Source:
Credit Bubble Bulletin
by Doug Noland
These are the Noland columns I found most interesting. None of them were edited, except for adding some red ink.
Many others are not included here:
Ye Editor, shown hard at work "editing" below:
May 11 – Bloomberg (Payne Lubbers):
“Optimism among U.S. small businesses rose in April to a five-month high… Still, a record 44% respondents said they were unable to fill open positions, stunting potential sales growth, the group said. Some 31% of firms said they boosted worker compensation, the largest share in more than a year. ‘Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth,’ Bill Dunkelberg, chief economist at the NFIB, said… ‘Owners are raising compensation, offering bonuses and benefits to attract the right employees.” In addition, commodities have been soaring, helping explain a 10 percentage point increase in the share of small-business owners raising prices. That was the largest reading since the 1980s…”
Forty-six cents of every dollar spent
so far in the fiscal year 2021
has been borrowed.
Washington is on pace for
back-to-back $3 TN plus
annual deficits.
May 12 – Bloomberg (Rebecca Choong Wilkins and Ailing Tan):
“Chinese corporations are defaulting on local bonds at the fastest pace on record, as authorities ramp up efforts to introduce more financial discipline and transparency in the world’s second-largest debt market. Firms so far this year have failed to make payments on 99.8 billion yuan ($15.5bn) of onshore bonds… While 2021 is set to be the fourth straight year the 100 billion yuan level has been topped, it previously hadn’t happened before September… Missed payments are running at a record pace this year, following the late 2020 defaults of some state-linked firms which affirmed convictions that authorities in China are increasingly willing to not bail out weak firms.”
Coronavirus Watch:
May 12 – Associated Press (Aniruddha Ghosal and Krutika Pathi):
“A potentially worrisome variant of the coronavirus detected in India may spread more easily. But the country is behind in doing the kind of testing needed to track it and understand it better. On Monday, the World Health Organization designated the new version of the virus a ‘variant of concern’ based on preliminary research, alongside those that were first detected in Britain, South Africa and Brazil but have spread to other countries.”
Market Mania Watch:
May 9 – Wall Street Journal (Greg Ip):
“To veterans of financial bubbles, there is plenty familiar about the present. Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and crypto-currency. This boom has some legitimate explanations, from the advances in digital commerce to fiscally greased growth that will likely be the strongest since 1983. But there is one driver above all: the Federal Reserve. Easy monetary policy has regularly fueled financial booms, and it is exceptionally easy now. The Fed has kept interest rates near zero for the past year and signaled rates won't change for at least two more years. It is buying hundreds of billions of dollars of bonds. As a result, the 10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative -- for only the second time in 40 years.”
Market Instability Watch:
May 12 – Yahoo Finance (Javier E. David):
“Elon Musk sent Bitcoin reeling on Wednesday, after he announced that Tesla would stop accepting it for car purchases — even though the company continues to hold the digital coin on its books. In a Twitter post, Musk cited the environmental impact of Bitcoin mining, which has been cited by critics for being energy intensive and a detriment to the climate. The move took crypto currency enthusiasts by surprise, and drove down the price of Bitcoin after hours, with the volatile digital currency shedding over 13%. Other major crypto units followed suit…”
Inflation Watch:
May 12 – CNBC (Jeff Cox):
“Inflation in April accelerated at its fastest pace in more than 12 years as the U.S. economic recovery kicked into gear and energy prices jumped higher… The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year earlier. A Dow Jones survey had expected a 3.6% increase. The month-to-month gain was 0.8%, against the expected 0.2%. Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis.”
