Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, October 15, 2021
by Doug Noland
For the Week Ending October 15, 2021:
My edited easy to read version follows
Ye Editor
FINANCIAL DATA SUMMARY:
S&P500 up 1.8% (up 19.0% y-t-d)
Dow Industrials up 1.6% (up 15.3%)
Utilities up 1.4% (up 4.8%)
Banks up 0.5% (up 40.0%)
Transports up 3.8% (up 21.5%)
S&P 400 Midcaps up 2.2% (up 19.1%)
Small cap Russell 2000 up 1.5% (up 14.7%)
Nasdaq100 up 2.2% (up 17.5%)
Semiconductors up 2.1% (up 18.6%)
Biotechs up 0.6% (down 1.8%)
With gold bullion gaining $10,
the HUI gold stocl index up 6.2%
(down 14.7%)
U.K.'s FTSE up 2.0% (up 12.0% y-t-d)
Japan's Nikkei up 3.6% (up 5.9% y-t-d)
France's CAC40 up 2.6% (up 21.2%)
German DAX up 2.5% (up 13.6%).
Spain's IBEX 35 up 0.5% (up 11.4%).
Italy's FTSE MIB up 1.7% (up 19.1%)
Brazil's Bovespa up 1.6% (down 3.7%)
Mexico's Bolsa up 3.2% (up 19.8%)
South Korea's Kospi up 2.0% (up 4.9%)
India's Sensex up 2.1% (up 28.4%).
China's Shanghai down 0.6% (up 2.9%).
Russia's MICEX up 0.6% (up 29.6%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.0425%.
Five-year T-note yields
rose six bps to 1.13% (up 76bps).
Ten-year Treasury yields
fell four bps to 1.57% (up 66bps).
Long bond yields
sank 12 bps to 2.04% (up 40bps).
Benchmark Fannie Mae MBS yields
declined three bps to 2.02% (up 68bps).
Federal Reserve Credit last week
expanded $16.1bn to $8.432 TN.
Over the past 109 weeks,
Fed Credit expanded $4.705 TN,
or 126%.
US MORTGAGE RATES:
Freddie Mac 30-year fixed mortgage rates
rose six bps to a six-month high 3.05%
(up 24bps y-o-y).
Five-year hybrid ARM rates
added three bps to 2.55%
(down 35bps).
Jumbo mortgage 30-year fixed rates
gaining six bps to 6 month high 3.21%
(up 15bps).
COMMODITIES:
Spot Gold gained $10 to $1,768
(down 6.9%).
Silver rallied 2.8% to $23.31
(down 11.7%).
WTI crude up $2.93 to $82.28
(up 70%).
Gasoline jumped 5.1%
(up 76%)
Natural Gas declined 2.8%
(up 113%).
Copper surged 10.6%
(up 34%).
Wheat was unchanged
(up 15%)
Corn slipped 0.9%
(up 9%).
Bitcoin gained $7,145, or 13.2%,
this week to $61,251
(up 111%)
DOUG NOLAND COMMENTARY:
"An index of Chinese dollar (real estate) developer bonds began the week with yields of 17.5%, up from 14.4% to begin the month and 10% back in July. Yields closed Thursday trading at a record 20%, before closing the week at 19.3%.
... Could China’s Bubble Economy possibly be more unbalanced? ... Their export sector is on fire, with manufacturers struggling to keep up with orders, with supply-chain and transportation bottlenecks significantly pushing out delivery times.
... Meanwhile, the (real estate) developers are losing access to new finance; apartment transactions have slowed markedly; and everything points to a major leak in China’s historic apartment Bubble.
... The complexity of China’s economic system has grown exponentially over recent years. From ensuring local energy supplies to logistics to speculative impulses to household confidence – a control-focused Beijing has never faced such a litany of intricate challenges.
Up 5.4% y-o-y in September,
consumer price inflation
has not been stronger since 2008.
The 5.9% Social Security
cost of living adjustment
is the largest since 1982.
September Producer Prices
inflated 8.6% y-o-y.
Import Prices were up 9.2%
y-o-y in September,
with Export Prices surging 16.3%.
Ignoring May, June and July 2008,
consumer inflation expectations
have not been higher since 1982.
The Fed has made a mockery
of its overarching responsibility
for ensuring monetary stability.
Policymakers around the globe
are coming to the realization
that inflation has become
a very serious issue,
while asset markets are
dangerously speculative.
