Home » Posts tagged 'credit bubble bulletin'

Tag Archives: credit bubble bulletin

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Weekly Commentary: Dangerous Addiction

Weekly Commentary: Dangerous Addiction

July 20 – Reuters (Karen Pierog): “Risk-off sentiment that drove Monday’s sell-off on Wall Street and rally in U.S. Treasuries widened credit spreads on corporate bonds to multi-month highs. The spread on the ICE BofA U.S. High Yield Index, a commonly used benchmark for the junk bond market, spiked from 318 bps on Friday to 344 bps as of the last update late Monday, its highest level since late March, according to Refinitiv data. It was also the biggest widening in a day since last June.”
The S&P500 dropped 1.6% in Monday trading, as U.S. stocks followed global equities lower. The VIX Index spiked to 25, a two-month high, while 10-year Treasury yields dropped to a five-month low 1.17%. Germany’s DAX and France’s CAC 40 indices sank 2.6% and 2.5% – to lows since May. Hong Kong’s Hang Seng Index fell another 1.8%, with the Hang Seng China Financials Index trading this week at an eight-month low. Global “Risk Off” was gathering momentum.

July 20 – Bloomberg: “Fresh signs of a cash crunch at China Evergrande Group sent shares and bonds of the world’s most indebted developer to new lows on Tuesday, stoking fears of broader market contagion. The property giant’s stock tumbled to the lowest level since April 2017, extending its two-day loss to 25%. Several of Evergrande’s local and offshore bonds sank to records, with its dollar note due 2025 falling to as low as 54 cents. Bonds of other junk-rated Chinese borrowers declined, while a gauge of developer shares dropped to a nearly three-year low. The nation’s bank stocks also slumped.”

July 20 – Bloomberg (Rebecca Choong Wilkins and Alice Huang): “Rising concerns over the financial health of China Evergrande Group are weighing down the broader market of high-yield bonds as contagion fears rise…
…click on the above link to read the rest of the article…

Weekly Commentary: Under Fire

Weekly Commentary: Under Fire

The week had an ominous feel. Ten-year Treasury yields dropped another seven bps to 1.29% – completely disregarding much stronger-than-expected reports on consumer and producer prices. German bund yields fell another six bps to a three-month low negative 0.35%. Equities were down for the week in Europe, but the notable equities weakness was posted by the broader U.S. market. The Midcaps dropped 3.3%, and the small cap Russell 2000 sank 5.1%. Risk aversion typically leaves its initial mark at the “Periphery.”
Treasury market notwithstanding, inflation has become a problem in more ways than one. Consumer Prices (CPI) jumped 0.9% in June, versus expectations of a 0.5% increase. Year-over-year CPI was up 5.4% (expectations 4.9%), the strongest jump since 2008. And for analysts with issues with year-over-year “base-effects”, consumer inflation was up 3.3% in only five months. Core CPI also gained 0.9% for the month, with a 4.5% y-o-y increase. Producer Prices rose a data series record 7.3% y-o-y. Import Prices jumped 1% for the month and 11.2% y-o-y. University of Michigan one-year Inflation Expectations rose to 4.8%, the high since the summer of 2008. Also, at 4.8%, the New York Fed’s survey of one-year inflation expectations jumped to the highest level in data back to 2013.

To this point, inflation has not been an issue for the markets. It has become a problem for millions of Americans. For the institution of the Federal Reserve, it’s a metastasizing malignancy.

I understand why each Fed official sticks tightly with the party line “inflation will be transitory.” They don’t want to rattle the markets with thoughts of a traditional tightening cycle. And I think I understand why they adopted their framework aiming for a period of above target inflation – and why they swore off responding to incipient inflationary pressures. Again, they sought to retain flexibility to remain highly accommodative monetary policy, ensuring financial conditions would remain exceptionally loose (and markets high).
…click on the above link to read the rest of the article…

Weekly Commentary: Just the Facts – May 21, 2021

Weekly Commentary: Just the Facts – May 21, 2021

For the Week:
The S&P500 slipped 0.4% (up 10.6% y-t-d), and the Dow declined 0.5% (up 11.8%). The Utilities added 0.4% (up 4.7%). The Banks fell 1.0% (up 35.1%), and the Broker/Dealers declined 1.2% (up 22.6%). The Transports sank 2.8% (up 23.7%). The S&P 400 Midcaps dropped 1.2% (up 16.6%), and the small cap Russell 2000 dipped 0.4% (up 12.2%). The Nasdaq100 was little changed (up 4.1%). The Semiconductors rallied 2.4% (up 9.2%). The Biotechs gained 0.5% (down 2.5%). With bullion surging $38, the HUI gold index jumped 4.4% (up 6.9%).

