Weekly Commentary:
Historic Monetary Inflation:
by Doug Noland
For the Week Ending June 11, 2021:
GLOBAL STOCK INDEXES:
S&P500 up 0.4%
(up 13.1% year-to-date),
Dow Industrials down 0.8%
(up 12.7%)
Utilities up 0.9%
(up 4.0%)
Transports down 0.9%
(up 22.6%)
S&P 400 Midcaps up 0.9%
(up 19.3%)
Small cap Russell 2000 up 2.2%
(up 18.3%)
Nasdaq100 up 1.7%
(up 8.6%)
Semiconductors little changed
(up 14.8%)
Biotechs up 7.7%
(up 4.3%)
With gold bullion down $14,
the HUI gold stock index fell 1.9%
(up 2.6%)
U.K.'s FTSE up 0.9%
(up 10.4% y-t-d).
Japan's Nikkei little changed
(up 5.5% y-t-d)
France's CAC40 up 1.3%
(up 18.9%)
German DAX about unchanged
(up 14.4%)
Spain's IBEX 35 up 1.3%
(up 14.0%)
Italy's FTSE MIB up 0.6%
(up 15.7%)
Brazil's Bovespa down 0.5%
(up 8.8%)
Mexico's Bolsa up 1.6%
(up 16.4%)
South Korea's Kospi up 0.3%
(up 13.1%)
India's Sensex up 0.7%
(up 9.9%)
China's Shanghai little changed
(up 3.4%)
Turkey's Istanbul National 100 up 1.9%
(down 1.1%)
Russia's MICEX up 0.9%
(up 16.8%).
Two-year Y-notes
unchanged at 0.15%
(up 3bps year-to-date).
Five-year T-notes
down four bps to 0.74%
(up 38bps).
Ten-year T-bond yields
down 10 bps to 1.45%
(up 54bps year over year).
Thirty-year T-bond yields
down nine bps to 2.14%
(up 49bps ear over year)
(up 46bps year over year)
Federal Reserve Credit last week jumped $25.5bn to a record $7.905 TN. Over the past 91 weeks, Fed Credit expanded $4.179 TN, or 112%.
Fifteen-year rates
down four bps to 2.23%
(down 39bps)
Five-year hybrid ARM rates
down nine bps to 2.55%
(down 55bps)
(down 37bps).
Bloomberg Commodities Index
added 0.3%
(up 21.7% y-t-d)
Spot Gold down 0.7% to $1,878
(down 0.7%)
Spot Silver up 0.4% to $27.92
(up 5.7%)
WTI crude oil up $1.29 to $70.91
(up 46%)
Gasoline down 1.1%
(up 55%)
Natural Gas up 6.4%
(up 30%)
Copper up 0.2%
(up 29%)
Wheat down 1.0%
(up 7%)
Corn up 3.1%
(up 26%)
Bitcoin up $111 (+0.3%)
to $37,281
(up 28%)
FEDERAL RESERVE BANK
Q1 2021 Z1 credit report:
Total Non-Financial Debt (NFD) expanded $879 billion during Q1 to a record $62.032 TN.
NFD expanded an unprecedented $7.671 TN, or 14.1%, over the past five quarters.
NFD as a percent of GDP slipped to 281% - yet compares to 227% at year-end 2007 and 184% to end the nineties.
Over the past five quarters, outstanding Treasuries surged an incredible $4.924 TN, or almost 26%.
Treasury Securities-to-GDP ended
the seventies at 57.8%,
the eighties at 63.0%, and
the nineties at 58.7%.
This ratio had jumped to 76.1%
to close out 2009
and 85.4% to conclude 2010.
It’s now gone parabolic.
Q1 Federal Receipts were up 3% y-o-y to an annualized $3.866 TN.
Federal Expenditures inflated 67% y-o-y to an annualized $8.171 TN.
GSE (government-sponsored enterprises) assets inflated an unprecedented $749 billion, or 10.5%.
Securities Broker/Dealer Loans expanded $90 billion, or 67% annualized, during Q1 to a record $629 billion. Loans surged $255 billion, or 68%, over the past three quarters.
Federal Reserve Assets Over seven quarters, have swelled an incredible $3.759 TN, or 94%.
Total Equities-to-GDP ended March at a record 317%, up from previous cycle peaks 188% (Q3 2007) and 210% (Q1 2000).
Total stock and bond Securities-to-GDP ended March at a record 565%, compares to previous cycle peaks 387% (Q3 2007) and 368% (Q1 2000).
Household Net Worth ended March at a record 621% of GDP. This was up from previous cycle peaks 491% (Q1 2007) and 445% (Q1 2000).
