The Keep: All Households Created During “Recovery” Were Renters

There was a movie from 1983 called “The Keep” with Scott Glenn, Gabriel Byrne, Jürgen Prochnow and Ian McKellen. A great cast, to be sure, but the nemesis in the movie was … a man in a rubber suit.

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The title “The Keep” is more appropriate for the NON recovery of the US economy and housing in particular. That is, did The Fed’s monetary policy help KEEP households in rentership mode? (And its another name for The Federal Reserve building on Constitution Avenue in Washington DC).

If we look at households created during “the recovery” and all The Fed’s monetary stimulus, all households created were renters.

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This is not all that surprising since home price growth is 13.3X wage growth.

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But the US is not alone in poor wage growth. Europe, UK, Japan and the US are all suffering stagnant wage growth. While house prices are booming in many countries.

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The US homeownership rate keeps falling despite The Fed’s massive intervention.

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Any wonder why the M1 Money Multiplier and M2 Money Velocity are so low?

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Like in the movie “The Keep” you will have to rent.

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Janet Yellen’s “Pat Paulsen” Speech: The Fed May Or May Not Raise Rates

Janet Yellen gave yet another speech, this time in her home base of San Francisco. Here it is! 260150092-Yellen-Speech-March-27

In short, she said … nothing. The Fed may raise rates or they may not. And they don’t know when.

To conclude, let me emphasize that in determining when to initially increase its target range for the federal funds rate and how to adjust it thereafter, the Committee’s decisions will be data dependent, reflecting evolving judgments concerning the implications of incoming information for the economic outlook. We cannot be certain about the underlying strength of the expansion, the maximum level of employment consistent with price stability, or the longer-run level of interest rates consistent with maximum employment. Policy must adjust as our understanding of these factors changes. However, if conditions do evolve in the manner that most of my FOMC colleagues and I anticipate, I would expect the level of the federal funds rate to be normalized only gradually, reflecting the gradual diminution of headwinds from the financial crisis and the balance of risks I have enumerated of moving either too slowly or too quickly. Nothing about the course of the Committee’s actions is predetermined except the Committee’s commitment to promote our dual mandate of maximum employment and price stability.

While I only have the written speech, here is a film of Pat Paulsen speaking. It contains the same gibberish as the Yellen speech.

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Is Trade Dying? Plunging Baltic Dry Index And Keep Commodity Prices Collapsing (Global Slowdown Continues)

Most of us know that the global economy is softer than the media and acknowledges. Even the powerhouse US economy is softer than The Federal Reserve is letting on.

We know that inflation (as measured by the YoY change in the Consumer Price Index) is negative. And the YoY change in Real Personal Consumption Expenditures (PCE) is falling as well. NOT a good sign.

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Then we have plunging core commodities such as West Texas Intermediate Crude oil falling like a rock along with raw material and food prices. While falling prices could be a sign of excess supply, the fact the shipping costs (as measured by the Baltic Dry Index) has fallen as well.

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Here is a longer-term perspective where the Baltic Dry (shipping cost) index is at all-time lows AND commodity prices are falling.

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As if this wasn’t bad enough news for you, it is happening as global Central Banks have gone wild … on the downside.

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Then there is this story from Reuters: “Global oil glut set to grow as China slows crude imports.”

How slow is the global economy? Burger King Japan has just introduced a cologne that smells like …. a Whopper.

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The global economy is slowing down and the US has declining core PCE growth. Perhaps we need some new models.

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Rising Dollar Makes It Hard for the Fed to Go Its Own Way (Follow The Green Back Road!)

As the Munchkins almost sang in The Wizard of Oz, “Follow the Green Back Road!”

(Bloomberg) — Federal Reserve officials are finding it harder than they first thought to decouple U.S. monetary policy from the rest of the world. While policy makers opened the door to an interest-rate increase later this year, Fed Chair Janet Yellen suggested they were in no hurry and said the pace of tightening, once begun, would be slower than previously anticipated. Behind the wary stance: a surge in the dollar, triggered in part by easier monetary policies abroad. The dollar’s strength is repressing already too-low U.S. inflation while restraining economic growth.

“In today’s interconnected world, it was probably a little naïve to believe the U.S. would be totally immune to global pressures,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Maybe every other central bank in the world cutting rates made them rethink their plans to go it alone.”

U.S. stock and bond prices rallied while the dollar sank in response to the statements from Yellen and the Fed. The Standard & Poor’s 500 index surged 1.2 percent, while the yield on 10-year Treasury notes sank 13 basis points to 1.92 percent.

