Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, September 10, 2021
by Doug Noland
My edit easy to read version follows
Ye Editor
August Producer Prices rose at a stronger-than-expected 8.3% annual rate (China’s up a larger-than-expected 9.5%).
National home prices were reported up 18% y-o-y, the strongest annual housing inflation in the 45-year history of the data series.
For the Week Ending September 10, 2021:
S&P500 dropped 1.7% (up 18.7% y-t-d)
Dow Industrials fell 2.2% (up 13.1%)
Utilities declined 1.5% (up 8.6%)
Banks lost 1.3% (up 27.7%)
Broker/Dealers sank 2.9% (up 24.6%)
Transports fell 2.6% (up 14.9%)
S&P 400 Midcaps dropped 2.7% (up 14.9%)
Small cap Russell 2000 slumped 2.8% (up 12.8%)
Nasdaq100 lost 1.4% (up 19.8%)
Semiconductors slipped 0.4% (up 22.2%)
Biotechs dropped 2.0% (up 2.5%).
With gold bullion dropping $40,
the HUI gold stock index sank 5.8%
(down 18.8%)
U.K.'s FTSE dropped 1.5% (up 8.8% y-t-d).
Japan's Nikkei surged 4.3% (up 10.7% y-t-d)
France's CAC40 declined 0.4% (up 20.0%).
German DAX fell 1.1% (up 13.8%).
Spain's IBEX 35 dropped 1.9% (up 7.7%).
Italy's FTSE MIB lost 1.5% (up 15.5%).
Brazil's Bovespa fell 2.3% (down 4.0%)
Mexico's Bolsa declined 0.6% (up 16.9%).
South Korea's Kospi dropped 2.4% (up 8.8%).
India's Sensex added 0.3% (up 22.1%).
China's Shanghai jumped 3.4% (up 6.6%)
Russia's MICEX was little changed (up 21.7%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.0375%.
Two-year government yields
added a basis point to 0.21% (up 9bps y-t-d).
Five-year T-note yields
rose three bps to 0.82% (up 46bps).
Ten-year Treasury yields
increased two bps to 1.34% (up 43bps).
Long bond yields
slipped a basis point to 1.94% (up 29bps).
Benchmark Fannie Mae MBS yields
gained one basis point to 1.80% (up 46bps).
U.S. MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
added a basis point to 2.88% (up 2bps y-o-y).
Fifteen-year rates
increased one basis point to 2.19%
(down 18bps).
Five-year hybrid ARM rates
slipped a basis point to 2.42% (down 69bps).
Jumbo mortgage borrowing costs
had 30-year fixed rates up one basis point to 3.05% (down 6bps).
COMMODITIES:
Spot Gold dropped $40 to $1,788 (down 5.9%).
Silver sank 3.9% to $23.74 (down 10.1%).
WTI crude increased 43 cents to $69.72 (up 44%).
Gasoline was unchanged (up 53%)
Natural Gas jumped 4.8% (up 95%).
Copper rose 2.7% (up 27%).
Wheat sank 5.2% (up 8%).
Corn declined 1.2% (up 7%).
Bitcoin sank $4,392 this week
to $45,432 (up 56%).
NEWS FROM LAST WEEK:
Coronavirus Watch:
“The summer that was supposed to mark America’s independence from COVID-19 is instead drawing to a close with the U.S. more firmly under the tyranny of the virus, with deaths per day back up to where they were in March. The delta variant is filling hospitals, sickening alarming numbers of children and driving coronavirus deaths in some places to the highest levels of the entire pandemic. School systems that reopened their classrooms are abruptly switching back to remote learning because of outbreaks. Legal disputes, threats and violence have erupted over mask and vaccine requirements. The U.S. death toll stands at more than 650,000, with one major forecast model projecting it will top 750,000 by Dec. 1.”
September 8
– CNN
(Jacqueline Howard,
Amir Vera and
Madeline Holcombe):
“Children now represent more than a quarter -- or 26.8% -- of weekly Covid-19 cases nationwide, according to… the American Academy of Pediatrics (AAP)… Some 251,781 child cases of Covid-19 were reported in the past week (August 26-September 2). That number represents more than a quarter of the 939,470 cases total that were reported over that period.”
Market Instability Watch:
September 8
– Wall Street Journal
(Caitlin Ostroff):
“Bitcoin’s selloff eased Wednesday, offering some respite to holders of the volatile cryptocurrency after a flash crash a day earlier erased billions of dollars in its value. The largest cryptocurrency by market value fell 1.3% to settle at $46,154.44 apiece… It briefly dropped 17% over the course of a few minutes Tuesday and ended the day down about 10%.”