May 13 – Associated Press (Martin Crutsinger):
“Wholesale prices, driven by escalating costs for services and food, jumped 0.6% in April, surprising economists and providing more evidence that inflation pressures are starting to mount… The increase in the producer price index, which measures inflationary pressures before they reach consumers, was double the 0.3% gain that economists had been expecting… Over the past 12 months, wholesale prices are up 6.2%, the largest advance since the data was first calculated in 2010. Food prices shot up 2.1% in April…”
May 11 – Financial Times (Harry Dempsey and Neil Hume):
“Rates for ships carrying commodities that fuel global industries and keep the world fed have soared… Roaring Chinese demand for iron ore, a key steel ingredient, a return to strength for manufacturing in the rest of the world and under-investment in new vessels in recent years have powered a sharp increase in prices for dry bulk carriers, which transport unpackaged raw materials in large holds. The Baltic Dry index, which tracks rates for the three largest classes of ships, has risen to its highest level in more than a decade, soaring over 700% since April 2020. Capesize vessels… are fetching $41,500 a day for immediate hire, close to double of a month ago and almost eight times last year’s average, according to Clarksons Platou Securities.”
May 10 – Wall Street Journal (Ryan Dezember and Kirk Maltais):
“America’s biggest cash crop has rarely been more expensive. Corn prices have risen roughly 50% in 2021 and a bushel costs more than twice what it did a year ago. Corn has been one of the sharpest risers in the broad rally in raw materials that is prompting companies to boost prices for goods and fueling concern among investors that inflation could hobble the post-pandemic economic recovery.”
May 12 – Bloomberg (David Welch):
“An unprecedented surge in prices for used cars was the biggest contributor to the surprise jump in U.S. inflation last month. The cost of previously owned sedans, pickups and sport-utility vehicles soared 10% in April…, the fastest climb ever in data that go back to 1953…. With fewer new cars being made amid a shortage in critical semiconductors, both retail consumers and rental car companies have gone to the used-vehicle market to get the wheels they need. Wholesale prices have soared as a result, up 54% in April from a year earlier at Manheim, the nation’s largest vehicle auction house.”
May 10 – Wall Street Journal (Nora Naughton):
“Optimism among U.S. small businesses rose in April to a five-month high… Still, a record 44% respondents said they were unable to fill open positions, stunting potential sales growth, the group said. Some 31% of firms said they boosted worker compensation, the largest share in more than a year. ‘Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth,’ Bill Dunkelberg, chief economist at the NFIB, said… ‘Owners are raising compensation, offering bonuses and benefits to attract the right employees.” In addition, commodities have been soaring, helping explain a 10 percentage point increase in the share of small-business owners raising prices. That was the largest reading since the 1980s…”
Forty-six cents of every dollar spent
so far in the fiscal year 2021
has been borrowed.
Washington is on pace for
back-to-back $3 TN plus
annual deficits.
May 12 – Bloomberg (Rebecca Choong Wilkins and Ailing Tan):
“Chinese corporations are defaulting on local bonds at the fastest pace on record, as authorities ramp up efforts to introduce more financial discipline and transparency in the world’s second-largest debt market. Firms so far this year have failed to make payments on 99.8 billion yuan ($15.5bn) of onshore bonds… While 2021 is set to be the fourth straight year the 100 billion yuan level has been topped, it previously hadn’t happened before September… Missed payments are running at a record pace this year, following the late 2020 defaults of some state-linked firms which affirmed convictions that authorities in China are increasingly willing to not bail out weak firms.”
Coronavirus Watch:
May 12 – Associated Press (Aniruddha Ghosal and Krutika Pathi):
“A potentially worrisome variant of the coronavirus detected in India may spread more easily. But the country is behind in doing the kind of testing needed to track it and understand it better. On Monday, the World Health Organization designated the new version of the virus a ‘variant of concern’ based on preliminary research, alongside those that were first detected in Britain, South Africa and Brazil but have spread to other countries.”
Market Mania Watch:
May 9 – Wall Street Journal (Greg Ip):
“To veterans of financial bubbles, there is plenty familiar about the present. Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and crypto-currency. This boom has some legitimate explanations, from the advances in digital commerce to fiscally greased growth that will likely be the strongest since 1983. But there is one driver above all: the Federal Reserve. Easy monetary policy has regularly fueled financial booms, and it is exceptionally easy now. The Fed has kept interest rates near zero for the past year and signaled rates won't change for at least two more years. It is buying hundreds of billions of dollars of bonds. As a result, the 10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative -- for only the second time in 40 years.”
