Senator John Thune (from Yellen’s confirmation hearing): “I’m going to try and roll a lot of thoughts and questions into sort of one big package here. But the one thing that concerns me that nobody seems to be talking about anymore is the massive amount of debt that we continue to rack up as a nation. And, in fact, the President elect has proposed a couple trillion dollar fiscal plan on top of that which we’ve already done – which would add somewhere on the order of about $5.3 trillion to deficits and that’s according to the committee for responsible budget of which you have been a board member.
…click on the above link to read the rest of the article…
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Weekly Commentary: Short-Term Unsustainable
Weekly Commentary: Short-Term Unsustainable
Outstanding Treasury Securities began 2008 at $6.051 TN, or 41% of GDP. Treasuries ended 2019 at $19.019 TN, or 87% of GDP. And then, in only three quarters, Treasuries surged another $3.882 TN to $22.900 TN, or 108% of GDP. We must wait a few weeks for the Fed’s Q4 Z.1 report, but the federal government posted a fiscal deficit of $573 billion during this period, likely pushing outstanding Treasuries to near $23.5 TN, or about 110% of GDP. Since the end of 2007, Treasuries have inflated around $17.5 TN – approaching a three-fold increase.
For years now, I’ve listened as Washington politicians and central bankers admit to the obvious – that the trajectory of our federal debt is unsustainable – while invariably arguing it was not the time to be concerned or address it. With Treasuries blowing right through the 100% of GDP milepost – and likely poised to reach 125% within the next year or two – there’s no time like the present to recognize our nation is in serious fiscal trouble.
Weekly Commentary: Just the Facts – 12/25/2020
Weekly Commentary: Just the Facts – 12/25/2020
For the Week:
The S&P500 slipped 0.2% (up 14.6% y-t-d), while the Dow was little changed (up 5.8%). The Utilities declined 0.9% (down 2.9%). The Banks jumped 3.1% (down 15.0%), and the Broker/Dealers gained 1.9% (up 29.8%). The Transports dipped 0.3% (up 14.9%). The S&P 400 Midcaps rose 1.2% (up 12.2%), and the small cap Russell 2000 jumped another 1.7% (up 20.1%). The Nasdaq100 slipped 0.2% (up 45.6%). The Semiconductors declined 0.5% (up 48.7%). The Biotechs added 0.3% (up 17.1%). Though bullion added $2, the HUI gold index declined 0.8% (up 24.4%).
Three-month Treasury bill rates ended the week at 0.08%. Two-year government yields were unchanged at 0.12% (down 145bps y-t-d). Five-year T-note yields declined two bps to 0.36% (down 133bps). Ten-year Treasury yields slipped two bps to 0.93% (down 99bps). Long bond yields fell three bps to 1.66% (down 73bps). Benchmark Fannie Mae MBS yields declined a basis point to 1.39% (down 132bps).
Greek 10-year yields were unchanged at 0.64% (down 79bps y-t-d). Ten-year Portuguese yields gained three bps to 0.06% (down 38bps). Italian 10-year yields added two bps to 0.59% (down 83bps). Spain’s 10-year yields rose three bps to 0.07% (down 40bps). German bund yields increased two bps to negative 0.55% (down 36bps). French yields increased two bps to negative 0.31% (down 43bps). The French to German 10-year bond spread was unchanged at 24 bps. U.K. 10-year gilt yields added one basis point to 0.26% (down 57bps). U.K.’s FTSE equities index declined 0.4% (down 13.8%).
Japan’s Nikkei Equities Index fell 0.4% (up 12.7% y-t-d). Japanese 10-year “JGB” yields were unchanged at 0.01% (up 3bps y-t-d). France’s CAC40 was little changed (down 7.6%). The German DAX equities index slipped 0.3% (up 2.6%). Spain’s IBEX 35 equities index gained 0.9% (down 15.1%). Italy’s FTSE MIB index rose 0.7% (down 5.9%). EM equities were mixed. Brazil’s Bovespa index dipped 0.2% (up 1.9%), and Mexico’s Bolsa fell 1.1% (down 0.4%). South Korea’s Kospi index jumped 1.3% (up 27.7%). India’s Sensex equities index was unchanged (up 13.9%). China’s Shanghai Exchange fell 0.9% (up 10.3%). Turkey’s Borsa Istanbul National 100 index gained 1.3% (up 24.6%). Russia’s MICEX equities index fell 1.1% (up 6.3%).
