Home » Posts tagged 'wolf richter'

Tag Archives: wolf richter

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

A Word About the Current Chaos in Prices and Inflation

A Word About the Current Chaos in Prices and Inflation

Some prices collapsed, others skyrocketed, and the Consumer Price Index went haywire. Here’s what I’m seeing beyond the near term — and it’s not “deflation.”

Amid soaring prices of meat, beverages, fruit, veggies, and other food at home, and surging costs of personal goods, medical care services, and household furnishings, and amid a collapse in prices of gasoline, car rentals, public transportation, car insurance, lodging away from home, and other things – amid these diametrically opposed price movements, the Consumer Price Index went, as expected, haywire today. And we’re going to look at some of those gyrations beyond it.

First, here’s what got buffeted around:

The overall Consumer Price Index fell 0.8% in April from March, the steepest one-month drop since December 2008, when the economy was going through peak-Financial-Crisis 1. This brought the increase over the past 12 months down to 0.3%, the lowest since October 2015 during the oil bust at the time.

The “core” CPI – CPI without the volatile food components and the extremely volatile energy components – dropped 0.5% from March to April but was still up 1.4% from a year ago.

But wait…

What if we take out the most chaotic and largely temporary price movements at both ends to get to what the undying loss of the purchasing power of the dollar might be? Because that’s what consumer price inflation is.

There is a consumer price index that is not buffeted around by the month-to-month collapse of some prices and surge in other prices; The Cleveland Fed’s “Median CPI,” which is based on the data from the CPI, removes the extremes at both ends since these extremes are often temporary and distort long-term inflation trends.

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

US National Debt Spiked by $1.5 trillion in 6 Weeks, to $25 trillion. Fed Monetized 90%

US National Debt Spiked by $1.5 trillion in 6 Weeks, to $25 trillion. Fed Monetized 90%

I’d never imagined I’d ever see this sort of spike, though in recent years I added an upward arrow with “Debt out the wazoo” to my charts, not realizing just how factually accurate this technical term would become.

The US gross national debt – the total of all Treasury securities outstanding – jumped by $1.05 trillion with a T in the four weeks since April 7 and by $1.54 trillion in the six weeks since March 23, to $25.06 trillion, the Treasury department reported today.

Those trillions are whizzing by so fast it’s hard to even seen them. WOOSH… What was that? Oh, just another trillion. The flat spots in the chart are the periods when the debt bounced into the debt ceiling. Yeah, those were the days!

I’ve been lamenting and lambasting the stupendous growth of the US national debt since 2011, the beginning of my illustrious career as a gnat in the big world of financial media. And through all these years, I’d never imagined that I’d ever see this sort of spike in the US debt, though in recent years I’ve been adding an upward arrow and the green label “Debt out the wazoo” to these charts, not realizing just how factually accurate this technical term would become.

The US debt was even surging at an accelerating rate during the “Best Economy Ever,” when there should have been a surplus and a reduction in the debt, so that the government can go into debt during bad times.

I wrote back then, for example on February 19, when the debt had spiked by $1.3 trillion over the past 12 months to $23.3 trillion: “But these are the good times. And we don’t even want to know what this will look like during the next economic downturn.”

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

THE WOLF STREET REPORT: Nothing’s Fixed – What’s Behind the Corporate Debt Bailout

THE WOLF STREET REPORT: Nothing’s Fixed – What’s Behind the Corporate Debt Bailout

Over the past two years, nobody knew what would trigger the next financial crisis, but just about everyone knew it would involve the record pile of corporate debt. And so it happened. Now the Fed fixed it…

Bone-Chilling WTF Charts of the Collapse in US Demand for Gasoline, Jet Fuel, and Diesel

Bone-Chilling WTF Charts of the Collapse in US Demand for Gasoline, Jet Fuel, and Diesel

It started in mid-February for jet fuel and in mid-March for gasoline.

Oil companies are reporting financial fiascos every day: Today Exxon reported its first quarterly loss since 1999 ($610 million), on a “market-related” $2.9 billion write-down. “We’ve never seen anything like what the world is facing today,” CEO Darren Woods said.

On Thursday, Texas-based shale-driller Concho Resources reported a quarterly loss of $9.3 billion, after writing down the value of its oil and gas assets by $12.6 billion.

Also on Thursday, it was reported that Oklahoma-based Chesapeake Energy, a pioneer in shale-drilling, was preparing to file for bankruptcy (what’s taking so long?).

