The Labor Department reported Thursday that the U.S. producer price index, or PPI — which measures inflation before it hits consumers — rose at the fastest pace since hitting a record 11.6% in March.

Last month’s jump in wholesale inflation was led by energy prices, which soared 54% from a year earlier. But even excluding food and energy prices, which can swing wildly from month to month, producer prices in June jumped 8.2% from June 2021. On a month-to-month basis, wholesale inflation rose a substantial 1.1% from May to June.

Thursday's PPI report came a day after the Labor Department reported that surging prices for gas, food and rent catapulted consumer inflation to a new four-decade peak in June, further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve.

Consumer prices, as measured by the consumer price index, or CPI, soared 9.1% compared with a year earlier, the biggest yearly increase since 1981.

Inflation in at 9.1 percent. Nothing to see, says Biden

More than half of all Americans weren’t even alive the last time prices rose at this pace of 9.1%. Yet Democrats say dam the torpedoes and full speed ahead with another $1 trillion tax and spend bill. Stimulus is a large part of what caused this runaway inflation to begin with. I wonder why they don't get it. 

Biden remarked that the data was backward looking, that June's numbers didn't reflect the drop in oil prices in July. Nothing to worry about. These aren't the droids you're looking for. OMG. All data is backward looking; otherwise, its a projection or prediction, or just a wild ass guess. Even the Carter administration didn't have this level of incompetence. 

This is a scary bunch ruling Washington these days. November can’t get here soon enough. 

Where the Jobs Were Created In June 2022

Pace of New Debt

From March 2020 through June 2022, the federal government added $7 trillion in debt.

To put that in perspective, the federal debt reached a total of $7 trillion in 2004, covering a span from George Washington to the first term of George W. Bush.

That means the federal government has racked up 215 years’ worth of debt in just 27 months.

While some amount of deficit spending might have been hard to avoid during the worst of the COVID-19 pandemic, Washington kept breaking out the credit card to continue an unnecessary and wasteful spending spree, oversaturating the economy and making inflation problems inevitable.

World Bank: Green Energy to be Disruptive to Mineral Markets

The untold story about “green energy” is that it can’t possibly be scaled up to provide anywhere near the energy to replace fossil fuels. (Unless we are headed back to the stone age – which is what some of the “de-growth” advocates favor).

A new World Bank Group report finds that the production of minerals, such as graphite, lithium and cobalt, could increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, required for achieving a below 2°C future. 

Recently, even some environmentalists are pointing to a the World Bank report showing that moving toward 100% solar, wind, and electric battery energy would be “just as destructive to the planet as fossil fuels.” This was the conclusion of a story in Foreign Policy magazine in 2019, The Limits of Clean Energy.

A low-carbon future will be very mineral intensive because clean energy technologies need more materials than fossil-fuel-based electricity generation technologies. Greater ambition on climate change goals (1.50C–20C or below), as outlined by the Paris Agreement, requires installing more of these technologies and will therefore lead to a larger material footprint.

Moving to a “carbon free” energy future, according to the Foreign Policy article “requires massive amounts of energy, not to mention the extraction of minerals and metals at great environmental and social costs.”

Here are the estimates, of how much minerals would be needed:

• 34 million metric tons of copper
• 40 million tons of lead
• 50 million tons of zinc
• 162 million tons of aluminum
• 4.8 billion tons of iron

The World Bank report “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition” also finds that even though clean energy technologies will require more minerals, the carbon footprint of their production—from extraction to end use—will account for only 6% of the greenhouse gas emissions generated by fossil fuel technologies. 

The report underscores the important role that recycling and reuse of minerals will play in meeting increasing mineral demand. It also notes that even if we scale up recycling rates for minerals like copper and aluminum by 100%, recycling and reuse would still not be enough to meet the demand for renewable energy technologies and energy storage.

However, the reports points out that the current supply of some minerals would need to be consumed (for example, 87 percent of aluminum) to meet demand for green energy, such as solar panels. 

How this will affect world markets is yet to be seen, but can only be disruptive and inflationary, to say the least. 

