Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, October 1, 2021
by Doug Noland
My edited easy to read version follows
Ye Editor
For the Week Ending October 1, 2021:
GLOBAL STOCK INDEXES:
S&P500 dropped 2.2% (up 16.0% y-t-d)
Dow Industrials fell 1.4% (up 12.2%)
Utilities lost 2.0% (up 1.7%)
Transports declined 0.6% (up 13.9%)
S&P 400 Midcaps dipped 0.6% (up 16.3%)
Small cap Russell 2000 slipped 0.3% (up 13.5%)
Nasdaq100 dropped 3.5% (up 14.8%)
Semiconductors sank 5.6% (up 16.7%)
Biotechs fell 4.0% (down 1.2%).
While gold bullion recovered $11,
the HUI gold stock index declined 0.9% (down 23.8%).
U.K.'s FTSE slipped 0.3% (up 8.8% y-t-d).
Japan's Nikkei Equities sank 4.9% (up 4.8% y-t-d).
France's CAC40 fell 1.8% (up 17.4%)
German DAX dropped 2.4% (up 10.5%).
Spain's IBEX 35 declined 0.8% (up 9.0%).
Italy's FTSE MIB fell 1.4% (up 15.2%)
Brazil's Bovespa slipped 0.3% (down 5.1%)
Mexico's Bolsa was little changed (up 15.9%).
South Korea's Kospi dropped 3.4% (up 5.1%).
India's Sensex lost 2.1% (up 23.1%).
China's Shanghai fell 1.2% (up 2.7%).
Russia's MICEX gained 1.0% (up 2%).
U.S. BONDS:
Three-month Treasury bill rates
ended the week at 0.03%.
Two-year government yields
slipped a basis point to 0.27% (up 14bps y-t-d).
Five-year T-note yields
declined two bps to 0.93% (up 57bps).
Ten-year Treasury yields
added one basis point to 1.46% (up 55bps).
Long bond yields
rose four bps to 2.03% (up 38bps).
Benchmark Fannie Mae MBS yields
declined three bps to 1.91% (up 56bps).
Federal Reserve Credit last week
declined $13.1bn to $8.425 TN.
Over the past 107 weeks,
Fed Credit expanded $4.699 TN, or 126%.
U.S. MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
surged 13 bps to a 14-week high 3.01%
(up 13bps y-o-y).
Fifteen-year rates rose 13 bps to 2.28%
(down 8bps).
Five-year hybrid ARM rates
gained five bps to 2.48%
(down 42bps).
Jumbo mortgage 30-year fixed rates
up 15 bps to an almost six-month high 3.20%
(up 9 bps).
COMMODITIES:
Bloomberg Commodities Index
jumped 2.0%
(up 29.3% y-t-d).
Spot Gold recovered $11 to $1,761
(down 7.3%).
Silver rallied 0.5% to $22.54
(down 14.6%).
WTI crude oil surged $1.90 to $75.88
(up 56%).
Gasoline rose 2.9%
(up 60%)
Natural Gas surged 9.3%
(up 121%).
Copper dropped 2.3%
(up 19%).
Wheat jumped 4.4%
(up 18%).
Corn gained 2.8%
(up 12%).
Bitcoin rallied $5,483, or 12.8%,
this week to $48,402
(up 67%).
WEEKLY COMMENTARY:
August Personal Consumption
Expenditures (PCE) inflation
rose to 4.3% y-o-y,
the largest gain in 30 years.
The S&P CoreLogic
National Composite
National Home Price Index
posted a 19.7% y-o-y gain in July
– the strongest housing inflation
in data back to 1987.
Zumper data show
national apartment
(two-bedroom) rent
inflated 13.1% y-o-y,
with Zillow national
rental prices rising 11.5%.
The Bloomberg
Commodities Index
ended the week with a
year-over-year rise of 44.6%.
A benchmark United Nations
food index inflated 33%
over the past year.
University of Michigan
consumer one-year
inflation expectations
were down slightly
from July’s high to 4.6%,
near a 13-year high
- and only 0.5%
below 40-year highs.