Still on Thursday, Royal Dutch Shell shocked the markets when it announced that it would reduce its dividend for the first time since 1945 (by 66% from $0.47 to $0.16). “The duration of these impacts remains unclear with the expectation that the weaker conditions will likely extend beyond 2020,” the statement said. The already beaten-up shares plunged another 17% in two days. Shares are down 47% year to date.

Earlier in April, among the oil companies that have already filed for bankruptcy, were two high-profile oil drillers, Whiting Petroleum and Diamond Offshore Drilling.

The drama is centered on the collapse in demand for crude oil. Crude oil is primarily used for two purposes: transportation fuel and as feedstock for the chemical industry. Even before the crisis, demand growth has been weak, particularly as transportation fuel in developed countries. But production has been surging, and amid ample and growing supply, prices were already weak, when the coronavirus hit.

Demand for transportation fuel in the US collapsed.

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

Fed Drastically Slashed Helicopter Money for Wall Street. QE Down 86% From Peak Week in March

Fed Drastically Slashed Helicopter Money for Wall Street. QE Down 86% From Peak Week in March

Fed shed MBS. Loans to “SPVs” flat for fifth week. Repos in disuse. Fed still hasn’t bought junk bonds, stocks, or ETFs. But it sure sent Wall Street dreaming.

Total assets on the Fed’s balance sheet rose by only $83 billion during the week ending April 29, to $6.656 trillion. That $83 billion was the smallest weekly increase since this show started on March 15, and down by 86% from peak-bailout in the week ended March 25. This chart shows the weekly increases of total assets on Fed’s balance sheet:

The Fed is thereby following its playbook laid out over the past two years in various Fed-head talks that it would front-load the bailout-QE during the next crisis, and that, after the initial blast, it would then cut back these asset purchases when no longer needed, rather than let them drag out for years.

On January 1, the balance sheet stopped expanding as the Fed’s repo market bailout had ended. However, in late February, all heck was breaking loose, and the Fed first increased its repo offerings and then on March 15, started massively throwing freshly created money at the markets, peaking with $586 billion in the single week ended March 25.

But since then, the Fed has slashed its weekly increases in assets, which shows up in the flattening curve of the Fed’s total assets in 2020:

The Fed cut its purchases of Treasury securities. The balance of its mortgage-backed securities (MBS) actually fell. Repurchase agreements (repos) have fallen into disuse. Lending to Special Purpose Vehicles (SPVs) has not gone anywhere in five weeks. And foreign central bank liquidity swaps, after spiking in the first two weeks, only rose modestly, with most of the increase coming from the Bank of Japan, which is by far the largest user of those swaps.

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

Postmortem of the Infamous Day WTI Crude Oil Futures Went to Heck in a Straight Line

Postmortem of the Infamous Day WTI Crude Oil Futures Went to Heck in a Straight Line

The US Energy Information Agency (EIA) dissects the historic event.

“It’s not often that we’re served up a WTF moment like this,” I wrote on April 20, when the May contract for crude-oil benchmark-grade West Texas Intermediate (WTI) plunged to minus -$37.63 in a straight line, thus violating the WOLF STREET beer-mug dictum that “Nothing Goes to Heck in a Straight Line.” It was the first time in history that a US crude oil futures contract plunged into the negative. The peculiar dynamics that came together and caused this are expected to continue and some of them are expected to get worse over the next month or two. So here is the postmortem of this infamous day, by the US Energy Information Agency (EIA).

By the Energy Information Agency:

WTI crude oil futures prices fell below zero because of low liquidity and limited available storage.

On Monday, April 20, 2020, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil front-month futures prices fell below zero dollars per barrel (b)—at one point, trading at -$40.32/b (Figure 1)—and remained below zero for part of the following trading day. Monday marked the first time the price for the WTI futures contract fell below zero since trading began in 1983.

Negative prices in commodity markets are very rare, but when they occur they typically indicate high transactions costs and significant infrastructure constraints.

In this case, the WTI front-month futures contract was for May 2020 delivery, and the contract was set to expire on April 21, 2020. Market participants that hold WTI futures contracts to expiration must take physical delivery of WTI crude oil in Cushing, Oklahoma.

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

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Tapered QE-4 Further, Still Hasn’t Bought Junk Bonds or ETFs, Was Just Jawboning.

Total assets on the Fed’s balance sheet rose by $205 billion during the week ending April 22, to $6.57 trillion. Since the week ending March 11, when the bailout of the Everything Bubble and its holders began, the Fed has printed $2.26 trillion.