Investment-grade bond funds saw inflows of $2.529 billion, while junk bond funds posted outflows of $896 million (from Lipper).
…click on the above link to read the rest of the article…
Weekly Commentary: Monetary Disorder In Extremis
Weekly Commentary: Monetary Disorder In Extremis
November non-farm payrolls gained 245,000, only about half the mean forecasts – and down from October’s 610,000. It was the weakest job growth since April’s employment debacle. U.S. equities rallied on the disappointing news. A few Bloomberg headlines captured the aura: “Stocks Gain as Jobs Miss Boosts Stimulus Bets;” “Fed Case for Fresh Action Gets Stronger on Soft U.S. Jobs Report;” and “Jobs Data Was a ‘Perfect Miss’ for Fed and Aid.”
Bad news has never been more positively received in the stock market. Some analysts are now anticipating the Fed will soon supersize its already massive monthly bond purchases. Chairman Powell’s comments this week did little to dissuade such thinking: “We are going to keep our rates low and keep our tools working until we feel like we really are very clearly past the danger that is presented to the economy from the pandemic.”
The U.S. Bubble Economy structure has evolved into a voracious Credit glutton. There’s a strong case for significant additional fiscal stimulus. The case for boosting monetary stimulus is not compelling. Financial conditions have remained ultra-loose. Credit stays readily available for even the riskiest corporate borrowers, as bond issuance surges to new heights. While formidable, the remarkable speculative Bubble throughout corporate Credit is dwarfed by what has regressed to a raging stock market mania.
Manic November will be chronicled for posterity. Future historians will surely be confounded. It is being called the strongest ever November for equities. Up 12% for the month, the Dow posted its largest one-month advance since January 1987. The S&P500 returned 10.9%, a huge bonanza relegated to small potatoes by the “melt-up” in the broader market. The “average stock” Value Line Arithmetic Index posted an 18.3% advance in November. The small cap Russell 2000 also surged 18.3%, and the S&P400 Midcaps rose 14.1%.
…click on the above link to read the rest of the article…
Weekly Commentary: Scorched Earth
Weekly Commentary: Scorched Earth
November 18 – Reuters (Rodrigo Campos): “Global debt is expected to soar to a record $277 trillion by the end of the year as governments and companies continue to spend in response to the COVID-19 pandemic, the Institute of International Finance said in a report… The IIF… said debt ballooned already by $15 trillion this year to $272 trillion through September. Governments – mostly from developed markets – accounted for nearly half of the increase. Developed markets’ overall debt jumped to 432% of GDP in the third quarter, from a ratio of about 380% at the end of 2019. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP.”
Covid’s precision-like timing was supernatural – nothing short of sinister. A once in a century international pandemic surfacing in the waning days of an unrivaled global financial Bubble. A historic experiment in central bank monetary management already floundering (i.e. Fed employing aggressive “insurance” QE stimulus with stocks at record highs and unemployment at 50-year lows). A Republican administration running Trillion-dollar deficits in the midst of an economic boom. Yet, somehow, reckless U.S. fiscal and monetary stimulus appeared miserly when compared to the runaway excess percolating from China’s epic Credit Bubble. Monetary, fiscal, markets, at home and abroad: Covid bestowed end-of-cycle excess a hardy additional lease on life.
From the FT: “Global debt rose at an unprecedented pace in the first nine months of the year as governments and companies embarked on a ‘debt tsunami’ in the face of the coronavirus crisis… From 2016 to the end of September, global debt rose by $52tn; that compares with an increase of $6tn between 2012 and 2016.”
