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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?
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A dangerous misunderstanding

April 25, 2021

How much money should there be in the world? It is an interesting question; to which, at any time, there is a correct answer that is unknown to anyone. It is the amount at which money is able to perfectly perform its two key functions – being a medium of exchange and a store of value. Too little money in circulation and it would cease being a fair store of value because its value would be increasing – something that hasn’t occurred in half a century. Most often, money ceases to be a store of value on the downside – losing its value – because it is far easier for states and banks to create new currency than it is to destroy it.

In practice, whether there is too much, or not enough money in the system is largely a matter of political economy rather than science. There are two broad economic camps – Monetarists and Keynesians – which largely correspond to conservative and liberal politics. The conservative-monetarist camp has been arguing for more than a decade that there is too much money in a system which should have been allowed to fail back in 2008. The liberal-Keynesian camp in contrast, argues that the absence of productivity gains, inflation and wage growth pressure show that there is too little money in circulation.

The liberal-Keynesian camp appears to be winning the argument for now. This is because the economic fallout from the pandemic and the response to it would – at least in the short-term – have been devastating were it not for the various grants, loans, bailouts, stimulus payments and public services spending embarked upon by states and central banks around the world. Moreover, by pumping trillions of newly created dollars into the system, the Biden administration may well create a short-term post-pandemic bounce which will prevent the immediate onset of depression.

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There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

March 28, 2021

There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

If you’re a wage earner, retiree, or a lowly saver, your wealth is in imminent danger.

A lifetime of schlepping and saving could be rapidly vaporized over the next several years. In fact, the forces towards this end have already been set in motion.

Indeed, there are many forces at work. But at the moment, the force above all forces is the extreme levels of money printing being jointly carried out by the Federal Reserve and the U.S. Treasury.

Fed Chairman Jay Powell and Treasury Secretary Janet Yellen have linked arms to crank up the printing presses in tandem.

This is what’s driving markets to price things – from copper to digital NFT art – in strange and shocking ways. But what’s behind the money printing?

Surely it’s more than progressive politics – under the guise of virus recovery – run amok.

Where to begin?

The U.S. national debt is a good place to start. And the U.S. national debt is now over $28 trillion. Is that a big number?

As far as we can tell, $28 trillion is a really big number…even in the year 2021. How do we know it’s a big number, aside from counting the twelve zeros that fall after the 28?

We know $28 trillion is a big number based on our everyday experience using dollars to buy goods and services. You can still buy a lot of stuff with $28 trillion. In truth, $28 trillion is so big it’s hard to comprehend.

Nonetheless, $28 trillion is not as big a number today as it was in 1950. Back then, the relative bigness of $28 trillion was much larger. It was unfathomable.

Crime of the Century

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economic prism, mn gordon, janet yellen, inflation, jerome powell, fed, us federal reserve, central bank, stimulus, government stimulus, united states

Who Bought the $4.5 Trillion Added in One Year to the Incredibly Spiking US National Debt, Now at $27.9 Trillion?

February 19, 2021

Who Bought the $4.5 Trillion Added in One Year to the Incredibly Spiking US National Debt, Now at $27.9 Trillion?

Someone had to buy every dollar of this monstrous debt. Here’s Who. The Fed isn’t the only one. But China continues to unwind its holdings.

Driven by stimulus and bailouts, and fired up by the tax cuts and by grease and pork, the Incredibly Spiking US National Debt has skyrocketed by $4.55 trillion in 12 months, to $27.86 trillion, after having already spiked by $1.4 trillion in the prior 12 months, which had been the Good Times. These trillions are all Treasury securities that form the US national debt, and someone had to buy every single one of these securities:

So we’ll piece together who bought those trillions of dollars in Treasury Securities that have whooshed by over the past 12 months.

Tuesday afternoon, the Treasury Department released the Treasury International Capital data through December 31 which shows the foreign holders of the US debt. From the Fed’s balance sheet, we can see what the Fed bought. From the Federal Reserve Board of Governors bank balance-sheet data, we can see what the banks bought. And from the Treasury Department’s data on Treasury securities, we can see what US government entities bought.

