News for the week ending January 17, 2017

Saturday, January 18, 2020

Weekly Commentary: 

"This is Insane"

by Doug Noland

Full column here:

http://creditbubblebulletin.blogspot.com/2020/01/weekly-commentary-this-is-insane.html

Portions that 

interested me

are below.

Ye Editor

There were new data 

this week from the Institute

of International Finance (IIF).

January 13 – Reuters (Marc Jones): 

“Global debt is expected to climb to a new all-time high of more than $257 trillion in the coming months, the Institute of International Finance estimated.

-- around $32,500 for each of the 7.7 billion people on planet, and more than 3.2 times the world’s annual economic output, but the staggering numbers don’t stop there. 

Total debt across the household, government, financial and non-financial corporate sectors surged by some $9 trillion in the first three quarters of 2019 alone. 

In mature markets total debt now tops $180 trillion, or 383% of these countries’ combined GDP, while in emerging markets it is double what it was in 2010, at $72 trillion, driven mainly by a $20 trillion surge in corporate debt.”

Global debt has been expanding at the most rapid clip since 2016. 

After ending 2015 at about $210 Trillion, global debt growth has been in parabolic rise to the IIF’s Q1 2020 estimate of $257 Trillion. 

Household debt-to-GDP have reached a record high in Belgium, Finland, France, Lebanon, New Zealand, Nigeria, Norway, Sweden and Switzerland.

Non-financial corporate debt to GDP topped in Canada, France, Singapore, Sweden, Switzerland and the United States. 

Government debt-to-GDP has also hit an all-time high in Australia and the United States.”

Total global debt ended Q3 2019 at 322% of GDP, up from the year ago 319%. 

For the week ending

January 17, 2019:

S&P500 jumped 2.0% (up 3.1% y-t-d) 

Dow rose 1.8% (up 2.8%)

Utilities surged 3.7% (up 3.4%)

Transports rose 2.8% (up 3.5%)

S&P 400 Midcaps gained 2.2% (up 1.6%)

Small cap Russell 2000 surged 2.5% (up 1.9%). 

Nasdaq100 advanced 2.3% (up 5.0%).

Biotechs declined 0.5% (up 2.2%). 

With gold bullion slipping $5, 

the HUI gold stock index fell 1.0% 

   (down 5.4%).

U.K.'s FTSE equities index rose 1.1% (up 1.8%).

Japan's Nikkei Equities Index gained 0.8% (up 1.6% y-t-d). 

France's CAC40 rose 1.1% (up 2.1%)

German DAX added 0.3% (up 2.1%). 

Spain's IBEX 35 gained 1.1% (up 1.4%). I

Italy's FTSE MIB up 0.5% (up 2.7%)

Brazil's Bovespa jumped 2.6% (up 2.4%)

Mexico's Bolsa rose 2.6% (up 5.2%). 

South Korea's Kospi advanced 2.0% (up 2.4%). 

India's Sensex gained 0.8% (up 1.7%). 

China's Shanghai declined 0.5% (up 0.8%). 

Turkey's Istanbul National 100 jumped 2.4% (up 6.2%). 

Russia's MICEX rose 2.3% (up 5.0%).

Ten-year Treasury yields were unchanged at 1.82% (down 10bps). 

Long bond yields were unchanged at 2.28% (down 11bps).

Freddie Mac 30-year fixed mortgage rates added a basis point to 3.65% (down 80bps y-o-y). 

Fifteen-year rates increased two bps to 3.09% (down 79bps). 

Five-year hybrid ARM rates jumped nine bps to 3.39% (down 48bps). 

Jumbo mortgage 30-year fixed rates up four bps to 3.99% (down 47bps).

Federal Reserve Credit 

last week expanded $4.4bn to $4.133 TN, 

with an 18-week gain of $406 billion. 

Over the past year, Fed Credit 

expanded $117bn, or 2.9%. 

M2 (narrow) "money" supply 

increased $1.9bn last week 

to a record $15.432 TN.

 "Narrow money" surged $1.022 TN, 

or 7.1%, over the past year. 

Commodities Watch:

Bloomberg Commodities declined 1.1% (down 1.3% y-t-d). 

Spot Gold slipped 0.3% to $1,557 (up 2.6%). 

Silver dipped 0.2% to $18.073 (up 0.8%). 

WTI crude fell 50 cents to $58.54 (down 4%). 

Gasoline declined 0.8% (down 3%)

Natural Gas sank 9.0% (down 9%). 

Copper gained 1.1% (up 2%). 

Wheat rose 1.1% (up 2%). 

Corn increased 0.9% (unchanged).

News from last week:

January 13 – Wall Street Journal (Akane Otani): 

“Companies in the S&P 500 are projected to report a 2% decline in earnings in the fourth quarter from the year-earlier period, according to FactSet… If that pans out, it would mark the fourth straight quarter of declining earnings—the longest such streak since a period from 2015-16.”

January 14 – Bloomberg (Gregor Stuart Hunter): 

“The risk-on rally that rolled from December right on into the start of 2020 may be due for a breather, according to an increasing number of market analysts… Forward price-to-earnings ratios for U.S. growth stocks have reached levels only seen in eight months over a span of three decades of data, according to Lapthorne… 

Sundial Capital Research analysts flagged another warning sign in recent days: options buying has overwhelmingly favored calls over puts in U.S. markets this month. ‘As a percentage of total volume, speculative-call buying last week hit a level never seen in the past 20 years, and there was little in the way of protective-strategy volume as an offset,’ said Sundial president Jason Goepfert.”

