The screaming has started.
Yes the torrent of fed criticism has begun.
More and more public pressure will be placed on the fed to pivot.
But pivoting is no solution.
It will just lead to more inflation.
There are no good solutions left.
Can't wait for the requisite Cramer meltdown to "do something".
The fed has just let the market find its own level on rates.
The calls to pivot are profoundly anti market.
I did the thing today that brings me the most joy and which is the greatest use of my fleeting time on this dumpster-fire planet.
I sat next to my wife somewhere and we watched our boy play baseball.
Life is good.
Glad to hear your procedure went well. Great call on the markets. Been following closely. I am in the metals business and what we are seeing are premiums on products across the board are rising on the bid and offer side. Although the paper price is going down, rising premiums are offsetting some of the pain. Number of large wholesalers are running out of inventory.
Maybe Powell will come out and give another speech?
Maybe he'll even travel to Jackson Hole and invite the plutocracy to attend?
I called that speech "stupid," because it was a substitute for action.
The Fed never hesitated to cut rates in between meetings the past 30 years.
It should have raised rates once between meetings to demonstrate some measure of catch-up.
It should raise rates today.
Tell me I'm wrong.
Sandy Beach mentioned money market funds. Some interesting data here. Not as much growth as you'd think. Retail funds only up $85 billion since December per FRED data, and the OFR shows a persistent decline in government MMFs over the same time frame. This includes institutional MMFs, which are twice the size of retail funds.
ICI has granular weekly and monthly data. It shows Retail funds up only $40 billion since March, when short term rates began to rise sharply. All of the gain was in non government MMFs. Government MMFs declined.
Another OFR data set shows how the Treasury's T-bill paydowns forced the MMFs out of their T-bill holdings. That money went straight into the Fed's RRP fund for MMFs.
MMFs are really a sideshow to the main event, the Primary Dealers. That's what I focus on in my research. They're the house. They run the markets, normally on behalf of the Fed. But the narcissists at the Fed no longer have any use for their strawmen dealers. So the Fed has abandoned them to the whims of their institutional customers.
The Bond Rally That Fooled The Majority And Didn’t Help Dealers
Honestly gave up trying to understand what Jeff Snider's point was a long time ago. I suspect that he may be clinically insane.
The only person I find worth reading is Doug Noland, and I don't have time even for him. But often when I do read him, a lightbulb goes on for something for me to think about, even things that I disagree with.
Rental real estate is different that stocks because the tenant is not only paying your mortgage, he's paying the interest on it also. So as long as you are cash flow positive, you come out ahead if you just hold. The tenant gives you a return on capital and of capital, regardless of price, if you just hold long enough.
I know plenty of people who did very well by buying well located residential real estate and holding it forever. The increase in income enabled them to buy more property. Wash rinse repeat, and never sell. Cash flow just grows forever.
But it's always about location.
Six months ago, separate friends of mine who know each other bought some residential real estate. We got into a four-way text conversation in March as rates crept up about the impact of rising rates on real estate. Did the basic math to calculate the erosion in financing power that the move from 2.5% to 3.5% or whatever had generated; and the difference between what loan/property someone might afford with an ability to spend $3k/month on a mortgage payment. Told ‘em prices must go lower. Fourth buddy agreed emphatically with basic math, but the other two insisted somehow magically purchasing power would prove robust & sticky. Didn’t matter for their small rental properties per se - although, their capital is definitely stuck at cost… indefinitely. It’s just an anecdote about people, capital, hope & math.
Your chart is about people, capital, math & despair.
Moved some of it. Not all of it. Too much, unfortunately. Coulda shoulda woulda.
My bank has a euro deposit account, but the haircut is obscene. I should have opened an account at Interactive Brokers, deposited the doodahs there and made the switch there. Would cost next to nothing. Thing is, I despise Thomsass Petersflysopen, and I didn wanna do it. Didnwanna do it. So I paid through the nose instead.
The chunk I left in doodahs will be moved to an IB Yourapeein account that I open here. Probably will open the account next week now that I will have a permanent address Tamara.
From my perspective. It's just a continuation. 2000 never ended.
I traded each leg of the crash in the Nasdaq on this very forum. From top to bottom. I will mention...my was handle was "Ora(c)l(e) of Omaha" before Doc kindly changed it for me. I showed up shortly after the site started. I think there were about 30 guys here when I showed up and that swelled up another 100 or so shortly after and just slowly expanded from there.
While on that topic...
Where's that tip button Doc? I remember being able to PP you some tip money now and then?
Is the "Support your Local Stool Board" the right button to punch?
Bread and pastries aren't free in France are they?
Meanwhile, back at the bond market, the chart of the 10 year yield looks bullish as hell. Bullish for yield, bearish as hell for bond prices.
Below is the weekly chart of the 20 Year Treasury Bond ETF. Oh, the humanity.
This, ultimately is bearish as hell for everything. Historically, stocks have lagged bonds by 4-6 months. But this bond bear market has been going on for 20 months. When will it matter? Soon.
A BAD WITHDRAWAL
Mr Market is having a bad withdrawal.