…click on the above link to read the rest of the article…
Weekly Commentary: Well, That’s Some Weird… Stuff
Weekly Commentary: Well, That’s Some Weird… Stuff
The “average stock” Value Line Arithmetic Index jumped 6.4% for the week. The NYSE Arca Oil Index surged 19.8%, with the Philadelphia Oil Services Index up 17.4%. The KWB Bank Index rose 11.5%, as the Nasdaq Bank Index advanced 13.6%. The Bloomberg REIT Index jumped 6.8%.
The S&P600 Small Cap Index gained 7.5% for the week, as the S&P400 Midcaps rose 4.3%. The Bloomberg Americas Airlines Index jumped 12.9%. The JPMorgan Leisure Travel Index surged 15.3%. Major equities indices rose 13.3% in Spain, 11.9% in Austria, 11.5% in Greece, 10.5% in Belgium, 8.5% in France, 6.9% in the UK and 4.8% in Germany. Turkish stocks surged 8.3%. Crude (WTI) prices jumped 8.1%. Meanwhile, Zoom was down 19%, Netflix 6.2%, Facebook 5.6%, Amazon 5.5%, and Tesla fell 5.0%. Well, That’s Some Weird… Stuff.
I have no interest in disparaging Pfizer’s (and BioNtech’s) Monday announcement of 90% effectiveness for their Covid vaccine. It’s encouraging news. But it is a two-shot vaccine with what reportedly can induce strong post-shot reactions. Moreover, logistical challenges await a vaccine requiring extreme cold storage (negative 100 Fahrenheit). There will be limits to its availability, but mainly I expect a majority of American’s initially to approach Covid vaccines with caution. While many questions remain unanswered, the bottom line is 90% effectiveness bodes well for Covid vaccines generally.
Monday’s market reaction to the news doesn’t bode so well for general market stability.
November 13 – Bloomberg (Justina Lee): “Jon Quigley says he probably should have known something big was coming — even if his risk models didn’t. Just a day after the Great Lakes Advisors manager watched CBS’s ‘60 Minutes’ about America’s unprecedented efforts to deploy a vaccine when it comes, Pfizer Inc. revealed significant progress on its pandemic cure. That revelation spurred the biggest moves ever in Quigley’s $3.9 billion portfolio. While stock benchmarks cheered the news, Wall Street’s most popular styles of quant trading got hit by a historic storm…
…click on the above link to read the rest of the article…
Weekly Commentary: State-Directed Credit Splurge
Weekly Commentary: State-Directed Credit Splurge
New data released Friday confirm ongoing historic Chinese Credit excess. Total Aggregate Financing increased (a ridiculous) $524 billion during August to $40.5 TN, doubling July’s growth and exceeding estimates by almost 40%. It was the strongest monthly gain since March’s record $759 billion. This pushed y-t-d (8-month) growth to $3.828 TN, up 45% from comparable 2019 ($2.650 TN) and 67% ahead of comparable 2018 ($2.297 TN) growth. It’s worth noting Aggregate Financing surged an incredible $2.960 TN over the past six months, 62% ahead of comparable 2019 ($1.823 TN). At 13.3%, year-over-year growth was the strongest in several years.
With 2020 GDP estimates in the 2.0 to 3.0% range, the divergence between Chinese Credit and economic output is unprecedented. That Credit growth has accelerated in the face of rapidly deteriorating economic prospects portends major troubles ahead. China’s “Terminal Phase” excess – including rapid acceleration of late-cycle loans of deteriorating quality – is unparalleled in terms of both degree and duration. Stoking a stock market mania while prolonging a historic apartment Bubble only exacerbates systemic fragility.
August New Bank Loans increased an above forecast $187 billion. This boosted y-t-d loan growth to $2.102 TN, 20% ahead of comparable 2019. Six-month growth ($1.481 TN) was 29% above comparable 2019. Bank Loans were up 13.0% over the past year, 27% in two years, and 84% over five years.