Share of foreign holders falls to 25% for first time since 2007:

In the fourth quarter, foreign central banks, foreign government entities, and foreign private-sector entities such as companies, banks, bond funds, and individuals, reduced their holdings by $35 billion from the third quarter, to $7.04 trillion. This was still up from a year ago by $192 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt fell to 25.4%, the lowest since 2007 (red line, right scale):

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Rabobank: The Everything Bubble Has Become More Everything And More Bubble

February 10, 2021

Rabobank: The Everything Bubble Has Become More Everything And More Bubble

Oh-No-Bi-Wan Kenobi

For those who haven’t seen it –and I accept there are now probably many readers who haven’t– there is a classic scene in the first Star Wars film (Episode IV) in which Jedi Master Obi-Wan Kenobi tells his villainous duelling opponent, his former apprentice, Darth Vader: “You can’t win, Darth. If you strike me down, I will become more powerful than you can possible imagine.” Darth being Darth of course strikes him down: and Kenobi disappears entirely, leaving only his outer garment (but no shoes or underpants, etc.). So it looks like Darth has won the fight. Except Kenobi goes on to become an immortal ‘Force ghost’, who like a happier Banquo, helps guide Darth’s son to blow up the mega battle-station he has until then been prowling up and down menacingly.

We are less than a month into the Biden administration, and despite a slight down-day for stocks on Tuesday, it is quite clear, according to a slew of commentators, that the Everything Bubble has become more Everything and more Bubble. The Federal Reserve and other global central banks are still pouring their fully operational firepower into the economy, fully aware that little of this flows to productive assets or wages, and most of it to speculation: but when financial/asset speculation IS most of the ‘economy’, that looks like victory to them. Indeed, doesn’t it feel like victory to those who speak Bloombergian? There is more money than ever; a major global airline has decided you don’t have to wear masks in business or first class on long-haul flights; and the luxury Maldives is seeing record hotel occupancy!

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Update on the Fed’s QE

December 14, 2020

Update on the Fed’s QE

No Wonder the Cry Babies on Wall Street are clamoring for more. Five SPVs, already on ice, will expire on December 31.

The Fed released details today of its corporate-bond purchases in November ($215 minuscule millions) and corporate-bond ETF purchases in November (zilch). Last time it bought any ETFs had been on July 23. It released details about its other activities in its Special Purpose Vehicles (SPVs), which are essentially on ice. Five of them will expire on December 31, including the SPV that handles the corporate bond purchases.

The Fed unwound its “repo” positions in early July down to zero, and more recently most its “central bank liquidity swaps.” Its purchases of residential mortgage-backed securities (MBS) have been in a holding pattern since mid-September. What it is still buying at a steady clip are Treasury securities, thereby monetizing part of the debt the government is adding monthly to its gigantic pile.

The net effect is that its total assets have edged up just 1.0% since June 24, with a dip in the middle, after exploding higher in the prior three months. This is the Fed’s tool to bail out asset holders during each crisis, and enrich them when there is no crisis:

There is now clamoring among the crybabies on Wall Street that the Fed should increase its asset purchases, and they’re pressuring the Fed to announce a big increase at the next meeting, because, I mean, how else are markets going to keep on going up?

In terms of 2020: Total assets on the Fed’s balance sheet for the week ended December 9 rose by $20 billion from the prior week to $7.243 trillion, but were down a smidgen from the peak on November 18, having gone essentially nowhere over the past five months:

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If You Thought 2020 Was Bad, Watch What Happens In 2021

December 12, 2020

If You Thought 2020 Was Bad, Watch What Happens In 2021

In terms of the economy and the American social situation, 2020 is definitely one of the ugliest years on record, there’s really no way around it. That said, I get the impression that many in the public are operating under the assumption that we are about to cross over the peak of the mountain and it will be all downhill from here on. Unfortunately, this is not the case.

All eyes have been focused on the pandemic event, and the thinking is that once the pandemic is “over”, the crisis will be over and everything will go back to normal. But, as the globalists have been telling us since the outbreak began, the world “will never go back to normal again”. It’s not because of the pandemic, mind you, it’s because THEY won’t allow things to go back to normal. The “great reset”, as the World Economic Forum calls it, is meant to go on for many years. And, the globalists intend that every aspect of our lives be changed into something almost unrecognizable.