NEWS FROM LAST WEEK:
Energy Watch:
https://elonionbloggle.blogspot.com/2021/10/energy-news-summary-for-last-week.html
Labor Watch:
October 14
– Fox Business
(Breck Dumas):
“Deere & Co. and union representatives for as many as 10,000 of the company's employees represented by the United Auto Workers are on strike as of Thursday… The agricultural equipment manufacturer based out of Moline, Illinois, hasn't seen a workers' strike for 35 years. But with labor shortages across the country and Deere raking in record profits, workers feel now is the time to hold their ground and ask for more. ‘The whole nation’s going to be watching us,’ Deere employee Chris Laursen told the newspaper. ‘If we take a stand here for ourselves, our families, for basic human prosperity, it’s going to make a difference for the whole manufacturing industry. Let’s do it. Let’s not be intimidated.’”
Market Mania Watch:
October 11
– Reuters
(Echo Wang and Anirban Sen):
“Weeks of stock market volatility have done little to dent the record-setting pace of U.S. initial public offerings, with capital market insiders forecasting a strong finish to the year and a robust pipeline of listings in 2022. More than 2,000 IPOs raised a combined $421 billion globally by the end of September, a record high, as private companies rushed to attain the soaring valuations of their publicly listed peers. That was more than double the proceeds raised during the same period last year, according to Refinitiv…. Four IPOs were withdrawn or postponed in the United States in the last three weeks…”
October 14
– Associated Press
(Jill Lawless):
“A work by British street artist Banksy that sensationally self-shredded just after it sold at auction three years ago fetched almost 18.6 million pounds ($25.4 million) on Thursday — a record for the artist, and close to 20 times its pre-shredded price. ‘Love is in the Bin’ was offered by Sotheby’s in London, with a presale estimate of 4 million pounds to 6 million pounds ($5.5 million to $8.2 million).”
Market Instability Watch:
October 13
– Financial Times
(Hudson Lockett and
Thomas Hale):
“International bond sales by Chinese developers have all but halted as the crisis at China Evergrande stokes fears of defaults across the country’s property sector, throttling a crucial driver of Asia’s high-yield debt market. Just one developer has managed to tap overseas bond investors since Evergrande… missed an $83.5m interest payment last month... Issuance of high-yield dollar debt is down 28% from a year ago, according to… Dealogic… An ICE index tracking Chinese corporate issuers in Asia’s high-yield bond market demonstrates the scale of market contagion. The effective yield on the index has shot up to 24% this week from 10% in June…”
October 12
– Bloomberg
(Shen Hong):
“Chinese property developers are responsible for about half of the world’s distressed dollar bonds, a fresh indication of the magnitude and global nature of the industry’s woes. Of the $139 billion of dollar-denominated bonds trading at distressed prices, 46% were issued by companies in China’s real estate sector, according to data compiled by Bloomberg on Oct. 12. That captured bonds trading at yield premiums of at least 10 percentage points above their benchmark rates…”
Inflation Watch:
October 13
– Associated Press
(Ricardo Alonso-Zaldivar and
Christopher Rugaber):
“Millions of retirees on Social Security will get a 5.9% boost in benefits for 2022. The biggest cost-of-living adjustment in 39 years follows a burst in inflation as the economy struggles to shake off the drag of the coronavirus pandemic. The COLA, as it’s commonly called, amounts to $92 a month for the average retired worker… That marks an abrupt break from a long lull in inflation that saw cost-of-living adjustments averaging just 1.65% a year over the past 10 years.”
October 15
– Wall Street Journal
(Hardika Singh):
“Drought has roiled power markets and lifted lumber prices. Now it is hitting breakfast. Oat futures have climbed to all-time highs thanks to the severe dry weather that has parched big growing regions… At around $6.30 a bushel on Thursday, oat futures are more than twice as expensive as they were this time last year and the year before. Much of the rise into record territory has come over the past three months… Higher prices could hit milk makers, bakers, breakfast eaters and farmers who need oats to cook or as feed for livestock and poultry.”
October 14
– Wall Street Journal
(J.J. McCorvey):
“Americans got a stark warning from the government this week: Expect higher heating bills this winter. According to the Energy Information Administration, nearly half of U.S. households that warm their homes with mainly natural gas can expect to spend an average of 30% more on their bills compared with last year. The agency added that bills would be 50% higher if the winter is 10% colder than average and 22% higher if the winter is 10% warmer than average.”