January 16 – Bloomberg (Max Reyes): 

“U.S. consumer confidence advanced last week to the highest level in more than 19 years on increased optimism about the economy, personal finances and the buying climate. Bloomberg’s index of consumer comfort rose to 66 in the week ended Jan. 12, the best reading since October 2000, from 65.1… The gain was the eighth in the last nine weeks. A measure of Americans’ views of the economy climbed to the highest since early 2001.”

January 15 – Financial Times (Editorial Board): 

“For a self-declared master dealmaker such as US president Donald Trump, being able to flaunt a trade truce with Beijing may have been the main goal of his long and damaging trade war. ... The agreement, signed in Washington…, is billed as ‘phase one’ of a bigger deal. On its own, however, (the trade deal) it leaves the US-China trade relationship in a much worse state than when Mr Trump took office. It leaves average tariff levels on both sides at around 20%. Two years ago the average US tariff on Chinese imports stood at 3%; in the other direction it was 8%.”

January 14 – Reuters (Makini Brice and Andrea Shalal): 

“The United States will maintain tariffs on Chinese goods until the completion of a second phase of a U.S.-China trade agreement, U.S. Treasury Secretary Steven Mnuchin said…, a day before the two sides are to sign an interim deal. Mnuchin told reporters that President Donald Trump could consider easing tariffs if the world’s two largest economies move quickly to seal a follow-up agreement. ‘If the president gets a Phase 2 in place quickly, he’ll consider releasing tariffs as part of Phase 2,’ Mnuchin said.”

January 13 – Associated Press (Martin Crutsinger): 

“The U.S. budget deficit through the first three months of this budget year is up 11.8% from the same period a year ago… The… deficit from October through December totaled $356.6 billion, up from $318.9 billion for the same period last year. Both government spending and revenues set records for the first three months of this budget year but spending rose at a faster clip than tax collections… The Congressional Budget Office is projecting that the deficit for the current 2020 budget year will hit $1 trillion and will remain over $1 trillion for the next decade.”

January 13 – CNBC (Jeff Cox): 

“The U.S. fiscal deficit topped $1 trillion in 2019, the first time it has passed that level in a calendar year since 2012… The budget shortfall hit $1.02 trillion for the January-to-December period, a 17.1% increase from 2018, which itself had seen a 28.2% jump from the previous year.”

January 16 – Reuters: 

“U.S. retail sales rose for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, which could strengthen the view that the economy maintained a moderate growth pace at the end of 2019. …Retail sales increased 0.3% last month. Data for November was revised up to show retail sales gaining 0.3%... Economists… Compared to December last year, retail sales accelerated 5.8%. Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5% last month…”

January 16 – MarketWatch (Keith Jurow): 

“Mortgage underwriting standards have eased considerably in the past couple of years; one of the largest U.S. mortgage originators now offers a jumbo mortgage of up to $1 million with only 10% down if you have a FICO score of at least 760. Borrowers who can scrape up a down payment of between 30% and 40% might be able to receive up to $3 million. One smaller lender is now offering home buyers a loan as high as $2 million with a FICO score as low as 640. This score was considered sub-prime during the bubble years… Such favorable terms indicate a confidence that housing markets are in decent shape and there is nothing on the horizon to worry about… In reality, jumbo mortgages — loans that exceed the guarantees set by Fannie Mae and Freddie Mac — are a jumbo-sized problem.”

January 14 – Bloomberg (Simon Casey): 

“Such is the extent of the shakeout in the U.S. shale industry that Permian Basin oil production is closer to peaking than many forecasts suggest, according to one energy investor. Adam Waterous, who runs Waterous Energy Fund, regards the sector’s financial position as unsustainable after years of disappointing returns for investors and negative free cash flow. With capital markets now largely shunning shale producers, the impact will begin to show in oil and natural gas output from the largest U.S. oil patch, he said. ‘We think we are at or near peak Permian’ production, Waterous said… ‘The North American oil market has been grossly overcapitalized, which is not sustainable.’”

January 17 – Bloomberg (Danielle Moran and Mallika Mitra): 

“The last time municipal-bond yields were this low Dwight D. Eisenhower was the president, Elvis Presley released his second studio album and Grace Kelly married Monaco’s Prince Rainier III. The Bond Buyer’s 20-year index of general-obligation bonds reset at 2.56% this week, the lowest since June 1956... And for some context, that year some $5.4 billion of new long-term bonds were sold, a sum that’s now considered a somewhat slow week… ‘That is insane,’ said Nisha Patel, the director of portfolio management at Parametric…”

January 14 – Reuters (Kate Duguid): 

“The dawn of the new decade has brought a reprieve for debt-laden companies in the energy sector: Investors are throwing money their way again, for now. Having been largely shut out of capital markets in 2019, low-rated energy firms, some on the brink of default, are racing to secure financing. They are finding willing lenders. Indeed, the first two weeks of the year have brought as many energy junk bond sales as in the last half of 2019, according to… Dealogic… In addition, total return in the oil and gas sector is broadly outperforming the wider high-yield debt market after getting walloped last year.”

January 17 – Bloomberg (Molly Smith, Tasos Vossos and Olivia Raimonde): 

“With economic growth relatively stagnant in major global economies, and heightened risk of disappointing earnings and greater regulation in areas like technology, a wave of investment-grade companies could get cut to junk over the next 12 to 18 months… Because BBBs make up more than half the $8.4 trillion investment-grade corporate markets in both the U.S. and Europe, there’s that much more debt at risk of possibly falling to speculative grade. In 1993, BBBs were more like a quarter of the market.”

January 14 – Reuters (Gabriel Crossley): 

“China’s exports in December rose 7.6% from a year earlier…, signaling a modest recovery in demand as a preliminary trade deal with the United States raised hopes that a prolonged tariff war will be de-escalated. It was the first rise in China’s exports since July 2019 and the fastest growth rate since March 2019.”