Consumer Loans rose $123 billion during August. Year-to-date growth of $755 billion was 4.7% ahead of comparable 2019. However, six-month Consumer Loan growth of $722 billion was 23% ahead of comparable 2019. Consumer Loans were up 14.5% year-over-year, 33% over two years, 58% in three and 135% over five years.
Corporate Bonds expanded $53 billion. This pushed year-to-date growth to $580 billion, up 80% from 2019 and 133% from comparable 2018 growth.
But the August winner of the Chinese Credit Sweepstakes goes to government finance. Government Bonds jumped $202 billion during the month to $6.362 TN, the largest monthly increase in a data series going back to 2017. At $837 billion, year-to-date growth was 59% ahead of comparable 2019. Government Bonds increased 18.7% over the past year, 38% in two and 66% over three years (5-yr data not available).
…click on the above link to read the rest of the article…
Weekly Commentary: Summer of 2020
Weekly Commentary: Summer of 2020
QE fundamentally changed finance. What commenced at the Federal Reserve with a post-mortgage finance Bubble, $1 TN Treasury buying operation morphed into open-ended purchases of Treasuries, MBS, corporate bonds and even corporate ETFs holding high-yield “junk” bonds. Markets assume it’s only a matter of time before the Federal Reserve adds equities to its buy list.
For years now, Treasury bonds (and agency securities) have traded at elevated prices – low yields – in anticipation of an inevitable resumption of QE operations/securities purchases. Conventional analysis has focused on persistent disinflationary pressures as the primary explanation for historically depressed bond yields. While not unreasonable, such analysis downplays the prevailing role played by exceptionally low Federal Reserve interest-rates coupled with latent (and escalating) financial fragility. Meanwhile, near zero short-term rates and historically low Treasury and agency securities yields have spurred a desperate search for yields, significantly inflating the demand and pricing for corporate Credit.
The Fed’s COVID crisis leap into corporate debt has wielded further profound impacts on corporate Credit – yields, prices and issuance.
September 2 – Financial Times (Joe Rennison): “Companies have raised more debt in the US bond market this year than ever before… A $2bn bond from Japanese bank Mizuho and a $2.5bn deal from junk-rated hospital operator Tenet Healthcare helped nudge overall US corporate bond issuance to $1.919tn so far this year, surpassing the previous annual record of $1.916tn set in 2017, according to… Refinitiv. The surge marks a dramatic revival for the market since the coronavirus-induced rout in March, when prices slumped and yields soared… ‘There has been a phenomenal amount of issuance,’ said Peter Tchir, chief macro strategist at Academy Securities… ‘It’s been the busiest summer I have ever seen. It’s felt like we have been setting issuance records month after month.’”
…click on the above link to read the rest of the article…
Weekly Commentary: Moral Hazard Quagmire
Weekly Commentary: Moral Hazard Quagmire
The Nasdaq100 jumped another 3.5% this week, increasing 2020 gains to 32.3%. Amazon gained 4.3% during the week, boosting y-t-d gains to 77.8% – and market capitalization to $1.626 TN. Apple surged 8.2% this week, increasing 2020 gains to 69.4%. Apple’s market capitalization ended the week at a world-beating $2.127 TN. Microsoft rose 2.0% (up 35.1% y-t-d, mkt cap $1.612 TN). Google rose 4.8% (up 18.2% y-t-d, mkt cap $1.073 TN), and Facebook gained 2.2% (up 30.1%, mkt cap $761bn). The Nasdaq100 now trades with a price-to-earnings ratio of 37.4.
This era will be analyzed and debated for decades to come – if not much longer. Market Bubbles, over-indebtedness, inequality, financial instability and economic maladjustment – festering for years – can no longer be disregarded as cyclical phenomena. Ben Bernanke has declared understanding the forces behind the Great Depression is the “Holy Grail of economics”. It’s ironic. That the Fed never repeats its failure to aggressively expand the money supply in time of crisis is a key facet of the Bernanke doctrine – policy failing he asserts was a primary contributor to Depression-era financial and economic collapse. Yet this era’s unprecedented period of monetary stimulus is fundamental to current financial, economic, social and geopolitical instabilities.