Dealer Jay has cut him off.
But only temporarily....to teach him a lesson.
The simple fact is the Fed has to print and inflate to sustain the system.
If it does not then it's hard default.
That's why it chooses inflation.....soft default....every time.
We know from the real time US Federal tax withholding data that the December jobs gain was NOT just 199k jobs. Withholding had a 3.2% higher annual growth rate in December than in November. That would equate with not 199,000 new jobs. More like 1.99 million.
Now before you get too excited, not all of that increase in withholding was an increase in the number of jobs. The average weekly earnings rose by 0.8% M/M so that the real rate of change was 2.4%.
We also know that withholding taxes include distributions other than regular income, particularly employee 401K and IRA distributions, which are subject to withholding. We can assume that these were higher this year than last year, but we don't know how much. It's unlikely that this would account for all of the difference between November and December.
The 2.4% month to month real increase in withholding is the biggest since the initial post pandemic y/y surge in May. That surge settled down in June. December's is the strongest monthly performance since then. It is a full 1 % better than the previous peak in the year to year growth rate, in October.
The BLS said that October jobs increased by 648,000. We have a 1% stronger annual increase in withholding taxes in December and yet the BLS reports only 199,000 gain in jobs? I mean WTF are they doing? Where are the other 447,000 jobs? Plus 1%. How did they miss that? Forget the tax data.
Their own data says they missed a huge chunk of the jobs that were added last month.
Let's use the BLS's own data. Let's look at December, not seasonally manipulated data, in other words, the actual number that they derived from their survey's before seasonal adjustment, for the previous 10 years. This is the month to month change that they themselves derived from their own surveys.
What do you notice about this data?
That's right. Every single December there were fewer jobs versus November.
Except for one. This year.
December 2021 has the only gain in jobs in the last 11 years. It was the best performer, by far, of all of the last 11 Decembers. Yet the BLS managed to see only a tepid gain of 199k in its headline number.
Now let's see how the BLS ranks this December with the past 10 Decembers on the basis of their seasonally adjusted headline number. The M/M column shows the change from November each year. Rank is how that December ranked among the 11 years. December 2021 ranked 7th, that is, fourth worst of the last 11 years.
How is is that they only managed to see an increase of 199k, ranking the 4th worst in the last 11 years, when last month was actually the best of the 11 years.
How is that reasonably possible. It's ridiculous. It's absurd. It's criminal. And yet Wall Street takes this garbage seriously.
Here's another way to look at it. Based on the BLS headline number, the December 2021 M/M change increased over December 2020's performance by 505K. That makes sense because December 2020 was terrible.
But the actual data, NSA, says that it really increased by 591K. The BLS's own data shows that it missed at least 85,000 jobs. It also shows that the NSA data for December was +74,000 over December 2015 which BLS says was the best December of the previous decade. If last month was 74K better, then the headline number should have been 273k+74k= 347k.
So even the BLS own data shows that they undercounted by anywhere from 85k to 306k.
The only miss here was by the BLS. It missed the creation of a couple hundred thousand jobs. Based on the withholding tax data, they actually missed far more than that.
Bond traders are not fooled by the BLS's statistical garbage.
The 10 year yield has broken out and is headed for the projections I reported yesterday.
They're so full of crap. He knows that any reduction in QE, let alone a balance sheet runoff, will be disruptive. Yellen already tried it and look how far that got. The answer is 3.2%. That's how high the 10 year got in October 2018 when the Fed started to choke on its vomit.
I don't see any real sign of stress yet here in the South of France. Hotels are still full, and rates are high. Restaurants are busy and I haven't seen much in the way of price increases lately. I noticed rising prices earlier in the summer.
I don't follow local media however. I am far from fluent in French.
All the reason to own physical precious metals. .......And I looked, and behold a pale horse: and his name that sat on him was Bernanke, and Hell followed with him. And power was given unto them to print and expand the balance sheet at will, to kill with inflation and Wall Street bailouts, and with political uncertainty unleash all the beasts of the earth.
agree with your assessment. I want the younger generations to have a prosperous life with opportunity abound. However the cycle of greed and overuse of debt will circle around and become a ball and chain for many. The precious metals simply represent freedom of counterparty and systemic risk. My fear is that the walls are closing in and paper assets will not provide much hedge in this coming bear market. I am grateful to read this board everyday. It brings a sense of sanity to this financial mess we are witnessing.
You could see and hear and just feel Powell's fear and confusion. It was obvious and stunning. Having been punched in the face by inflation, the Fed no longer has a plan. Powell is on the mat, babbling, foaming at the mouth, and bleeding from the nose.
Actually, the Fed never has a plan. It just reacts to whatever the US economy is doing. The Fed believes that by tinkering with monetary policy, the economy will just do what Economic religion says it will do. So the Fed says things that it thinks will impress economists, and then it attempts to make policy fit what it says, expecting the economy will do what the high priests of economism say it will.
It doesn't work that way. The US economy is going to do what it's going to do, based on a myriad of forces and cycles over which the Fed has no control, and no influence. The idea that the Fed is in control is an illusion. It's religion, not fact.