But the $205 billion increase was the smallest increase since the mega-bailout began with its Sunday March 15 announcement. The Fed is tapering its purchases of Treasury securities and mortgage-backed securities (MBS). Repurchase agreements (repos) are falling into disuse. Lending to Special Purposes Vehicles (SPVs) has leveled off. And foreign central bank liquidity swaps, after having spiked initially, only ticked up by a small-ish amount.

The sharply reduced increases confirm that the Fed is following its various announcements over the past two years that during the next crisis – namely now – it would front-load the bailout QE and after the initial blast would then taper it out of existence, rather than let it drag out for years.

This concept was further confirmed by Fed Chair Jerome Powell on April 10 when he said that the Fed would pack away its emergency tools when “private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth.”

Overall, the Fed has cut the big QE purchases by 65% since the peak week (week ending April 1, $586 billion), to $205 billion:

Purchases of Treasury securities get slashed.

The Fed added $120 billion of Treasury securities to its balance sheet, the smallest amount since this began, down 67% from the $362 billion it had added during the peak week:

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

How Far Will the U.S. Economy Plunge During Lockdown?

How Far Will the U.S. Economy Plunge During Lockdown?

“Three times deeper than the Great Recession?”

No one has ever been through an economy where enormous shifts have occurred, from one day to the next, shutting down part of the economy but also generating sectors that are vastly more vibrant than ever before. Monthly or quarterly economic indicators leave us in the dark because they lag too far behind and are at the moment largely useless. What we need is high-frequency data – daily and weekly that track this shifting economy in near-real time.

For example, there has been an enormous boom in ecommerce – but we won’t get ecommerce data for Q1 until mid-May and for Q2 until August. Best Buy reported last week that its online sales had surged by 250% but that it would furlough 51,000 hourly store employees as stores were closed to customers, allowing only for curbside pickup. That duality that is now widespread impacts the economy in strange ways.

Grocery store and supermarket sales – which are normally the epitome of slow and steady growth tied to inflation and population growth – are suddenly booming. Kroger reported a 30% surge in “identical retail supermarket sales without fuel.”

Anything having to do with working-at-home, including hardware sales, is booming. Everything and anything that is online is booming — as are the sectors that make it all work, including delivery services. And there are other sectors that are suddenly hot.

But other parts of the economy have essentially collapsed, with near-zero revenues, such as sit-down restaurants, sports & entertainment events, or the entire travel and accommodations industry, including airlines and hotels.

Some manufacturing plants are operating, but many others are not. Much of the construction industry has shut down. Housing and auto sales are still ongoing, but at far lower levels.

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

From Panic-Buying to Lockdowns of Eateries & Manufacturing: Truckers, Railroads Face Supply Chain Turmoil, Spikes & Plunges

From Panic-Buying to Lockdowns of Eateries & Manufacturing: Truckers, Railroads Face Supply Chain Turmoil, Spikes & Plunges

“There has been a clear divide between winners and losers.”

Panic buying in late February and March was followed by a sudden shift in consumption in mid-March away from restaurants, schools, college campuses, office buildings, other work locations to supermarkets, warehouse clubs, and ecommerce. For weeks, brick-and-mortar retail supply chains failed to keep up, and bare shelves in some product categories became a common sight. But the supply chains at the other end of the spectrum ground to a halt, stuck with goods that had no place to go.

This divergence has shown up in the trucking business. March was busy for truckers hauling dry-van trailers and refrigerated trailers (reefers). The Van Load-to-Truck ratio in the spot market surged by 56% from February and by 84% from March last year, according to DAT Trendlines. The Reefer Load-to-Truck ratio surged by 45% from February and by 91% from March last year.

But in April so far, all this has unwound. In the week ending April 12, the Van Load-to-Truck ratio plunged 44% from a week earlier. For the past two weeks, “Van spot freight volumes lost 20%,” DAT reported, “and national average rates lost 8¢ per mile, to $1.78, reflecting declines all over the country.”

“Reefer trends weren’t much better,” DAT said. The Reefer Load-to-Truck ratio plunged 42% over the week ended April 12, compared to a week earlier. “It’s been an up-and-down kind of market for reefer equipment,” DAT said in a blog post on April 9. “We’re not talking about a gentle rise and fall – more like a giant roller coaster.”

But it’s a very dynamic market, with reefers getting switched from the shut-down food services industry (such as restaurants and schools), to haul produce for the grocery supply chain:

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

QE-4 Cut in Half this Week. Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks

QE-4 Cut in Half this Week. Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks

Regular folks need not apply.

