“These delayed settlements are recorded as commitments to buy MBS and have steadily declined over the months. These commitments obscure the steady drop of Fed MBS holdings but will dissipate in a few months.”
So basically, it’s going to take the Fed 8 months to really see its MBS portfolio decline. As I’ve said many times before, the Fed will do everything it can to keep the housing market from collapsing. The good news for them is the 30YFRM has been high since April, and all we’ve seen to-date is a notable drop in demand coupled with slowly declining YoY price increases. At the rate the later is going, it might take us until Oct or Nov to see YoY price declines. I have to admit that I was surprised with last week’s spike in 30YFRM, but I say it’s just like lumber futures speculators from about three weeks ago. Faced with a mountain of data showing new homes sales declines, forcing lumber futures down below $500 per 1000 bf, the speculators spiked it for about a week up over $600. I say this latest spike in mortgage rates with the investors looking to lock in one last round of gullible buyers before we see a stead & slow decline of rates below 5%.
Commodities are down across the board, helping the outlook for CPI reductions in the coming months. I agree with others that rent prices over the next 6-9 months will help keep CPI elevated, but it’s likely YoY increases will drop to 3-4% by January 2023 when 1/2022 CPI was at 7.5%.
9TIMES9
1 year ago
How does QT now matter in any real way? They keep passing spending bills every few months for 700 billion here a trillion there. That is on top of budgets that increase every year by trillions. They hide all this in accounting tricks and move money into different quarters and different years and different decades. What ever debt number or deficit number they tell you needs to be multiplied by 5 or 10 to get close to any real actual true number. What is the point of accounting anything if they just keep printing more money?
No need for paranoid conspiracy theories. There are no accounting tricks since so far, there are plenty of willing Treasury issues buyers out there as the sub-3% yielding 10-year Treasury shows.
I would suppose that as the Fed is doing QT it’s not likely to purchase any new US debt, ensuring its balance sheet runoff continues. The problem, of course, arises sometime next when we enter a recession. Will the Fed’s pivot also include funding new debt? I think they planned the runoff to last something like 4 years. Anyone who thinks we’re going to go 4 years without the Fed ramping up QE again is crazy.
PAncho
1 year ago
It all about trust……our governing institutions have spent all that trust, plus some. End the Fed!
While technically, “QT” may be defined in such a way as to be “happening” this instant: As long as everyone knows it will be reversed several times over as soon as anyone connected starts hurting even the slightest as a result of it happening, it not has no meaningful effect on economic actions.
Everyone knows that any “QT” will be reversed long before it has any meaningful effect. Even the child brained, unintelligent, incompetent and illiterate, but oh-so connected and useful, idiots installed in C-suites and “Investment” banks have, being good Pavlov dogs and all, figured that one out by now. Despite all of them, to a person, by now being way to stupid to comprehend anything more complimecated than exactly that.
8dots
1 year ago
In Nov 2007 gold reached 850.
8dots
1 year ago
In Nov 2008 gold reached 850, after rising from 256 in 2002. Four backbones form the 2011 bubble. // The highest, BB #4 May 2 2011 hi/lo : 1,577/1462. It supported gold between Sept 26 2011 low and Apr 8 2013 high. // Gold reached BB#4 in Aug 16 2019. The 2020 low
breached BB #4. Gold peaked in Aug 3 2020 @2,089.20. // In order to move higher there must be a weekly close > 2,089.20. In order to move lower there must be a close < 1,673.30 in Mar 8 2021. BB#4 is next stop…
I note that gold plated tungsten is doing quite well.
Six000mileyear
1 year ago
I’m an engineer and find QT confusing. I’m sure QT (not the descriptions of it by Wang , Booth, and MISH) is confusing by design. So it would be very easy for someone to come to a wrong conclusion who has not spent weeks deciphering the FED’s descriptions of its QT strategy. The simple solution is to end the FED.
And that’s not going to happen, because then the rich wouldn’t get bailed out. Nope, nada, not going to happen.
Personally, I don’t think the Fed is all that bad, but they need to have limits put around their policies just like Congress needs a balance budget amendment + term limits.
the FED was set up to confuse 99%. by the architects and owners. the bankers. folks are very confused by history of who set it up and why and how. they have only 1 mandate. to keep their shareholder equity owners, the banks in nyc, in high cotton. all the others stuff is rubbish to confuse. i’ve been saying for a year, the Fed is serious about raising rates as powell has been broadcasting to wealthy men to be prepared. some of us listened. there is no reason for the bankers who control the fed, to make enemies. just keep the game going. and it will. there is no andrew jackson moment coming. good stuff mish. glad to see you’ve come over to the side that fed is serious about stomping on runaway inflation. they don’t need another mess. last time the us treasury sec had to get on knee to bet pelosi for bailouts. riled up the people, like me and all the readers here.