Print money and the economy will expand Economism's high priests say. Yeah, well. Print money, and give it only to banks and speculators, and asset prices will inflate. That is certain, and we've seen it in action not just for the 12 years of QE, but for decades before when the Bank of Japan first did it.
Having the BoJ's example, that's what the Fed did with QE and ZIRP for 12 years. Financial asset prices rose to the moon, and the Fed was happy as shit about it because they and their cronies and clients were getting richer and richer.
A couple of them got caught with their hands in the cookie jar. Tip of the iceberg.
Print money and use fiscal policy to get it in the hands of the general population, and consumer prices and wages will inflate. That's what we've had for the past year. When Covid came along, politicians decided to spend even more money and get some of it in the hands of regular people, lest the politicians lose their jobs. That money didn't exist. The government had to borrow it. Investors didn't have the cash to buy the paper, so the Fed had to print it and give it to the Primary Dealers so that they could buy the government paper. The Fed initially printed double what was needed to buy the new government paper. So the dealers bought stocks too. We were off to the races.
But the government enacted laws to divert money into the pocketbooks of normal people. They started buying stuff. Meanwhile corporate CEOs had been so busy using free money to buy back their company's stocks and unload their self issued stock options in the process, they forgot to invest in growing plant and equipment, and investing in happy labor forces. They forgot to grow the capacity to produce more.
So when the politicians decided to put money in people's pockets the economy was unable to produce enough to meet demand. Voila! Inflation.
Now with financial asset prices beginning to deflate, and interest rates rising, we'll get even less investment in growing production. Eventually the economy will contract violently, but until it does, people will keep spending, and consumer prices will continue to inflate.
Well, the Fed and its backers are none to happy about the fact that consumer prices and wages are rising. That's different from their joy at seeing their own asset prices inflate.
Because the Fed is mandated first to control inflation. Not asset inflation. Consumer price inflation. So it has to do something that the high priests of Economism say will control inflation. Tighten money and raise interest rates.
The Fed's problem is that investors and traders are not impacted by rising interest rates, at least not until they are so high that they're punitive relative to the recent inflation rate of financial assets. But they are impacted by tightening money, and the Fed is aggressively tightening money by reducing its QE purchases from Primary Dealers from $180-200 billion a month gross, in the middle of last year, to zero in March.
That's a draconian, unprecedented tightening BECAUSE the market must still absorb $100-200 billion per month in new Treasury issuance, month after month. That number will shrink to the low end of that range in the months ahead as last year's massive stimulus programs expire. But it remains a gigantic problem because the Fed won't be there to buy any of it.
The Fed had been buying or indirectly funding almost all new issuance. What happens when they're not there to buy even a hundred billion a month in new issuance? The market will choke on that. Bond prices will crater and yields will soar. Margin calls will go out across the firmament and darkness will descend on the markets.
Treasury prices will fall, stock prices fall, and the prices of all financial assets fall because dealers and leveraged speculators must liquidate. Primary Dealers must liquidate because the are REQUIRED to buy more Treasuries at every auction. The Fed was buying all of that from them, cashing them out week in and week out. Now it's taking less than half. Soon it will be zero.
Zero. And then the Fed is talking about shrinking its balance sheet? Fuggedaboutit. That would put even more Treasury supply on the market. It's inconceivable to me that the Fed would even think about it, let alone put the thought out there. It doesn't matter how they do it. The fact that they're thinking about shows just how clueless and delusional they are.
Dealers are feeling it. They no longer have ample cash from the Fed to enable them to absorb new supply without market disruption. They have no choice but sell some of their bond, stock and other inventory to raise liquidity. That drives prices lower, and margin calls go out to everybody else.
Sell Mortimer! Sell!
The Fed is engineering a catastrophe.
Powell said yesterday that the Fed doesn't control the yield curve. That was an obvious prima facie, bald faced lie. Someone should have followed up and asked him, "Hey, asshole, if the Fed doesn't control the yield curve, what the hell was a couple years of Operation Twist all about?"
The slope of the yield curve is irrelevant, but the overall level of yields is not. As they go higher, they are a meter of how tight and distressed the market is. They've been going higher since August 2020. Don't look now, but we've been in a bond bear market for a year and a half. Yields have been rising for that long. They are rising now, and they'll continue to go higher as the Fed tightens money, and the Treasury continues to flood the market with new supply, month in and month out.
The Fed will watch with fear and loathing, but must continue to tighten the screws because of its legal mandate to control inflation. Either Congress must change that mandate, or the Fed must adhere to it.
Powell knows that the wheels are coming off. He has to face Congress. He has to answer for the consequences to come of the Fed's disastrous and evil policies of QE and ZIRP. The Fed has created a monster. Now it, and we, shall all reap the whirlwind.
Primary Dealers No Longer in Remulak
I'm about to take a nice walk back to Krakow Glowny station for the train ride back to Warsaw. I love Krakow, a freakishly charming, beautiful, quintessentially European city. I would love to live here.