Total assets on the Fed’s weekly balance sheet jumped by $272 billion in one week, to $6.08 trillion, according to the Fed’s release Thursday afternoon. Since the Fed started this spree of Wall Street and asset-holder bailout programs four weeks ago, total assets have exploded by $1.77 trillion.

But note: This increase of $272 billion is less than half of the increases in the prior two weeks. You can see this in the chart as the distance between the two markers this week shrank by half compared to the prior two weeks:

The assets on the Fed’s balance sheet are mostly composed of Treasury securities, mortgage-backed securities (MBS), repurchase agreements (repos), “foreign central bank liquidity swaps,” and “loans.” We’ll go through them one at a time.

Treasury securities.

The Fed added $293 billion in Treasury securities during the week of the balance sheet. But the total balance sheet increased by “only” – so to speak – $272 billion. So some of the other assets actually declined. And we’ll get to them.

This $293 billion spike in Treasury securities this week was also lower than the spikes in the prior weeks which averaged about $350 billion. This is one factor in the cut-in-half QE-4. For now, the Fed is sticking to its announcement that it would drastically cut QE from the prior weeks.

The Fed is now adding only Treasury securities with maturities of over one year (coupon Treasury securities, TIPS, and Floating Rate Notes). The balance of T-bills (non-coupon securities with maturities of one year or less) has remained roughly flat for four weeks, at $326 billion, and the Fed has only bought enough to replace T-bills that matured.

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

The Downgrade Massacre Has Started

The Downgrade Massacre Has Started

Just astounding. So many downgrades in just of a couple of days. And zero upgrades. Here’s who got hit.

I get “Moody’s Daily Alert” in my inbox, which lists Moody’s ratings actions for the day. The Alerts are usually a mix of a few upgrades and a few downgrades. Many times, there are no downgrades. Earlier this year, it became obvious without counting that the downgrades were starting to outnumber the upgrades by a large margin. But this week, the three Alerts were a torrent of 69 downgrades and zero upgrades. This is something I haven’t seen since I started subscribing to this service years ago. Some of the downgrades were by multiple notches in one fell swoop.

This ratio of zero upgrades to 69 downgrades by Moody’s this week is a hair-raising deterioration of the already downgrade-heavy ratings actions so far this year. Moody’s has now downgraded over 180 companies this year, 69 of which I got in my inbox just this week!

In addition, these Alerts contained a torrent of warnings about “ratings on review for further downgrade” or “negative outlook,” meaning downgrades, or additional downgrades are to come.

The analysts at Moody’s must be working overtime putting together their downgrade reports, and they’ve fallen behind, and it’s going to take them a while to catch up. Meanwhile, they issue warnings about what they’ve got in their downgrade pipeline.

For example, this week, Moody’s downgraded Ford’s senior credit rating one notch deeper into junk (to Ba2). Ford’s corporate family rating is already Ba2. Moody’s warned that it placed the ratings under review for further downgrade. Moody’s said the ratings “reflect what is an already-stressed credit profile and a very long-term restructuring program. The company is now additionally burdened by the prospect of a severe and prolonged decline in automotive markets precipitated by the coronavirus.”

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

The Great American Shale-Oil Bust Turns into Massacre

The Great American Shale-Oil Bust Turns into Massacre

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out a statement that it would have to delay its monthly Energy Outlook to figure in all the chaos: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

Today, there are only two trades listed on FINRA-Morningstar, but they were big trades, with institutional investors unloading them for whatever they could get. So the price today collapsed by 34% from the close on Friday, and by 39% over the past three trading days, to 61 cents on the dollar:

Shares of Chesapeake Energy, a former shale oil-and-gas giant, particularly focused on natural gas, plunged 28% today, from nearly nothing to almost nothing, closing at $0.16. The company has been dilly-dallying around near the bankruptcy-filing counter for years, without having filed yet, as investors continued to feed it fresh cash and agreed to haircuts and restructure its debts. But that fresh-cash option appears to be off the table.

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

Median CPI Runs Hot, Fed Averts Eyes

Median CPI Runs Hot, Fed Averts Eyes

Despite the Fed’s proclamations, the dollar lost purchasing power at a good clip.

The inflation measure by the Cleveland Fed – the “Median CPI” – rose at 0.3% in January from December. This translates into an annualized rate of 3.7%. For the 12-month period, the Median CPI rose 2.9%. Since July last year, the index has ranged between 2.9% and 3.0%, the highest in the data series launched during the Financial Crisis.