August 18 – Bloomberg (Craig Torres): “The concentration of market power in a handful of companies lies behind several disturbing trends in the U.S. economy, like the deepening of inequality and financial instability, two Federal Reserve Board economists say in a new paper. Isabel Cairo and Jae Sim identify a decline in competition, with large firms controlling more of their markets, as a common cause in a series of important shifts over the last four decades. Those include a fall in labor share, or the chunk of output that goes to workers, even as corporate profits increased; and a surge in wealth and income inequality, as the net worth of the top 5% of households almost tripled between 1983 and 2016.
…click on the above link to read the rest of the article…
Weekly Commentary: Precarious World
Weekly Commentary: Precarious World
Another fascinating – if not comforting – week. A Friday Wall Street Journal headline: “Big Tech’s Embarrassment of Riches – Amazon, Apple, Facebook and Google all show resilience during pandemic while undergoing congressional scrutiny.” Amazon, Apple, Facebook and Google all reported booming earnings the day following Wednesday appearances by respective CEOs before the House Antitrust Subcommittee hearing. Down the road from Capitol Hill, the FOMC released their post-meeting policy statement. Chairman Powell conducted a virtual press conference where he addressed key issues: “inflation running well below our symmetric 2% objective,” and “inequality as an issue has been a growing issue in our country and in our economy for four decades.”
While it is true that inequality has been building for decades, this trend has worsened markedly since the 2008 crisis. Much more so of late.
Powell: “So [inequality is] a serious economic problem for the United States, but it’s got underlying causes that are not related to monetary policy or to our response to the pandemic. Again, four decades of evidence suggests it’s about globalization, it’s about the flattening out of educational attainment in the United States compared to our other competitor countries. It’s about technology advancing too.”
If we could chart “inequality,” it would at this point be rising parabolically – following the trajectory of the Fed’s balance sheet. I had been assuming Fed holdings would at some point be getting a lot larger. It seemed clear inequality would only get worse. COVID dramatically accelerated both trends.
Bubble analysis is these days as fruitful as ever. We’re in the waning days of a multi-decade super-cycle. Bubble markets have become extraordinarily distorted and increasingly disorderly. Protracted deep structural maladjustment has fostered pervasive Bubble Economy Dynamics. Aggressive monetary inflation and central bank market interventions – primary contributors to financial and economic Bubbles – are being deployed to hold Bubble collapse at bay. And we’re now witnessing the initial consequences of desperately throwing massive stimulus at speculative market Bubbles and a Bubble Economy.
…click on the above link to read the rest of the article…
Weekly Commentary: Drone Money
Weekly Commentary: Drone Money
“In particular, to maintain downward pressure on longer-term interest rates, the Federal Open Market Committee (FOMC) likely will provide forward guidance about the economic conditions it would need to see before it considers raising its overnight target rate. And it likely will clarify its plans for further securities purchases (quantitative easing). It is possible, though not certain, that the FOMC will also implement yield-curve control by targeting medium-term interest rates.” Ben Bernanke and Janet Yellen, Testimony on COVID-19 and Response to Economic Crisis, July 17, 2020.
With highly speculative securities markets having fully recovered COVID losses – and Nasdaq sporting a 17% y-t-d gain – why the talk of more QE? And with 10-year yields at 0.63% and financial conditions extraordinarily loose, what’s the purpose for discussing the pegging of Treasury bond prices (aka “yield curve control”)? Aren’t the markets already conspicuously over-liquefied?
“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” Milton Friedman, “The Optimum Quantity of Money,” 1969.
It was Dr. Ben Bernanke that, in the wake of the “tech” Bubble collapse, elevated Friedman’s academic thought experiment to a revolutionary policy proposal. And in this runaway real world experiment, “often repeated” supplanted Friedman’s “will never be repeated” – and it changed everything.
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.