First I want to make it clear that I don’t expect the reset agenda to be successful. In fact, I think it’s going to fail miserably. The globalists have reached too far too fast and exposed themselves, and millions upon millions of people around the world and in America are not buying the pandemic narrative. But here is the problem; the pandemic is a distraction from a much greater threat, namely the economic collapse that is developing right now.

The financial downturn has been created by international banks and central banks through massive debt creation and inflationary stimulus measures. The initial spark for the wildfire took place in 2008, the economic threat has been under the noses of the public for quite some time…

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Weekly Commentary: Pondering the New Secretary of the Treasury

November 28, 2020

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.

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“A Staggering Number”: Over $18 Trillion In Global Stimulus In 2020, 21% Of World GDP

June 21, 2020

“A Staggering Number”: Over $18 Trillion In Global Stimulus In 2020, 21% Of World GDP

On Friday, we relayed the latest observations from BofA chief investment officer, Michael Hartnett who concluded that there is just one bull market to short – namely credit – “and the Fed won’t let you” by which he means all central banks. As the following table shows, the balance sheet of the G-6 central banks has exploded, with the Fed’s total asset expected to double in 2020 amid an avalanche of money printing.

And visually:

Of course, it’s not just central banks: as Hartnett also explained there is also the 2020 fiscal bazooka which has a way to go, with the massive fiscal stimulus unleashed post-covid taking 3 forms in 2020: spending, credit guarantees, loans & equity.

Hartnett also noted that according to BIS data, US & Australia lead spending (>10% GDP), Europe is using aggressive credit guarantees (e.g. Italy 32% GDP), while Japan/Korea are stimulating via government loans/equity injections.

But the most staggering fact was when one puts it all together.

According to BofA calculations, in addition to the record 134 rate cuts YTD, the amount of total global stimulus, both fiscal and monetary, is now a “staggering” $18.4 trillion in 2020 consisting of $10.4 trillion in fiscal stimulus and $7.9tn in monetary stimulus – for a grand total of 20.8% of global GDP, injected mostly in just the past 3 months!

And to think none of this would have been possible if officials had not collectively decided to shutdown the global economy in response to the coronavirus pandemic.

For the interested, here is a full breakdown of all the fiscal and monetary stimulus as compiled by BofA:

Making Sense Of An Increasingly Insensible World

June 13, 2020

Making Sense Of An Increasingly Insensible World

Creating purpose and fulfillment within a failing system

What the heck is going on?

I hear this a lot these days. Developments are happening too quickly to process for many folks, creating a persisting cloud of confusion.

Even focusing down on any particular single event often gets nowhere because so much of what’s going on simply makes so sense

Take for example, the W.H.O. which as recently as two weeks ago recommended that only sick people should wear masks. What? We’ve known for months that people can spread Covid-19 when they are asymptomatic. How can a ‘sick person’ wear a mask if they are sick but even they don’t know that? It just makes no sense. What is even going on?

Or take Jerome Powell, Chair of the Federal Reserve, who defiantly declared that the Federal Reserve “absolutely does not” contribute to the wealth inequality gap:

(Source)

Say what?

The Fed is busy buying distressed financial assets for far more than they are worth from the largest and wealthiest of stock and bondholders. That absolutely contributes to inequality.

So does juicing the stock market, or ““market”” as I like to term it (because it’s so distorted it needs two sets of quote marks).

So does appointing Blackrock – the world’s largest private asset manager – to select which private assets should be bought with the freshly-invented currency emanating from the Fed’s electronic printing presses. Should we really be shocked to learn that Blackrock chose their own distressed assets, like the junk bond fund JNK, for the Fed to buy first?

It’s a bald-faced lie for Jay Powell to claim anything other than the Fed is the #1 contributor to inequality. And that’s by a country mile.

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

No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb

May 14, 2020

No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb

The White House budget office doesn’t know if the $2.2 Trillion-dollar stimulus package and Trump’s $1,200 stimulus checks might cause an inflationary spiral. But many economists have no doubt it will.