Maximus_Minimus
1 year ago
“The Fed’s Treasury portfolio continued to grow even after QE due to principal adjustments from TIPs, a type of Treasury intended to protect the investor from inflation by adjusting the principal of the security each month by CPI.”
That explain the increase, but not why the FED was buying TIPS in the first place.
They pumped inflation to meet their self-defined target, and then buy TIPS as an inflation protection? WTF?
Jackula
1 year ago
Thanks for the insight…lots of FUD these days
TheCaptain
1 year ago
Yes, QT is happening until they break the economy and then they will reverse course. Continue to buy physical gold and silver bullion while you can at these cheap prices.
8dots
1 year ago
Suppose next year Y/Y negative CPI. All Fed asset descending. // Fed assets – RRP = Net. // RRP is a valve to regulate the economy, currently
slightly below peak. // Game theory. : new exogenous causes send SPX down to June hi/lo area. What will be JP response.
Option #1 : cut rates. Option #2 : release RRP liquidity, thus reducing good collateral in the o/n market. Option #3 : QE to $15T
Doug78
1 year ago
Since the Fed is doing QT then inflation will drop to reasonable levels all the sooner. Perhaps some have noticed that commodity prices have dropped nicely and that lots of new oil and gas projects are being planned, financed and building in many places in the world. That and with demand destruction we can expect inflation to moderate. It won’t be immediate nor go back to the very low levels we saw before but with the higher rates coming and a Fed that I am starting to believe will hold the course then inflation will not be the problem like it was in the 70’s.
One of the credit card companies heads stated that there has been a huge spike in people who make over 100,000 going to Walmart and dollar stores to buy their food!!!
I never said overall inflation has peaked only that commodities have. Inflation from labor costs have not yet peaked but with an economic slowdown they will peak soon also.
Pete Venkman
1 year ago
I guess I’m missing something although in general I agree you’re correct that in the main their actions consist of QT, but this sentence seems that some unnecessary QE continues, to wit: why must MBS repayments be reinvested ??!! “ The Fed is still receiving MBS principal repayments each month that must be reinvested, so its MBS holdings continue to show periodic spikes even as overall MBS holdings are declining”
The amounts reinvested are those received from payments and payoffs above the monthly MBS QT cap. That should stop next month when the cap doubles.
kewtiepie
1 year ago
By objectifying females and reducing them ti simply body parts to stimulate and titillate your unthrilling life, it makes it very easy to dismiss abuse to something that’s an object and not a human being. I know that makes your day and it makes you respect that person all the more by screenshotting them and acknowledging that unless they show their female body parts to gross men like you, they will be unemployed
Outside money vs. inside money. Commercial bank credit continues to increase at an increasing rate of change. The last bottom in the 10mo roc was on 2/3/2021 15171.18 @ 0.020. The last bottom in the 24mo roc was on 1/13/2021 15075.43 @ 0.145.
Today the 10mo roc is @ 8/10/2022 = 0.073. Today the 24mo roc is @ 8/10/2022 17325.32 = 0.161
The FED is not tight. The FOMC’s proviso “bank credit proxy” used to be
included in the FOMC’s directive during the Sept 66 – Sept 69 period.
“1966 A new measure, the bank credit proxy, was
developed during the year in order to get current information about the
operating guide more frequently. This measure infers changes in member bank
loans and investments (assets) from changes in member hank deposits
(liabilities). Deposit data are available weekly on a daily average basis,
whereas bank credit data are available less frequently.”
At least bank loans command some kind of market prevailing interest rate, unlike QE funny money which buys interest-earning assets with zero-interest cash.
Considering how loose the FED was, it seems they would have to ratchet the screw several turns to get tight. Bullard was talking up another 75 basis point ratchet of the screw at the next meeting.
So, long-term money flows (means-of-payment money) are decelerating.
Naphtali
1 year ago
The chart “Commitments to Buy Mortgage Backed Securities” is perhaps a very revealing harbinger of things to come for RE. Are these purchase commitments per month?
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included in the FOMC’s directive during the Sept 66 – Sept 69 period.
“1966 A new measure, the bank credit proxy, was
developed during the year in order to get current information about the
operating guide more frequently. This measure infers changes in member bank
loans and investments (assets) from changes in member hank deposits
(liabilities). Deposit data are available weekly on a daily average basis,
whereas bank credit data are available less frequently.”
01/1/2022 ,,,,, 1.887
So, long-term money flows (means-of-payment money) are decelerating.