Market Instability Watch:
May 12 – Yahoo Finance (Javier E. David):
“Elon Musk sent Bitcoin reeling on Wednesday, after he announced that Tesla would stop accepting it for car purchases — even though the company continues to hold the digital coin on its books. In a Twitter post, Musk cited the environmental impact of Bitcoin mining, which has been cited by critics for being energy intensive and a detriment to the climate. The move took crypto currency enthusiasts by surprise, and drove down the price of Bitcoin after hours, with the volatile digital currency shedding over 13%. Other major crypto units followed suit…”
Inflation Watch:
May 12 – CNBC (Jeff Cox):
“Inflation in April accelerated at its fastest pace in more than 12 years as the U.S. economic recovery kicked into gear and energy prices jumped higher… The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year earlier. A Dow Jones survey had expected a 3.6% increase. The month-to-month gain was 0.8%, against the expected 0.2%. Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis.”
May 13 – Associated Press (Martin Crutsinger):
“Wholesale prices, driven by escalating costs for services and food, jumped 0.6% in April, surprising economists and providing more evidence that inflation pressures are starting to mount… The increase in the producer price index, which measures inflationary pressures before they reach consumers, was double the 0.3% gain that economists had been expecting… Over the past 12 months, wholesale prices are up 6.2%, the largest advance since the data was first calculated in 2010. Food prices shot up 2.1% in April…”
May 11 – Financial Times (Harry Dempsey and Neil Hume):
“Rates for ships carrying commodities that fuel global industries and keep the world fed have soared… Roaring Chinese demand for iron ore, a key steel ingredient, a return to strength for manufacturing in the rest of the world and under-investment in new vessels in recent years have powered a sharp increase in prices for dry bulk carriers, which transport unpackaged raw materials in large holds. The Baltic Dry index, which tracks rates for the three largest classes of ships, has risen to its highest level in more than a decade, soaring over 700% since April 2020. Capesize vessels… are fetching $41,500 a day for immediate hire, close to double of a month ago and almost eight times last year’s average, according to Clarksons Platou Securities.”
May 10 – Wall Street Journal (Ryan Dezember and Kirk Maltais):
“America’s biggest cash crop has rarely been more expensive. Corn prices have risen roughly 50% in 2021 and a bushel costs more than twice what it did a year ago. Corn has been one of the sharpest risers in the broad rally in raw materials that is prompting companies to boost prices for goods and fueling concern among investors that inflation could hobble the post-pandemic economic recovery.”
May 12 – Bloomberg (David Welch):
“An unprecedented surge in prices for used cars was the biggest contributor to the surprise jump in U.S. inflation last month. The cost of previously owned sedans, pickups and sport-utility vehicles soared 10% in April…, the fastest climb ever in data that go back to 1953…. With fewer new cars being made amid a shortage in critical semiconductors, both retail consumers and rental car companies have gone to the used-vehicle market to get the wheels they need. Wholesale prices have soared as a result, up 54% in April from a year earlier at Manheim, the nation’s largest vehicle auction house.”
May 10 – Wall Street Journal (Nora Naughton):
“A months long rise in used-car sales has left bargain-hunters with increasingly limited options on lots across the U.S. The average price paid for a preowned vehicle hit a record of $25,463 in April, about $2,800 higher than in the same month last year, according to… J.D. Power… The climb, which began last year, has surprised some dealers who say they don’t see the trend ending soon… The average price paid for a new model climbed to a near record of $37,572 per vehicle in April, up about 7% from a year earlier, according to J.D. Power.”
