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Sundown? Freddie Mac 30Y Mortgage Rate Highest Since Financial Crisis And Advent Of Fed Quantitative Easing (CORE US Inflation For August Expected To Rise To 6.1% YoY) – Confounded Interest – Anthony B. Sanders

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Sundown? Freddie Mac 30Y Mortgage Rate Highest Since Financial Crisis And Advent Of Fed Quantitative Easing (CORE US Inflation For August Expected To Rise To 6.1% YoY) – Confounded Interest – Anthony B. Sanders


Is it sundown for housing and mortgage markets with Fed quantitative tightening (QT)?

Freddie Mac’s 30-year mortgage commitment rate just rose to its highest level since … The Fed initiated Quantitative Easing (aka, fanatical money printing) during the financial crisis.

The good news? The US inflation report is likely to show a slowing of the inflation rate to around 8% YoY and -0.1% MoM. Why? Gasoline prices are cooling thanks to the global economic slowdown.

While gasoline and food prices are falling, CORE US inflation, the inflation rate excluding food and energy, is expected to rise to around 6.1% YoY and +0.30% for August.

But watch out as winter approaches!



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Gold

Is Managed Money Buying this Bull Market?

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13-Week Money Supply Growth Hits Multi-Decade Low


  by SchiffGold  0   0

Please note: the CoTs report was published 12/02/2022 for the period ending 11/29/2022. “Managed Money” and “Hedge Funds” are used interchangeably.

Gold

On November 15th, Managed Money reversed back to a net long position of 25k contracts after spending 4 weeks net short. Since then, net longs have fallen some in the last two weeks to reach 14k in the most recent reporting period.

The reporting period occurred before the soft Powell pivot earlier this week which prompted a major push up in the price of gold to above $1800. It’s very likely that the COTs report next week will show a greater net long position in gold.

Figure: 1 Net Position by Holder

As shown in the chart below the Managed Money group continues to have complete control over this market, maintaining a correlation of price to a net position of 0.95 for 2022.

Figure: 2 Managed Money Net Position

Weak Hands at Work

The chart below shows the weekly data. The report last month highlighted the extreme selling of gold contracts by Managed Money, noting that only 8 of the previous 26 weeks had been net adds. Given the last two weeks shown below, it seems Managed Money is still a little hesitant to jump fully onto the bull side of this market.

Figure: 3 Silver 50/200 DMA

The table below has detailed positioning information. A few things to highlight:

Over the month, Managed Money change was driven on the long and short sideGross Longs increased 22% while Gross Shorts decreased 34%, getting back below 100kOver the last year, Gross Shorts are still larger by 61.5%Producers were on the other side of this trade, reducing Gross Longs by 32.6% and increasing Gross Shorts by 71.4%

One more thing to note is that every participant has reduced their net positioning significantly over the last year, ranging from 29% to 84%. This shows an overall waning interest in the gold market as there is simply less aggregate open interest outstanding.

Figure: 4 Gold Summary Table

The shrinking market can be seen below as well where net positioning continues to trend at the lowest level in years.

Figure: 5 Net Positioning

Historical Perspective

Looking over the full history of the CoTs data by month produces the chart below (values are in dollar/notional amounts, not contracts). The recent steep downward move in positioning has abated and reversed some.

Figure: 6 Gross Open Interest

The market had come under immense pressure as shown below. Such a dramatic move down would usually prompt a massive sell-off in gold, but the price did hold up pretty well. If the market has bottomed and turned then there is a ton of firepower that could propel gold to new highs.

Figure: 7 Net Notional Position

Managed Money might be planning for such an event in the options market, with the highest Gross Long position since April of this year.

Figure: 8 Options Positions

Bottom line, the last time Managed Money got on board the long train was back in March before the massive demand for physical gold had taken hold. With physical supplies depleted, if Managed Money gets back on board the long side in the paper market it could act as a one-two punch that could blast gold to new all-time highs in a very short period of time.

Silver

Current Trends

Managed Money has returned to a net long position, which reached 13,593 contracts in the latest period. This is the largest net long position since May 3rd of this year. In fact, four of the five market participants are all net long at this point.

Figure: 9 Net Position by Holder

Similar to gold, Managed Money activity dominates the price with a correlation of 0.96 which is nearly a perfect correlation. This can be seen below.

Figure: 10 Managed Money Net Position

While the weekly activity is still quite choppy, it’s clear to see that the long side is seeing the bigger moves in recent weeks.

Figure: 11 Net Change in Positioning

The table below shows a series of snapshots in time. This data does NOT include options or hedging positions. Important data points to note:

The change in Managed Money has mainly come from the Gross Shorts reducing their positionGross Shorts fell by 20k contracts or 46% over the last monthIronically, Managed Money was the only participant to increase Gross Longs over the last month, but this was an increase of less than 5%While Producers are currently the only participant Net Short, it should be noted that their Net Short position is down 21% since last year

Figure: 12 Silver Summary Table

While net positioning in silver is still low relative to history, it has been creeping up in recent weeks. This is likely driven by more participants positioning on the long side of the market.