Inflation Watch:
September 10
– Bloomberg
(Olivia Rockeman):
“Prices paid to U.S. producers increased in August by more than forecast as persistent supply chain disruptions squeeze production costs higher. The producer price index for final demand increased 0.7% from the prior month and 8.3% from a year ago, a fresh series high… Excluding the volatile food and energy components, the so-called core PPI advanced 0.6%, and was up 6.7% from August of last year… A variety of challenges across the production pipeline -- from materials shortages and shipping bottlenecks to rising labor expenses -- have driven up costs for producers. Many companies have passed along those additional costs onto consumers…”
September 8
– Bloomberg:
“China’s factory-gate inflation accelerated to a 13-year high, adding to the pressure on global consumer prices which have been pushed up by a commodities boom, soaring shipping costs and an uneven economic recovery from the pandemic. Producer prices in China rose 9.5% in August from a year earlier…, mainly driven by higher commodity prices. U.S. data due next week is forecast to show consumer prices rose by more than 5% for a third straight month in August as businesses raised prices for goods and services, even as the Federal Reserve claims the cost pressure will be temporary.”
September 8
– Wall Street Journal
(Christopher M. Matthews):
“Nearly four-fifths of U.S. oil and gas production in the Gulf of Mexico remains offline, more than 10 days after Hurricane Ida tore through Louisiana, as companies struggle to restart offshore platforms. Ida… is turning out to be the most damaging storm for offshore production in more than 15 years. It crippled key onshore infrastructure, which has contributed to keeping about 12% of U.S. oil production idle. Its storm surge and maximum winds of 150 miles an hour also damaged some offshore operations, including underwater pipelines that have leaked oil into the Gulf.”
September 9
– CNBC
(Patti Domm):
“Natural gas prices have doubled this year and are expected to continue to rise, resulting in larger winter heating bills for some consumers and higher costs for electric utilities. Natural gas is plentiful in the United States and has been cheap for years, so the jump in prices this year is eye popping. It has also lifted the shares of companies that specialize in natural gas production, like EQT, Range Resources, Cabot Oil and Gas and Antero Resources.”
September 9
– Bloomberg
(Brendan Murray):
“The world’s third-largest container carrier said it’s capping spot rates for ocean freight for the next five months, yielding to pressure from some customers and regulators concerned that global trade disruptions have pushed the cost of shipping too high…. The cost of shipping a 40-foot container from Shanghai to Los Angeles reached $11,569 in the past week, nearly eight times higher than pre-pandemic levels…”
September 8
– Bloomberg
(Mark Burton):
“Aluminum surged to the highest since 2008 as political turmoil in Guinea added to worries about tightening supply at a time when demand is booming. The metal rallied as much as 1.8% in London, and is now up about 90% from lows struck in April last year… On Sunday, a military unit seized power in Guinea, destabilizing the African nation that’s a key source of bauxite used to make aluminum.”
September 7
– Bloomberg
(Elizabeth Elkin):
“Fertilizer prices are soaring after the world’s largest nitrogen facility had to declare a force majeure. CF Industries Holdings Inc. said… it can’t fill orders from its Donaldsonville, Louisiana, nitrogen complex, which was closed ahead of Hurricane Ida… That’s stoking fears of production losses at a time when supplies are already tight. Fertilizer prices are already high, and that’s adding to increasing costs for farmers, who are paying more for everything from land and seeds to equipment.”
Biden Administration Watch:
September 8
– Reuters
(Susan Cornwell and Richard Cowan):
“Democrats will not include a provision to raise the federal government’s borrowing limit in a $3.5 trillion ‘reconciliation’ spending measure they hope to pass this autumn, U.S. House Speaker Nancy Pelosi said Wednesday.”
U.S. Bubble Watch:
September 8
– Bloomberg
(Reade Pickert):
“U.S. job openings rose to a fresh record high in July, illustrating the lingering staffing shortages that are making it challenging for businesses to meet demand. The number of available positions rose to 10.9 million during the month from an upwardly revised 10.2 million in June, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed... Economists… had called for openings to remain little changed at 10 million. After shedding millions of workers from payrolls last year, the rapid snapback in economic activity has left many businesses severely short-staffed. ‘Help Wanted’ signs can be seen in the windows of businesses across the U.S., and many restaurants have limited their hours of operation.”
