Source:
http://creditbubblebulletin.blogspot.com/2021/01/weekly-commentary-issues-2021.html
Credit Bubble Bulletin
- Chronicling History's Greatest Financial Bubble
by Doug Noland
Saturday, January 9, 2021
My highly edited version follows:
For the week ending
January 8, 2021:
GLOBAL STOCKS:
S&P500
gained 1.8%
(up 17.1% year-over year)
Dow Industrials
rose 1.6%
(up 7.9%)
Utilities
were little changed
(down 0.3%)
Transports
advanced 2.9%
(up 17.3%)
S&P 400 Midcaps
jumped 4.8%
(up 17.8%)
Small cap Russell 2000
surged 5.9%
(up 26.2%)
Nasdaq100
advanced 1.7%
(up 46.2%)
Biotechs
jumped 3.8%
(up 14.6%).
While gold bullion
was down $50,
the HUI gold stock index
increased 0.9%
(up 30.9%)
U.K.'s FTSE
surged 6.4%
(down 9.4% y-o-y).
Japan's Nikkei
jumped 2.5%
(up 18.0% y-o-y)
France's CAC40
rose 2.8%
(down 5.5%)
German DAX
advanced 2.4%
(up 4.2%)
Spain's IBEX 35
surged 4.1%
(down 12.2%)
Italy's FTSE MIB
rose 2.5%
(down 5.1%)
Brazil's Bovespa
rose 5.1%
(up 8.3%)
Mexico's Bolsa
surged 6.0%
(up 4.6%)
South Korea's Kospi
surged 9.7%
(up 42.9%)
India's Sensex
gained 2.2%
(up 17.3%)
China's Shanghai
jumped 2.8%
(up 15.5%).
Turkey's Istanbul National 100
inflated 4.3%
(up 36.4%)
Russia's MICEX
jumped 5.0%
(up 10.6%)
Federal Reserve Credit
Over the past year,
expanded 77%.
M2 (narrow) "money" supply
surged 24.4%,
over the past year.
Freddie Mac 30-year
fixed mortgage rates
declined two bps
to a record low 2.65%
(down 99bps y-o-y).
Fifteen-year rates
slipped a basis point
to an all-time low 2.16%
(down 91bps).
Five-year hybrid ARM rates
rose four bps to 2.75%
(down 55bps).
Jumbo mortgage
30-year fixed rates
up four bps to 2.94%
(down 101bps).
Bitcoin surged
about $11,000 this week,
or 38%, to surpass $40,000.
COMMODITIES:
Bloomberg Commodities Index
gained 2.1%
(down 1.3% y-o-y).
Spot Gold dropped 2.6% to $1,849
(up 18.3%).
Silver sank 6.7% to $24.637
(up 36.1%).
WTI crude surged $3.72 to $52.24
(down 12%).
Gasoline rose 9.4%
(down 7%)
Natural Gas jumped 6.3%
(up 23%).
Copper surged 4.4%
(up 31%).
Wheat slipped 0.3%
(up 13%).
Corn rose 2.5%
(up 29%).
"For years now,
my beginning of the year
“Issues” pieces
have featured a key
Credit Bubble maxim:
“The Bubble either
further inflates
or bursts.”
... The system to begin 2021
in the throes of historic late-cycle
“Terminal Phase Excess.”
Tesla surged 25% this week
(794% year-over-year)
Bitcoin surpassed $40,000 this week,
with one-week and one-month gains
of 38% and 100%.
... The “average stock”
Value Line Arithmetic Index
rose 4.6%.
The Philadelphia Oil Services Index
jumped 13.6%.
Nonetheless, confidence in the
Federal Reserve’s capacity
to sustain the boom is more
deeply ingrained than ever.
Last year’s unprecedented
crisis measures
emboldened financial speculation.
The appearance of Fed control
persists only so long
as the Bubble inflates.
... In the end, in excess of $3 trillion
of Fed liquidity ($8.5TN from “G4”
central banks) reversed the powerful
forces of ... de-leveraging.
A potent new speculative cycle
was unleashed.
... Between September 1998
and the end of March 1999,
Federal Reserve Assets
expanded $55 billion to $580 billion.
For this cycle, the expansion
of Fed Credit is now up to $3.580 TN
in 69 weeks.