The consequences of the $2.2 trillion stimulus package are being ignored, even by the White House budget office that put it together, admitting that the package had “come together so quickly,” that they had no time “to do the customary modeling of its fiscal impact.” What does appear to have consensus in financial circles is that after this is over central banks will effectively own the governments of the world, including the United States.

When it is all said and done, President Trump’s stimulus checks will carry an inflationary cost many multiples more than their original $1,200 value in the pre-coronavirus economic reality, a reality that probably won’t become apparent until after the election in November. By then the checks will have served their purpose as a political move, not an economic one. When understood from the vantage point of what is in store for the American working classes as we emerge from this red light on main street, Trump’s checks will only add fuel to the inflationary fire just ahead, according to Neal Kimberley, a macroeconomics analyst for the South China Morning Post.Quoth the Raven@QTRResearch

There is an inflationary cost to the Fed printing ~$50,000 per citizen in stimulus.

If you have only received $1,200 you should be asking why you are bearing the inflationary cost for another $48,800 you never got.

Instead of a bailout you’re paying a hidden tax. Speak up.4,266 12:43 PM – May 10, 2020 Twitter Ads info and privacy 1,383 people are talking about this

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When Economic Depression Follows Pandemic, No Time to Waste

April 19, 2020

When Economic Depression Follows Pandemic, No Time to Waste

What the Bank of Canada and IMF see coming will demand bold stimulus.

On Vancouver’s Robson Street, the Club Monaco outlet is boarded up to prevent looting. Photo by Joshua Berson.

It is still sinking in that the end of the pandemic will not be the end of our troubles. On the contrary — we will likely see the end of the pandemic overlap with a full-scale economic depression, with COVID-19 waiting to make recurrent comebacks. Amid a global economic collapse, Canada will have to postpone hopes of recovery; for the foreseeable future, we will be in damage-control mode.

The IMF’s best-case scenario assumes that the pandemic “fades” in the second half of 2020, and “containment efforts can be gradually unwound,” permitting some economic rebuilding. Even so, “the global economy is projected to contract sharply by -3 per cent in 2020, much worse than during the 2008-09 financial crisis.”

Strikingly, the IMF implicitly endorses a program that is socialist in all but name:

“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health-care expenditures to strengthen the capacity and resources of the health-care sector while adopting measures that reduce contagion. Economic policies will also need to cushion the impact of the decline in activity on people, firms and the financial systems reduce persistent scarring effects from the unavoidable severe slowdown; and ensure that the economic recovery can begin quickly once the pandemic fades.”

The IMF approves such policies in many of the advanced countries as well as in China, Indonesia and South Africa. It argues that “Broad-based fiscal stimulus can preempt a steeper decline in confidence, lift aggregate demand, and avert an even deeper downturn. But it would most likely be more effective once the outbreak fades and people are able to move about freely.”

The best-case scenario?

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The Liquidity Crisis Is Quickly Becoming A Global Solvency Crisis As FRA/OIS, Euribor Soar

April 8, 2020

The Liquidity Crisis Is Quickly Becoming A Global Solvency Crisis As FRA/OIS, Euribor Soar

One month after turmoil was unleashed on capital markets, when the combination of the Saudi oil price war and the sweeping impact of the coronavirus pandemic finally hit developed nations, what was until now mostly a liquidity crisis is starting to become a solvency crisis as more companies realize they will lack the cash flow to sustain operations and fund debt obligations.

As Bloomberg’s Laura Cooper writes, cash-strapped companies are finding little relief from stimulus measures, and from Europe to the US, cash in hand has been hard to come by even as governments pledge funds for small businesses to bridge the financial gap until lockdowns are lifted:

US: The March NFIB survey of U.S. small businesses noted challenges in submitting loan applications and the urgent need for federal assistance
UK: A British Chamber of Commerce survey showed only 1% of companies reported being able to access funds dedicated for business. A complex application process for the U.K. Coronavirus Business Interruption Loan Scheme comes as 6% of U.K. firms say they have run out of cash while nearly two-thirds have funding for less than three months
Canada: A proposed six-week roll out of emergency funds is unlikely to prevent 1 in 3 companies from laying off workers. More than 10% of the labor force has already filedemployment claims
Europe: existing structures are aiding in the deployment of funds, but concerns remain that more is needed with EU leaders failing to reach agreement on further initiatives

As we have noted previously, small businesses – everywhere from China, to Europe, to the US – make up the majority of firms in advanced economies and account for a sizeable share of private sector employment. Quick delivery of stimulus measures is needed to curb widespread insolvencies. This could mean the difference between a short, yet sharp recession and a prolonged erosion to the labor market and economy regardless of containment of the health crisis.