September 9
– Reuters
(Lucia Mutikani):
“The number of Americans filing new claims for jobless benefits fell to the lowest level in nearly 18 months last week, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers… Initial claims for state unemployment benefits dropped 35,000 to a seasonally adjusted 310,000 for the week ended Sept. 4, the lowest level since mid-March 2020. Economists… had forecast 335,000 applications…”
September 6
– Associated Press
(Ben Finley and Tom Krisher):
“When negotiations failed to produce a new contract at a Volvo plant in Virginia this spring, its 2,900 workers went on strike. The company soon dangled what looked like a tempting offer — at least to the United Auto Workers local leaders who recommended it to their members: Pay raises. Signing bonuses. Lower-priced health care. Yet the workers overwhelmingly rejected the proposal. And then a second one, too. Finally, they approved a third offer that provided even higher raises, plus lump-sum bonuses. For the union, it was a breakthrough that wouldn’t likely have happened as recently as last year. That was before the pandemic spawned a worker shortage that’s left some of America’s long-beleaguered union members feeling more confident this Labor Day than they have in years.”
September 7
– Bloomberg
(Alexandre Tanzi):
“U.S. home prices increased 18% in July compared to a year earlier, according to a CoreLogic Inc. report… The jump is the largest 12-month gain in the index since the series began 45 years ago. On a month-over-month basis, home prices increased by 1.8% in July from June. ‘Home price appreciation continues to escalate as millennials entering their prime home buying years, renters looking to escape skyrocketing rents and deep pocketed investors drive demand,’ said Frank Martell, president and CEO of CoreLogic…”
September 5
– Wall Street Journal
(Paul Berger):
“Leaders of some of the busiest U.S. ports expect congestion snarling maritime gateways to continue deep into next year, as the crush of goods from manufacturers and retailers looking to replenish depleted inventories pushes past shipping’s usual seasonal lulls. Ports are already swamped by record numbers of containers reaching U.S. shores during this year’s peak shipping season, and the number of vessels waiting for berth space at Southern California’s gateways is growing as logjams stretch into warehouses and distribution networks across the country.”
September 9
– Reuters
(Anna Irrera):
“A third of U.S. consumers who used ‘buy now, pay later’ services have fallen behind on one or more payments, and 72% of those said their credit score declined, a new study published by… Credit Karma showed. The study… surveyed 1,044 adult consumers in the United States last month to measure their interest in buy now pay later (BNPL) and found 44% had used these services before.”
Fixed Income Bubble Watch:
September 9
– Bloomberg
(Jack Pitcher):
“Corporate America’s unprecedented issuance spree showed no signs of slowing Thursday amid what bankers and borrowers say are ideal conditions for high-grade companies to tap the bond market for financing… While the week after Labor Day is normally one of the busiest of the year in debt capital markets, the past three sessions have been among the most active ever. Another 14 blue chip companies sold $15.65 billion of bonds Thursday, after 38 firms priced more than $60 billion over the previous two sessions.”
China Watch:
September 7
– Bloomberg
(Sofia Horta e Costa):
“Warnings that China’s campaign to cool its property market will go too far are multiplying. Economists at Nomura Holdings Inc. are calling the curbs China’s ‘Volcker Moment’ that will hurt the economy. The credit squeeze in the property sector is ‘unnecessarily aggressive’ and may weigh on industrial demand and consumption, wrote colleagues at Bank of America Corp. A prominent Chinese economist cautioned of a potential crisis should home values drop below mortgages. Stabilizing China’s housing market under the mantra of ‘housing is for living, not for speculation’ is one of the many campaigns being waged by Xi Jinping as he seeks to reduce the cost of raising a family and defuse risks in the financial system. Yet it’s also one of the toughest goals to achieve given the vital importance of the sector to the economy -- the industry accounts for more than 28% of gross domestic output.”
September 8
– Associated Press
(Joe McDonals):
“An avalanche of changes launched by China’s ruling Communist Party has jolted everyone from tech billionaires to school kids. Behind them: President Xi Jinping’s vision of making a more powerful, prosperous country by reviving revolutionary ideals, with more economic equality and tighter party control over society and entrepreneurs. Since taking power in 2012, Xi has called for the party to return to its ‘original mission’ as China’s economic, social and cultural leader and carry out the ‘rejuvenation of the great Chinese nation.’ The party has spent the decade since then silencing dissent and tightening political control. Now, after 40 years of growth that transformed China into the world’s factory but left a gulf between a wealthy elite and the poor majority, the party is promising to spread prosperity more evenly and is pressing private companies to pay for social welfare and back Beijing’s ambition to become a global technology competitor.”