Figure: 13 Net Positioning

Historical Perspective

Looking over the full history of the CoTs data by month produces the chart below. The overall market has been contracting in recent months to multi-year lows but does seem to have bottomed in September.

Figure: 14 Gross Open Interest

Managed Money has reversed quickly from its Net Short position which lasted 4 full weeks. This is fairly normal as Managed Money has not maintained a Net Short position in silver for more than a few consecutive months.

Figure: 15 Net Notional Position

While Managed Money has shown a slight uptick in the Gross Long position, it has dropped some from where it was in October. The options market still remains much smaller than it has been in the past.

Figure: 16 Options Positions

Conclusion

Managed Money continues to dominate control over the market. Looking at the correlation table below shows gold at .95 and silver at an incredible .96. This is complete control over the market.

Figure: 17 Correlation Table

While the exodus of metal in the physical market should eventually appear in the price, if Managed Money buys into the bull move and starts going long in the paper market it could really blast both metals higher. Once the Fed officially pivots becomes more obvious in the weeks and months ahead, Managed Money will be positioned to ride the wave higher.

If there is not enough physical supply to meet the ongoing demand, it could really start to move the market as no one will want to be on the short side of a delivery contract.

Data Source: https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Data Updated: Every Friday at 3:30 PM as of Tuesday

Last Updated: Nov 29, 2022

Gold and Silver interactive charts and graphs can be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/

Download SchiffGold's Free Silver Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.

Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!



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Fed Has $48B Loss in November and Sees Massive Balance Sheet Reduction

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13-Week Money Supply Growth Hits Multi-Decade Low


  by SchiffGold  0   0

Breaking Down the Balance Sheet

The Fed has a targeted balance sheet reduction of $95B a month. Up until this point, the Fed had failed to reach its target almost every month since QT began.

In the latest month, the Fed made up for their recent shortfall with a big balance sheet reduction of $139B, exceeding their target by 50%! Despite the larger-than-expected reduction, the Fed still missed its target on Mortgage Backed Securities (MBS).

Figure: 1 Monthly Change by Instrument

The table below details the movement for the month:

The Treasury market saw reductions across all maturities except 10+ yearsThe total Treasury reduction was $100B vs a $65B targetMBS fell short of the $37.5B target by $11.5BThe Fed has much more trouble reducing MBS and has still not come close to their target for a single month

Figure: 2 Balance Sheet Breakdown

Looking at the weekly data shows that there was a massive draw down three weeks ago in < 1 year and 5-10 year maturities. This happened on the week of Nov 16 which was right after the big drop in interest rates. This helped reduce the loss the Fed took on the bonds it was selling.

Figure: 3 Fed Balance Sheet Weekly Changes

As the Fed continues to miss on the MBS reduction, the overall portfolio allocation of MBS has grown. MBS now makes up 31% of the total balance sheet, up from 29.7% one year ago.

Figure: 4 Total Debt Outstanding

A lost Revenue Source for the Treasury

When the Fed makes money, it sends the Treasury a check. This has been quite substantial over the years, totaling $109B in 2021 and $87B in 2020. That time has come to the end, at least for now. The Fed lost $48B in November on the heels of losing $18.5B in October.

According to Reuters, the Fed has been warning about this possibility for some time. It should be noted, the Fed will not send the Treasury a bill to cover its losses. Instead, it will book the losses into a deficit account that will be held until the Fed makes enough money to make up for its losses.

Making up the losses could be years away, which means the Treasury has just lost a major source of extra revenue. This will only make future Treasury deficits worse.

Figure: 5 Fed Payments to Treasury

The Fed is losing money because it pays financial firms for keeping assets on the Fed books. As interest rates have risen, the amount it pays out has also risen. It also loses money when it buys bonds at high prices and sells them at low prices, which is what has unfolded with QE and QT. As the chart below shows, interest rates have risen dramatically in recent months, despite the recent pullback.

Figure: 6 Interest Rates Across Maturities

Short-term rates are rising even faster than long-term rates which have created the most inverted yield curve in more than 20 years. This can be seen below.

Figure: 7 Tracking Yield Curve Inversion

The chart below compares the yield curve at three points in time (current, 1 month ago, and 1 year ago). It’s easy to see how dramatically different the yield curve looks compared to last year and is also much more inverted than it was even a month ago.

Figure: 8 Tracking Yield Curve Inversion

Who Will Fill the Gap?

Bloomberg recently published an article that shows how the typical Treasury buyers have all stepped back from the market. First and foremost, this includes the Fed which has been the biggest buyer in the market for two years. It also includes institutional investors and foreign countries.

As shown below, the international holders have completely stopped buying and have reduced holdings. Total international holdings are at $7.3T, down from $7.85T less than 1 year ago.

Note: data was last published in September

Figure: 9 International Holders

The table below shows how debt holding has changed since 2015 across different borrowers. The net change over the last year is a reduction of $340B. The bigger area of concern though is that China and Japan are down a combined $300B. Behind the Fed, China and Japan had been some of the biggest buyers. Not anymore!

