Saturday, April 21, 2018
Weekly Commentary:
Recalling 1994
by Doug Noland
full column here:
http://creditbubblebulletin.blogspot.com/2018/04/weekly-commentary-recalling-1994.html
http://creditbubblebulletin.blogspot.com/2018/04/weekly-commentary-recalling-1994.html
My summary is below:
For the week
ending April 20, 2018:
STOCKS:
S&P500 added 0.5% (down 0.1% y-t-d)
Dow Industrials increased 0.4% (down 1.0%)
Dow Utilities gained 1.1% (down 4.8%)
Dow Transports jumped 2.0% (down 0.3%)
S&P 400 Midcaps gained 0.9% (unchanged)
Small cap Russell 2000 rose 0.9% (up 1.9%)
Nasdaq100 added 0.6% (up 4.2%)
Biotechs fell 1.3% (up 8.1%).
Though GOLD bullion was down almost $10,
the HUI gold index increased 0.4%
(down 4.2%)
U.K.'s FTSE jumped 1.4% (down 4.2% year-to-date)
Japan's Nikkei 225 gained 1.8% (down 2.6%)
France's CAC40 rose 1.8% (up 1.9%).
German DAX gained 0.8% (down 2.9%).
Spain's IBEX 35 rose 1.2% (down 1.6%).
Italy's FTSE MIB jumped 2.1% (up 9.0%).
Brazil's Bovespa gained 1.4% (up 12%)
Mexico's Bolsa declined 0.7% (down 1.9%)
South Korea's Kospi rose 0.9% (up 0.4%).
India’s Sensex increased 0.7% (up 1.1%).
China’s Shanghai dropped 2.8% (down 7.1%).
Turkey's Istanbul National 100 rallied 1.2% (down 3.8%).
Russia's MICEX recovered 2.6% (up 5.8%).
German DAX gained 0.8% (down 2.9%).
Spain's IBEX 35 rose 1.2% (down 1.6%).
Italy's FTSE MIB jumped 2.1% (up 9.0%).
Brazil's Bovespa gained 1.4% (up 12%)
Mexico's Bolsa declined 0.7% (down 1.9%)
South Korea's Kospi rose 0.9% (up 0.4%).
India’s Sensex increased 0.7% (up 1.1%).
China’s Shanghai dropped 2.8% (down 7.1%).
Turkey's Istanbul National 100 rallied 1.2% (down 3.8%).
Russia's MICEX recovered 2.6% (up 5.8%).
US BONDS & MORTGAGES
Ten-year Treasury yields
jumped 13 bps to 2.96%
(up 55bps).
jumped 13 bps to 2.96%
(up 55bps).
Long bond yields gained 12 bps to 3.15%
(up 41bps).
(up 41bps).
Freddie Mac 30-year fixed mortgage rates
gained five bps to 4.47%
(up 50bps y-o-y).
Fifteen-year rates jumped seven bps to 3.94%
(up 71bps).
Five-year hybrid ARM rates rose six bps to 3.67%
(up 57bps).
Jumbo mortgage 30-yr fixed rates up four bps to 4.52%
(up 45bps).
gained five bps to 4.47%
(up 50bps y-o-y).
Fifteen-year rates jumped seven bps to 3.94%
(up 71bps).
Five-year hybrid ARM rates rose six bps to 3.67%
(up 57bps).
Jumbo mortgage 30-yr fixed rates up four bps to 4.52%
(up 45bps).
M2 money supply declined $11.6bn last week
to $13.936 TN.
to $13.936 TN.
M2 gained $528bn, or 3.9%,
over the past year.
over the past year.
Currency Watch:
The U.S. dollar index gained 0.6% to 90.316
(down 2.0% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index gained 1.2%
(up 7.1% y-t-d).
Spot Gold slipped 0.7% to $1,336
(up 2.5%).
Silver jumped 3.0% to $17.16
(up 0.1%).
Crude Oil rose another $1.01 to $68.40
(up 13%).
Gasoline gained 1.5%
(up 17%)
Natural Gas was little changed
(down 7%).
Copper jumped 2.8%
(down 4%).
Wheat fell 2.5%
(up 12%).
Corn dropped 2.3%
(up 10%).
(up 7.1% y-t-d).
Spot Gold slipped 0.7% to $1,336
(up 2.5%).
Silver jumped 3.0% to $17.16
(up 0.1%).
Crude Oil rose another $1.01 to $68.40
(up 13%).
Gasoline gained 1.5%
(up 17%)
Natural Gas was little changed
(down 7%).
Copper jumped 2.8%
(down 4%).
Wheat fell 2.5%
(up 12%).