U.S. Bubble Watch:
October 14
– Wall Street Journal
(Josh Mitchell, Lauren Weber
and Sarah Chaney Cambon):
“Scarce labor is becoming a fixture of the U.S. economy, reshaping the workforce and prodding firms to adapt by raising wages, reinventing services and investing in automation. More than a year and a half into the pandemic, the U.S. is still missing around 4.3 million workers. That’s how much bigger the labor force would be if the participation rate… returned to its February 2020 level of 63.3%. In September, it stood at 61.6%. The absence comes as U.S. employers are struggling to fill more than 10 million job openings and meet soaring consumer demand. In another sign of just how tight the labor market is, jobless claims… fell to 293,000 last week, the first time since the pandemic began that they fell below 300,000… Workers are quitting at or near the highest rates on record in sectors such as manufacturing, retail, and trade, transportation and utilities, as well as professional and business services. Participation has fallen broadly across demographic groups and career fields, but has dropped particularly fast among women, workers without a college degree and those in low-paying service industries such as hotels, restaurants and child care.”
October 12
– CNBC (Jeff Cox):
“Workers left their jobs at a record pace in August, with bar and restaurant employees as well as retail staff quitting in droves, the Labor Department reported… Quits hit a new series high going back to December 2000, as 4.3 million workers left their jobs. The quits rate rose to 2.9%, an increase of 242,000 from the previous month… The rate… is the highest in a data series that goes back to December 2000… A total of 892,000 workers in the food service and accommodation industries left their jobs, while 721,000 retail workers departed along with 534,000 in health care and social assistance.”
October 14
– Wall Street Journal
(Jennifer Calfas):
“Nearly 40% of U.S. households said they faced serious financial difficulties in recent months of the Covid-19 pandemic, citing problems such as paying utility bills or credit card debt… About one-fifth have depleted all of their savings. U.S. households are struggling in many ways over a year into the coronavirus pandemic, according to the poll conducted by the Harvard T.H. Chan School of Public Health, the Robert Wood Johnson Foundation and National Public Radio. Nearly 60% of households earning less than $50,000 a year reported facing serious financial challenges in recent months. Of those, 30% lost all of their savings, according to the poll.”
October 15
– Reuters (Lucia Mutikani):
“U.S. retail sales unexpectedly rose in September, boosted in part by a jump in receipts at auto dealerships due to higher motor vehicle prices… Retail sales rose 0.7% last month... Data for August was revised higher to show retail sales increasing 0.9% instead of 0.7% as previously reported. Sales last month were partly lifted by higher prices, with inflation increasing solidly in September.”
October 13
– Bloomberg
(Simone Silvan):
“For many Americans, Covid lockdowns—with nowhere to go and nothing to do—were a time to save. But for almost 20% of U.S. households, the pandemic wiped out their entire financial cushion, a poll… finds. The share of respondents who said they lost all their savings jumped to 30% for those making less than $50,000 a year, the poll from NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health finds.”
October 12
– Reuters
(P.J. Huffstutter,
Mark Weinraub
and Dane Rhys):
“Dale Hadden cannot find any spare tires for his combine harvester. So the Illinois farmer told his harvest crew to avoid driving on the sides of roads this autumn to avoid metal scraps that could shred tires. New Ag Supply in Kansas is pleading with customers to order parts now for spring planting. And in Iowa, farmer Cordt Holub is locking up his machinery inside his barn each night, after thieves stole hard-to-find tractor parts from a local… dealership… Manufacturing meltdowns are hitting the U.S. heartland, as the semiconductor shortages that have plagued equipment makers for months expand into other components. Supply chain woes now pose a threat to the U.S. food supply and farmers' ability to get crops out of fields.”
October 13
– Reuters (Stephen Nellis):
“Apple Inc is likely to slash production of its iPhone 13 by as many as 10 million units due to the global chip shortage… The company was expected to produce 90 million units of the new iPhone models by the end of this year… The report said Apple told its manufacturers that the number of units would be lower because chip suppliers including Broadcom Inc and Texas Instruments are struggling to deliver components.”
China Watch:
October 12
– Wall Street Journal
(Stella Yifan Xie,
Elaine Yu
and Anniek Bao):
“Home sales in China are seizing up as curbs on lending and worries about developers’ financial health deter house buyers, casting a pall over an industry that is central to the Chinese economy. In recent days, numerous big developers have reported lower sales figures for September, with many showing year-over-year declines of more than 20% or 30%... If sustained, the sharp downturn could have serious economic consequences. Real estate has played an outsize role in China’s economy in recent years, compared with its importance in many other countries, and Chinese families have much of their wealth tied up in homes and in investment properties. Slower sales could spill over into investment and construction, potentially hurting growth, employment and local government finances. Discounting to spur sales could hurt home prices and hit household wealth.”
