Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, August 27, 2021
Weekly Commentary
By Doug Noland
My edited easy to read version follows
Ye Editor
After beginning 2008 at $850 billion, Federal Reserve assets have inflated almost 10-fold to $8.33 TN.
Inflationary pressures are the strongest in years, asset markets are conspicuously manic, and much of the labor market faces the tightest conditions in decades.
And after doubling its balance sheet in less than two years, the Fed is poised to add another Trillion over the coming year.
Why? Are the risks not obvious?
For the Week Ending August 26, 2021:
GLOBAL STOCK INDEXES:
S&P500 rallied 1.5% (up 20.1% y-t-d)
The Dow gained 1.0% (up 15.8%)
Utilities dropped 2.3% (up 8.7%)
Banks surged 5.2% (up 34.5%)
Broker/Dealers rose 4.5% (up 30.2%)
Transports jumped 2.4% (up 19.2%)
S&P 400 Midcaps gained 3.4% (up 20.0%)
Small cap Russell 2000 surged 5.1% (up 15.3%)
Nasdaq100 advanced 2.3% (up 19.7%)
Semiconductors jumped 5.5% (up 22.9%)
Biotechs rose 2.9% (up 3.5%).
With gold bullion recovering $36,
the HUI gold stock index rallied 6.0% (down 15.1%).
U.K.'s FTSE increased 0.8% (up 10.6% y-t-d).
Japan's Nikkei rallied 2.3% (up 0.7% y-t-d).
France's CAC40 gained 0.8% (up 20.4%)
German DAX added 0.3% (up 15.5%).
Spain's IBEX 35 little changed (up 10.5%).
Italy's FTSE MIB increased 0.3% (up 17.0%).
Brazil's Bovespa recovered 2.2% (up 1.4%)
Mexico's Bolsa rose 2.0% (up 19.0%).
South Korea's Kospi jumped 2.4% (up 9.1%).
India's Sensex gained 1.4% (up 17.5%).
China's Shanghai rallied 2.8% (up 1.4%).
Russia's MICEX recovered 1.4% (up 18.2%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.045%.
Two-year government yields
slipped a basis point to 0.22% (up 10bps y-t-d).
Five-year T-note yields
gained two bps to 0.80% (up 44bps).
Ten-year Treasury yields
rose five bps to 1.31% (up 39bps).
Long bond yields
jumped five bps to 1.92% (up 27bps).
Benchmark Fannie Mae MBS yields
dipped one basis point to 1.77% (up 43bps).
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
added a basis point to 2.87% (down 4bps y-o-y).
Fifteen-year rates slipped two bps to 2.14%
(down 32bps).
Five-year hybrid ARM rates
declined one basis point to 2.42%
(down 49bps).
Jumbo mortgage 30-year fixed rates
up five bps to 3.08% (down 3bps).
COMMODITIES:
Bloomberg Commodities Index surged 5.7%
(up 23.4% y-t-d).
Spot Gold rallied $36 to $1,818
(down 4.3%).
Silver jumped 4.3% to $24.03
(down 9.0%).
WTI crude oil recovered $6.60 to $68.74
(up 42%).
Gasoline surged 12.4%
(up 61%),
Natural Gas up 13.9%
(up 73%).
Copper rose 5.1%
(up 23%).
Wheat increased 0.6%
(up 14%).
Corn advanced 3.1%
(up 14%).
Bitcoin dipped $309 this week
to $48,939 (up 68%)
NEWS FROM LAST WEEK:
Coronavirus Watch:
August 25
– Wall Street Journal
(Talal Ansari):
“U.S. Covid-19 hospitalizations have surpassed 100,000 for the first time since January, nearly doubling since the start of August. While the figure remains below the country’s winter peak, hospitals in some parts of the U.S. are straining under the load, and officials in states including Georgia, Kentucky, Tennessee and Idaho have requested extra personnel and resources. The number of patients in hospital beds with confirmed and suspected Covid-19 cases hit 100,517 on Tuesday… That is up from 53,529 on Aug. 1.”