Yes, Central Banks across the globe are following The Federal Reserve’s lead by skipping down The Green Back Road of lowering the main borrowing rates.

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But with Central Banks lowering their rate to near or below zero, it is difficult for The Federal Reserve to separate from the Munchkins skipping behind.

After The Fed made their announcement yesterday, the US dollar/Euro cross plunged, then regained most of the loss by this morning.

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And the US dollar basket keeps on rising. But for how long?

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Follow the Green Back Road!

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“We’re off to see the Wizard!”

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Here is The Banking Wizard of Oz watching Treasury Secretary Jacob Lew doing his cowardly lion impersonation. 

You see kids, The Wizard can give The Cowardly Lion courage by promising to fund the outrageous spending of the Federal government by purchasing their debt.

All The Fed’s Horses: Mortgage Purchase Applications Decline 1.50 Percent From Previous Week, Down 58 Percent Since 2007 (Same Week)

All the Fed’s horses and all The Fed’s men (sic) couldn’t put housing together again.

As we all eagerly await the announcement at 2pm EST of The Federal Reserve’s decision on raising interest rates, we got this rather daunting news about mortgage applications.

Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 13, 2015.

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The  NONseasonally adjusted Purchase Index decreased .73 percent from one week earlier. And is at the same level as last year at this time.

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Has The Federal Reserve’s monetary stimulus helped mortgage purchase applications? Despite the decline in the 30 year mortgage rate since 2007, mortgage purchase applications have fallen and are now 58 percent lower than on the same week in 2007 while the 30 year mortgage rate is lower by 307 basis points.

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The seasonally adjusted Purchase Index decreased 1.5 percent from one week earlier.  And remain in stall mode.

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The Refinance Index decreased 5 percent from the previous week.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent from 4.01 percent, with points increasing to 0.40 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

So, try as it might, The Federal Reserve has NOT been able to put the housing market back together again. At least for middle class households who rely on mortgage financing to purchase a home.

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Waiting For Godot: Janet Yellen Wants To Be Less Predictable(?)

(Bloomberg) — Janet Yellen wants to be less predictable, if only a little.

Should the Federal Reserve this week jettison a promise to remain “patient” about raising interest rates, as anticipated by economists, the omission will mark the end of an era in Fed communications policy and could usher in a period of greater market volatility.

Beginning in June, and for the first time since 2008, officials would be making rate decisions meeting-by-meeting, based purely on the data in front of them, rather than committing themselves to keeping borrowing costs low.

 While Fed Chair Yellen wants to wean investors from relying on central bank guidance on the future path of policy, she wants to avoid an excessive rise in bond yields that could sap growth.

“They want to normalize policy, and one part of normalizing is to inject some uncertainty over what the central bank will do,” said Roberto Perli, a former Fed official who is now a partner in Washington for Cornerstone Macro LLC. “Still, they don’t want the markets to go haywire.”

Well, The Fed Funds Target Rate seems to be pretty predictable.

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And The Fed’s Balance Sheet seems to be pretty predictable as well.

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And the claim that The Fed is at a zero bound is laughable. Europe has several countries with negative 5 year yields.

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At 2 year maturity, 12 EMEA countries have negative sovereign yields.

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The M1 Multiplier and M2 Money Velocity keeps a fallin’.

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Will The Fed drop the word “patient”? Probably. It all looks pretty predictable to me!

Let’s see what Chairman Godot announces tomorrow.

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Graphic courtesy of the great Arthur Cutten!

 The following painting is courtesy of Balthus depicting The Federal Reserve creating money (represented by a fish) out of thin air.

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Will The Fed Raise Rates Wednesday? Declining Inflation, Commodities And Capacity Utilization Below 80 Percent Signal “No”

Will she or won’t she? Only her husband George Akerlof knows for sure!

The Federal Reserve Open Market committee starts their meeting tomorrow (finishing Wednesday at 2pm EST). The question is: will The Fed begin raising rates?

Here are some facts to consider that may lead Yellen and Company to NOT raise rates.

1. CPI and PPI growth YoY are both negative. The Fed seems to be having problems hitting its target rate of inflation.

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2. Commodity prices have been in free fall since summer of 2014 (food, oil, metals, raw industrial). Hardly an encouraging indicator of expected growth in the underlying economy!

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3. Capacity utilization fell back in February to 79.8% from 79.4% in January. Economists were predicting 79.5%. Since exceeding 80% capacity utilization has historically been a trigger for increasing interest rates, this would not meet the acid test.

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If The Fed raises it’s rates this week, it will be Fed Chair Janet Yellen telling us that the US economy has nothing but untapped potential.

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