Corn dropped 2.3%
(up 10%).
Trump Administration Watch:
April 19 - Bloomberg (Saleha Mohsin):
"The Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies, as the Trump administration looks to punish China for what it sees as violations of American intellectual-property rights. The U.S. government is reviewing the possible use of a law known as the International Emergency Economic Powers Act, said Heath Tarbert, an assistant secretary in the agency's international affairs office. Under the 1977 law, President Donald Trump could declare a national emergency in response to an 'unusual and extraordinary threat,' allowing him to block transactions and seize assets."
"The Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies, as the Trump administration looks to punish China for what it sees as violations of American intellectual-property rights. The U.S. government is reviewing the possible use of a law known as the International Emergency Economic Powers Act, said Heath Tarbert, an assistant secretary in the agency's international affairs office. Under the 1977 law, President Donald Trump could declare a national emergency in response to an 'unusual and extraordinary threat,' allowing him to block transactions and seize assets."
April 18 - Axios (Steve LeVine):
"Five years ago, American technologists sneered at China's Baidu and its new search engine. But 'they aren't laughing anymore,' says Gregory Allen, an AI expert at the Center for a New American Security. 'Now they are marveling at Baidu's advances in artificial intelligence.' Chinese Big Tech is one dimension of a juggernaut that's collectively terrifying the Trump administration, Silicon Valley and the western foreign policy community. It's 'Made in China 2025,' Beijing's three-year old game plan for dominating the 10 biggest technologies of the future, such as AI, robotics and electric cars."
"Five years ago, American technologists sneered at China's Baidu and its new search engine. But 'they aren't laughing anymore,' says Gregory Allen, an AI expert at the Center for a New American Security. 'Now they are marveling at Baidu's advances in artificial intelligence.' Chinese Big Tech is one dimension of a juggernaut that's collectively terrifying the Trump administration, Silicon Valley and the western foreign policy community. It's 'Made in China 2025,' Beijing's three-year old game plan for dominating the 10 biggest technologies of the future, such as AI, robotics and electric cars."
April 17 - New York Times (Raymond Zhong, Paul Mozur and Jack Nicas):
"The United States undercut China's technology ambitions on Tuesday, advancing a new rule that would limit the ability of Chinese telecommunications companies to sell their products in this country. The Federal Communications Commission voted unanimously to move forward with a plan that would prevent federally subsidized telecommunications carriers from using suppliers deemed to pose a risk to American national security. The decision takes direct aim at Huawei, which makes telecommunications network equipment and smartphones, and its main Chinese rival, ZTE…"
"The United States undercut China's technology ambitions on Tuesday, advancing a new rule that would limit the ability of Chinese telecommunications companies to sell their products in this country. The Federal Communications Commission voted unanimously to move forward with a plan that would prevent federally subsidized telecommunications carriers from using suppliers deemed to pose a risk to American national security. The decision takes direct aim at Huawei, which makes telecommunications network equipment and smartphones, and its main Chinese rival, ZTE…"
April 17 - The Hill (Mike Lillis):
"Rep. Steny Hoyer (D-Md.) said… that Democrats would seek to roll back the GOP's tax-code overhaul if they control the lower chamber next year. Hoyer, the minority whip, said the Democrats would not repeal the tax law in its entirety, citing certain provisions the party supports, such as cuts for the middle class, a reduction in the corporate rate and efforts to encourage companies to repatriate foreign-held dollars into the U.S. economy. But Hoyer said the 21% corporate tax rate adopted in the GOP bill is too low, suggesting that Democrats would raise it."
"Rep. Steny Hoyer (D-Md.) said… that Democrats would seek to roll back the GOP's tax-code overhaul if they control the lower chamber next year. Hoyer, the minority whip, said the Democrats would not repeal the tax law in its entirety, citing certain provisions the party supports, such as cuts for the middle class, a reduction in the corporate rate and efforts to encourage companies to repatriate foreign-held dollars into the U.S. economy. But Hoyer said the 21% corporate tax rate adopted in the GOP bill is too low, suggesting that Democrats would raise it."
April 18 - Wall Street Journal (Greg Ip):
"Among President Donald Trump's most deeply held economic convictions is that trade deficits are bad, yet his signature economic policy-a major tax cut-likely will deepen the trade deficits he abhors for years to come. For now, that's more a problem of optics than economics, albeit one that may prompt Mr. Trump to dial up trade tensions with other countries. But in the long run wider trade deficits will make Americans poorer. That's not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it's because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut's benefit."
