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Rabo: Global Supply Chains Simply Will Not Be Able To Cope With Even More Stimulus

October 8, 2021

Rabo: Global Supply Chains Simply Will Not Be Able To Cope With Even More Stimulus

The Story is the Story

Today is a US payrolls Friday. I have covered 277 of these releases. A handful were of any lasting interest, signalling something the market didn’t already know beforehand, and a few dozen more were higher/lower enough to get a few days of trading from. The expectation is 500K, which I remind everyone is way, waaay lower than the implied “1 million a month” that was promised at the start of the year. And that is all I feel I need to add, given there will be 279 to follow, and so on (and on). Meanwhile, ongoing stories vastly outweigh the significance of any data.

The US debt-ceiling can is being kicked to 3 December. Hurrah for cans and hurrah for kicking! None of the larger problems on fiscal stimulus are being addressed, however. Indeed, the latest news is that Senator Manchin is insisting $1.5trn is as high as he will go. However, there are also suggestions that this may not mean choosing between three key programs Progressives want, but would instead see the 10-year timeframe compacted. In other words, a smaller headline bill with all the inflationary demand-boosting effects up front for a few years (presumably into the next election cycle…). And against a backdrop of global and US supply chains that simply will not be able to cope. That’s a story we will keeping seeing all over.

Global food prices in September already leaped again according to the FAO. That might not be seen in certain locations which no longer allow the FAO website to be accessed. However, the global story is still there even if the data aren’t…

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

Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default

August 7, 2021

Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default

Debt Ceiling Drama, Yellen Begins Extraordinary Measures to Stave Off Default

Photo by Senator Mark Warner CC BY 2.0

Two years ago, the debt ceiling was lifted. Lifting the debt ceiling to make room for more government spending has been pretty routine since since 1917.

Until now…

While it’s quite likely that U.S. debt had already reached the point of no return around three years ago, amazingly the situation might have just gotten even worse. Why?

The debt ceiling extension that was granted back in 2019 has expired. Oops.

Janet Yellen is taking what are called “extraordinary measures” that hopefully will keep the U.S. economy from spiraling into a historic disaster of defaults on bond payments and government obligations, skyrocketing interest rates, and massive inflation.

The non-partisan Congressional Budget Office (CBO) predicts the Treasury will run out of cash in October or possibly November.

So as reported above, the U.S. risks default within 90 days if nothing is done.

Yellen wrote a strongly-worded letter to Speaker Nancy Pelosi, describing the potential for “irreparable harm” if no action is taken.

But it might already be too late…

A closer look at the official U.S. debt reveals an unbelievable increase over the last 20 years:

US Public Debt, 4.6x over 20 years

Data from St. Louis Fed

That’s a 4.6x rise in “public debt,” meaning money the U.S. government owes. It’s called “public” debt because all of America shares the responsibility for paying it back. It’s public debt because the public, you and me, are on the hook for it.

Amazing, isn’t it?

Even so, this isn’t the first time “extraordinary measures” have kept the government spending machine humming along in response to debt-ceiling politics. But this could be the first time the clock will run out before a solution is reached.

Surprisingly — or perhaps not — the White House appears to be simply avoiding the current problem.

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

Eric Peters: “China’s Best Play Is To Let The US Stock Market Crash”

April 23, 2018

Eric Peters: “China’s Best Play Is To Let The US Stock Market Crash”

As excerpted from the latest Weekend Notes from One River CIO, Eric Peters.

“China’s best play is to let the US stock market crash,” said the CIO. “Trump is right, they can’t win a trade war.” So they won’t try. “But Xi can consolidate if things get rough in terms of markets, but for Trump it is the opposite.”  The US is far more exposed to a bear market.

“And just like US debt ceiling standoffs or just about any political standoff for that matter, the game is that things always have to get worse before they get better.” And he sighed, deeply. “But I truly hate having to trade by playing game theory. It’s just an awful way to live your life.”

“I like to do the kind of analysis that involves looking at one group of companies that are starting to make money,” continued the same CIO. “And then from that observation, I can make reasoned forecasts about how their improving fortunes will impact others, and so on and so forth.” The same process works in reverse of course. Economies have a way of spiraling up and down, like corkscrews. “I like the kind of analysis that captures the actions of tens of thousands, or millions of people.” And he sighed, again. “But now, we’re just trading late night tweets.”