May 12 – Bloomberg:
May 12 – Bloomberg:
“The meteoric rise in palm oil prices is poised to inflate costs for everyone from restaurants to confectionery and cosmetic manufacturers, and could potentially change consumption patterns. The world’s most consumed edible oil has surged more than 120% in the past year and burst through 4,500 ringgit ($1,091) a ton to a record... The tropical oil, which is found in products as diverse as chocolate, pastries, soaps, lipstick and biofuel…”
U.S. Bubble Watch:
May 13 – Associated Press (Christopher Rugaber):
“The number of Americans seeking unemployment benefits fell last week to 473,000, a new pandemic low and the latest evidence that fewer employers are cutting jobs as consumers ramp up spending and more businesses reopen.”
May 11 – Reuters (Lucia Mutikani):
U.S. Bubble Watch:
May 13 – Associated Press (Christopher Rugaber):
“The number of Americans seeking unemployment benefits fell last week to 473,000, a new pandemic low and the latest evidence that fewer employers are cutting jobs as consumers ramp up spending and more businesses reopen.”
May 11 – Reuters (Lucia Mutikani):
“U.S. job openings surged to a record high in March, further evidence that a shortage of workers was hampering job growth, even as nearly 10 million Americans are looking for employment. The Labor Department's monthly Job Openings and Labor Turnover Survey, or JOLTS report… also showed layoffs dropping to a record low in March… Job openings, a measure of labor demand, jumped 597,000 to 8.1 million on the last day of March, the highest since the series began in December 2000. The surge was led by the accommodation and food services sector, with 185,000 vacancies opening up.”
May 11 – Wall Street Journal (Nicole Friedman):
“U.S. home prices rose nearly everywhere in the first quarter, a rapid price appreciation that shows little sign of fading soon with limited housing inventory and robust demand. The median sales price for existing single-family homes was higher in the quarter compared with a year earlier for 182 of the 183 metro areas tracked by the National Association of Realtors... In 89% of those metro areas, median prices rose by more than 10% from a year earlier… The housing boom has been unusually widespread, with low mortgage rates fueling strong buyer interest across the U.S., especially for high-end properties… Mortgage-finance company Fannie Mae is forecasting median existing-home prices to rise 11.5% in 2021, then slow to a 4% increase in 2022.”
May 11 – Bloomberg (Prashant Gopal):
“The median price for a single-family home in the U.S. rose the most on record in the first quarter, as buyers fought over a dearth of inventory, according to the National Association of Realtors. Prices jumped 16.2% from a year earlier to a record high of $319,200. The growth eclipsed the 14.8% rate in the fourth quarter, which was the highest in data going back to 1989… ‘The record-high home prices are happening across nearly all markets, big and small, even in those metros that have long been considered off-the-radar in prior years for many home-seekers,’ said Lawrence Yun, the group’s chief economist.”
Fixed Income Watch:
May 11 – Bloomberg (Lisa Lee):
“Junk-bond investors are so ravenous for the debt that they’re caving when issuers zap protections that historically distinguished the securities from leveraged loans, blurring the line between these once-distinct markets. Bonds feature fixed interest payments while loans usually float, but that’s among the last differences. Borrowers in the past have often shunned bonds in favor of loans because they’re easier to refinance. But investors are so eager to buy bonds that they’re letting issuers omit a safeguard known as a make-whole, which requires borrowers to compensate investors for future missed interest payments if they decide to retire the debt early.”
China Watch:
May 12 – Wall Street Journal (Josh Zumbrun):
May 11 – Wall Street Journal (Nicole Friedman):
“U.S. home prices rose nearly everywhere in the first quarter, a rapid price appreciation that shows little sign of fading soon with limited housing inventory and robust demand. The median sales price for existing single-family homes was higher in the quarter compared with a year earlier for 182 of the 183 metro areas tracked by the National Association of Realtors... In 89% of those metro areas, median prices rose by more than 10% from a year earlier… The housing boom has been unusually widespread, with low mortgage rates fueling strong buyer interest across the U.S., especially for high-end properties… Mortgage-finance company Fannie Mae is forecasting median existing-home prices to rise 11.5% in 2021, then slow to a 4% increase in 2022.”