"Among President Donald Trump's most deeply held economic convictions is that trade deficits are bad, yet his signature economic policy-a major tax cut-likely will deepen the trade deficits he abhors for years to come. For now, that's more a problem of optics than economics, albeit one that may prompt Mr. Trump to dial up trade tensions with other countries. But in the long run wider trade deficits will make Americans poorer. That's not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it's because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut's benefit."
U.S. Bubble Watch:
April 17 - Bloomberg (Joanna Ossinger):
"Investors need to prepare for downside as the end of the economic cycle is near and U.S. markets are priced for best-case scenarios, Morgan Stanley says. While fiscal stimulus is supportive of growth in the near term, the benefits are already likely 'in the price' and increase potential downside for markets at the end of the cycle, Morgan Stanley strategists including Michael Zezas, Matthew Hornbach and Andrew Sheets wrote… 'There's less reason to behave like it's 'morning in America' than 'Happy Hour in America,'' the report said. Markets are 'closer to the end of the day than the beginning.'"
"Investors need to prepare for downside as the end of the economic cycle is near and U.S. markets are priced for best-case scenarios, Morgan Stanley says. While fiscal stimulus is supportive of growth in the near term, the benefits are already likely 'in the price' and increase potential downside for markets at the end of the cycle, Morgan Stanley strategists including Michael Zezas, Matthew Hornbach and Andrew Sheets wrote… 'There's less reason to behave like it's 'morning in America' than 'Happy Hour in America,'' the report said. Markets are 'closer to the end of the day than the beginning.'"
April 17 - CNBC (Jeff Cox):
"Employers appear to be using proceeds from corporate tax cuts to continue the practice of rewarding shareholders and executives over workers. In the first quarter of 2018, corporate America dedicated $305 billion to stock buybacks and cash takeovers compared with $131 billion in pretax wage growth, according to TrimTabs… 'The recently enacted corporate tax cut is likely to deliver far more benefits to top management and investors than to typical American households,' said David Santschi, director of liquidity research at TrimTabs."
"Employers appear to be using proceeds from corporate tax cuts to continue the practice of rewarding shareholders and executives over workers. In the first quarter of 2018, corporate America dedicated $305 billion to stock buybacks and cash takeovers compared with $131 billion in pretax wage growth, according to TrimTabs… 'The recently enacted corporate tax cut is likely to deliver far more benefits to top management and investors than to typical American households,' said David Santschi, director of liquidity research at TrimTabs."
April 17 - Bloomberg (Sho Chandra):
"U.S. new-home construction rose by more than forecast in March on a rebound in multifamily starts, giving a boost to first-quarter economic growth… Residential starts rose 1.9% to 1.32m annualized rate (est. 1.27m) after upwardly revised 1.3 mln pace in prior month. Multifamily home starts rose 14.4%; single-family fell 3.7%..."
"U.S. new-home construction rose by more than forecast in March on a rebound in multifamily starts, giving a boost to first-quarter economic growth… Residential starts rose 1.9% to 1.32m annualized rate (est. 1.27m) after upwardly revised 1.3 mln pace in prior month. Multifamily home starts rose 14.4%; single-family fell 3.7%..."
April 19 - CNBC (Diana Olick):
"Homebuyers, hold onto your wallets. The gains in home prices are getting bigger as the supply of homes for sale gets leaner. The median price of a home sold in March surged 8.9% compared with March 2017, according to Redfin, a real estate brokerage. It is the biggest annual increase in four years. Redfin tracks prices in 174 local markets and calculated the median home price at $297,000. High prices are the result of very, very low inventory. The supply of homes for sale was down 11.9% in March, compared with a year ago. As a result, sales fell 3.7%. The number of new listings in March dropped 5.6% annually…"
"Homebuyers, hold onto your wallets. The gains in home prices are getting bigger as the supply of homes for sale gets leaner. The median price of a home sold in March surged 8.9% compared with March 2017, according to Redfin, a real estate brokerage. It is the biggest annual increase in four years. Redfin tracks prices in 174 local markets and calculated the median home price at $297,000. High prices are the result of very, very low inventory. The supply of homes for sale was down 11.9% in March, compared with a year ago. As a result, sales fell 3.7%. The number of new listings in March dropped 5.6% annually…"
April 16 - Financial Times (Alistair Gray):
"US banks have finally reopened the lending taps to corporate America, expanding their loan books at the fastest pace since Donald Trump's election resulted in a lengthy credit stagnation. While the industry data published on Friday reflect only one month of recovery, bankers said they were an encouraging sign and predicted a more sustained pick up as US business gets more comfortable about taking on more debt. 'You saw a decent pick up in March and we're seeing that in our pipeline,' said Bill Demchak, chairman and chief executive of PNC Financial Services… 'That should set us up well for the rest of the year.' Commercial and industrial loan balances swelled at a seasonally adjusted rate of 9.3% last month to hit a record $2.13 trillion…"
"US banks have finally reopened the lending taps to corporate America, expanding their loan books at the fastest pace since Donald Trump's election resulted in a lengthy credit stagnation. While the industry data published on Friday reflect only one month of recovery, bankers said they were an encouraging sign and predicted a more sustained pick up as US business gets more comfortable about taking on more debt. 'You saw a decent pick up in March and we're seeing that in our pipeline,' said Bill Demchak, chairman and chief executive of PNC Financial Services… 'That should set us up well for the rest of the year.' Commercial and industrial loan balances swelled at a seasonally adjusted rate of 9.3% last month to hit a record $2.13 trillion…"
April 20 - Reuters (Herbert Lash):
"A housing shortage, strong economy and robust demand have pushed many homes in major U.S. cities over $1 million, offsetting buyers' concerns about the reduced benefits of owning a pricey property under President Donald Trump's tax reform, data show. Home sales at $750,000 and above have surged by double digits annually in the past three years, closings data from realtor.com show for 30 counties on the east and west coasts."