China’s Producer Price Index
was up 9.5% y-o-y in August,
the high all the way back to 1995 ...
... “Money printing” is definitely
not in our nation’s best interest,
and this runaway experiment
in monetary inflation
needs to come to an end.
Higher inflation is in the process
of being sustained – and it should today
be a serious concern – yet few believe
the Fed will actually use their “tools”
to suppress it.
NEWS FROM LAST WEEK:
Coronavirus Watch:
September 26
– Reuters
(Victor Jack):
“The COVID-19 pandemic reduced life expectancy in 2020 by the largest amount since World War Two, according to a study… by Oxford University, with the life expectancy of American men dropping by more than two years. Life expectancy fell by more than six months compared with 2019 in 22 of the 29 countries analysed in the study, which spanned Europe, the United States and Chile. There were reductions in life expectancy in 27 of the 29 countries overall.”
Market Mania Watch:
“The S&P 500 Index has managed to stay above its recent bottom amid a renewed selloff, but Bank of America Corp. is urging investors to keep their guard up. The plunge in the benchmark on Sept. 20 and the subsequent swift rebound at the end of last week reinforced the idea that 2021 is a perfect year to buy the dip. On average, the S&P has taken 4.6 days to fully recover from a significant drawdown, which BofA defines as a two-sigma event. That’s the fastest since the firm’s data began in 1928. A sign of market resilience? Maybe. But to BofA strategists including Gonzalo Asis and Benjamin Bowler, it’s really evidence of market fragility. The dip-buying mentality prevailing among investors sets the stage for bigger trouble, they warn…”
Market Instability Watch:
October 1
– Bloomberg
(Finbarr Flynn):
“Global bond investors are facing their worst year at this point in more than two decades after a selloff in September triggered by hawkish statements from central bankers including Federal Reserve Chair Jerome Powell. The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, has lost 4.1% so far this year, the biggest slump for any such period since at least 1999.”
Inflation Watch:
October 1
– Associated Press
(Christopher Rugaber and
David McHugh):
“Inflation has reached new highs in the United States and Europe as rising energy prices and supply bottlenecks restrain an economic recovery from the pandemic in both economies. The U.S. Commerce Department reported Friday that prices rose 4.3% in August from a year earlier. While only lightly higher than the previous month, it was still the largest annual increase since 1990. Energy costs have jumped nearly 25% in the past year, while supply backlogs have pushed up prices for cars, furniture, and appliances.”
September 28
– Yahoo Finance
(Amanda Fung):
“Home price growth in the U.S. soared to new highs in July. Standard & Poor’s said… its S&P CoreLogic Case-Shiller national home price index posted a 19.7% annual gain in July, up from 18.7% in June — the fourth straight month in which the growth rate set a record. The 20-City Composite posted a 19.9% annual gain, up from 19.1% a month earlier… ‘The National Composite Index marked its fourteenth consecutive month of accelerating prices with a 19.7% gain from year-ago levels, up from 18.7% in June and 16.9% in May,’ said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones... ‘The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country.’”
September 29
– Bloomberg
(Alex Tanzi):
“The pace of rent increases is heating up in the U.S. Rent data for the past two months show no sign yet of the usual seasonal dip at this time of year, following peaks early in the summer… A Zillow… index based on the mean of listed rents rose 11.5% in August from a year earlier, with some cities in Florida, Georgia and Washington state seeing increases of more than 25%. ‘To have double digit rent growth over the course of a year and a half is a shocking level of growth, especially considering the vast majority of it has come in the last 9 months,’ according to the Zumper National Rent report. Since the start of the pandemic, the median rent for a two-bedroom apartment has soared 13.1% to $1,663, Zumper data show.”