Three-month Treasury bill rates ended the week at negative 0.0025%. Two-year government yields added a basis point to 0.15% (up 3bps y-t-d). Five-year T-note yields increased one basis point to 0.82% (up 46bps). Ten-year Treasury yields declined a basis point to 1.62% (up 71bps). Long bond yields declined two bps to 2.32% (up 67bps). Benchmark Fannie Mae MBS yields were unchanged at 1.86% (up 52bps).

Greek 10-year yields sank nine bps to 0.97% (up 35bps y-t-d). Ten-year Portuguese yields declined four bps to 0.56% (up 53bps). Italian 10-year yields fell four bps to 1.03% (up 49bps). Spain’s 10-year yields declined three bps to 0.555% (up 51bps). German bund yields were unchanged at negative 0.13% (up 44bps). French yields dipped two bps to 0.25% (up 58bps). The French to German 10-year bond spread narrowed about two to 38 bps. U.K. 10-year gilt yields fell three bps to 0.83% (up 63bps). U.K.’s FTSE equities index declined 0.4% (up 8.6% y-t-d).

Japan’s Nikkei Equities Index rallied 0.8% (up 3.2% y-t-d). Japanese 10-year “JGB” yields dipped a basis point to 0.08% (up 6bps y-t-d). France’s CAC40 was unchanged (up 15.0%). The German DAX equities index was little changed (up 12.5%). Spain’s IBEX 35 equities index gained 0.6% (up 14.0%). Italy’s FTSE MIB index rose 0.8% (up 12.3%). EM equities were mostly higher. Brazil’s Bovespa index added 0.6% (up 3.0%), and Mexico’s Bolsa advanced 1.1% (up 13.0%). South Korea’s Kospi index was little changed (up 9.8%). India’s Sensex equities index surged 3.7% (up 5.8%). China’s Shanghai Exchange was about unchanged (up 0.4%). Turkey’s Borsa Istanbul National 100 index gained 0.7% (down 1.7%). Russia’s MICEX equities index increased 0.6% (up 11.3%).
…click on the above link to read the rest of the article…

Weekly Commentary: Un-Anchored

Weekly Commentary: Un-Anchored

A big week on the inflation front.

April CPI was reported up 0.8% versus estimates of 0.2%. And while the 4.2% y-o-y increase was partly a function of the year ago negative CPI prints, it’s worth noting CPI was up 2.1% over just the past four months. “Core” CPI increased a much stronger than expected 0.9% for the month and was up 3.0% year-over-year. Used car and truck prices surged 10.0%, with air fares up 10.2%. The CPI’s Housing component increased 0.5% for the month, while gaining only 2.6% y-o-y.

Producer Prices were also stronger than expected. At 0.6%, April’s increase was double estimates. The 6.2% y-o-y increase was above the 5.8% estimate – and the strongest price advance in the data series dating back to November 2010. Producer Prices surged a notable 3.4% over the past four months.

April Import Prices were reported up 0.7% for the month. This pushed the y-o-y price increase to 10.6%, up from March’s 7.0% – to the strongest import price inflation since October 2011. Prices for Industrial Supplies jumped another 1.7%, this following March’s 5.2% surge.

The University of Michigan consumer survey’s One-Year Inflation Expectations component jumped to 4.6% from April’s 3.4%. Inflation Expectations have not been higher since June 2008’s 5.1%. It’s worth noting WTI Crude surged to $140 back in June ‘08, as aggressive Fed rate cuts (3.25 percentage points over eight months to 2.0%) fueled myriad speculative Bubble blow-offs. This month’s UofM survey’s Five-Year Inflation Expectations jumped from 2.7% to 3.1%, the high since March 2011.

“Higher Inflation Prompts Sharp Drop in Michigan Sentiment,” read the Bloomberg headline. Unexpectedly, Consumer Sentiment dropped to 82.8 in May from April’s 88.3, the weakest reading since February. The Current Economic Conditions component sank 6.4 points to 90.8. Elsewhere, April Retail Sales badly missed estimates.
…click on the above link to read the rest of the article…

Weekly Commentary: Generational Turning Point

Weekly Commentary: Generational Turning Point

There is an overarching issue I haven’t been able to get off my mind: Are we at the beginning of something new or in the waning days of the previous multi-decade cycle?