May 11 – Bloomberg (Prashant Gopal):
“The median price for a single-family home in the U.S. rose the most on record in the first quarter, as buyers fought over a dearth of inventory, according to the National Association of Realtors. Prices jumped 16.2% from a year earlier to a record high of $319,200. The growth eclipsed the 14.8% rate in the fourth quarter, which was the highest in data going back to 1989… ‘The record-high home prices are happening across nearly all markets, big and small, even in those metros that have long been considered off-the-radar in prior years for many home-seekers,’ said Lawrence Yun, the group’s chief economist.”
Fixed Income Watch:
May 11 – Bloomberg (Lisa Lee):
“Junk-bond investors are so ravenous for the debt that they’re caving when issuers zap protections that historically distinguished the securities from leveraged loans, blurring the line between these once-distinct markets. Bonds feature fixed interest payments while loans usually float, but that’s among the last differences. Borrowers in the past have often shunned bonds in favor of loans because they’re easier to refinance. But investors are so eager to buy bonds that they’re letting issuers omit a safeguard known as a make-whole, which requires borrowers to compensate investors for future missed interest payments if they decide to retire the debt early.”
China Watch:
May 12 – Wall Street Journal (Josh Zumbrun):
“U.S. tariffs have led to a sharp decline in Chinese imports and significant changes in the types of goods Americans buy from China, new data show, with purchases of telecommunications gear, furniture, apparel and other goods shifting to other countries. Nearly two-thirds of all imports from China—or roughly $370 billion in annual goods—were covered by tariffs imposed by the U.S. in 2018 and 2019. Tariffs now cover just half of Chinese exports to the U.S…, as U.S. companies buy more from other countries, according to a Wall Street Journal analysis…”
Global Bubble Watch:
May 12 – Financial Times (Joshua Oliver):
“Trying to decide whether Canada’s real estate market has peaked has long been a national pastime. And, last year, even the country’s housing agency gave a steer: it warned that a Covid-led correction was imminent and prices could fall by as much as 18%. But the market had other ideas. Nationally, average selling prices hit a record high in March 2021, up 31% year-on-year, to more than C$715,000 ($575,000)… This double-digit price growth has put pressure on lawmakers to take action, as home ownership shoots out of reach of many Canadians.”
Emerging Markets Watch:
May 12 – Bloomberg (Sydney Maki):
“Sovereign bond defaults have piled up at a dizzying clip in Latin America since the pandemic began. First, it was Ecuador’s turn, then came Argentina, followed by Suriname, then Belize, then Suriname again and Suriname one more time. In all, more than $80 billion of foreign bonds have been restructured. And there’s more pain to come. Traders are almost certain three of those countries will default yet again, bond prices suggest, and the fourth, Ecuador, is far from financial stability. Then there’s the case of Venezuela, which has been mired in default for so many years that creditors have resigned themselves to recouping just a tiny fraction of their money, if anything. All of which makes the current moment feel a bit like a flashback to the Lost Decade of the 1980s, when Latin America’s heavily indebted countries sank into default one after another…”
Geopolitical Watch:
May 13 – Reuters (Nidal Al-mughrabi and Jeffrey Heller):
“Palestinian militants fired more rockets into Israel's commercial heartland on Thursday as Israel kept up a punishing bombing campaign in the Gaza Strip and massed tanks and troops on the enclave's border. Four days of cross-border fighting showed no sign of abating, and Israeli Prime Minister Benjamin Netanyahu said the campaign ‘will take more time’. Israeli officials said Gaza's ruling Hamas group must be dealt a strong deterring blow before any ceasefire. Violence has also spread to mixed communities of Jews and Arabs in Israel, a new front in the long conflict. Synagogues were attacked and fighting broke out on the streets of some towns, prompting Israel's president to warn of civil war.”