An emboldened Fed

The Federal Reserve minutes of the May meeting gave investors a pretty clear roadmap for the summer. The minutes, out Wednesday afternoon, painted a picture of an FOMC strongly focused on inflation, with rate hikes of 50 basis points in the June and July meetings. But some members also indicated that price pressures may not be getting worse.

Stocks rally: The market appeared to take the minutes as more dovish than hawkish. Half-point hikes were already priced in for the next couple of meetings and there was no mention of 75-basis-point moves that had become the base case for a few Wall Street banks at the end of April.

The S&P 500 (SPY) rose about 1% to finish out the session and S&P futures (SPX) are up again this morning. Treasury yields (SHY) (TBT) (TLT) continued to creep lower Friday.

Data dependence: "We think that after the July meeting the Fed is likely to become more 'data dependent' with regard to rate hikes, which essentially means that the policy path after July will depend upon the trajectory of inflation and progress toward correcting the supply/demand imbalances in the labor market," BlackRock fixed income strategist Bob Miller said.

There are already signs that the U.S. economy is weakening. Of the last 19 major economic indicators, 13 have missed economists' expectations, Nomura noted. The question is whether that will bring about a Fed pause, which stock bulls are hoping for, or will it stiffen the central bank's resolve.

If there are signs of falling inflation and improved labor market imbalances "the Fed gains some breathing room and can shift policy adjustments to 25 bps increments, while still pursuing something in the estimated range of neutral," Miller said.

Pantheon Macro economist Ian Shepherdson says the door is still open to a smaller hike in July given the minutes show policymakers "appear utterly oblivious ... to the rollover in housing demand, which has been evident in the mortgage applications data since the turn of the year." That will change in the June minutes, he added.

But Nomura strategist Charlie McElligott says those hoping for a Fed pause will likely be disappointed, noting Fed chief Powell's willingness to endure "some pain" in getting price stability.

"I think that if anything, the Fed is seeing the results of their (financial conditions index) tightening campaign through these broad measures 'slowing' and could actually become incrementally 'emboldened' to keep PUSHING on their hiking path until they see the 'whites of the eyes' of sustainably lower inflation as opposed to the notion of 'pausing and hoping' for the inflation data to move lower - a view that is increasing held by some in the market," he said.

Earth To Powell, Come In Chairman Powell

The wheels are coming off the economy and the stock market has suffered one of its worst two month sell offs in American history, but that’s not the way our esteemed Fed Chairman Jerome Powell sees things. Here are his comments from last week:

“The underlying strength of the U.S. economy is really good right now. The U.S. economy is strong, the labor market is extremely strong. It is still at very healthy levels. Retail sales numbers, the economy is strong. Consumer balance sheets are healthy. Businesses are healthy. The banks are well-capitalized. This is a strong economy.”

Now isn’t that reassuring? Never mind that the growth rate of this “strong economy” so far this year is less than one percent.

But he wasn’t done with his happy talk. When the Fed chief was asked about whether he is behind the curve on raising rates (which he clearly is), Powell had this to say:

"By the standards of central bank practices in recent years, we've moved about as fast as we have in several decades.”

This is a non sequitur because the reason the Fed hasn’t had big rate hikes “for several decades,” Jay, is because we haven’t had to combat eight percent inflation for three decades.

Powell’s lame steps to bring down inflation reminds us of a favorite old joke. What did the snail say when he climbed on the back of the tortoise?

WHEE!

The Law of Supply and Demand: Housing Sales Fall

A normal supply and demand curve indicates that as prices increase, demand will moderate or decline, until the curve reaches a new equilibrium. That is what is happening this year in housing. 

Sales of new single-family homes plunged in April, declining 16.6 percent to 591,000 at a seasonally-adjusted annual rate from a 709,000 pace in March and just slightly ahead of the 582,000 pace at the bottom of the lockdown recession. 