September 28
– Bloomberg
(Peter Millard,
Fabiana Batista
and Leslie Patton):
“No country on Earth puts more breakfasts on kitchen tables than Brazil. The farms that dot the vast plains and highlands that rise above the Atlantic coast produce four-fifths of the world’s orange juice exports, half of its sugar exports, a third of coffee exports and a third of the soy and corn used to feed egg-laying hens and other livestock. So when the region’s crops were scorched and then frozen this year by a devastating one-two punch fueled by climate change — the worst drought in a century followed by an unprecedented Antarctic front that repeatedly coated the land in thick frost — global commodity markets shook. The cost of Arabica beans soared 30% over a six-day stretch in late July; orange juice jumped 20% in three weeks; and sugar hit a four-year high in August.”
September 28
– Bloomberg
(Marvin G. Perez):
“Cotton futures raced past $1 a pound for the first time in nearly a decade as adverse weather and shipping snags threaten supplies, driving up costs for clothing around the world. In New York, the contract for December delivery climbed to $1.005 a pound, the highest since November 2011. The price has surged 28% this year as torrid demand, especially from China, combines with disruptions to supplies from the pandemic and logistics chaos spurred by rising freight costs.”
U.S. Bubble Watch:
September 28
– Bloomberg
(Lucia Mutikani):
“Expectations for slower GDP growth were reinforced by a separate report from the Commerce Department… showing the goods trade deficit rose 0.9% to $87.6 billion in August as businesses imported more products to replenish inventories. Trade has subtracted from GDP growth for four straight quarters. Imports of goods climbed 0.8% to $236.6 billion, lifted by consumer goods and industrial supplies. But imports of food, capital goods and motor vehicles fell.”
September 28
– Reuters
(Lucia Mutikani):
“U.S. consumer confidence unexpectedly weakened in September as soaring COVID-19 infections deepened concerns about the economy's near-term prospects. The Conference Board said… its consumer confidence index dropped to a reading of 109.3 this month from 115.2 in August. That was the third straight decline and the lowest level since February.”
September 27
– Reuters
(Lucia Mutikani):
“New orders and shipments of key U.S.-made capital goods increased solidly in August amid strong demand for computers and electronic products, keeping business spending on equipment on track for another quarter of robust growth. The sustained strength in business investment is expected to limit the hit on economic growth from an anticipated slowdown in consumer spending in the third quarter as the boost from fiscal stimulus fades and COVID-19 infections flare up. Demand for goods is being driven by businesses desperate to replenish inventories, but strained supply chains remain a challenge.”
Fixed-Income Bubble Watch:
September 26
– Wall Street Journal
(Matt Wirz):
“A buyout boom fueled by easy money and a looming hike in the capital-gains tax is sweeping Wall Street deal making to highs not seen since before the 2008 financial crisis. Companies have issued $120 billion of ‘leveraged loans’ this year through Sept. 23 to finance corporate buyouts by private-equity firms—just shy of the $124 billion record for the first nine months of the year set in 2007… Most deals have also gotten bigger. The average leveraged buyout cost about $2.5 billion in debt and equity this year, eclipsing the mean of roughly $2 billion in 2007, according to S&P.”
China Watch:
September 30
– Bloomberg:
“China stepped in to buy a stake in a struggling regional bank from China Evergrande Group as it seeks to limit contagion in the financial sector from the embattled property developer. Evergrande agreed to sell a 20% stake in Shengjing Bank Co. to the local Shenyang government for 10 billion yuan ($1.55bn), with the bank demanding that all proceeds go to settle debts with the lender…”
September 27
– Bloomberg
(Mark Gongloff):
“When playing word association with China’s economy right now, some phrases spring to mind that may seem unfair: pyramid scheme, house of cards, Jenga tower with half the pieces missing, intoxicated teenager on stilts. But two terms that do not come to mind, and absolutely should not, are ‘stable’ and ‘sustainable.’ If you’re a New Zealander or Canadian or American, you might think your housing market is wild. And it is. But for sheer deadly froth, nothing matches China. Not only have prices been soaring, but real estate makes up nearly 30% of GDP, compared with 19% for the U.S. in its housing bubble, writes Noah Smith. Worse, housing makes up 78% of Chinese assets, compared with 35% for the U.S., writes Niall Ferguson. Popping this bubble would hammer China’s economy in a way that could make the Great Recession look like a spoiled gender-reveal party.”