August 25
– CNBC
(Berkeley Lovelace Jr. and
Nate Rattner):
“Children are now being hospitalized in record numbers across the United States, and doctors are warning that it could get worse as schools begin to reopen and the swift-moving coronavirus delta variant drives cases higher. New Covid hospital admissions for kids have reached their highest levels since the U.S. started tracking pediatric cases about a year ago, peaking at an average of 303 new admissions per day… Kids still account for a very small number of hospitalizations, doctors note, making up roughly 1.8% of all Covid hospitalizations in the U.S.”
August 26
– Associated Press
(Sudhin Thanawala and
Jay Reeves):
“Kentucky and Texas joined a growing list of states that are seeing record numbers of hospitalized COVID-19 patients in a surge that is overwhelming doctors and nurses and afflicting more children. Intensive care units around the nation are packed with patients extremely ill with the coronavirus — even in places where hospitalizations have not yet reached earlier peaks… Texas and Kentucky on Wednesday reported more COVID-19 patients in their hospitals than at any other time since the pandemic began, 14,255 and 2,074, respectively… At least six other states — Arkansas, Florida, Louisiana, Hawaii, Mississippi and Oregon — have already broken their hospitalization records.”
August 25
– Reuters
(William Schomberg and
Ludwig Burger):
“Protection against COVID-19 offered by two doses of the Pfizer/BioNTech and the Oxford/AstraZeneca vaccines begins to fade within six months…, according to researchers in Britain. After five to six months, the effectiveness of the Pfizer jab at preventing COVID-19 infection in the month after the second dose fell from 88% to 74%, an analysis of data collected in Britain's ZOE COVID study showed. For the AstraZeneca vaccine, effectiveness fell from 77% to 67% after four to five months.”
August 25
– Reuters
(Julie Steenhuysen):
“Some 25% of SARS-CoV-2 infections among Los Angeles County residents occurred in fully vaccinated residents from May through July 25, a period that includes the impact of the highly transmissible Delta variant… The data, published in the U.S. Centers for Disease Control and Prevention's weekly report on death and disease, shows an increase in so-called ‘breakthrough’ infections among fully vaccinated individuals… According to the study, 3.2% of fully vaccinated individuals who were infected with the virus were hospitalized, just 0.5% were admitted to an intensive care unit and 0.2% were placed on a ventilator.”
Market Mania Watch:
August 25
– Wall Street Journal
(Gunjan Banerji):
“U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year… There have been 556 follow-on offerings, or stock sales by companies or existing shareholders, among U.S. companies this year, the most since 1996, according to Dealogic... They have raised a total of $133 billion. Behind the boom in share issuance? An ascendant stock market.”
August 23
– CNBC
(MacKenzie Sigalos):
“Clip art of a rock just sold for 400 ether, or about $1.3 million, late Monday afternoon. The transaction marks the latest sale of EtherRock, a brand of crypto collectible that’s been around since 2017 – making it one of the oldest non-fungible tokens (NFTs) on the block. EtherRock is, as the name implies, a JPEG of a cartoon rock, built and sold on the ethereum blockchain. There are only 100 out there, and that scarcity is part of what’s driving up its value. So, what are these rock pics good for? According to the EtherRock website, ‘These virtual rocks serve NO PURPOSE beyond being able to be brought and sold, and giving you a strong sense of pride in being an owner of 1 of the only 100 rocks in the game :)’”
August 25
– Reuters
(Elizabeth Howcroft):
“Non-fungible token (NFT) sales surged in August, according to the largest platform for the burgeoning digital asset class, as speculators bet growing interest across the art, sport and media worlds will keep prices rising. The niche crypto asset, which is a blockchain-based record of ownership of a digital item such as an image or a video, exploded in popularity in early 2021, leaving many confused as to why so much money was being spent on items which do not physically exist… Sales volumes recorded on the largest NFT trading platform, OpenSea, have hit $1.9 billion so far this month, more than ten times March's $148 million. In January 2021, the monthly volume recorded on the platform was just over $8 million.”
Inflation Watch:
August 23
– CNBC
(Amelia Lucas):
“You’ve seen headlines for pay hikes at McDonald’s, Chipotle and other restaurants. Now it’s showing up in the data. Wages for hourly limited-service restaurant workers climbed 10% in the second quarter compared with a year ago, according to a new report from industry tracker Black Box Intelligence and Snagajob. It’s the largest quarterly jump in years. For comparison, hourly limited-service employees saw their wages rise just 4.1% in the first quarter compared with a year prior.”
August 26
– Wall Street Journal
(Yang Jie, Stephanie Yang
and Yoko Kubota):
“The world’s largest contract chip maker is raising prices by as much as 20%, according to people familiar with the matter, a move that could result in consumers paying more for electronics. Taiwan Semiconductor Manufacturing Co. plans to increase the prices of its most advanced chips by roughly 10%, while less advanced chips used by customers like auto makers will cost about 20% more... The higher prices will generally take effect late this year or next year… Apple Inc. is one of TSMC’s largest customers and its iPhones use advanced microprocessors made in TSMC foundries.”
August 23
– Bloomberg
(Damian Shepherd and
Alex Longley):
“For a glimpse at how fast demand for commodities has rebounded in the wake of the coronavirus, look no further than the market for shipping them. Monday marked the 10th consecutive increase for the Baltic Dry Index, a benchmark measure of commodity hauling costs that has surged to an 11-year high. ‘Earlier in the year, people thought this was a short-term spike in the market, but now people see it as more structural and longer term,’ said Jan Rindbo, the chief executive officer of D/S Norden A/S, a 150-year-old Danish operator of more than 500 vessels… The Baltic Dry hit 4,147 points on Monday, the highest since May 2010.”
August 25
– Bloomberg
(Elizabeth Elkin):
“Fertilizer is seeing fierce demand and constraints on supplies at the same time, making it the latest market with prices touching near-decade highs. Farmers are throwing more fertilizer onto their fields in pursuit of bigger corn, soy and wheat yields, because those crops have become so valuable. As a result, global fertilizer costs are at the highest since 2012. It may be at the point where U.S. farmers have to curb their purchases, according to a Rabobank report. Besides demand, a number of other factors are helping to drive up prices for the crop fertility chemicals. There are elevated freight rates, increased tariffs, bigger energy costs and supply constraints for nitrogen, potash and phosphate.”
Biden Administration Watch:
August 25
– Associated Press
(Lisa Mascaro and
Kevin Freking):
“Striking a deal with moderates, House Democratic leaders have muscled President Joe Biden’s multitrillion-dollar budget blueprint over a key hurdle, ending a risky standoff and putting the party’s domestic infrastructure agenda back on track. The 220-212 vote Tuesday was a first move toward drafting Biden’s $3.5 trillion rebuilding plan this fall, and the narrow outcome, in the face of unanimous Republican opposition, signaled the power a few voices have to alter the debate and the challenges ahead still threatening to upend the president’s agenda.”
U.S. Bubble Watch:
August 23
– CNBC
(Diana Olick):
“Sales of existing homes in July rose 2% from June to a seasonally adjusted, annualized rate of 5.99 million units… These sales figures are based on closings, so they reflect contracts signed in May and June. Sales were 1.5% higher than July 2020. That is the second straight month of gains after a pullback in the spring. Sales are likely improving due to rising supply. The inventory of homes at the end of July stood at 1.32 million, down 12% from a year ago, but that is a smaller annual decline than in recent months. At the current sales pace, that represents a 2.6-month supply… The median price of an existing home sold in July was $359,900. That is a 17.8% increase compared with July 2020.”
August 24
– Reuters
(Lucia Mutikani):
“Sales of new U.S. single-family homes increased in July after three straight monthly declines, but housing market momentum is slowing as surging housing prices amid tight supply sideline some first-time buyers from the market… New home sales rose 1.0% to a seasonally adjusted annual rate of 708,000 units last month. June's sales pace was revised up to 701,000 units from the previously reported 676,000 units… Sales dropped 27.2% on a year-on-year basis in July. The median new house price soared 18.4% from a year earlier to a record $390,500 in July.”
August 26
– Reuters
(Kannaki Deka and
Nathan Gomes):
“U.S. auto retail sales are expected to fall in August, as the global semiconductor shortage coupled with the fast spreading Delta variant of the coronavirus squeezed inventory at dealerships, consultants J.D. Power and LMC Automotive said. Retail sales of new vehicles are expected to fall 14.3% to 987,100 in August from a year earlier…”
August 25
– Reuters
(Lucia Mutikani):
“New orders for key U.S.-made capital goods were unexpectedly flat in July amid supply constraints and a shift in demand to services, suggesting that business spending on equipment could slow in the second half after robust growth over the past year. Still, business investment in equipment remains strong… Orders are 18% above their pre-pandemic levels. Investment in equipment is expected to help offset cooling consumer spending and keep the economy on a solid growth path this quarter.”
August 25
– Bloomberg
(Katia Dmitrieva,
Amanda Albright
and Reade Pickert):
“In Albuquerque, New Mexico, landing a job with the police force or fire department may get you a sign-on bonus of $15,000, close to what some Wall Street bankers might expect. Despite such incentives, about 1 in 10 local government jobs remains unfilled. Wait times on the city’s non-emergency police line are upwards of 45 minutes and several bus routes are cut each week. Thousands of cities, towns and states across the U.S. are facing the most acute labor shortage in recent memory.”
China Watch:
August 25
– Reuters
(William Schomberg and
Ludwig Burger):
“China will incorporate ‘Xi Jinping Thought’ into its national curriculum to help ‘establish Marxist belief’ in the country's youth, the education ministry said in new guidelines… The Ministry of Education said Chinese President Xi Jinping's ‘thought on socialism with Chinese characteristics in the new era’ would be taught from primary school level all the way to university. The move is aimed at strengthening ‘resolve to listen to and follow the Party’ and new teaching materials must ‘cultivate patriotic feelings’, the guidelines said. Since coming to power in 2012, the Chinese President has sought to strengthen the ruling Chinese Communist Party's role in all areas of society, including its businesses, schools and cultural institutions.”
August 22
– Bloomberg:
“President Xi Jinping’s rhetoric about ‘common prosperity’ surged this year, evidence of the Communist Party’s commitment to closing the country’s yawning wealth gap. The term appeared sporadically in his first eight years in power. Last year, he began to reference ‘common prosperity’ more often and has picked up the pace: The phrase has appeared 65 times in Xi’s speeches and meetings so far this year, compared with 30 in all of last year.”
August 25
– Wall Street Journal
(Stella Yifan Xie
and Liyan Qi):
“Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks. With global demand for Chinese goods surging this year, factory owners say they are struggling to fill jobs that make everything from handbags to cosmetics. Some migrant workers are worried about catching Covid-19 in cities or factories, despite China’s low caseload. Other young people are gravitating toward service-industry jobs that pay more or are less demanding.”
Global Bubble Watch:
August 23
– Reuters
(Andrea Shalal):
“The IMF will distribute about $650 billion in new Special Drawing Rights to its members on Monday, providing a ‘significant shot in the arm’ for global efforts to combat the COVID-19 pandemic, Managing Director Kristalina Georgieva said. The International Monetary Fund's largest-ever distribution of monetary reserves will provide additional liquidity for the global economy, supplementing member countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt, Georgieva said… ‘The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis,’ she said.”