…click on the above link to read the rest of the article…
Weekly Commentary: Utmost Crazy
Weekly Commentary: Utmost Crazy
The Shanghai Composite surged 7.3% this week, increasing y-t-d gains to 10.9%. The CSI 300 rose 7.6%, with 2020 gains of 16.0%. China’s growth-oriented ChiNext Index’s 12.8% surge boosted year-to-date gains to 54.5%. Copper jumped 7.1% this week. Aluminum rose 4.6%, Nickel 4.0%, Zinc 8.3%, Silver 4.2%, Lead 4.2%, and Palladium 3.5%. China’s renminbi advanced 0.9% this week to a four-month high versus the less-than-king dollar.
July 9 – Bloomberg: “Like millions of amateur investors across China, Min Hang has become infatuated with the country’s surging stock market. ‘There’s no way I can lose,’ said the 36-year-old, who works at a technology startup… ‘Right now, I’m feeling invincible.’ Five years after China’s last big equity boom ended in tears, signs of euphoria among the nation’s investing masses are popping up everywhere. Turnover has soared, margin debt has risen at the fastest pace since 2015 and online trading platforms have struggled to keep up. Over the past eight days alone, Chinese stocks have added more than $1 trillion of value — far outpacing gains in every other market worldwide.”
China’s Total Aggregate Financing (TAF) expanded a much stronger-than-expected $490 billion in June, up from May’s $455 billion expansion and 30% above growth from June 2019. TAF surged a remarkable $2.976 TN during the first-half, 43% ahead of comparable 2019 (80% ahead of first-half 2018).
It’s not easy to place China’s ongoing historic Credit expansion in context. While not a perfect comparison, U.S. Total Non-Financial Debt (NFD) expanded a record $3.3 TN over the four quarters ended March 31st. In booming 2007, U.S. NFD expanded about $2.5 TN. Chinese Total Aggregate Financing has expanded almost $3.0 TN in six months.
In the face of economic contraction, TAF increased a blistering $4.39 TN, or 12.8%, over the past year. For perspective, y-o-y growth began 2020 at 10.7% – and is now expanding at the strongest pace since February 2018. Beijing is targeting TAF growth of $4.3 TN (30 TN yuan) for 2020, about 25% ahead of record 2019 growth (and up 45% from 2018 growth).
…click on the above link to read the rest of the article…
Weekly Commentary: More W than V
Weekly Commentary: More W than V
The much vaunted “V” recovery is improbable. To simplify, a somewhat “w”-looking scenario is a higher probability. After such an abrupt and extraordinary collapse in economic activity, a decent bounce was virtually assured. Millions would be returning to work after temporary shutdowns to a substantial chunk of the U.S. services economy. There would be pent-up demand, especially for big ticket home and automobile purchases. A massive effort to develop vaccines would ensure promising headlines.
With incredible amounts of liquidity sloshing around, constructive data supporting the “V” premise were all the markets needed. The enormous scope of hedging and shorting activity back in the March and April timeframe ensured the availability of more than ample firepower to fuel a rally. An equities revival would then spur a general restoration of confidence and spending – in a self-reinforcing “V” dynamic.
Inevitably, highly speculative Bubble Markets inflated way beyond anything even remotely justified by the fundamental backdrop – actually coming to believe the “V” hype. The rapid recovery phase, however, will prove dreadfully short-lived. Scores of companies won’t survive, and millions of job losses will prove permanent. Fearful consumers have made lasting changes in spending patterns, with many retrenching. Tons of fiscal stimulus will be burned through with astonishing rapidity. And a raving Credit market luxuriating in Fed monetary inflation will confront Credit losses at a breadth and scale much beyond the last crisis.
My concern has been that the COVID dislocation would be with us for a while. It’s surprising we haven’t seen at least some relief as summer unfolds. I was not expecting major outbreaks in Arizona, Florida, Texas and Southern California this time of year.
…click on the above link to read the rest of the article…
Weekly Commentary: Update COVID-19
Weekly Commentary: Update COVID-19
Can we even attempt a reasonable discussion? Someone’s got this wrong.
