7 Reasons Why Analysts Are FURIOUS With The Fed!
TOP TEN AI PROMPTS TO SAVE HUNDREDS OF HOURS OF WORK
The above headline was the point of this excellent tweet thread. I highly recommend it for anyone who is still trying to figure out how to use AI.
JUMBO LOANS GOING BY THE WAYSIDE?
Rob Chrisman, the mortgage industry’s premier blogger, wrote this yesterday: “On the investor call, Jamie Dimon noted that First Republic’s core business of “making very large cheap mortgages will not happen going forward.” Other banks have also reduced their appetite for on-balance sheet jumbo mortgages. An increase in mortgage rates from bank lenders should be a positive for non-bank lenders that use the securitization market for financing.”
Hence, it appears that First Republic will not continue to offer very low rate mortgages and that the jumbo market may in fact return to the mortgage banking world much like pre-2008, when brokers and mortgage banks could beat commercial banks at any given time. We’re ready. 😊
TOP MACRO GUYS ARE INCREDULOUS AND LIVID!
I have never seen so much frustration and anger expressed over policy errors as I have over the last week – and it is all because the Fed is poised to raise the Fed Funds Rate 0.25% today. This will bring us to a 16-year high in what has been the fastest rate hiking cycle in history, and it will likely bring our economy to its knees.
BYE, BYE BANKS: One of the most frustrated macro pundits is Christopher Whalen, who is probably more of a banking expert than a macro analyst. BUT – he is adamant that the current high-rate environment will bring down the entire commercial banking sector, as banks all bought bonds and made loans with the expectation that rates would remain very low for a long time (based on the Fed’s comments). And, per Mr. Whalen, there is simply no way many banks can survive, and that First Republic is most definitely NOT the last domino to fall.
Note: the combined assets of the banks that have failed this year are 50% HIGHER than ALL of the assets of the banks that failed in 2009, and if Mr. Whalen is correct, we are just getting started.
INFLATION: Barry Habib reminds us again today that inflation numbers are plummeting, as PPI has fallen from 11% to 2.7%, and CPI and PCE numbers are also falling fast. Inflation numbers will only fall that much faster once shelter numbers (lower rents) work their way into inflation figures.
INVERTED YIELD CURVES: Jeff Snider focuses on this factor (where short-term rates are higher than long-term rates), as inverted yield curves are very clear and concrete indications that investors expect rates to fall. Snider says we will see numerous cuts this year in fact, pointing out too how accurate these indicators have been in the past.
RECESSION COMING SOON: Even the Fed’s own analysts are now predicting a recession, per Mr. Habib, along with most other economists and macro pundits. So, raising rates going into a recession “is like eating an entire cake the day before you start a diet,” per Mr. Habib.
COMMERCIAL REAL ESTATE (CRE): This may be the biggest threat to our economy right now, as office vacancies, plummeting rents, empty downtowns and higher interest rates are threatening to bring down this $20+ trillion asset class. Because regional banks are so exposed to this problem (with their massive CRE loan portfolios), continued rate hikes are just additional nails in the coffin.
LABOR MARKET: We are seeing job cuts surge and job openings plummet in real-time. So, the Fed’s obsession with a “tight labor” market is dead wrong, per Habib, Snider, and many others.
LAGS: Labor markets lag too, as job losses and unemployment don’t peak until we are well into a recession (so looking at today’s numbers are misleading in any case). Further, we usually don’t see the full effects of rate cuts until 12 to 14 months after they start. This is a point that both Danielle DiMartino Booth and Stephanie Pomboy make often.
WHY IS POWELL PUNISHING THE WORLD? I have mentioned this before, but he does not want to be the next Arthur Burns, the Fed Chair who oversaw the 1970s inflation debacle and who “lowered rates too soon.” Also, per Mr. Habib, Mr. Powell is just a lawyer who simply does not understand macroeconomics well enough.
SUMMARY: The Fed’s screwing up badly, according to the bulk of the macro analysts I follow. Hence, it appears that we can still expect much lower rates and a recession later this year. And, ironically, today’s rate increase could likely result in even lower rates and a worse recession.
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