"A housing shortage, strong economy and robust demand have pushed many homes in major U.S. cities over $1 million, offsetting buyers' concerns about the reduced benefits of owning a pricey property under President Donald Trump's tax reform, data show. Home sales at $750,000 and above have surged by double digits annually in the past three years, closings data from realtor.com show for 30 counties on the east and west coasts."
April 19 - New York Times (Cade Metz):
"One of the poorest-kept secrets in Silicon Valley has been the huge salaries and bonuses that experts in artificial intelligence can command. Now, a little-noticed tax filing by a research lab called OpenAI has made some of those eye-popping figures public. OpenAI paid its top researcher, Ilya Sutskever, more than $1.9 million in 2016. It paid another leading researcher, Ian Goodfellow, more than $800,000 - even though he was not hired until March... Both were recruited from Google… Salaries for top A.I. researchers have skyrocketed because there are not many people who understand the technology and thousands of companies want to work with it."
"One of the poorest-kept secrets in Silicon Valley has been the huge salaries and bonuses that experts in artificial intelligence can command. Now, a little-noticed tax filing by a research lab called OpenAI has made some of those eye-popping figures public. OpenAI paid its top researcher, Ilya Sutskever, more than $1.9 million in 2016. It paid another leading researcher, Ian Goodfellow, more than $800,000 - even though he was not hired until March... Both were recruited from Google… Salaries for top A.I. researchers have skyrocketed because there are not many people who understand the technology and thousands of companies want to work with it."
China Watch:
April 17 - Reuters (Josephine Mason): "China's central bank announced… it will cut the amount of cash that most commercial and foreign banks must hold as reserves to pay back medium-term lending facilities. The People's Bank of China (PBOC) said… it would cut the reserve requirement ratio (RRR) - currently at 15% or 17% - by 100 bps for most commercial banks."
April 17 - Reuters (Dominique Patton and Tom Polansek):
"China will slap hefty anti-dumping deposits on imports of U.S. sorghum from Wednesday…, a higher-than-expected charge on the grain used in livestock feed and the spirits industry, as trade tensions escalate between the world's top two economies. CHS Inc and other U.S. companies will have to put up a 178.6% deposit on the value of sorghum shipments to the country…"
"China will slap hefty anti-dumping deposits on imports of U.S. sorghum from Wednesday…, a higher-than-expected charge on the grain used in livestock feed and the spirits industry, as trade tensions escalate between the world's top two economies. CHS Inc and other U.S. companies will have to put up a 178.6% deposit on the value of sorghum shipments to the country…"
April 15 - Bloomberg:
"China's fiscal system is the world's most decentralized, with local bodies responsible for 85% of government spending, the IMF fund said in a report, citing the breadth across 31 provincial level governments, 334 prefectures, 2,850 counties, 40,000 townships and 900,000 informal village jurisdictions. Including off-budget spending by local government financing vehicles brings the ratio up to 89% of all public expenditures."
"China's fiscal system is the world's most decentralized, with local bodies responsible for 85% of government spending, the IMF fund said in a report, citing the breadth across 31 provincial level governments, 334 prefectures, 2,850 counties, 40,000 townships and 900,000 informal village jurisdictions. Including off-budget spending by local government financing vehicles brings the ratio up to 89% of all public expenditures."