May 5 – Wall Street Journal (James Mackintosh): “We could be at a generational turning point for finance. Politics, economics, international relations, demography and labor are all shifting to supporting inflation. After more than 40 years of policies that gave priority to the fight against rising prices, investor- and consumer-friendly solutions are becoming less fashionable, not only in the U.S. but in much of the world. Investors are woefully unprepared for such a shift, perhaps because such historic turning points have proven remarkably hard to spot. This may be another false alarm, and it will take many years to play out, but the evidence for a general shift is strong across five fronts.”

The “five fronts” underscored in Mr. Mackintosh’s insightful piece are as follows: 1) “Central banks, led by the Federal Reserve, are now less concerned about inflation.” 2) “Politics has shifted to spend even more now, pay even less later.” 3) “Globalization is out of fashion.” 4) “Demographics worsen the situation.” 5) “Empowered labor puts upward pressure on wages and prices.”

The analysis is well-founded, as is the article’s headline: “Everything Screams Inflation.” After surging another 3.7% this week (lumber up 12%, copper 6%, corn 9%), the Bloomberg Commodities Index has already gained 20% this year. Lumber enjoys a y-t-d gain of 93% – WTI Crude 34%, Gasoline 51%, Copper 35%, Aluminum 26%, Steel Rebar 32%, Corn 51%, Soybeans 22%, Wheat 19%, Coffee 18%, Sugar 13%, Cotton 15%, Lean Hogs 59%… The focus on inflation is clearly justified. Yet Mackintosh began his article suggesting a “Generational Turning Point for finance” – rather than inflation. Let’s explore…

I mark the mid-eighties as the beginning of the current super-cycle. A major collapse in market yields (following the reversal of Paul Volcker’s tightening cycle) promoted financial innovation and the expansion of non-bank Credit expansion.

…click on the above link to read the rest of the article…

Weekly Commentary: Peak Monetary Stimulus

Weekly Commentary: Peak Monetary Stimulus

Not again. Bloomberg is referring to “the bond market riddle.” The Financial Times went with the headline, “US Government Bond Investors Left Bewildered by ‘Bonkers’ Market Move.” It’s been three weeks of declining Treasury yields in the face of robust economic data (and surging commodities prices!). Too soon to be discussing a new “conundrum,” but I am finding the various explanations of Treasury market behavior interesting – if not convincing.

Treasury market sentiment had turned negative. A decent short position had developed, and it’s perfectly reasonable to expect the occasional squeeze. Squeezes, after all, have become commonplace throughout the markets. But could there be something more fundamental unfolding?

Over the years, I’ve relied upon a “Core vs. Periphery” model of market instability as a key facet of my analytical framework. Instability and financial crises typically emerge at the “periphery” – at the fringe where the structurally weakest and most vulnerable to risk aversion and tightening financial conditions – reside. I believe this dynamic is already in play for the global Bubble, with the emerging markets earlier in the year experiencing an opening round of instability. Are we in the “quiet” before the next EM storm?

The dog that didn’t bark. Ten-year Treasury yields are down 18 bps this month. Meanwhile, the dollar index dropped 2.5% to a six-week low. Why haven’t the emerging markets mustered a more impressive rally, especially considering the degree of bearish sentiment that had developed? Could this be as good as it gets? The week’s developments lent support to the latent fragility at the “Periphery” thesis. Are central bank responses to liquidity overabundance and mounting inflationary pressures an escalating risk to fragile EM Bubbles?
…click on the above link to read the rest of the article…

Weekly Commentary: Powell on Inflation

Weekly Commentary: Powell on Inflation

The Treasury yield spike runs unabated. Ten-year Treasury yields rose another 10 bps this week to 1.72%, the high since January 23, 2020. The Treasury five-year “breakeven” inflation rate rose to 2.65% in Tuesday trading, the high since July 2008. The Philadelphia Fed’s Business Survey Prices Paid Index surged to a 41-year-high. In the New York Fed’s Manufacturing Index, indices of Prices Paid and Received both jumped to highs since 2011.
While crude oil’s notable 6.4% decline for the week spurred a moderate pullback in market inflation expectations (i.e. “breakeven rates”), this did not translate into any relief in the unfolding Treasury bear market.

Chairman Powell was widely lauded for his adept handling of Wednesday’s post-FOMC meeting press conference. He was well-prepared and could not have been more direct: The Federal Reserve will not anytime soon be contemplating a retreat from its ultra-dovish stance. It was music to the equities mania, as the Dow gained 190 points to trade above 33,000 for the first time. Treasury yields added a couple bps, but without any of the feared fireworks. Markets were breathing a sigh of relief.

Labored breathing returned Thursday. Ten-year Treasury yields spiked another 10 bps, trading above 1.75% for the first time since January 2020. And after trading as low as 0.76% during Powell’s press conference, five-year Treasury yields spiked to almost 0.90% in increasingly disorderly Thursday trading. The Nasdaq100 was slammed 3.1%, with the S&P500 sinking 1.5%.

