My bonus last year was far beyond what I expected as a direct result of the interest rate hikes and so far so good this year. I’d rather just not sweat a full blown financial crisis, that wouldn’t be good for me…. wouldn’t be good for most people.
So credit default swaps on Deutsche spiked, and it’s trading down about 10%. S&P -1.2% premarket. Should be another interesting one.
0 to 5% in one fucking year, insanity! Can’t get over it, what do these eggheads think is going to happen?
Can we try 0 to something like 3.50% first and see what happens? To borrow from Bill Simmons, “I’d like to see it first, is that so crazy? Can I see it first…”.
Maybe Powell should have hired him to be his VP of common sense.
0 to 3.5% was enough to decimate tech and CRE and put the entire US residential housing market on ice. Can we see the ramifications of those major events first before turning up the dial to 11? Maybe I’m crazy but think I’d like to see it.
LOL European banks. I get we aren’t exactly in a position to throw stones here but Credit Suisse, UBS, Deutche Bank, and Barclays have been in a decades long contest to see who can lose the most money racking up fines and making terrible business decisions.
Counterpoints: we’re going to 5% and the house I rent just hit a new all-time high value, DASH is up 25% ytd despite still not turning a profit, and we’ll see on CRE. Inflation is still 6%.
Anecdote is not data. Vast majority of houses are down:
The VP of common sense knows that a ton of potential sellers are hanging on for dear life and eventually will have to cave in. Especially as Powell is hellbent on making a # of them jobless.
I don’t think that says what you think it says.
Home-price growth continued to decelerate for the sixth straight month in December 2022. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released February 28, reports that price growth dropped by 1.8 percent from November to December — from 7.6 percent to 5.8 percent.
Price growth decelerating is not prices dropping.
This shows prices dropping from Q3 to Q4, but I’ve seen some talk that Q1 may be rising again, which matches what I’m seeing locally.
Meanwhile a quick look at this graph will show you that so far we haven’t really made a dent in the housing inflation:
Unemployment remains 3.6%.
But obviously you’re just going to cherry pick stuff to yell about PANICKY POWELL in here, so carry on.
The markets are either in denial or think Powell is bluffing. The CME Fed Watch tool prices it at a 100% chance of rate cuts by year end. Powell said the current track was probably 25 bips in May and then a pause the rest of the year. So that’d have us at 5.25%. The CME markets for the December meeting are:
3.50 4%
3.75 25%
4.00 38%
4.25 25%
4.50 7%
4.75 1%
5.00 0%
They’re pricing a 92% chance of a pause in May, around 50-50 to start cutting in June, and a 97% chance of cutting by July. Then cuts priced in at every meeting from then on.
I think Wall Street is in for a rude awakening.
They are pricing in cuts because unlike Powell they don’t base 90% of their decisionmaking on last months inflation and jobs data, without even thinking much about the context of that historical data.
The real time data and info they are looking at is telling them that Panicky Powell has set a severe recession in motion. Unfortunately, I have come to agree with your conclusion that Powell simply won’t care until it is too late. Congrats on getting that collapse in the price of the prime real estate you have your eyes on.
It just seems like the transfer of higher rates to consumer prices or employment numbers might lag a little. Corporate Executives aren’t out there going “OMG Fed raised .25 basis points we need to lay off 0.5% of our workforce and we need to drop prices by 1% tomorrow”
So perhaps the persistence of high prices isn’t an indication rates are still too low, just that prior rate increases haven’t had time to fully percolate through the economy.
Beware the hawk that makes a dovish mistake, he will burn everything to the ground to prove how tough he is. Rude awakening is coming indeed.
Man, the housing market is still red hot where I live, and I guarantee you where I live would never normally be considered a “hot” housing area. I’m trying to move my mother to where we live and every fucking house has been a “it lists on day 1, you need to see it immediately, and then it’s a bidding war on day 2 situation.” I do not live anywhere near a major metropolitan area.
Edit: And my mother is paying cash with no appraisal or selling her own house contingency.
That’s not the Fed’s fault.
It arguably is and doesn’t matter as they are going to bail them out either way as it’s the small/regional banks that are particularly exposed.
Like here’s the thing. This isn’t about me wanting to buy a house, though I do. This isn’t about me wanting to get cheap entry points to stocks, though I do. This isn’t about me saving money on the monthly bills with inflation, though I want to do that too.
Mainly I just want our economy to stop functioning at the whims of Wall Street and corporations. We are in these cycles where they make insane bets and insane investments and run up huge bubbles, and then we either keep the money printer going brrrrrr and the interest rates at/near zero to let the house of cards stay upright or we bail them out when the bubbles pop, but only the biggest and wealthiest among them.
All this while the regulations are a joke. Like what percentage of individuals on Wall Street, between hedge funds and investment banks, are incentivized to gamble some of the time, if not all of the time? It’s ridiculously high.
I want that shit to go away. At a minimum, since this bubble combined with inflation is absolutely PUNISHING the working/middle class, I want it to stop.
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The next Big One is staring us right in the face, half the banks in America should go out of business on the merits. They’ve got 40% of their book in CRE that is massively underwater and who knows how much they are underwater on long term treasury bonds. They are losing huge amounts of deposits to the bigger banks. On the current path it is a matter of when, not if, half the banks in America and CRE send each other into a death spiral.
And this is just one of the many known unknowns out there.
That’s fine as long as they’re not systemically important. Like, they made stupid loans based on stupid valuations, backed by overvalued collateral, to leveraged developers who couldn’t pay them if too many bad things happened. Oh, and how much of this did they do? A little? Fuck no! Almost half their book! What’s the saying? History doesn’t repeat, it rhymes? Well that rhymes a lot with 2008.
When banks lend out shit tons of money based on valuations they take the borrower’s word on and don’t look too hard at, because they (wink wink) know that if they looked too hard they wouldn’t be able to lend the money and if they couldn’t lend the money they (nod nod) wouldn’t make as much money, then we shouldn’t be crafting policy to make sure they don’t pay the price for their drunken gambling.
And by the way, this has been fucking obvious since like July of 2020, right? I’m pretty sure I remember posting about it that summer. Have these banks been trying to unwind these positions? Hedge them off? Stop giving these kinds of loans?
I truly don’t know, but I doubt it.
Bank CRE loans are not universally under water.
The worst CRE loans are for office buildings. Banks have been running from office since well before COVID and most of those loans are CMBS.
Banks are mostly loaning against apartments, industrial buildings and owner occupied properties, all of which are basically fine.
The talk of a CRE meltdown ruining banks is massively overblown. There will be distress and equity will take the large majority of the losses, as they should.
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