Central bank largess spurred
history’s greatest Credit expansion
– in the U.S., China and globally.
Many governments over the past year
ran deficits surpassing 10% of GDP.
The U.S. fiscal deficit exceeded $3.0 TN,
or approaching 15% of GDP.
... After buying the majority of 2020’s
net Treasury (bond) issuance, the Fed
is poised to purchase a Trillion or so
in 2021. That leaves a significant hole.
... Would the Fed significantly
boost QE (aka creating money
out of thin air) in the face
of manic risk markets
and a recovering economy?
The global Bubble is today raging,
but there is acute vulnerability
to any unexpected risk aversion
and tightening of financial conditions."
January 7 – Bloomberg:
“Connecticut, Texas and Pennsylvania reported their first cases of the virus variant that helped trigger a U.K. lockdown amid concern that Covid-19 deaths in the U.S. are likely to maintain a near-record pace at least through January. Mounting hospitalizations are offsetting any positive effect from the halting start to inoculations. New York, New Jersey, Florida and North Carolina are among states that reported daily records as Illinois became the fifth state to surpass 1 million infections.”
January 8 – CNBC (Sam Meredith):
“London Mayor Sadiq Khan… declared a major incident over the rapid spread of the coronavirus in the U.K.’s capital city. He had previously warned the virus was ‘out of control’ and the National Health Service was ‘on the cusp of being overwhelmed.’ ‘I have declared a major incident in London because the threat this virus poses to our city is at crisis point,’ Khan said…
‘One in 30 Londoners now has COVID-19. If we do not take immediate action now, our NHS could be overwhelmed and more people will die,’ he added.”
January 3 – Reuters (Estelle Shirbon, Alistair Smout and Guy Faulconbridge):
“British Prime Minister Boris Johnson… ordered England into a new national lockdown to contain a surge in COVID-19 cases that threatens to overwhelm parts of the health system before a vaccine programme reaches a critical mass… Johnson said a new, more contagious variant of the coronavirus first identified in the United Kingdom and now present in many other countries was spreading at great speed and immediate action was needed to slow it down.”
January 6 – Bloomberg (Emily Barrett, John Ainger and Ruth Carson):
“U.S. Treasury bond yields broke above 1% for the first time since the pandemic-driven turmoil in March, and the selloff may only have just begun should the Democrats secure control of the U.S. Senate. The 10-year yield… at one point surged close to 10 bps to more than 1.05% as Democratic victories appeared likely in both Senate runoff elections in Georgia, paving the way for more spending…”
January 7 – Reuters (Noel Randewich):
“Shares of Tesla surged to a record high in heavy trading on Thursday, with the electric car maker’s stock market value exceeding Facebook’s for the first time. Shares in the company led by Elon Musk jumped nearly 8% to end the session at $816, putting its market capitalization at $774 billion and making it Wall Street’s fifth-most-valuable company…”
January 5 – Bloomberg (Annie Massa):
“GMO co-founder Jeremy Grantham renewed his grim outlook for U.S. stocks, warning of a ‘fully-fledged epic bubble,’ just days after equity indexes finished off a euphoric year. Stocks are careening away from fair prices amid ‘hysterically speculative’ investor behavior -- and even the Federal Reserve won’t be able to stop a looming crash, Grantham wrote in a letter, titled ‘Waiting for the Last Dance’… ‘I am doubling down, because as prices move further away from trend, at accelerating speed and with growing speculative fervor, of course my confidence as a market historian increases that this is indeed the late stage of a bubble,’ Grantham wrote. ‘A bubble that is beginning to look like a real humdinger.’”
January 7 – Bloomberg (Olga Kharif):
“The total market value of cryptocurrencies surpassed $1 trillion for the first time… amid a frenzied and volatile rally in Bitcoin to yet another record. Cryptocurrencies hit the milestone after a fivefold climb in market value in the past year, data from tracker CoinGecko shows. Strategists have cited demand from speculative retail traders, trend-following quant funds, the rich and even institutional investors as among the reasons for the surge.”