The Treasury market would really like to take comfort from the Fed’s steadfast dovishness. It’s just been fundamental to so much. It’s worked incredibly well for so long. Not now. This raises a critical issue: Paradigm shift? Regime change? What’s driving Treasury yields these days? What is the bond market fearing? If it’s inflation, is Fed dovishness friend or foe?

…click on the above link to read the rest of the article…

credit bubble bulletin, doug noland, inflation, price inflation, fed, us federal reserve, jerome powell

Weekly Commentary: Regime Change

Weekly Commentary: Regime Change

Ten-year Treasury yields closed out a tumultuous week at 1.41% bps, pulling back after Thursday’s spike to a one-year high 1.61%. Ten-year Treasury yields are now up 49 bps from the start of the year and almost 100 bps (1 percentage point) off August 2020 lows. More dramatic, five-year yields jumped 16 bps this week to 0.73%.

Surging yields are a global phenomenon. Ten-year yields were up 12 bps in Canada (to 1.35%), 30 bps in Australia (1.90%), 28 bps in New Zealand (1.89%), five bps in Germany (-0.26%), and five bps in Japan (0.16%) – with Japanese JGB yields hitting a five-year-high.

“Periphery” bond markets were under intense pressure, Europe’s and EM. Greek yields surged 22 bps to 1.11%, while Italian yields rose 14 bps to 0.76%. EM dollar bonds were bloodied. Yields were up 31 bps in Turkey (5.90%), 28 bps in the Philippines (5.90%), 25 bps in Peru (2.39%), 23 bps in Indonesia (2.57%), 16 bps in Qatar (2.14), 16 bps in Ukraine (6.95%), and 16 bps in Mexico (2.92%). Local currency bonds were walloped. Yields were up 125 bps in Lebanon, 31 bps in Brazil, 29 bps in Colombia, 27 bps in Romania, 19 bps in Poland, and 17 bps in Hungary.

Global bond markets have an inflation problem. The international central bank community has an inflation problem. Perhaps Treasuries and the Fed face the biggest challenge in managing around mounting inflationary risks.

The U.S., after all, is running unprecedented peacetime deficits, with a new $1.9 TN stimulus package scooting through Congress. This legislation will be followed by what is sure to be a major infrastructure program. There is literally colossal deficits and Treasury issuance as far as the eye can see.

February 23 – Bloomberg (Gerson Freitas Jr.): “Commodities rose to their highest in almost eight years amid booming investor appetite for everything from oil to corn…
…click on the above link to read the rest of the article… 

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.

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…

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: Pondering the New Secretary of the Treasury

Weekly Commentary: Pondering the New Secretary of the Treasury

The U.S. Goods Trade Deficit jumped to a then record $76 billion back in July 2008. A few short months later, financial chaos unleashed the “great recession” economic crisis. Traditionally, large trade deficits are evidence of loose monetary conditions and resulting unsustainable spending patterns. By May 2009 – only 10 months from an all-time record – the Goods Trade Deficit had shrunk to a seven-year low $35 billion. It’s worth noting, as well, that M2 money supply expanded $253 billion, or 3.1%, during 2009.
Fast forward to the current crisis period. M2 has surged $419 billion in only six weeks. Over the past 38 weeks, M2 has expanded an unprecedented $3.60 TN, with year-over-year growth of $3.785 TN, or 24.7%. October’s Goods Trade Deficit was reported Wednesday at $80.3 billion, lagging only August’s record $83.1 billion. Last month’s Trade Deficit was actually 21% ahead of pre-crisis October 2019.

No doubt about it, this crisis period is unique. More than three Trillion worth of Fed liquidity injections coupled with more than a Three Trillion fiscal deficit has thrown traditional crisis dynamics on its head. In this New Age Crisis backdrop, financial conditions have actually dramatically loosened. Money supply has skyrocketed, and stocks have gone on a wild speculative moonshot. Corporate bond issues surged to new records. And, as noted above, booming imports pushed the Goods Trade Deficit to an all-time high. At $170 billion, the second quarter Current Account Deficit was the largest since 2008.

The bloated services sector has accounted for a majority of historic job losses. Massive stimulus has bolstered spending on goods – which has led to the rapid recovery of imports. Home sales have boomed, with the strongest house price inflation in years. It’s only fitting that stimulus-induced “Terminal Phase” Bubble excess now engulfs the housing sector as well. That asset inflation and Bubble excess run rampant in the throes of crisis should have us all worried.

…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…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase