Credit Bubble Bulletin
by Doug Noland
Friday, April 23, 2021
My highly edited version follows:
For the week ending April 22, 2021:
Transports rose 1.4% (up 21.0%)
S&P 400 Midcaps gained 0.9% (up 19.0%),
Nasdaq100 fell 0.7% (up 8.2%).
Semiconductors dropped 1.7% (up 14.4%).
Biotechs advanced 1.5% (down 1.9%).
U.K.'s FTSE fell 1.2% (up 7.4% y-t-d).
Japan's Nikkei dropped 2.2% (up 5.7% y-t-d).
German DAX fell 1.2% (up 11.4%).
China's Shanghai rallied 1.4% (unchanged).
Ten-year US Treasury bond yields
slipped two bps to 1.56%
(up 64bps year over year).
Federal Reserve Credit last week expanded $69.5bn to a record $7.762 TN. Over the past 84 weeks, Fed Credit expanded $4.035 TN, or 108%.
Freddie Mac 30-year fixed mortgage rates dropped seven bps to 2.97% (down 36bps y-o-y).
Fifteen-year rates fell six bps to 2.29% (down 57bps).
Five-year hybrid ARM rates increased three bps to 2.83% (down 45bps).
Jumbo mortgage 30-year fixed rates up a basis point to 3.07% (down 63bps).
Commodities Watch:
Bloomberg Commodities Index
rose 2.2% (up 13.3% y-t-d).
Spot Gold was little changed at $1,777 (down 6.4%).
Silver was about unchanged at $26.005 (down 1.5%).
WTI crude declined 99 cents to $62.14 (up 28%).
Gasoline fell 2.2% (up 42%)
Natural Gas jumped 1.9% (up 8%).
Copper surged 4.2% (up 23%).
Wheat surged 8.7% (up 11%).
Corn jumped 10.2% (up 31%).
Bitcoin sank $11,438, or 18.4%,
this week to $50,568 (up 74%).
Coronavirus Watch:
April 21 – Reuters (David Shepardson):
“The U.S. State Department has added at least 116 countries this week to its ‘Level Four: Do Not Travel’ advisory list, putting the UK, Canada, France, Israel, Mexico, Germany and others on the list, citing a ‘very high level of COVID-19.’”
April 22 – CNBC (Rich Mendez):
“Scientists at Texas A&M University’s Global Health Research Complex say they’ve detected a new Covid-19 variant that shows signs of a more contagious strain that causes more severe illness and appears to be resistant to antibodies. The new variant, BV-1, named after its Brazos Valley origin, was found during Texas A&M’s routine coronavirus screening via saliva sample in a young student who had mild cold-like symptoms.”
April 22 – Bloomberg (Bhuma Shrivastava and Upmanyu Trivedi):
“India saw the world’s biggest one-day jump in coronavirus cases ever as a ferocious new wave grips the country, overwhelming hospitals and crematoriums and prompting frantic cries for help on social media. The South Asian nation reported 314,835 new infections Thursday, topping a peak of 314,312 recorded in the U.S. on Dec. 21. People took to Twitter and Instagram to call for everything from hospital beds to medicine and doorstep Covid-19 tests.”
April 22 – Bloomberg (Enda Curran and Eric Martin):
“The renewed surge in Covid-19 infections is threatening to further divide the world economy between the rich and poor, potentially damaging overall global growth if the fresh outbreaks spread or if key sources of demand falter. More people were diagnosed with Covid-19 last week than any other since the pandemic began. The World Health Organization this week warned that new infections are increasing everywhere except Europe, led by rocketing numbers in India with cases also rising in Argentina, Turkey and Brazil. That’s casting a shadow over a previously vigorous global economic rebound…”
April 21 – CNBC (Berkeley Lovelace Jr.):
“The chief medical officer of BioNTech told CNBC… people will likely need a third shot of its two-dose Covid-19 vaccine as immunity against the virus wanes, agreeing with previous comments made by Pfizer CEO Albert Bourla. Dr. Ozlem Tureci, co-founder and CMO of BioNTech, which developed a Covid vaccine with Pfizer, said she also expects people will need to get vaccinated against the coronavirus annually, like for the seasonal flu.”
Market Mania Watch:
April 19 – Bloomberg (Katie Greifeld and Vildana Hajric):
“A rocky weekend for the legions that poured into all things crypto after Coinbase Global Inc.’s direct listing did little to undermine its grip on retail traders. Dogecoin rallied another 20% or so Monday, even after most of the biggest tokens, including Bitcoin slumped further. To Mike McGlone, a Bloomberg Intelligence commodity strategist, the recent run-up in the joke token is exemplary of retail’s involvement in crypto markets. His plumber told him recently that he’d bought in. To McGlone, it’s a result of the ‘perfect storm’ of pandemic lock-ups, lots of cash in the system, and investors’ ability to speculate around the clock. ‘Markets will never change -- this one is just 24/7 and the easiest to access in history,’ he said. It’s ‘a prime example of just plain gambling for fun -- unless participants lose too much money, notably because they took too much risk at the casino.’”
April 22 – Wall Street Journal (Nicole Friedman):
“The relentless climb in U.S. home prices and tightening supply threaten to cool the hottest housing market in 15 years, sending frustrated home buyers to the sidelines. The median price for existing home sales rose to $329,100 in March, a new high… Prices soared 17.2% last month from a year earlier, marking the biggest price increase in NAR data going back to 1999. Steepening prices, combined with a scarcity of inventory that has left the U.S. housing market millions of homes short of buyer demand, have taken some steam out of the market at the start of the peak spring selling season.”
April 21 – Financial Times (Tobias Levkovich):
“For equity markets, the parallels between current conditions and those of 1999 are striking and worrisome. The investor mood in markets has been in ebullient territory since last November… That is the signal from Citigroup’s gauge of investor sentiment — the Panic/Euphoria Model — which takes into account factors including the amount of investor positions anticipating a fall in stocks, the level of funds borrowed to purchase securities and commodity price futures. The last time we saw such an upbeat zeitgeist that did not coincide with an immediate equity market correction was in 1999 when the dotcom bubble was in full bloom. Typically in the past, when our gauge is at such high levels, it would indicate a 100% probability of lower share prices over the next 12 months.”
April 21 – Wall Street Journal (Heather Somerville):
“ ... In the first quarter this year, U.S. startups raised $69 billion from investors—41% more than the previous record, set in the fourth quarter of 2018, according to… PitchBook Data Inc. The average valuation for startups at all stages also reached a new high, and more than tripled from last year to $1.6 billion for late-stage companies. ‘I’ve never seen it this frenzied,’ said Larry Albukerk, who started his investment fund EB Exchange… in 1999. ‘It’s lightning-fast rounds with a lot of cash.’”
Inflation Watch:
April 20 – Wall Street Journal (Sharon Terlep):
“Procter & Gamble Co. this fall will start charging more for household staples from diapers to tampons, the latest and biggest consumer-products company to announce price increases. The maker of Gillette razors and Tide detergent cited rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods. The announcement, which P&G said could be a precursor to broader increases, follows a similar move last month by rival Kimberly-Clark Corp. ‘This is one of the bigger increases in commodity costs that we’ve seen over the period of time that I’ve been involved with this, which is a fairly long period of time,’ said P&G Operating Chief Jon Moeller…”
April 21 – Wall Street Journal (Ruth Simon and Dave Sebastian):
“An Oklahoma restaurant is paying nearly $200 for a case of gloves that normally costs $40. A medical-device maker in Colorado is tweaking the way it manufactures its products to offset higher plastic costs. A clothing wholesaler in Michigan has hundreds of hoodies it has yet to sell because winter was over by the time they arrived from Bangladesh. The supply-chain disruptions rippling across the business world are taking a heavy toll on small U.S. companies, which have fewer resources to absorb or push back on price increases and less leverage to pass along the higher costs to customers. Forty-four percent of small businesses reported temporary shortages or other supply-chain problems in March, according to a survey of roughly 800 companies by Vistage Worldwide Inc…”
April 22 – Bloomberg (Kim Chipman and Bre Bradham):
“Corn extended its ascent to the highest in almost eight years, leading a rally in crop futures on bets that voracious Chinese demand, rebounding economies and adverse weather will leave silos depleted. Corn jumped by the exchange limit, with wheat following and soybeans topping $15 a bushel for the first time since 2014. Cold and drought in some regions are stoking concern there won’t be enough grain and oilseed to satisfy China’s massive need for livestock feed or to meet growing biofuel demand as the world economy recovers from the virus pandemic. China is so eager for more corn that it’s already scooping up next season’s crop, and demand isn’t expected to slow this year.”
Biden Administration Watch:
April 22 – Bloomberg (Laura Davison and Allyson Versprille):
“President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% to help pay for a raft of social spending that addresses long-standing inequality, according to people familiar… For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4%. The new marginal 39.6% rate would be an increase from the current base rate of 20%... A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than rates on some wage and salary income, they said.”
U.S. Bubble Watch:
April 23 – Reuters (Lucia Mutikani):
“Sales of new U.S. single-family homes rebounded more than expected in March, likely boosted by an acute shortage of previously owned houses on the market… New home sales surged 20.7% to a seasonally adjusted annual rate of 1.021 million units last month. Economists… had forecast… a rate of 886,000 units in March.”
April 22 – Associated Press (Christopher Rugaber):
“The number of Americans applying for unemployment aid fell last week to 547,000, the lowest point since the pandemic struck… Applications declined 39,000 from a revised 586,000 a week earlier. Weekly jobless claims are down sharply from a peak of 900,000 in early January. At the same time, they’re still far above the roughly 230,000 level that prevailed before the viral outbreak ripped through the economy in March of last year.”
April 21 – Associated Press (Joyce M. Rosenberg):
“It looks like something to celebrate: small businesses posting ‘Help Wanted’ signs as the economy edges toward normalcy. Instead, businesses are having trouble filling the jobs, which in turn hurts their ability to keep up with demand for their products or services. Owners say that some would-be workers are worried about catching COVID-19 or prefer to live off unemployment benefits that are significantly higher amid the pandemic. Child care is another issue — parents aren’t able to work when they need to tend to or home-school their children. For some people, a combination of factors go into their decision not to seek work.”
Fixed Income Watch:
April 22 – Bloomberg (Alex Wittenberg):
“Junk-rated U.S. companies set a record on Thursday for most bonds ever sold in April, capping a 12-month issuance boom. The wave isn’t expected to break any time soon as companies move from refinancing to acquisitions, dividends and stock buybacks… ‘As long as capital is available, I think it can go on,’ said Justin Bourgette, a high-yield portfolio manager at Eaton Vance. Jazz Pharmaceuticals’ $1.5 billion note offering… helped lift the month’s supply to $38.9 billion, edging out the prior April record of $38.8 billion set in 2014…”
Japan Watch:
April 18 – Bloomberg (Yoshiaki Nohara and Yuko Takeo):
“Japanese exports posted a double-digit gain for the first time in more than three years in March, offering another indication that a recovery in global trade is gaining strength. The value of overseas shipments jumped 16.1% from a year ago, for the biggest increase since November 2017, led by exports of cars, plastics, semi-conductors and chip-making equipment…”
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