And a bonus anecdote from Peters’ note

“The polls say I won the debate,” said the candidate, “but you and I know all about polls.” Perry Parker’s a good friend, we worked together for a decade, buying low, selling high. And having won in finance, he headed home to give back to Mississippi. When the 3rd congressional district seat opened up he made a bid.

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

The Old Songs

November 25, 2017

The Old Songs

What if the fun and games of 2017 are over? The hidden message behind the sexual harassment freak show of recent weeks is that nothing else is sufficiently serious to occupy the nation’s attention. We’re living in the Year of Suspended Reality, stuck in the sideshow and missing the three-ring circus next door in the big tent.

It probably all comes down to money. Money represents the mojo to keep on keeping on, and there is probably nothing more unreal in American life these days than the way we measure our money — literally, what it’s worth, and what everything related to it is worth. So there is nothing more unreal in our national life than the idea that it’s possible to keep on keeping on as we do.

The weeks ahead may be most illuminating on this score. The debt ceiling suspension runs out on December 8, around the same time that the tax reform question will resolve one way or another. The debt ceiling means that the treasury can’t issue any more bonds, bills, or notes. That is, it can’t borrow any more money to pretend the government can keep running. Normally these days (and it’s really very abnormal), the treasury pawns off paper IOUs to the Federal Reserve and the Fed makes digital entries on various account ledgers that purport to be “money.” And, by the way, the Fed is a consortium of private banks not a department of government — which is surely one of a thousand ways that the public is confused and deceived about what condition our condition is in, as the old song goes.

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

Why There Will Be No 11th Hour Debt Ceiling Deal

August 18, 2017

Why There Will Be No 11th Hour Debt Ceiling Deal

A new milestone on the American populaces’ collective pursuit of insolvency was reached this week.  According to a reportpublished on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter.  This included an increase of $552 billion from a year ago.

Moreover, this marked the second consecutive record high on a quarterly reported basis for U.S. household debt.  Indeed, this is a momentous achievement.  From our vantage point, it is significant for several reasons.

One, it shows U.S. household debt has returned to its upward trend which had previously gone uninterrupted from the close of World War II until the onset of the Financial Crisis in late 2008.  Second, it demonstrates that, like the S&P 500, new all-time highs are being attained with the seeming precision of a quartz clock.  Is this just a coincidence?

More than likely, it’s no coincidence at all.  More than likely, the mass quantities of central bank liquidity that have been injected into the financial system over the last decade have provided the plentiful gushers of cheap credit that have pushed up both stock prices and household debt levels.  But remember, the easy stock market gains can quickly recede while the increased debt must first drown the borrowers before it can be expunged.

To understand where the liquidity has come from, look no further than the total combined assets of the Federal Reserve, European Central Bank, and the Bank of Japan.  They were around $4 trillion a decade ago.  Today, they’re over $13.8 trillion.  And if you include the People’s Bank of China’s assets, combined major central bank assets jump to nearly $19 trillion.

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

The Bond Crisis & 2015.75

October 23, 2015

The Bond Crisis & 2015.75

ECM2015-2020

Some people have wrongly expected a crash in the long bonds. What has actually happened is that China and others have sold into the high, liquidating their long bonds, and moving short-term. This is why rates are negative on the short-end. The CRASH comes in the opposite direction this time. Why? Because the central banks have engaged in Quantitative Easing. The ECB (European Central Bank) stepped up its buying of long-term debt to hold the market from 25% to 33%. Smart money is not interested in buying long-term paper, especially when the Fed keeps warning that they MUST normalize interest rates, i.e. raise rates.

So whom has the bonds and will take the loss? Guess who? The central banks. They are loaded to the gills and cannot sell the long-bonds they bought. There is no bid. In this debt crisis, there is no bid for debt, which is typically how empires, nations, & city-states collapse.

The system is now highly geared and we will see in the months ahead that short-term rates rise when people begin to wake up and realize that this system is failing. The U.S. Congress tried to push the debt ceiling from the September 30 deadline, which was precisely the day of the ECM – 2015.75. They could not make it out to December. There is a war within Congress and this is critical, for if the debt ceiling fight gets much worse, then we may indeed begin to start the perception that this is not going to look very pretty the further we move from 2015.75.

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