September 8
– Bloomberg
(Rebecca Choong Wilkins):
“China Evergrande Group’s dollar bonds are falling to fresh lows, after a report that the firm plans to suspend loan interest payments and Fitch moved to cut its credit rating. The developer’s dollar bond due 2025 fell 1.5 cents on the dollar to 24.2 cents, after REDD reported Wednesday that Evergrande plans to suspend interest payments on loans from two banks due Sept. 21. and asked a lender to wait for instructions about an extension plan. Fitch Ratings had earlier slashed Evergrande’s credit rating deeper into junk, to CC from CCC+. ‘The downgrade reflects our view that a default of some kind appears probable,’ Fitch analysts wrote…”
September 7
– Reuters
(Colin Qian, Stella Qiu and
Ryan Woo):
“China's exports unexpectedly grew at a faster pace in August thanks to solid global demand, helping take some of the pressure off the world's second-biggest economy as it navigates its way through headwinds from several fronts… Shipments from the world's biggest exporter in August rose 25.6% year-on-year, picking up speed from a 19.3.% gain in July… Imports increased 33.1% year-on-year in August…”
Global Bubble Watch:
September 5
– Financial Times
(James Fontanella-Khan):
“A frantic summer of dealmaking has put 2021 on track to break records, with almost $4tn of deals already agreed since the start of the year, as companies rush to exploit cheap financing and bumper profits. There were $500bn of transactions globally in the usually quiet month of August, up from $289bn in the same month last year, and $275bn in 2019. The surge has been fuelled by a mix of low borrowing costs, trillions of dollars in the coffers of private equity groups, and the return of animal spirits to corporate boardrooms. The summer boom has helped push global mergers and acquisitions to a record $3.9tn year to date, according to… Refinitiv, more than double the amount from the same period last year, and up from $2.6tn in 2019.”
September 5
Associated Press
(Tom Krisher):
“Back in the spring, a shortage of computer chips that had sent auto prices soaring appeared, finally, to be easing. Some relief for consumers seemed to be in sight. That hope has now dimmed… And that means, analysts say, that record-high consumer prices for vehicles — new and used, as well as rental cars — will extend into next year and might not fall back toward earth until 2023. The global parts shortage involves not just computer chips. Automakers are starting to see shortages of wiring harnesses, plastics and glass, too. And beyond autos, vital components for goods ranging from farm equipment and industrial machinery to sportswear and kitchen accessories are also bottled up at ports around the world as demand outpaces supply in the face of a resurgent virus.”
Europe Watch:
September 7
– Bloomberg
(Carolynn Look):
“Investor confidence in the German economy declined for a fourth month in September after global supply disruptions worsened and infection rates surged, threatening to disrupt Europe’s strong recovery. The ZEW institute’s gauge of expectations fell to 26.5 from 40.4 the previous month, the lowest in 1 1/2 years. The outlook for the euro zone also deteriorated, after the economy grew faster than initially reported in the second quarter.”
Social Instability Watch:
September 6
– Wall Street Journal
(Douglas Belkin):
“Men are abandoning higher education in such numbers that they now trail female college students by record levels. At the close of the 2020-21 academic year, women made up 59.5% of college students, an all-time high, and men 40.5%, according to enrollment data from the National Student Clearinghouse, a nonprofit research group. U.S. colleges and universities had 1.5 million fewer students compared with five years ago, and men accounted for 71% of the decline.”
Geopolitical Watch:
September 5
– Reuters:
“Taiwan’s air force scrambled on Sunday against renewed Chinese military activity, with its Defense Ministry reporting that 19 aircraft including nuclear-capable bombers had flown into Taiwan's air defense identification zone (ADIZ)… The latest Chinese mission involved 10 J-16 and four Su-30 fighters, as well as four H-6 bombers, which can carry nuclear weapons, and an anti-submarine aircraft, Taiwan's Defense Ministry said. Taiwanese combat aircraft were dispatched to warn away the Chinese aircraft, while missile systems were deployed to monitor them, the ministry said.”
September 7
– Bloomberg
(Jonathan Tirone):
“Iran’s new government continued to dramatically increase production of highly-enriched uranium while failing to resume full cooperation with international monitors, signaling a new round of escalation awaits officials when they convene this month to discuss the country’s atomic program. International Atomic Energy Agency inspectors reported Tuesday that the Islamic Republic increased its stockpile of uranium enriched close to the levels needed for weapons and was expanding its production capacity. It also continued to restrict monitoring of facilities and an investigation into allegedly undeclared activities.”
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