June 12 – Reuters (Judy Hua, Cate Cadell, Winni Zhou and Andrew Galbraith): “A Beijing district put itself on a ‘wartime’ footing and the capital banned tourism and sports events on Saturday after a cluster of novel coronavirus infections centred around a major wholesale market sparked fears of a new wave of COVID-19… ‘In accordance with the principle of putting the safety of the masses and health first, we have adopted lockdown measures for the Xinfadi market and surrounding neighbourhoods,’ Chu said.”
June 14 – Financial Times (Don Weinland): “Over the weekend, authorities closed the Xinfadi market, a sprawling complex that provides most of Beijing’s fresh seafood, fruits and vegetables. Several residential compounds on the west side of the city have been locked down and more than 100 people have been put in quarantine… China has adopted a ‘zero tolerance’ stance toward new cases. Areas that present any new cases have been quickly locked down, often trapping millions of people.”
June 19 – CNN (Nectar Gan): “Within a matter of days, the metropolis of more than 20 million people was placed under a partial lockdown. Authorities reintroduced restrictive measures used earlier to fight the initial wave of infections, sealing off residential neighborhoods, closing schools and barring hundreds of thousands of people deemed at risk of contracting the virus from leaving the city.”
China is said to have mobilized its 100,000-strong infection tracing force. More than 1.1 million tests were administered in Beijing over the past week. From the UK Guardian (Lily Kuo): “Officials have ordered all residents to avoid non-essential travel outside of the capital, and suspended hundreds of flights and all long-distance buses. Other cities and provinces have begun to impose quarantine measures on travellers from Beijing… ‘Everyone is scared. No one wanted this to happen,’ says Zhang, waiting in the queue near Chaoyang park.”
…click on the above link to read the rest of the article…
Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds
Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds
Financial crisis erupted in March. The Fed slashed rates at a March 3rd emergency meeting – and then began aggressively expanding its holdings/balance sheet (creating market liquidity). Even from a “flow of funds” perspective, it was one extraordinary quarter.
Total Non-Financial Debt (NFD) surged a nominal $1.597 TN during the first quarter ($6.379 TN seasonally-adjusted and annualized!) to $54.325 TN. This was the strongest quarter of NFD growth on record (blowing past Q1 2004’s $1.234 TN). Indeed, Q1 growth surpassed full-year NFD expansions for the years 2009, 2010, 2011 and 2013. This pushed one-year growth to $3.271 TN (6.2%), significantly exceeding 2007’s record $2.521 TN expansion. NFD increased $20.857 TN, or 59%, since the end of 2008. NFD as a percentage of GDP rose to a record 260%. This compares to previous cycle peaks of 226% (Q4 ‘07) and 183% (Q4 ’99).
Financial Sector borrowings jumped $963 billion during Q1, surpassing the previous record $656 billion from Q3 ’07. This pushed one-year Financial Debt growth to $1.247 TN (7.6%), the strongest expansion since ‘07’s $2.065 TN.
Total Credit (Non-Financial, Financial and Foreign) surged nominal $2.391 TN for the quarter to $77.861 TN, surpassing previous record growth from Q1 ‘04 ($1.512 TN). One-year growth of $4.790 TN was the strongest since 2007. Total Credit jumped to 362% of GDP, the high going back to 2010.
Federal Liabilities (excluding massive “contingent”/off balance sheet liabilities) jumped to $22.0 TN during Q1. At 102%, Federal Liabilities surpassed 100% of GDP for the first time in at least six decades. For perspective, Federal Liabilities ended the seventies at 50% of GDP; the eighties at 63%; the nineties at 59%; and 2010 at 85%. It would not be surprising to see this ratio approach 150% over the next three to five years.
Outstanding Treasury Securities jumped nominal $500 billion during the quarter to a record $19.518 TN. This pushed one-year growth to a staggering $1.612 TN (9.0%) and two-year growth to $2.472 TN (14.5%). Treasuries ballooned $13.467 TN, or 223%, since the end of ’07. Treasuries-to-GDP jumped to 91%, more than doubling the 41% from the end of 2007.
…click on the above link to read the rest of the article…