January 5 – Bloomberg (Anchalee Worrachate):
“The world’s biggest economies shouldering record debt burdens are about to confront an unwelcome legacy of the financial crisis: a $13 trillion debt bill. The Group of Seven nations plus key emerging markets face the heaviest bond maturities in at least a decade… According to… Bloomberg, these governments may need to roll over 51% more debt than in 2020. The good news is that both central banks and investors are on their side. ... ’”
January 5 – Wall Street Journal (Jon Sindreu):
“The pandemic will leave Western nations carrying the biggest public-debt pile as a percentage of gross domestic product since World War II. To deal with it, they will need a better grasp of inflation. So far, fears about high debt-to-GDP ratios have been proven repeatedly wrong. Even so, officials are already trying to set limits. ... ”
January 7 – Bloomberg (Agnieszka de Sousa and Megan Durisin):
“Global food prices reached a six-year high in December and are likely to keep rising into 2021, adding to pressure on household budgets while hunger surges around the world. A United Nations gauge of food prices has jumped 18% since May, as adverse weather, government measures to safeguard supplies and robust demand helped fuel rallies across agricultural commodities from grains to palm oil. Prices will likely climb further, the UN’s Food & Agriculture Organization said.”
January 7 – CNN (Gregory Krieg and Dan Merica):
“ ... Joe Biden now also faces new pressure to act swiftly while keeping his narrow Democratic majorities in the House and Senate unified -- a tricky task that could make or break his presidency in its first year. The party's wish list is long and every senator will effectively have veto power on each piece of legislation. But the early hurdles that many in the party were fretting over days ago fell overnight.”
January 7 – Bloomberg (Eric Martin):
“The U.S. trade deficit widened to the second-largest on record in November as merchandise imports reached a more than one-year high in the midst of the holiday shopping season, causing the shortfall in goods to climb to the highest yet. The gap in trade of goods and services expanded to $68.1 billion in November from $63.1 billion in October… The merchandise-trade deficit increased 6.2% to $86.4 billion, the biggest on record, while the nation’s surplus in services to $18.2 billion, the lowest since August 2012.”
January 8 – CNBC (Jeff Cox):
“Job creation came to a halt in December as restrictions brought on by surging Covid-19 cases hammered virus-sensitive industries, particularly bars and restaurants, which lost nearly half a million positions. …Nonfarm payrolls fell by 140,000. That was below expectations for 50,000… It was the first monthly drop since April. The unemployment rate was unchanged at 6.7%, compared to a 6.8% estimate. An alternative unemployment measures that includes discouraged workers and those holding part-time jobs for economic reasons declined to 11.7% from 12%.”
January 8 – Wall Street Journal (Ryan Dezember):
“There haven’t been so many single-family homes under construction in the U.S. since 2007, yet many of these new houses won’t be for sale. Investors are building tens of thousands of houses expressly to rent in a bet that Americans will keep flocking to spacious suburban living even if they can’t afford to buy homes. The Covid-19 pandemic sparked a race for space among Americans, and home prices have surged to records. The gains have outpaced wage growth, straining affordability… Homeownership is unaffordable for average wage earners in 55% of U.S. counties, up from 43% a year earlier, according to Attom Data Solutions… Meanwhile, single-family landlords have reported record occupancy and fast-rising rents since the pandemic began.”
January 2 – Bloomberg (Vildana Hajric and Elena Popina):
“The IPO market is manic. Stocks haven’t been this expensive since the dot-com era. The Nasdaq 100 has doubled in two years, leaving its valuation bloated -- all while volatility remains stubbornly high. It’s a setup that’s left investors sitting on fat returns from 2020, a year that defied easy explanation. It’s also one that has a growing cohort of experts warning about a bubble. Knowing when market rallies turn from logical to excessive is always tough...."
January 5 – Wall Street Journal (Amrith Ramkumar):
“ ... U.S.-listed special-purpose acquisition companies, or SPACs, raised $82 billion in 2020, a more-than-sixfold increase from the year before and a figure greater than all of the money previously raised, according to Dealogic. They even attracted a star-studded group of backers, ranging from basketball legend Shaquille O’Neal to former House of Representatives Speaker Paul Ryan. ... "
January 5 – Bloomberg (Jeremy Hill and Katherine Doherty):
“More large U.S. companies filed for bankruptcy in 2020 than in any year since the global financial crisis, after the pandemic tipped swaths of the economy into distress. Energy, retail and consumer services companies led a total of 244 filings… That was the most since 2009, when 293 U.S. companies sought protection from creditors. Credit markets have rallied, lifting many borrowers out of distress, but bankruptcy experts predict another wave of filings that could start in the second quarter of 2021 as cash runs out.”
