Morning Report: Breakeven inflation rate hits a record high

Posted on October 22, 2021 by Brent Nyitray

Vital Statistics:

  Last Change
S&P futures 4,536 -5.2
Oil (WTI) 83.31 0.89
10 year government bond yield   1.69%
30 year fixed rate mortgage   3.27%

Stocks are higher this morning after troubled Chinese property developer Evergrande made an interest payment last night ahead of the default deadline. Bonds and MBS are up.

 

Globally, we are seeing improved sentiment based on the Evergrande situation, however manufacturing activity in Europe is down to an 8 month low as shortages are clogging up the system. European manufacturers are able to pass along price increases relatively easily, so you have falling GDP and rising inflation. The German Bund yield is trading at a 2.5 year high of negative 9 basis points, which is part of a global move higher in yields.

 

Existing home sales rebounded 7% MOM in September, according to NAR. This was still down a couple of percent on a YOY basis however. “Some improvement in supply during prior months helped nudge up sales in September,” said Lawrence Yun, NAR’s chief economist. “Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year.”

Depleted inventory remains the biggest issue for the housing market and is largely responsible for the upward pressure in prices. Inventory fell 13% YOY to 1.27 million units, which represents a 2.4 month supply at the current sales pace. A balanced market is generally considered to be around 6 month’s worth. The average home sold in just 17 days.

The median home price rose 13% to $352,800, and all-cash sales accounted for 23% of transactions. First time homebuyers are being squeezed by professional investors and institutional money which is flooding into the residential rental space. With cap rates around the mid single-digits and double digit home price appreciation, the returns in this strategy dwarf every other asset out there.

 

Yesterday’s Treasury Inflation Protected Securities (TIPS) auction was strong, and is useful as a market-driven look at inflationary expectations. The way these work is the face value of the bond increases by the Consumer Price Index during the life of the bond. You can therefore compare it to a corresponding Treasury and calculate the expectations for inflation going forward. This is called the “breakeven” inflation rate, which means if inflation rises above the breakeven rate, you are better off in the TIPS bond. If it doesn’t you are better off in the Treasury.

If you take a look at yesterday’s auction, the breakeven inflation rate rose to 2.94% for the next 5 years. This is pretty much an all-time record. Note TIPS are a relatively new security and weren’t around during the high inflation 70s and 80s.

 

Filed under: Economy, Morning Report |

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23 Responses

  1. jnc4p, on October 22, 2021 at 12:41 pm said:

    Worth noting:

    Original report on it:

    https://nypost.com/2021/10/21/nih-admits-us-funded-gain-of-function-in-wuhan-despite-faucis-repeated-denials/

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  2. jnc4p, on October 22, 2021 at 1:11 pm said:

    This is actually pretty funny:

    “In fact, it’s hard not to see the trans far left as a farcical replay of the Religious Right of the past. They are the Dana Carvey church ladies of our time, except instead of saying “Could it be Satan?!” when confronting some cultural or moral transgression, they turn to the camera, clutch their pearls, and say “Could it be whiteness?!””

    https://andrewsullivan.substack.com/p/the-betrayal-of-our-gay-inheritance-6de

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  3. Brent Nyitray, on October 22, 2021 at 4:18 pm said:

    Re Alec Baldwin shooting someone:

    Why the heck would you need live rounds for a movie?

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    • Kevin S. Willis, on October 23, 2021 at 9:48 am said:

      You would not. There is some speculation that the prop handler was non-union so there might have been a union grievance. No evidence though. Might just have been someone unqualified for the job of armorer. They are supposed to guarantee that the gun has blanks, they are supposed to fire rounds from the same supply of blanks into a container to make sure it’s not releasing any kind of load — dozens of things they are supposed to be doing that either wasn’t done or the gun was loaded on purpose.

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    • jnc4p, on October 23, 2021 at 1:05 pm said:

      Apparently the use of the term “live rounds” means something different in the prop business.

      ““As many of us have already heard, there was an accidental weapons discharge on a production titled Rust being filmed in New Mexico,” said the North Hollywood-based local. “A live single round was accidentally fired on set by the principal actor, hitting both the Director of Photography, Local 600 member Halyna Hutchins, and Director Joel Souza. Both were rushed to the hospital,” the email said. The New Mexico-based crew was represented by a different local.

      A source close to the union said Local 44 does not know what projectile was in the gun and clarified that “live” is an industry term that refers to a gun loaded with some material such as a blank ready for filming.”

      https://www.latimes.com/entertainment-arts/business/story/2021-10-22/alec-baldwin-rust-camera-crew-walked-off-set

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  4. jnc4p, on October 23, 2021 at 1:08 pm said:

    So apparently “Fuck Joe Biden” is unprecedented according to the Washington Post.

    “Biden’s critics hurl increasingly vulgar taunts
    By Ashley Parker and Carissa Wolf

    …
    Boos, jeers and insults are nothing new for politicians, especially those who reach the White House. Former presidents George W. Bush and Barack Obama, as well as Trump, were all heckled, weathering protests along their motorcade routes and at some of their events. At one 2011 fundraiser in Los Angeles, a heckler called Obama the Antichrist; “F— Trump” graffiti adorned some walls in Washington.

    The current eruption of anti-Biden signs and chants, however, is on another level, far more vulgar and widespread.”

    https://www.washingtonpost.com/politics/biden-vulgar-signs-chants/2021/10/22/6071836e-3122-11ec-a880-a9d8c009a0b1_story.html

    Call me when the late night hosts refer to Biden as someone’s “cock holster” on air and there are no consequences for it. These people do nothing but project and spread propaganda.

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  5. Let the mutherfuker burn!, on October 23, 2021 at 1:24 pm said:

    It takes a heart of stone not to laugh at this.

    “One of the many legacies of the Trump presidency is he normalized angry speech,” said Mike Murphy, a Republican strategist and Trump critic. “Trump and our culture in general has beaten decorum out of politics, so now it’s just angry rage therapy – so you get out your Magic Marker and you do your coarse lawn sign.”

    https://www.stamfordadvocate.com/news/article/Biden-s-critics-hurl-increasingly-vulgar-taunts-16556990.php

    Sure, it’s all Trump’s fault. Lol!

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  7. jnc4p, on October 24, 2021 at 2:41 pm said:

    “In Major Shift, NIH Admits Funding Risky Virus Research in Wuhan

    A spokesman for Dr. Fauci says he has been “entirely truthful,” but a new letter belatedly acknowledging the National Institutes of Health’s support for virus-enhancing research adds more heat to the ongoing debate over whether a lab leak could have sparked the pandemic.

    By Katherine Eban
    October 22, 2021”

    https://www.vanityfair.com/news/2021/10/nih-admits-funding-risky-virus-research-in-wuhan

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