The value of Household Real Estate was up $3.335 TN, or 9.7%, y-o-y. Real Estate-to-GDP ended the quarter at 170%, only somewhat lagging the cycle peak 190% from Q3 2006.
The ratio of Household Financial Assets-to-GDP ended Q1 at a record 497% of GDP. This was up from cycle trough 325% during Q1 2009 - and compares to cycle peaks 374% (Q3 2007) and 354% (Q1 2000).
It's right there in the data: one of history’s most spectacular monetary inflations and asset Bubbles.
May Consumer Prices were up 5.0% y-o-y, the strongest consumer inflation since 2008.
“The U.S. is reporting .. about 960,000 vaccinations are being reported administered each day nationwide… More than half of Americans have received at least one dose of a vaccine and 42% are fully vaccinated.”
June 7 – Bloomberg (Bhuma Shrivastava):
“The coronavirus variant driving India’s devastating Covid-19 second wave is the most infectious to emerge so far. Doctors now want to know if it’s also more severe. Hearing impairment, severe gastric upsets and blood clots leading to gangrene, symptoms not typically seen in COVID patients, have been linked by doctors in India to the so-called delta variant. In England and Scotland, early evidence suggests the strain… carries a higher risk of hospitalization. Delta, also known as B.1.617.2, has spread to more than 60 countries over the past six months…”
ALL OTHER NEWS
Market Mania Watch:
June 8
– Wall Street Journal
(Gunjan Banerji):
“The meteoric rally in meme stocks such as AMC Entertainment Holdings Inc. and GameStop Corp. has unleashed a burst of options trading, upending traditional dynamics in the market for stock bets. The rush into the stocks coincided with frenzied trading for options—contracts that allow investors to bet on price moves in stocks or protect their portfolios. The once-obscure corner of the market has boomed this year like never before, with many new investors trying their hands during the pandemic shutdowns… Traders last week spent $11.6 billion on options contracts tied to AMC, more than on the SPDR S&P 500 ETF Trust, Invesco QQQ Trust and Tesla Inc. combined… Options on those stocks are typically among the market’s most popular.”
June 5
– Wall Street Journal
(James T. Areddy):
“Bitcoin enthusiasts prize the cryptocurrency as beyond the reach of any government. Yet up to three-quarters of the world’s supply has been produced in just one country, China, where a government push to curtail output is now causing global bitcoin turbulence. The amount of electricity needed to power vast numbers of computers used to create new bitcoin are at odds with China’s recent climate goals. The government, which manages its national currency with a tight fist, also frowns on cryptocurrency generally… Few governments have embraced bitcoin, but fallout from Beijing’s threats demonstrated how its grip on production left the cryptocurrency vulnerable.”
Market Instability Watch:
June 8
– Bloomberg
(Tara Lachapelle):
“Never mind the return to normal, Wall Street’s private equity shops are staging a return to abnormal. Leveraged buyouts are happening at a speed and extravagance that had been unique to 2006 and 2007, the run-up to the financial crisis. Private equity firms have already made $470 billion of acquisitions this year… At this rate, the value of private equity purchases in 2021 will surpass the total for all of 2020 in just a few weeks… This year might even break the 2007 record.”
Biden Administration Watch:
June 7 –
Wall Street Journal
(Josh Mitchell):
“The Biden administration has raised an estimate of losses on the federal government’s student loan portfolio by $53 billion, reflecting lower repayment rates and pandemic-relief efforts. The new estimate… is based on updated data on how much money the nation’s 43 million student loan borrowers have sent to the government in recent years to repay their loans. A year ago, the federal budget projected that taxpayers would ultimately lose $15 billion on all outstanding student debt, which currently comes to $1.6 trillion. The administration’s proposed $6 trillion budget now projects long-term losses will reach $68 billion.”
U.S. Bubble Watch:
June 10
– CNBC
(Jeff Cox):
“The U.S. budget deficit passed the $2 trillion mark in May amid a continuing flow of fiscal largesse to a rapidly expanding economy… Government red ink for the month was just below $132 billion, the lowest monthly shortfall of the year but still enough to put the total deficit at $2.063 trillion… With four months left to go for the fiscal year, the government is on pace to come close to 2020′s record $3.13 trillion deficit.”