The April drop follows a 10.5 percent decline in March, a 4.7 percent fall in February, and a 1.0 percent drop in January. The four-month run of decreases leaves sales down 26.9 percent from the year-ago level (see chart). Meanwhile, 30-year fixed rate mortgages were 5.3 percent in late May, up sharply from a low of 2.65 percent in January 2021.

The median sales price of a new single-family home was $450,600, up from $435,000 in April (not seasonally adjusted). The gain from a year ago is 19.6 percent versus a 21.0 percent 12-month gain in April. On a 12-month average basis, the median single-family home price is still at a record high.

The total inventory of new single-family homes for sale jumped 8.3 percent to 444,000 in April, putting the months’ supply (inventory times 12 divided by the annual selling rate) at 9.0, up 30.4 percent from April and 91.5 percent above the year-ago level. 

The months’ supply is at a very high level by historical comparison and is approaching peaks associated with prior recessions. The plunge in sales, high months’ supply, and surge in mortgage rates should weigh on median home prices in coming months and quarters. However, the median time on the market for a new home remained very low in April, coming in at 2.8 months versus 3.9 in March.

Beware The Impending Natural Gas Crisis

(Update 5/24: Since publishing this article (May 23), the price of Natural Gas increased to $8.81 per MMBtu or 8.6% on the NY Mercantile Exchange. The price of oil is $110.57 per barrel.)

Since Biden was elected president with his declaration of war against fossil fuel production, the oil price has spiked from $60 a barrel to above $100 a barrel, an increase of about 70%. Gas prices at the pump have surged nationally at a similar pace, from $2.59 a gallon under Trump to about $4.59 a gallon last week. 

But don’t fret, because the Biden White House is “doing everything we can to bring gas prices down.”

Another energy crisis may be brewing, and that is a result of the surge of natural gas prices. (Don’t forget, natural gas is by far the number one source for electric power generation in America.) Here at home, those prices have climbed from less than $3 per MMBtu in 2020 to $7.40 as of last week. (See chart.) This is close to a 150% increase in price.

James Grant from the Interest Rate Observer warns that the price may double or triple in the months ahead. 

Why? Because the overseas price of natural gas is closer to $30 per MMBtu – versus less than $8 here. To arbitrage, this price differential, American and Canadian energy companies are expected to increase exports of liquefied natural gas – which would mean lower prices abroad and higher energy prices here. Grant reports that a big spike in the domestic natural gas prices could be “the next black swan event” and the soaring energy costs could trigger a recession.

Aren’t you thrilled that Energy Secretary Jennifer Granholm is on the job to prevent this calamity from happening?

Price controls again? Some people never learn

As I've mentioned before these pages, price controls that were last employed on a widespread basis during the 1970s inflation era were eventually discarded by both parties as an abysmal failure. So we shouldn’t be too surprised that House Speaker Nancy Pelosi wants to bring them back.

On Thursday, Pelosi pushed through the House her Consumer Fuel Price Gouging Prevention Act – which would allow the president to declare an “energy emergency proclamation” when prices are rising. During the emergency, companies would be barred from charging “unconscionably excessive” prices for gasoline or any other fuels. The Federal Trade Commission and state attorneys general would be empowered to pursue violators.

There is no legal definition of price gouging, but apparently, it is the new pornography – the pols know it when they see it.

Sadly, only four Democrats – Liz Fletcher of Texas, Jared Golden of Maine, Kathleen Rice of New York, and Stephanie Murphy of Florida – voted no.

Pelosi isn’t done yet. She is now pressuring the administration to file criminal charges against baby formula companies. “I think there might be a need for indictment,” Pelosi said when asked about her plans to combat the formula shortage. No one mentioned that even her own Appropriations Committee chair admits the baby formula shortage was primarily caused by the FDA’s months-long failure to investigate poor sanitary procedures at an Abbott plant in South Dakota.

These price control measures will make supply chain problems worse and cause prices to rise even faster.

Speaker of the House insultingly tears up Trump's speech during his State of the Union. She is one of the most disgraceful and corrupt people to "serve" in the U.S. Congress. 

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

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.

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.

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.

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.

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