Global Bubble Watch:
IMF Fiscal Monitor:
"Global debt is at historic highs, reaching the record peak of US$164 trillion in 2016, equivalent to 225% of global GDP. The world is now 12% of GDP deeper in debt than the previous peak in 2009, with China as a driving force. Public debt plays an important role in the surge in global debt, with little improvement expected over the medium term. The rise in government debt reflects the economic collapse during the global financial crisis and the policy response, as well as the effects of the 2014 fall in commodity prices and rapid spending growth in the case of emerging market and low-income developing countries. For advanced economies, debt-to-GDP ratios have plateaued since 2012 above 105% of GDP-levels not seen since World War II…"
"Global debt is at historic highs, reaching the record peak of US$164 trillion in 2016, equivalent to 225% of global GDP. The world is now 12% of GDP deeper in debt than the previous peak in 2009, with China as a driving force. Public debt plays an important role in the surge in global debt, with little improvement expected over the medium term. The rise in government debt reflects the economic collapse during the global financial crisis and the policy response, as well as the effects of the 2014 fall in commodity prices and rapid spending growth in the case of emerging market and low-income developing countries. For advanced economies, debt-to-GDP ratios have plateaued since 2012 above 105% of GDP-levels not seen since World War II…"
April 17 - Reuters (Helen Reid):
"Alarm bells are ringing over valuations of the world's leading technology stocks with worries over regulation causing many investors to cut exposure to the sector, Bank of America Merrill Lynch (BAML)'s April fund manager survey found. Long FAANG + BAT' remains the top pick for most crowded trade' for the third month running, BAML strategists said, referring to U.S. tech companies Facebook, Apple, Amazon, Netflix and Google, and China's Baidu, Alibaba and Tencent."
"Alarm bells are ringing over valuations of the world's leading technology stocks with worries over regulation causing many investors to cut exposure to the sector, Bank of America Merrill Lynch (BAML)'s April fund manager survey found. Long FAANG + BAT' remains the top pick for most crowded trade' for the third month running, BAML strategists said, referring to U.S. tech companies Facebook, Apple, Amazon, Netflix and Google, and China's Baidu, Alibaba and Tencent."
Europe Watch:
April 19 - Bloomberg (Liz McCormick and Elizabeth Stanton):
"A wave of selling across European sovereign debt and a rally in commodities prices are giving Treasury-market bears their mojo back. The benchmark 10-year Treasury yield reached 2.93% Thursday, within about 2 bps of the 2018 high touched in February. The slump in the world's biggest bond market came as U.K. gilts slid along with German bunds amid a burst of supply out of Western Europe."
"A wave of selling across European sovereign debt and a rally in commodities prices are giving Treasury-market bears their mojo back. The benchmark 10-year Treasury yield reached 2.93% Thursday, within about 2 bps of the 2018 high touched in February. The slump in the world's biggest bond market came as U.K. gilts slid along with German bunds amid a burst of supply out of Western Europe."
Geopolitical Watch:
April 15 - Reuters:
"Russian President Vladimir Putin warned… that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions. In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement."
"Russian President Vladimir Putin warned… that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions. In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement."
April 17 - Financial Times (Katrina Manson and Max Seddon):
"The US and UK issued a joint warning… that Russia was deliberately targeting critical western internet-based infrastructure with cyber intrusions that threatened home and business routers. Jeanette Manfra, assistant secretary of the US Department of Homeland Security, said Washington had 'high confidence' the Russian government was behind the alleged intrusions. 'We hold the Kremlin responsible for its malicious cyber activities,' she said, adding that officials were unable to determine the full scope of the claimed compromise."
"The US and UK issued a joint warning… that Russia was deliberately targeting critical western internet-based infrastructure with cyber intrusions that threatened home and business routers. Jeanette Manfra, assistant secretary of the US Department of Homeland Security, said Washington had 'high confidence' the Russian government was behind the alleged intrusions. 'We hold the Kremlin responsible for its malicious cyber activities,' she said, adding that officials were unable to determine the full scope of the claimed compromise."
April 18 - Reuters (Ben Blanchard and Judy Peng):
"Taiwan, claimed by Beijing as Chinese territory, is one of China's most sensitive issues and a potential military flashpoint. China has ramped up military exercises around Taiwan in the past year, including flying bombers and other military aircraft around the island. More recently, China has been incensed by comments by Taiwan Premier William Lai that it deemed were in support of Taiwan independence…"
"Taiwan, claimed by Beijing as Chinese territory, is one of China's most sensitive issues and a potential military flashpoint. China has ramped up military exercises around Taiwan in the past year, including flying bombers and other military aircraft around the island. More recently, China has been incensed by comments by Taiwan Premier William Lai that it deemed were in support of Taiwan independence…"
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