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Weekly Commentary: The Perils of Stop and Go

April 13, 2019

Weekly Commentary: The Perils of Stop and Go

Please join Doug Noland and David McAlvany this coming Thursday, April 18th, at 4:00PM EST/ 2:00pm MST for the Tactical Short Q1 recap conference call, “What are Central Banks Afraid of?” Click here to register.

China’s Aggregate Financing (approximately system Credit growth less government borrowings) jumped 2.860 billion yuan, or $427 billion – during the 31 days of March ($13.8bn/day or $5.0 TN annualized). This was 55% above estimates and a full 80% ahead of March 2018. A big March placed Q1 growth of Aggregate Financing at $1.224 TN – surely the strongest three-month Credit expansion in history. First quarter growth in Aggregate Financing was 40% above that from Q1 2018.

Over the past year, Aggregate Financing expanded $3.224 TN, the strongest y-o-y growth since December 2017. According to Bloomberg, the 10.7% growth rate (to $31.11 TN) for Aggregate Financing was the strongest since August 2018. The PBOC announced that Total Financial Institution (banks, brokers and insurance companies) assets ended 2018 at $43.8 TN.

March New (Financial Institution) Loans increased $254 billion, 35% above estimates. Growth for the month was 52% larger than the amount of loans extended in March 2018. For the first quarter, New Loans expanded a record $867 billion, about 20% ahead of Q1 2018, with six-month growth running 23% above the comparable year ago level. New Loans expanded 13.7% over the past year, the strongest y-o-y growth since June 2016. New Loans grew 28.2% over two years and 90% over five years.

China’s consumer lending boom runs unabated. Consumer Loans expanded $133 billion during March, a 55% increase compared to March 2018 lending. This put six-month growth in Consumer Loans at $521 billion. Consumer Loans expanded 17.6% over the past year, 41% in two years, 76% in three years and 139% in five years.

China’s M2 Money Supply expanded at an 8.6% pace during March, compared to estimates of 8.2% and up from February’s 8.0%. It was the strongest pace of M2 growth since February 2018’s 8.8%.

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The Fed Relies Indirectly on the Banks & Cannot Stimulate the Economy Directly

December 21, 2018

The Fed Relies Indirectly on the Banks & Cannot Stimulate the Economy Directly

QUESTION: Hello,
Since the Fed ‘created’ ‘money’ after 2008 that was then deposited back at the Fed by the recipient banks ( say,75% of it), it is not easy to see why the Fed is to blame for the credit explosion since 2008- nor for the very slow ( like a paralytic centipede) hike in Fed Funds that seems already as I write to be seen as a problem.
Surely it is the banks who truly created the money ( out of nothing as usual) by financing the purchase of EXISTING assets at ever-rising prices (and also consumer spending) rather than new business expansion?
In other words, the fault is at the bottom to be laid at the door of the banks. They created the wrong kind of credit bubble ( not that any such is ever a good idea).
What say you, Sir?
Many thanks
B.

ANSWER: There is a deeper problem that nobody addresses. The entire Keynesian philosophy of increasing the money supply was based upon the practice whereby private money was being created during each crash since 1857. It worked perfectly. Here is a Depression Scrip for $1 to supplement the money supply during a crisis. There was nothing wrong with this concept.

The original design of the Federal Reserve in 1913 was PERFECT!!!!!! It “stimulated” by purchasing corporate short-term paper which created an elastic money supply. The paper naturally matured and thus the money supply contracted. When Congress usurped the Fed in World War I and ordered it to buy only government bonds to fund the war, they NEVER returned the Fed to its original design.

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