Credit Bubble Bulletin
Saturday, August 14, 2021
Weekly Commentary
by Doug Noland
My edited easy to read version follows:
Ye Editor
For the Week Ending August 13, 2021
GLOBAL STOCK INDEXES:
S&P500 increased 0.7% (up 19.0% y-t-d),
Dow Industrials gained 0.9% (up 16.0%)
Utilities rose 1.6% (up 9.0%)
Banks jumped 2.0% (up 32.7%)
Broker/Dealers added 0.7% (up 28.8%)
Transports advanced 2.9% (up 19.4%)
S&P 400 Midcaps increased 0.5% (up 18.4%)
Small cap Russell 2000 declined 1.1% (up 12.6%)
Nasdaq100 added 0.2% (up 17.4%)
Semiconductors dropped 2.3% (up 19.3%)
Biotechs fell 2.5% (up 1.2%).
While gold bullion rallied $17,
the HUI gold stock index fell 1.8%
(down 14.9%)
U.K.'s FTSE rose 1.3% (up 11.7% y-t-d).
Japan's Nikkei increased 0.6% (up 1.9% y-t-d)
France's CAC40 gained 1.2% (up 24.2%)
German DAX rose 1.4% (up 16.5%)
Spain's IBEX 35 added 1.4% (up 11.5%)
Italy's FTSE MIB jumped 2.5% (up 19.9%)
Brazil's Bovespa fell 1.3% (up 1.8%)
Mexico's Bolsa added 0.7% (up 16.8%)
South Korea's Kospi sank 3.0% (up 10.4%)
India's Sensex rose 2.1% (up 16.1%)
China's Shanghai rallied 1.7% (up 1.2%).
Russia's MICEX jumped 1.8% (up 17.8%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.045%.
Two-year government yields
were unchanged at 0.21% (up 9bps y-t-d).
Five-year T-note yields
added a basis point to 0.77% (up 41bps).
Ten-year Treasury yields
slipped two bps to 1.28% (up 36bps).
Long bond yields
declined two bps to 1.93% (up 28bps).
Benchmark Fannie Mae MBS yields
were unchanged at 1.78% (up 44bps).
Federal Reserve Credit last week
expanded $16.3bn to a record $8.205 TN.
Over the past 100 weeks,
Fed Credit expanded $4.478 TN, or 120%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
surged 10 bps to 2.87%
(down 9bps y-o-y).
Fifteen-year rates rose five bps to 2.15%
(down 31bps).
Five-year hybrid ARM rates
gained four bps to 2.44%
(down 46bps)
Jumbo mortgage 30-year fixed rates
up nine bps to 3.06%
(down 11bps).
COMMODITIES:
Bloomberg Commodities Index
increased 0.5%
(up 21.9% y-t-d).
Spot Gold rallied 0.9% to $1,780
(down 6.3%).
Silver fell 2.4% to $23.75
(down 10.0%).
WTI crude oil increased 16 cents to $68.44
(up 41%).
Gasoline added 0.3%
(up 61%)
Natural Gas sank 6.7%
(up 52%).
Copper recovered 0.8%
(up 24.5%).
Wheat surged 7.7%
(up 25%).
Corn gained 3.0%
(up 18%).
Bitcoin surged $3,698 this week
to $47,603
(up 64%)
NEWS FROM LAST WEEK:
Coronavirus Watch:
August 13 – USA Today (Elizabeth Weise):
“Since July 1, there's been a 700% increase in the week-over-week average of COVID-19 infections in the United States… The information was presented Friday at CDC’s Advisory Committee on Immunization Practices meeting… ‘There's no doubt we're seeing a surge in cases now,’ said Dr. William Moss, a professor of epidemiology at the Johns Hopkins Bloomberg School of Public Health. The United States was at a low point in new cases in late June, with an average of about 10,000 a day. Today the average is closer to 125,000 a day, he said.”
August 13 – CNN (Virginia Langmaid):
“Florida reported a new record number of Covid-19 cases Friday -- more over the past week than any other seven-day period during the pandemic. Data published Friday by the state health department showed 151,415 new Covid-19 cases over the past week, for an average of 21,630 cases each day. The previous record high was just a week ago -- on August 6 -- with 134,711 total cases reported over seven days, for an average of 19,244 cases each day.”
Market Mania Watch:
August 9 – Financial Times (Steve Johnson):
“The mutual fund industry is poised to lose its crown as the dominant passive investment vehicle, with the non-active exchange traded fund sector on track to surpass it for the first time. Global assets under management of passive, index-tracking ETFs hit a record $8.66tn at the end of June…, just $132bn shy of those in passive mutual funds. The gap has narrowed from $623bn at the end of 2019 and $305bn in December 2020… Net flows into ETFs hit a record $661bn in the first six months of the year, according to… ETFGI, smashing the previous first-half record of $294bn set in 2020.”
