Stephanie says Fed has to cut interest rates aggressively right now in order to avoid economic disaster. Plus look at these twin collapses.
Fed Has To Cut Rates Aggressively
June 27 (King World News) – Stephanie Pomboy: Either reading comprehension is a major problem in this country or that somehow wasn’t clear enough. So let me try again. The only way for the Fed to avoid the complete deflation of the bubble (it created) and the devastating blowback to the economy that would result is to cut rates aggressively…now. That’s not an endorsement. It’s an observation. My personal preference for what it’s worth would be to burst the bubble and FOR ONCE NOT come rushing back in with the firehouses. But nothing about the Fed these last 40 years suggests that’s realistic.
BoJ Is The Market
Peter Boockvar: While the BoJ retains control for now over JGB maturities out to 10 years, the longer end past that continues to have its own voice. The 40 yr JGB yield jumped 6 bps to a fresh 6 1/2 yr high of 1.39%. Nikkei news today is reporting that the BoJ’s stock of JGB’s now are above 50% of total JGB’s outstanding. I’ll continue to argue that what happens with the JGB market in coming quarters, along with the bond market in Europe, will be a big influence on the direction of longer term US rates.
All Eyes Are On Japan As BoJ’s
JGB Holdings Now Above 50%
The ECB begins their annual coffee talk confab in the beautiful town of Sintra, Portugal and maybe we’ll get more details of their anti-fragmentation plan which are code words for ‘we don’t want Italian bond yields to blow out vs Germany.’ Call it a form of YCC. With inflation as high as it is and ECB policy as offsides as it is, they just might have the most difficult situation of all central banks in handling this environment. The euro is higher, quietly for the 5th day in the past 6 vs the US dollar. I’m still on watch to see if the surprise rate hike by the SNB a few weeks ago was an inflection point and top for the US dollar as other central banks try to catch up to the Fed. As seen in the chart, the euro is at a key level.
A Little More “Transitory” Inflation
The only thing of note was Spain telling us that its May PPI was higher by 43.6% y/o/y after rising by 44.5% y/o/y in April. Talk about a price shock to an economy regardless of where it comes from.
Spain’s Producer Price Index 43.6% Higher!
Ex energy prices rose by a still heady 15.3% y/o/y. As this is a May number and commodity prices have come off their boil, inflation breakevens were little changed in response and at 2.19% in Spain, is well off its April peak of 2.83%, although remains well above its year ago level of 1.35%. Sovereign bonds in Europe today are weaker after last week’s bounce.
Real Estate
Pending home sales in May unexpectedly rose .7% m/o/m, better than the estimate of another 4% decline. I say ‘another’ because it was down 6 months in a row going into today’s print. A rebound in the Northeast just offset the sharp decline in April. Sales out West fell for the 6th month in the past 7 “where homes are the most expensive,” said the NAR.
Pending Home Sales Flatline
After 6 Month Decline
The NAR chief economist said simply,
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition. Contract signings are down sizably from a year ago because of much higher mortgage rates.”
Quantifying the extent of the change in payments the NAR said:
“at the median single family home price and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the beginning of the year as mortgage rates have climbed by 2.5 percentage points since January.”
Bottom Line
Bottom line, it doesn’t take an economist to know that the more expensive an item gets, the less demand for it as a result (unless one is buying and selling stocks) and housing is no different but is different from just about anything else in that it’s the most expensive purchase most make. The average 30 yr mortgage rate in May was 5.45% vs 5.19% in April, 4.42% in March, 4.02% in February and vs 3.33% that we entered 2022 with. This of course, on top of another sharp jump in home prices, explains the 14% ytd drop in contract signings of existing homes. The average 30 yr rate now stands at 5.83% according to Bankrate…
Billionaire Eric Sprott bought a 20% stake in a mining company
that is preparing to announce a massive silver resource
to find out which one click here or on the image below
Twin Collapses
After the NY and Philly manufacturing indices fell below zero while KC was still in positive territory, today’s Dallas index for June fell 10 pts to -17.7, well below the consensus estimate of -6.5. That’s the lowest since May 2020.
Dallas Manufacturing Index Tumbles To -17.7
New orders and backlogs both fell below zero. Employment dropped but wages/benefits were little changed. Delivery times widened out again and are back above the 6 month average but prices paid and received both declined m/o/m. Capital spending declined to the lowest since October 2020.
Also of note, the 6 month business activity outlook dropped 20 pts to -26, the lowest since April 2020.
6 Month Business Outlook Plunged To -26
The ‘Outlook Uncertainty’ rose to 43.7 from 26.5 and that is the highest since April 2020.
Bottom line, as seen in the comments below, while there is an easing of some inflationary pressures here and there, prices are still high, logistical challenges remain and now end demand is a growing worry.