September 26
– Bloomberg
(Anjani Trivedi):
“Even the savviest of investors were caught off-guard by the speed of China Evergrande Group’s unraveling. They shouldn’t have been: Trouble has long been brewing at China Inc., where balance sheets are weakening in the face of a rocky economic recovery. This could be Beijing’s worst blind spot yet. At over 1,100 listed companies in China’s industrial and manufacturing sectors, receivables are piling up; cash conversion cycles are getting longer (that is, the time it takes to turn inventory investments into cash); and net short-term debt levels are becoming increasingly volatile, a Bloomberg Opinion analysis shows.”
Global Bubble Watch:
September 29
– Bloomberg
(Catherine Bosley):
“The world economy is facing a buildup in stagflationary forces as surging energy prices boost inflation and slow the recovery from the pandemic recession. Oil’s climbed to more than $80 a barrel for the first time in three years, natural gas for October delivery traded at the costliest in seven years and the Bloomberg Commodity Spot Index rose to the highest level in a decade. Food prices are also advancing, driven in part by crop failures in Brazil, with a benchmark UN index up 33% over the past 12 months. Rising costs for households and companies are hitting confidence while pushing inflation faster than economists had expected only a few months ago.”
September 30
– Associated Press
(Elaine Kurtenbach):
“Shortages of power, computer chips and other parts, soaring shipping costs and shutdowns of factories to battle the pandemic are taking a toll on Asian economies. Data… showed Japan’s factory output slowed while China’s manufacturing outlook weakened. Japan’s Suzuki Motor Corp. became the latest automaker to idle production lines for a few extra days due to shortfalls in components. While Japan and some other countries are beginning to ease out of emergency measures to curb the spread of the coronavirus, others are having to reimpose such precautions, adding to uncertainty over the outlook for regional and global growth. Factory output in Japan fell in August by 3.2% from the month before, as pandemic-related shutdowns hit manufacturers across Asia. That followed a 1.5% decline in July.”
September 30
– Wall Street Journal
(Mike Colias):
“The global chip shortage has slammed the auto sector this year, cutting factory output by several million vehicles and erasing billions in revenue for car companies. Next year is expected to be nearly as challenging, industry analysts say. Auto executives for months have expressed optimism that the problem would begin to ease by year’s end. Now, there is an emerging view that the chip shortage has morphed from a short-term crisis into a structural upheaval for the automotive supply chain that could take years to fully overcome.”
Europe Watch:
September 30
– Bloomberg
(Jana Randow):
“German consumer prices are rising at the fastest pace in nearly three decades, fueled by supply bottlenecks and a series of temporary pressures accompanying the economy’s pandemic recovery. Inflation jumped to 4.1% in September, exceeding economists’ median estimate… Energy alone was 14% more expensive than last year... Europe’s largest economies -- all experiencing strong growth following the end of lockdowns at the start of summer -- are reporting a similar trend. France, Italy and Spain were among those with inflation rates far above 2%...”
October 1
– Bloomberg
(Alexander Weber):
“Inflation in the euro area accelerated more than expected to the highest level in 13 years, adding fuel to a debate over how long the post-crisis spike will last. Consumer prices rose 3.4% in September, compared with an estimate for a 3.3% gain… Energy prices rose 1.3% in September and were up more than 17% on the previous year. Non-energy industrial goods were 2.3% more expensive than in August.”
Geopolitical Watch:
September 29
– Associated Press:
“Beijing said… it will block Taiwan’s application to join a Pacific Rim trade initiative, citing as its reason the island’s refusal to concede that it is a part of China. The Cabinet’s Taiwan Affairs Office… said Taiwan’s participation in regional trade cooperation is based on the ‘one China principle.’ ‘We oppose the Taiwan region participating in any trade arrangements of an official nature or signing any trade agreements of an official nature,’ spokesperson Zhu Fenglian told reporters…”
Energy News:
https://elonionbloggle.blogspot.com/2021/10/energy-news-for-week-ending-october-1.html
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