January 5 – Bloomberg (John Gittelsohn):
“Office vacancies in Manhattan jumped to a 21st century record as the Covid-19 pandemic froze new rental deals and sublease openings soared. Last year ended with a 15.1% vacancy rate, up from 11.1% in 2019 and the highest in data going back to 1999, according to… Savills, a commercial-property services firm. That left 68.4 million square feet empty, including 18.6 million square feet of sublease space listed by current tenants looking to downsize. New leases in the fourth quarter dropped 64% from a year earlier to 4.6 million square feet.”
January 4 – Reuters (Michael Erman):
“Drugmakers including Abbvie Inc and Bristol Myers Squibb raised U.S. list prices on more than 500 drugs to kick off 2021, according to an analysis by health care research firm 46brooklyn… Nearly all the increases were below 10%, and the median hike was 4.8%, down slightly from last year, 46brooklyn said.”
January 4 – Reuters (Karen Pierog):
“U.S. states, cities, schools and other issuers sold $451.2 billion of municipal bonds last year, the highest amount on records that date back to 1980, according to Refinitiv… With the U.S. Federal Reserve pushing interest rates to historical lows to combat the economic fallout from the ongoing coronavirus pandemic, muni bond sales were up 11% compared to 2019. Issuers took advantage of the low rates to refund nearly $200 billion of outstanding debt, the most since 2017. Taxable bonds accounted for 31% of issuance.”
January 7 – Bloomberg:
“Chinese officials and social media users mocked Wednesday’s chaotic scenes in Washington as Donald Trump supporters stormed the US Capitol building and delayed the confirmation of Joe Biden’s presidential election victory. The disarray in the halls of Congress was a propaganda coup for President Xi Jinping’s administration. On Thursday, a Chinese foreign ministry spokesperson likened the US unrest to Hong Kong’s pro-democracy protests in 2019. In July last year, protesters broke into and vandalised Hong Kong’s Legislative Council, the territory’s de facto parliament. ‘When similar things happened in Hong Kong, some Americans and US media reacted differently,’ Hua Chunying said.”
January 5 – Reuters (Yanni Chow and Yoyo Chow):
“Hong Kong police arrested 53 people in dawn raids on democracy activists… in the biggest crackdown since China last year imposed a security law which opponents say is aimed at quashing dissent in the former British colony. Hong Kong’s most prominent pro-democracy advocates were arrested in raids on 72 premises as the authorities said last year’s unofficial vote to choose opposition candidates in city elections was part of a plan to ‘overthrow’ the government.”
January 6 – Bloomberg (Iain Marlow and Kari Lindberg):
“ ... The Hong Kong police… rounded up more than 50 activists, former lawmakers and academics, as well as an American rights lawyer, in a series of morning raids across the former British colony involving more than 1,000 officers. All had helped organize an unofficial primary in July to nominate opposition candidates for a legislative election that was later postponed. The crackdown was the largest to date in a single day under a Beijing-drafted national security law that carries sentences as long as life in prison, shocking even for a city where opposition figures have increasingly found themselves facing criminal charges for attending protests, holding banners or getting into legislative chamber scuffles.”
January 8 – Bloomberg (Srinivasan Sivabalan):
“The emerging-market equity benchmark rose to a record Friday, topping its previous high reached before the 2008 financial crisis, as a flood of liquidity and optimism over a global economic rebound fuel risk appetite. The MSCI Emerging Markets Index rose 1.8% to 1,345.64…, extending its recovery from the March rout to 79%. The milestone comes after stock valuations and market capitalization both reached record highs in a rally that’s added $10.6 trillion in a little over nine months, the fastest bout of wealth creation in the history of emerging markets.”
January 3 – Associated Press (Jon Gambrell and Isabel Debre):
“Iran began enriching uranium Monday to levels unseen since its 2015 nuclear deal with world powers and also seized a South Korean-flagged tanker near the crucial Strait of Hormuz, a double-barreled challenge to the West that further raised Mideast tensions. Both decisions appeared aimed at increasing Tehran’s leverage in the waning days in office for President Donald Trump… Increasing enrichment at its underground Fordo facility puts Tehran a technical step away from weapons-grade levels of 90%, while also pressuring President-elect Joe Biden to quickly negotiate.”
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