June 8
– Wall Street Journal
(Justin Lahart):
“Employers aren’t only struggling to hire new workers, they look as if they are having a hard time hanging onto the workers they already have. The Labor Department… reported that as of the last day of April there were a seasonally adjusted 9.3 million unfilled job openings at U.S. employers, up from 8.3 million a month earlier. That put the job opening rate—job openings as a share of filled and unfilled positions—at a record 6%. The report underscores the difficulties companies have had staffing up as the Covid-19 crisis has eased. But it also showed that employers made 6.1 million hires, which would be a record if not for the four-month period following the shutting down of the economy in April last year…”
June 8
– Reuters:
“U.S. job openings surged by nearly one million to a new record high in April, while more people voluntarily left their employment, strengthening the view that a recent moderation in job growth was due to supply constraints. Job openings, a measure of labor demand, increased by 998,000 to 9.3 million on the last day of April, the highest level since the series began in December 2000, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report…”
June 8 –
Bloomberg
(Joe Weisenthal):
“This morning we got news that there’s a record-high level of job openings in the U.S. right now… This morning’s National Federation of Independent Business survey showed the same thing, with a record high 48% of companies saying they have unfilled openings. But it’s not just that hiring is strained. Workers are also quitting at increasing rates… And it’s especially acute in the food and hotel industries. Per this morning’s JOLTS report, 5.6% of workers in the accommodation and food-services industry quit their job in April, up from 5.4% the previous month. This is record territory.”
June 10
– CNBC
(Diana Olick):
“Homeowners are getting richer and richer as prices keep soaring – and the numbers are staggering. Those with mortgages — about 62% of all properties — saw their equity jump by 20% in the first quarter from a year earlier, according to CoreLogic. This represents a collective cash gain of close to $2 trillion. Per borrower, the average gain was $33,400. The massive gain is thanks to soaring home prices, which CoreLogic said were up over 11% in March… from a year earlier. That’s the sharpest gain since 2006. Prices rose an even stronger 13% in April.”
June 10
– CNBC
(Jeff Cox):
“Consumer prices for May accelerated at their fastest pace in nearly 13 years as inflation pressures continued to build in the U.S. economy, the Labor Department reported… The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year earlier. Economists… had been expecting a gain of 4.7%. The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.”
June 7
– Reuters
(Evan Sully):
“A record-low percentage of U.S. consumers believe now is a good time to buy a home, with worries about surging prices and a small supply of houses on the market outweighing improved sentiment about their jobs and income, a survey from… Fannie Mae showed… The percentage of consumers who said it is a good time to buy a home declined in May to 35% from 47%, Fannie Mae said in its monthly survey… This reading, the lowest since Fannie Mae began the survey about a decade ago, marked the second straight monthly decline and represented a drop of 18 percentage points since March. In comparison, the percentage of consumers indicating that now is a bad time to purchase a home increased to 56% from 48% last month.”
June 7
– Yahoo Finance
(Alexandre Tanzi):
“For millions of Americans, there’s an unwelcome side of the return to business-as-usual after the pandemic: They’ll have to start repaying their student loans again. More than 40 million holders of federal loans are due to start making monthly instalments again on Oct. 1, when the freeze imposed as part of Covid-19 relief measures is due to run out. It covered payments worth about $7 billion a month… Their resumption will eat a chunk out of household budgets, in a potential drag on the consumer recovery. Americans now owe about $1.7 trillion of student debt, more than twice the size of their credit-card liabilities. Politicians recognize it’s not sustainable.”
China Watch:
June 6
– Reuters
(Liangping Gao and
Ryan Woo):
“China’s trade surplus with the United States stood at $31.78 billion in May…, up from a $28.11 billion surplus in April. For the first five months of 2021, China’s trade surplus with the United States stood at $132.46 billion, compared with a $100.68 billion surplus in January-April.”
Emerging Markets Watch:
June 7
– Reuters
(Andrey Ostroukh):
“Russia’s annual consumer inflation accelerated to 6.0% in May, overshooting expectations and adding arguments for tighter monetary policy days before the central bank’s rate-setting meeting… Inflation, the central bank’s main area of responsibility, accelerated to its highest since October 2016 when the central bank’s key interest rate was at 10%.”
Japan Watch:
June 9
– Reuters
(Leika Kihara):
“Japan's wholesale prices rose at their fastest annual pace in 13 years reflecting higher commodity costs…, a sign global inflationary pressures are pinching firms already struggling amid the coronavirus pandemic. With companies seen slow in passing on the higher costs on to households, the uptick in wholesale inflation is unlikely to prod the Bank of Japan into withdrawing its massive stimulus any time soon, analysts say… The corporate goods price index (CGPI), which measures the prices companies charge each other for their goods, rose 4.9% in May from a year earlier…”
Leveraged Speculation Watch:
June 8 – Bloomberg (Cristin Flanagan):
“Clover Health Inc… was swept up in meme-stock mania on Tuesday, posting a second day of wild gains as retail investors banded together to punish short-sellers betting against the company. Clover rallied 86% to close at $22.15 in New York trading after briefly doubling intraday… Trading volume in Clover was more than 29 times the three-month daily average on Tuesday, with a record 718 million shares changing hands.”
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