August 12 – Bloomberg (Eric Lam):
“The cryptocurrency sector is back in sight of a $2 trillion market value, a level last seen in May, but further gains face an obstacle from potential new U.S. tax reporting requirements. The value of more than 8,800 tokens tracked by CoinGecko has risen 55% to $1.95 trillion from a July low, helped by rallies in Bitcoin and Ether.”
Market Instability Watch:
August 8 – Wall Street Journal (Julia-Ambra Verlaine):
“An unusual surge of short-term lending by cash-rich companies is raising concerns on Wall Street that a period of unrest may lie ahead. Investors such as money-market funds and banks are parking over $1 trillion in spare cash overnight at the Federal Reserve. That is the most on record since the Fed opened its facility for these reverse repurchase agreements in 2013. The scale of the moves has some analysts warning that the markets for short-term funding are vulnerable to disruption.”
August 11 – Bloomberg (Lu Wang):
“A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases. The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account. The shortfall comes from an expanding economy that’s quickly depleting the nation’s available money. The deficit could become a problem for markets at a time when excess liquidity is seen as underpinning rallies in everything from Bitcoin to meme stocks.”
Inflation Watch:
August 12 – Associated Press (Martin Crutsinger):
“Inflation at the wholesale level jumped a higher-than-expected 1% in July, matching the rise from the previous month, and dimming hopes that the upward trajectory of prices would begin to slow. Prices at the wholesale level over the past 12 months are up a record 7.8%, the largest increase in that span of time in a series going back to 2010… Consumer prices in July rose 0.5%, compared with a 0.9% jump in June. Over the past year retail prices are up a notable 5.4%, the same 12-month gain posted in June with both months recording the largest annual gain since 2008. July’s 1% wholesale price uptick exceeded the 0.6% gain many economists…”
August 11 – Financial Times (Colby Smith):
“The rapid pace of US consumer price increases steadied at a 13-year high in July while month-on-month gains moderated slightly, as inflationary pressures persisted because of supply-chain constraints and soaring demand. The consumer price index (CPI)… rose 5.4% in July from a year ago, surpassing the 5.3% expected by economists. That is in line with the 5.4% increase reported in June, which was the largest such surge since 2008. On a month-to-month basis, prices rose 0.5%, compared with a 0.9% gain in June.”
August 9 – Bloomberg (Alexandre Tanzi):
“U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in July, according to a Federal Reserve Bank of New York survey. The median survey respondent anticipated an inflation rate of 3.7% in three years’ time, the highest since August 2013 and up from 3.6% in June… Expectations for inflation over the next year rose to a record 4.8%... Consumers polled by the New York Fed said they expected rents to increase 9.8% in the coming year, the highest reading since the survey began in 2013. Expected changes in medical care costs over the next 12 months ticked up to 9.5%, while the expected change in gas prices moderated to 8.1%.”
August 10 – Yahoo Finance (Brian Cheung):
“The need for workers is weighing on the trucking industry, where freight operators are struggling to raise wages fast enough to find drivers. Eric Fuller, the CEO of U.S. Xpress (USX), said that his company has doled out 30% to 35% in total pay increases over the last 12 months — but suggested more may be needed. ‘The driver situation is about as bad as I’ve ever seen in my career,’ Fuller told Yahoo Finance…”
August 12 – New York Times (Coral Murphy Marcos):
“Coffee roasters have a problem. The cost of the beans that they import has soared this year, leaving roasters anguishing over whether their customers, from grocery stores to cafes to people looking for their daily latte, will tolerate higher prices. Extreme weather has damaged crops in Brazil, the world’s largest coffee exporter. On top of pandemic-related shipping bottlenecks and political protests that stalled exports from Colombia, that has pushed the cost of beans up nearly 44% in 2021.”
Biden Administration Watch:
August 10 – Reuters (Richard Cowan and Susan Cornwell):
“The Democratic-controlled U.S. Senate… passed a massive infrastructure bill and immediately kicked off debate on a $3.5 trillion spending blueprint for President Joe Biden's key priorities on climate change, universal preschool and affordable housing. The bipartisan $1 trillion infrastructure bill, which the 100-member chamber passed in a 69-30 vote, could provide the nation's biggest investment in decades in roads, bridges, airports and waterways.”
U.S. Bubble Watch:
August 11 – Reuters (David Lawder):
“The U.S. government… posted a July budget deficit of $302 billion, a record for that month, as COVID-19 relief spending stayed elevated while receipts returned to a more normal pace after a delayed July tax deadline last year. The Treasury Department said the July deficit compared to a year-earlier $63 billion budget gap. Receipts for the month totaled $262 billion, down 54% percent from July 2020, while outlays were $564 billion, down 10% from the year-earlier period.”
