The EMG Blog

Rates are up significantly since 1/1/22 because the Fed has made clear it will raise rates substantially over the next 6-12 months. Another reason is because the Fed will be substantially reducing the amount of bonds and mortgage-backed securities it holds. While we know reasonably well how rate hikes impact the economy, amazingly, economists really don’t know how reducing the balance sheet will impact rates, and thus the economy. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

Since 2012, consumer credit has risen $15-20 billion/month. Non-revolving credit, which includes student and auto loans, accounts for two-thirds of the monthly rise and revolving credit, which consists of credit-card accounts, comprises the rest. Since 11/21, consumer credit growth has averaged over $30 billion/month, in February it was $37.7 billion, and March $52.4 billion, with credit card growth of $31.4 billion! The poor are borrowing as real incomes slide. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

In March, the number of job openings hit 11.55 million, the highest level ever, while the number of unemployed persons was 5.95 million, meaning there are 1.94 jobs/job seeker, staggering! With so many openings, the number of quits (all of whom get another job) set a record at 4.536 million; 3% of those employed. In a labor market this tight, wages will keep rising. Rate hikes are the only solution. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

While 22Q1 GDP shrank at an annualized rate of 1.4%, it fell because inventories shrank and imports skyrocketed, meaning torrid domestic consumption was met via inventory drawdowns and imports. Federal, state, and local government spending also shrank. That said, private demand grew by a sizzling 3.7%, well above the growth potential of the economy. The Fed will raise rates by 50bp this week as underlying demand remains strong, too strong. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

Historically, new home construction and auto sales were generally good indicators of the economic health of households. Now, less so. With supply-chains a mess, input prices up dramatically, and labor in short supply, lower-priced product is not much being made, and sales are now more indicative of which firms have better supply-chain control. This loss of insight is most unfortunate as housing and cars are quite interest rate sensitive. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

While inflation is more pronounced in the USA at roughly 8%, it’s now over 5% in 58% of advanced economies, and over 7% in 55% of emerging economies. Even excluding energy, inflation has increased widely. This suggests that both rounds of massive US fiscal stimulus are probably responsible for, at most, three percentage points of the inflation rate rise, with the second round responsible for, at most, two percentage points. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

While there’s talk of temporarily eliminating the national gasoline tax, which has been 18.4 cents since 1993, don’t do it. With the average price of gas now $4.25/gallon, the savings would only reduce gasoline prices to a still hefty $4.066/gallon. Worse, it encourages consumption, drains the Highway Trust Fund, and reimposing the tax will be difficult if gas remains expensive. Lastly, will consumers really see all the savings? (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

Since 1983, there have only been six quarters in which the yield on the 2-year Treasury has risen by more than one percent including the current quarter! In four of the six cases, the rise barely exceeded one point. Only in the current quarter and during one quarter back in mid-1980s did the rise meaningfully exceed one percentage point. The rapid rise we are currently seeing is virtually unprecedented. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

In 1965, 1984, and 1994, the Fed raised rates to cool an overheating economy and a recession didn’t ensue. Unfortunately, now consumer confidence is crumbling but more importantly, the yield curve is almost flat, inflation is high and rising, unemployment is microscopic, and real interest rates are deeply negative. Rates will have to rise substantially, and the more rates must rise to cool the economy, the greater the recession likelihood. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

War has traditionally worsened inflation as military demands are added to domestic ones, sanctions, embargoes, and bombs worsen supply chains, and as conflicts are often financed by printing money. While some of these effects are all but guaranteed, to date US inflation, as bad as it is at 7.9% Y-o-Y, has not yet been impacted by the Russian invasion of Ukraine. However, the March data will, and inflation will worsen. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.