Figure: 10 Average Weekly Change in the Balance Sheet

Historical Perspective

The final plot below takes a larger view of the balance sheet. It is clear to see how the usage of the balance sheet has changed since the Global Financial Crisis. The tapering from 2017-2019 can be seen in the slight dip before the massive surge due to Covid. It’s highly unlikely the new round of QT will last as long or shrink the balance sheet as much as it did in 2018. Something will break before then.

Figure: 11 Historical Fed Balance Sheet

What it means for Gold and Silver

Things are getting very tricky for the Fed. They don’t face any major risk by losing billions of dollars each month (lucky them), but it does give the Treasury one less source of revenue. The bigger issue is going to materialize in bond market liquidity. This could lead to an end of QT and may even prompt a return to QE to ensure smooth functioning of the bond market.

When the Fed returns to QE, it will likely send gold and silver soaring as the markets will finally wake up to the bluff the Fed has been making for almost a year now. Markets will probably see the pivot coming well before one is officially announced. This could explain the recent moves in gold and silver. Given the likely turmoil that lies ahead, both metals are probably just getting started in their bull runs.

Data Source: https://fred.stlouisfed.org/series/WALCL and https://fred.stlouisfed.org/release/tables?rid=20&eid=840849#snid=840941

Data Updated: Weekly, Thursday at 4:30 PM Eastern

Last Updated: Nov 30, 2022

Interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/

Download SchiffGold's 401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.

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Jobs Report: Not Strong Enough to Prevent a Soft Pivot

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13-Week Money Supply Growth Hits Multi-Decade Low


  by SchiffGold  0   0

According to the BLS, the economy added 263k jobs in November with a modest revision up in October from 261k to 284k but a revision down in September from 365k to 269k. October was a beat against median expectations of 200k. The employment rate (black line) stayed flat at 3.7% while the labor force participation ticked down from 62.2% to 62.1% This is the weakest labor force participation since December of last year.

The job numbers have stayed surprisingly resilient despite daily announcements by major companies of job cuts and freezes and a weaker than expected ADP report on Wednesday. It’s only a matter of time before this feeds into the BLS job numbers.

Figure: 1 Change by sector

The number of multiple job holders has been steadily increasing in a choppy manner. The current report showed a month-over-month increase, but it is still down from the post-Covid high in September and a half percentage point below the pre-Covid highs.

Figure: 2 Multiple Full-Time Employees

When looking at the unadjusted numbers, November was around middle of the pack.

Figure: 3 Monthly Non-Seasonally Adjusted

November typically sees adjustments down to the raw figure. This November saw an adjustment down of 311k which is the biggest downward adjustment in the last three years.

Figure: 4 YoY Adjusted vs Non-Adjusted

Breaking Down the Adjusted Numbers

Surprisingly, November came in above trend for 5 of the 8 categories shown below. Only Manufacturing, Professional Business, and Trade/Transport/Utils came in below the 12-month trend.

Figure: 5 Current vs TTM

The table below shows a detailed breakdown of the numbers. Despite 5 of 8 categories above trend, the aggregate number of 263k is below the three-month average (272k) and the 12-month average (408k).

Key takeaways:

Excluding government, 7 of 10 categories were above the 3-month averageDespite a glut of new home supply, Construction saw a strong increaseLeisure and Hospitality was also quite strong at 88k, coming in close to the 12-month average of 90k

Figure: 6 Labor Market Detail

Revisions

While the headline number gets all the attention, the number is typically revised several times. Revisions over the last three months were slightly net positive (+2k) while revisions over the last 12 months averaged +61.5k.

Over the last three months, government job revisions were positive by 33.1k. Without the Government job revisions, the three-month revisions would have been negative by 31.1k.

Figure: 7 Revisions

Historical Perspective

The chart below shows data going back to 1955. The Covid recession can be seen as the greatest job market loss ever.

The current unemployment rate stayed flat at 3.7%.

Figure: 8 Historical Labor Market

The labor force participation decreased for the third month in a row, falling from 62.4% in August to 62.1%. It still sits more than a full percentage point below the pre-Covid levels of 63.4% and well below the 66% pre-Financial Crisis.

Figure: 9 Labor Market Distribution

What it means for Gold and Silver

The current job numbers surprised to the upside which has put pressure on gold and silver this morning. Gold is fighting at the $1800 mark as of publishing. That said, both silver and gold are still positive for the week after Jay Powell began to introduce the soft pivot.

What many market participants are failing to consider is the possibility of a hard and dramatic pivot by the Fed. The Fed has moved way too aggressively to not have already broken something. FTX was simply a preview of what is to come in the broader market. Something will give shortly and the Fed will be forced to rescue the market or face massive repercussions.

While traders are still not seeing the high probability of such an event, there are players in the gold and silver market who are. This would explain the massive drawdown in inventories seen over the last several months on the Comex. In fact, the drawdowns have been so significant that major market participants are possibly stepping back to not risk putting it under strain. It’s only a matter of time.

Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART

Data Updated: Monthly on first Friday of the month

Last Updated: Nov 2022

Interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/

Download SchiffGold's Free Silver Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.

Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!



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