The Median CPI is based on the data from the Consumer Price Index (CPI) but removes the extremes of price increases and price decreases, that are often temporary, to reveal underlying inflation trends. The chart shows the 12-month Median CPI, and for comparison, the “core CPI,” (CPI without the volatile food prices and the extremely volatile energy prices):

The re-collapse in oil prices pushed down inflation in gasoline and fuel oil, with the price index for motor fuels dropping -1.6% in January from December, which translates into an annual rate of -17.3%. Fuel oil and other fuels dropped at an annual rate of -15.8% in January, and used cars and trucks dropped at an annual rate of -13.5%.

At the other end of the spectrum, the price index for miscellaneous personal goods soared at an annual rate of +41% in January from December, watches and jewelry at a rate of +27.0%, footwear at a rate of +17.0%, car-and-truck rental at +15.0%.

These extremes at both ends of the spectrum, often brought about by temporary factors, skew the CPI and make it very volatile, where it jumps up and down. To obtain a measure of inflation that is not skewed by the often-temporary extremes on either end, and to show the underlying inflation trends, the Cleveland Fed’s Median CPI removes the extremes at both ends.

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

Four Banks & Three Tech Companies Blow $56 Billion in Q3 to Prop up Their Own Shares

Four Banks & Three Tech Companies Blow $56 Billion in Q3 to Prop up Their Own Shares

The Biggest Share-Buyback Queens: When Will They Run Out of Juice?

Companies in the S&P 500 index bought back $176 billion of their own shares in the third quarter, down 13.7% from the third quarter last year, and down 21.1% from the record share-buyback mania in Q4 2018, according to the S&P Dow Jones Indices. But hey, since the beginning of 2012, these companies have bought back $4.37 trillion of their own shares, exceeding the magnitude of Germany’s annual GDP.

Think of what else these companies could have done with this money, instead of blowing it on share buybacks. They could have invested more in productive activities in the US and they could have raised the pay for their employees and gig workers so that they could recirculate this money in the economy.

And the biggest banks – we’ll get to them in a moment – could have used those funds to shore up their capital to get ready for the moment when the bubbles in corporate debt and commercial real estate, that the Fed is so worried about, come apart.

For the 12-month period through September, share buybacks rose to $770 billion, from $720 billion for the 12-month period a year ago. The chart below shows share buybacks for the 12-month periods through Q3 each year:

The 12-month total through Q3 was down 6.4% from $828 billion for the 12 months through Q1 2019 that had been heavily inspired by the corporate tax-law changes, which continue to heavily inspire these share buybacks.

What will the future bring? According to the report: “For Q4, the market is looking for another increase in buybacks, in the mid-single digit range, staying near the $190 billion level, well shy of the Q4 2018 record-setting $223 billion.”

The scheme is increasingly top-heavy.

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

Is the Corporate-Debt Bubble Ripe Yet?

Is the Corporate-Debt Bubble Ripe Yet?

What does it mean when the Fed and other central banks jointly bemoan the effects of their own policies? Worried about not being able to keep all the plates spinning?

This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

The Federal Reserve, the ECB, the individual central banks of Eurozone countries, such as the Bundesbank and the Bank of France, the central banks of negative-interest-rate countries outside the Eurozone, such as in Switzerland and Sweden, they’re all now lamenting, bemoaning, and begroaning one of the consequences of low and negative interest rates, the ballooning record-breaking pile of business debts.

This is ironic because these outfits that are now lamenting, bemoaning, and begroaning the pileup of business debts are the ones that manipulated interest rates down via their radical and experimental monetary policies, thereby triggering the pileup of business debts.

This debt pileup isn’t an unintended consequence of their policies. It was one of the purposes of their policies.

But central banks also know from history that this historically high level of business debts is a powder keg waiting to explode – company by company at first, and then as contagion spreads, all at once.

The Fed is a superb example. In its most recent “Financial Stability Report,” released in November, the Fed warns about the historic record-breaking pileup of business debts in the US, as a consequence of low interest rates, and it considers this business debt the biggest risk to financial stability in the US.

But this warning came after the Fed had just cut its policy interest rates three times, and after it had begun to bail out the repo market with over $200 billion so far, and after it had begun buying $60 billion a month in T-bills, in total printing over $300 billion in less than three months, to repress short term rates in the repo market and to bail out its crybaby-cronies on Wall Street – and not necessarily banks – that had become hooked on these low interest rates.

…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