August 25
– Bloomberg
(Cindy Wang and
Enda Curran):
“A supply chain crunch that was meant to be temporary now looks like lasting well into next year as the surging delta variant upends factory production in Asia and disrupts shipping, posing more shocks to the world economy. Manufacturers reeling from shortages of key components and higher raw material and energy costs are being forced into bidding wars to get space on vessels, pushing freight rates to records and prompting some exporters to raise prices or simply cancel shipments altogether. ‘We can’t get enough components, we can’t get containers, costs have been driven up tremendously,’ said Christopher Tse, chief executive officer of Hong Kong-based Musical Electronics Ltd…”
August 23
– Reuters
(William Schomberg):
“British manufacturers reported the worst stock shortages on record, caused in large part by a post-lockdown lack of components for the electronics industry and in plastics... The Confederation of British Industry's index for stock adequacy fell to the lowest since the survey began in 1977, sinking to -14 from July's -11, the third record low in as many months. The survey also showed expectations for output price growth over the next three months remained close to June's nearly 30-year high…”
Emerging Markets Watch:
August 25
– Bloomberg
(Maria Eloisa Capurro):
“Brazil’s consumer prices rose more than expected as the central bank readies its fifth straight interest rate hike in efforts to tame above-target inflation. Prices rose 0.89% in mid-August from a month prior, more than all estimates… It was the highest mid-month print for August since 2002… Annual inflation sped up to 9.30%.”
Europe Watch:
August 23
– Financial Times
(Darren Dodd):
“‘Supply chain delays continue to wreak havoc, leaving companies frequently unable to meet demand and pushing firms’ costs higher,’ wrote Chris Williamson, chief business economist at IHS Markit, on this morning’s otherwise impressive set of data for the eurozone in his company’s closely watched PMI survey. Costs for business and the prices they charge rose in August at some of the fastest rates in the past 20 years, the survey said, as the rate of growth in manufacturing hit a six-month low. Similar concerns were aired in the UK PMI report, where supply chain problems on top of staff shortages left businesses struggling to meet demand.”
Environmental Watch:
August 23
– Bloomberg
(Lauren Coleman-Lochner):
“The extreme drought that has gripped much of the western United States has shriveled crops, stoked wildfires, and drained reservoirs across several states. According the U.S. Drought Monitor, more than 60 million people are currently living under drought conditions in the region. For some cities, lack of water could be a fiscal as well as an environmental disaster: Prolonged droughts are threatening the creditworthiness of local governments, utilities and irrigation districts. According to a new report from S&P Global Ratings…, drought-struck municipalities may generate less income from their water systems because there’s less to sell or they may have higher costs to provide adequate supplies.”
Geopolitical Watch:
August 23
– Reuters
(Sanjeev Miglani,
Asif Shahzad
and Yew Lun Tian):
“The Russian and British empires battled over Afghanistan in the 19th century, and the United States and the Soviet Union in the 20th. As the Taliban takes over in the strategic, landlocked nation, the new Great Game has Pakistan in control, with its ally China looking to cement its grip on the region. Pakistan has deep ties with the Taliban and has been accused of supporting the Islamist group as it battled the U.S.-backed government in Kabul - charges denied by Islamabad. When the Taliban captured Kabul last week, Pakistan Prime Minister Imran Khan said Afghans had broken the ‘shackles of slavery’.”
August 23
– Bloomberg
(Iain Marlow and
Enda Curran):
“When the U.S. invaded Afghanistan in 2001, the global economy looked a lot different: Tesla Inc. wasn’t a company, the iPhone didn’t exist and artificial intelligence was best known as a Steven Spielberg film. Now all three are at the cutting edge of a modern economy driven by advancements in high-tech chips and large-capacity batteries that are made with a range of minerals, including rare earths. And Afghanistan is sitting on deposits estimated to be worth $1 trillion or more, including what may be the world’s largest lithium reserves -- if anyone can get them out of the ground… ‘With the U.S. withdrawal, Beijing can offer what Kabul needs most: political impartiality and economic investment,’ Zhou Bo, who was a senior colonel in the People’s Liberation Army…, wrote… ‘Afghanistan in turn has what China most prizes: opportunities in infrastructure and industry building -- areas in which China’s capabilities are arguably unmatched -- and access to $1 trillion in untapped mineral deposits.’”
August 26
– Bloomberg
(Isabel Reynolds,
Emi Nobuhiro, and
Cindy Wang):
“Lawmakers from Japan’s ruling party backed Taiwan’s entry into a Pacific trade pact meant to counter China’s influence, in the latest effort by Tokyo to bolster the democratically ruled island. Liberal Democratic Party lawmakers pledged to support Taiwan’s addition to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership during first-of-their-kind security talks with Taiwanese counterparts Friday.”
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