August 11 – Associated Press (Martin Crutsinger):
“The U.S. budget deficit hit $2.54 trillion for the first 10 months of this budget year, fed by spending to support the country after the pandemic-induced recession. The figures keep the deficit on track to be second largest annual shortfall in U.S. history, behind only the most recent fiscal year… The Congressional Budget Office is forecasting that this year’s deficit will narrow slightly to $3 trillion. The CBO projects further improvement for the next budget year, which starts Oct. 1, expecting the deficit to fall to $1.2 trillion. However, that estimate does not take into account the impact of two huge spending bills now advancing in Congress… Nancy Vanden Houten, an economist with Oxford Economics, said she is projecting a rise in the deficit this year to $3.17 trillion, up slightly from last year’s record of $3.13 trillion deficit. Before last year, the largest deficit was a $1.4 trillion imbalance in 2009…”
August 9 – Reuters (Lindsay Dunsmuir):
“U.S. job openings jumped to a fresh record high in June and hiring also increased, an indication that the supply constraints that have held back the labor market remain elevated even as the pace of the economic recovery gathers momentum. Job openings, a measure of labor demand, shot up by 590,000 to 10.1 million on the last day of June, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report…”
Fixed-Income Bubble Watch:
August 10 – Bloomberg (David Wethe):
“Shale drillers -- some of them just emerging from bankruptcy -- racked up a staggering $42 billion in new debt in the first half of the year. It’s not what you think… They’re holding the line on production, boosting investor returns and are now attracting the lowest bond yields they’ve ever seen. And instead of using their newly found cheap credit to boom once again, they’re using it to retire costlier debt.”
China Watch:
August 12 – Bloomberg:
“China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling. The document… said authorities would ‘actively’ work on legislation in areas including national security, technology and monopolies. Law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence, the document said. ‘The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,’ it said. ‘It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.’”
August 11 – Reuters (Yilei Sun and Brenda Goh):
“China's vehicle sales slid in July for a third consecutive month, hit hard by flooding in some areas of the country, COVID-19 outbreaks in other areas and the global shortage of semiconductors. The world's biggest auto market saw sales drop 11.9% from the same month a year earlier to 1.86 million vehicles…”
Global Bubble Watch:
August 12 – Reuters (Patturaja Murugaboopathy and Gaurav Dogra): “Global merger and acquisition (M&A) activity has breached new highs, building on the record-breaking dealmaking streak from the beginning of the year that has been aided by low interest rates and soaring stock prices. According to Refinitiv data, the total value of pending and completed deals announced in 2021 has already touched $3.6 trillion year-to-date, surpassing the full-year tally of $3.59 trillion in 2020. So far this year, 35,128 deals have been announced, a 24% jump over last year.”
August 9 – Bloomberg (Michael Heath):
“Australian business sentiment tumbled in July as Sydney’s outbreak of the delta strain of coronavirus forced even tighter stay-at-home orders and leaks of the virus prompted snap lockdowns in other major cities. Business confidence slumped to minus-8 points from plus-11 in June, National Australia Bank Ltd. said in a statement Tuesday. The conditions index -- measuring hiring, sales and profits -- dropped to 11 points from a revised 25.”
Japan Watch:
August 11 – Reuters (Leika Kihara):
“Japanese wholesale prices rose in July at their fastest annual pace in 13 years… The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 5.6% in July from a year earlier…, increasing for the fifth straight month…”
Leveraged Speculation Watch:
August 11 – Bloomberg (Justina Lee):
“Between record dip-buying and the roller coaster in Robinhood Markets Inc., the meme-stock army is running wild across Wall Street again -- making life harder for institutional pros trading popular quant strategies. With amateurs now commanding roughly one-fifth of U.S. equity volume, a cohort of systematic players suspect the retail billions are undermining time-tested trades like short selling and low-volatility investing. The industry is in better shape compared to the dark days of the pandemic… Yet there’s a palpable fear that the Reddit generation is getting strong enough to disrupt the market patterns underpinning math-powered allocations. Quants at the likes of UBS Group AG and Campbell & Company are trying to ride the retail-spurred market waves by incorporating trading activity in their models. But the day-trader penchant for chasing seemingly random companies and moving fast as a herd mean it’s not so easy to divine systematic method in the madness. ‘As households start owning more and more equities, there are definitely different patterns in the marketplace,’ said Mani Mahjouri, chief investment officer at quant hedge fund Blueshift Asset Management. ‘The retail investors coming in for whatever reason have a higher utility for risk than typical institutional investors.’”
Geopolitical Watch:
August 11 – Reuters:
“Taliban fighters could isolate Afghanistan's capital in 30 days and possibly take it over within 90, a U.S. defence official cited U.S. intelligence as saying, as the resurgent militants made more advances across the country. The official… said the new assessment of how long Kabul could stand was a result of the Taliban's rapid gains as U.S.-led foreign forces leave. ‘But this is not a foregone conclusion,’ the official added, saying that the Afghan security forces could reverse the momentum by putting up more resistance.”
August 10 – Financial Times (Kathrin Hille and Henry Foy):
“Russian forces are participating in a regular Chinese military exercise for the first time this week, stoking concerns among western analysts that the two US adversaries are developing joint operational capabilities. Joint Western 2021, a drill in the western region of Ningxia involving more than 10,000 troops, focuses on early warning and reconnaissance, electronic warfare and joint attacks, according to statements from the Chinese and Russian defence ministries.”
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