Here are some noteworthy quotes from some companies in different industries:
Computer and Electronic Product Manufacturing:
“We are starting to see things cooling across all markets except auto. The first area was handset/personal computers, and it’s now spreading to other markets. I would not say things have rolled over, but expedites have stopped, and in-quarter orders have slowed to a trickle. There are clear signs of early cooling beginning. Auto continues to be strong, even though there are definite signs of significant component build within their supply chain.”
“Overall uncertainty has not changed; we remain uncertain of the reliability of the supply chain and the length of changing lead times. However, uncertainty has increased related to specific supply chains for integrated circuits. Similarly, price increases across all components have continued to provide instability and uncertainty related to long-term product viability.”
Chemical Manufacturing:
“Business continues to be strong both in terms of sales and margins. There is uncertainty around the 6–12-month outlook.”
Nonmetallic Mineral Product Manufacturing:
“Inflation on raw materials, especially steel and gasoline and diesel fuel, continues to damage gross margin. Because our contracts are longer term and fixed price, we have no way to pass this on to our existing contracts.”
Machinery Manufacturing:
“We are seeing contraction in business activity.”
“The supply chain is a nightmare, while prices are increasing. It’s difficult to find employees, and the ones we can find are expecting more pay.”
Transportation Equipment Manufacturing:
“Our manufacturing facility is continuing to see unsustainable increases and lead times for raw materials. Skilled labor is a rarity to find. We have increased our starting pay by 40 percent, which puts us above our nearest competitors, and we offer competitive benefits, yet we still cannot attract the personnel needed.”
Food Manufacturing:
“As you can see, we are already into a bit of stagflation. There is demand for our product, yet limited funding for it.”
Textile Product Mills:
“As a manufacturer of a wide range of products from home goods to medical goods to automotive goods, we have seen a sharp decrease in demand across all sectors. Raw material vendors’ cost increases happen weekly and at a rate that is difficult for us to even update our bill of materials and pass on the price increase to our customers. The timing gap in those pricing updates, given that raw material price increases are being given by our vendors with immediate implementation, is causing us to have month-over-month losses.”
Wood Product Manufacturing:
“We are very concerned about inflation and its effects on stocks, bonds and interest rates. It looks like a recession is on its way. The future does not look good for housing. We are expecting a major slowdown due to material cost, labor cost and mortgage rates.”
Printing and Related Product Manufacturing:
“We have noticed a definite slowdown in new orders. The last two weeks have been very slow for incoming orders. We’re not sure if fuel, inflation or summer vacation is the cause of it.”
Misc. Manufacturing:
“Supplies of raw materials are becoming slightly easier to get, with prices moderating because metal commodity markets are moderating. In the last 30 days, it has been slightly easier to hire employees. Business levels/volumes are decreasing. The number of hours worked by employees has been decreased to 40—no additional shifts needed.”
Also of importance…
Eric King: “Adam, AngloGold acquired Corvus for almost half a billion dollars (Canadian), and your company recently sampled over 23 grams of gold in that same district.
Adam Melnik: Yes, Eric, we are absolutely stoked about the Beatty mining district. We’ve got a dominant land package and we are ready to start hitting that with a drill next month. You referenced the AngloGold acquisition for almost half a billion dollars. There has been another recent acquisition by Richard Warke at Augusta. He just bought another 300,000 ounces of gold across the way and plans to be in production there in a couple of years.
So we’ve got a major company investing in development exploration that will soon be in production just to the north of our property, and we’ve got a mid-tier that is an absolute rocket ship that’s going to be in production in the next two years as well. So the Beatty district is really hot, Eric. And making a major discovery at our Bullfrog project right in the heart of the Beatty district with the presence of Anglo Gold, Augusta Gold, Coeur Mining, and Kinross, is a very clear pathway to value creation for our shareholders.
Our near-term goal is to make a large discovery at our two precious metals projects in the Beatty district of Nevada and in the Boise basin of Idaho, and crystalize that value and minimize dilution for our shareholders. We are very proud of our properties and projects within the Copper Triangle of Arizona. We just finished a drill program at Red Top, which is right next to Resolution, one of the world’s largest undeveloped mines that should boost America’s copper production by roughly 25%. The fact that we hit a major system in our very first drill hole at a tricky porphyry target is testament to our team’s technical abilities and I’m very proud of what we’ve accomplished there to date.
We look forward to a subsequent phase of drilling at Red Top as well as the drilling that is scheduled take place at our Bullfrog project. So we will be generating an immense amount of news flow and catalysts for our investors and we have the right team to deliver value for our company. Zacapa Resources, symbol ZACA in Canada and ZACAF in the US.
***To list to James Turk discuss what to expect as the hangover begins from the bursting of the global everything bubble as well as what to expect next for gold and silver CLICK HERE OR ON THE IMAGE BELOW.
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