May 12 – Associated Press (Fares Akram and Josef Federman):
“Israel on Wednesday pressed ahead with a fierce military offensive in the Gaza Strip, killing as many as 10 senior Hamas military figures and toppling a pair of high-rise towers housing Hamas facilities in a series of airstrikes. The Islamic militant group showed no signs of backing down and fired hundreds of rockets at Israeli cities. In just three days, this latest round of fighting between the bitter enemies has already begun to resemble — and even exceed — a devastating 50-day war in 2014. Like that previous war, neither side appears to have an exit strategy. But there are key differences. The fighting has triggered the worst Jewish-Arab violence inside Israel in decades. And looming in the background is an international war crimes investigation.”
May 10 – Bloomberg (Stephen Stapczynski):
“At least two of China’s smaller liquefied natural gas importers have been told to avoid buying new cargoes from Australia, a further example of the impact on trade from souring ties between the two countries. The firms have received verbal orders from government officials to avoid purchasing additional LNG from Australia for delivery over the next year, according to people with knowledge…”
Global Bubble Watch:
May 12 – Financial Times (Joshua Oliver):
“Trying to decide whether Canada’s real estate market has peaked has long been a national pastime. And, last year, even the country’s housing agency gave a steer: it warned that a Covid-led correction was imminent and prices could fall by as much as 18%. But the market had other ideas. Nationally, average selling prices hit a record high in March 2021, up 31% year-on-year, to more than C$715,000 ($575,000)… This double-digit price growth has put pressure on lawmakers to take action, as home ownership shoots out of reach of many Canadians.”
Emerging Markets Watch:
May 12 – Bloomberg (Sydney Maki):
“Sovereign bond defaults have piled up at a dizzying clip in Latin America since the pandemic began. First, it was Ecuador’s turn, then came Argentina, followed by Suriname, then Belize, then Suriname again and Suriname one more time. In all, more than $80 billion of foreign bonds have been restructured. And there’s more pain to come. Traders are almost certain three of those countries will default yet again, bond prices suggest, and the fourth, Ecuador, is far from financial stability. Then there’s the case of Venezuela, which has been mired in default for so many years that creditors have resigned themselves to recouping just a tiny fraction of their money, if anything. All of which makes the current moment feel a bit like a flashback to the Lost Decade of the 1980s, when Latin America’s heavily indebted countries sank into default one after another…”
Geopolitical Watch:
May 13 – Reuters (Nidal Al-mughrabi and Jeffrey Heller):
“Palestinian militants fired more rockets into Israel's commercial heartland on Thursday as Israel kept up a punishing bombing campaign in the Gaza Strip and massed tanks and troops on the enclave's border. Four days of cross-border fighting showed no sign of abating, and Israeli Prime Minister Benjamin Netanyahu said the campaign ‘will take more time’. Israeli officials said Gaza's ruling Hamas group must be dealt a strong deterring blow before any ceasefire. Violence has also spread to mixed communities of Jews and Arabs in Israel, a new front in the long conflict. Synagogues were attacked and fighting broke out on the streets of some towns, prompting Israel's president to warn of civil war.”
May 12 – Associated Press (Fares Akram and Josef Federman):
“Israel on Wednesday pressed ahead with a fierce military offensive in the Gaza Strip, killing as many as 10 senior Hamas military figures and toppling a pair of high-rise towers housing Hamas facilities in a series of airstrikes. The Islamic militant group showed no signs of backing down and fired hundreds of rockets at Israeli cities. In just three days, this latest round of fighting between the bitter enemies has already begun to resemble — and even exceed — a devastating 50-day war in 2014. Like that previous war, neither side appears to have an exit strategy. But there are key differences. The fighting has triggered the worst Jewish-Arab violence inside Israel in decades. And looming in the background is an international war crimes investigation.”
May 10 – Bloomberg (Stephen Stapczynski):
“At least two of China’s smaller liquefied natural gas importers have been told to avoid buying new cargoes from Australia, a further example of the impact on trade from souring ties between the two countries. The firms have received verbal orders from government officials to avoid purchasing additional LNG from Australia for delivery over the next year, according to people with knowledge…”
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