October 13
– Reuters
(Andrew Galbraith
and Marc Jones):
“The rumbling crisis at China Evergrande Group and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday and triggered a fresh round of credit rating downgrades… The $5 trillion property sector accounts for around a quarter of the Chinese economy by some metrics. In the clearest sign yet that global investors' worries are growing, the spread - or risk premium - on investment grade Chinese firms… jumped to its widest in more than two months. The spread on the equivalent high-yield or 'junk'-rated index… surged to a new all-time high of 2,337 bps. That drove the yield… to an eyewatering 24%. ‘We see a risk that a disorderly correction in the property market could cause sharp price declines, hitting the personal wealth of homeowners,’ Kim Eng Tan, a credit analyst at S&P Ratings, said… ‘Such an event could also contribute to large-scale losses by investors in wealth management products, and the contractors and service firms that support the developers.’”
October 13
– Bloomberg:
“China’s factory-gate prices grew at the fastest pace in almost 26 years in September, potentially adding to global inflation pressure if local businesses start passing on higher costs to consumers. The producer price index climbed 10.7% from a year earlier, beating forecasts and reaching the highest since November 1995, as coal prices and other commodity costs soared… As the world’s largest exporter, Chinese prices are another risk factor for the global inflation outlook.”
October 12
– Reuters
(Clare Jim and
Andrew Galbraith,
Marc Jones):
“Debt-saddled Chinese property firms took heavy fire in bond markets on Tuesday, after the poster child of the sector's woes, Evergrande Group, missed its third round of bond payments… and others warned of defaults. A wave of developers face payment deadlines before the end of the year and with Evergrande's fate looking increasingly bleak, fears are mounting of a wider crisis… Refinitiv data shows there is at least $92.3 billion worth of Chinese property developers' bonds coming due next year.”
October 11
– Bloomberg
(Alice Huang and
Rebecca Choong Wilkins):
“Sinic Holdings Group Co. has become the latest Chinese real estate firm to warn of imminent default, as rising contagion risk leaves investors guessing on who else may face a credit crunch. The… developer said in a Hong Kong stock exchange filing it doesn’t expect to repay a $250 million dollar bond due Oct. 18 and that may trigger cross-default on its two other notes. The firm has $694 million in dollar bonds outstanding…”
Global Bubble Watch:
October 13
– Yahoo Finance
(Aarthi Swaminathan):
“A shipping expert believes that the supply chain crisis may last well into 2023 given how global trade has been reshuffled to meet surging American demand. ‘We expect... strained supply chains to last until the early parts of 2023,’ Peter Sand, chief shipping analyst at Copenhagen-based BIMCO… ‘We are basically seeing a global all-but-breakdown of the supply chains from from end-to-end.’ In Sand's view, the ‘spectacular recovery’ in U.S. consumer demand the past 15 to 18 months has ‘completely biased shipping networks.’ According to Sand, trade volume between the Far East and North America is ‘rising so fast’ — at about 25% higher than 2019 levels.”
October 14
– CNBC (Arjun Kharpal):
“The global chip shortage could persist for another two to three years before ending, the President of Hisense, one of China’s largest TV and household goods makers, told CNBC. Industries from consumer electronics companies to automakers are dealing with a shortage of semiconductors. This has led to shortage of products such as game consoles and manufacturers struggling to keep up with demand.”
Mexico Watch:
October 13
– Bloomberg
(Maya Averbuch):
“Mexico’s consumer prices are rising at a phenomenal pace and might not peak until the end of 2021 or early 2022, requiring an appropriate response by policy makers, central bank deputy Governor Jonathan Heath said. Both internal and external supply shocks have led to an upward inflation trend, leaving no room for expansive monetary policy, Heath, one of the five Banco de Mexico board members, said… ‘It’s easy to see that prices are increasing, and they’re being transferred to consumer prices at a pace that’s really phenomenal,’ he said.”
Japan Watch:
October 11
– Reuters
(Leika Kihara):
“Japan's wholesale inflation hit a 13-year high in September as rising global commodity prices and a weak yen pushed up import costs, putting pressure on corporate margins and raising the risk of unwanted consumer price hikes… The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, surged 6.3% in September from a year earlier, Bank of Japan data showed…, exceeding market forecasts for a 5.9% gain.”
Geopolitical Watch:
October 10
– Financial Times
(Gideon Rachman):
“Would America go to war over Taiwan? That question has seemed fairly abstract for decades. Now it is increasingly urgent. The Chinese air force sent around 150 jets into Taiwan’s air-defence identification zone in the space of just four days… Over the same period, the US and five other nations, including Japan and the UK, conducted one of the biggest naval exercises in the western Pacific in decades. This flexing of military muscle was accompanied by confrontational rhetoric on both sides. Over the weekend, President Xi Jinping pledged in a speech that the ‘historical task of the complete reunification of the motherland . . . will definitely be fulfilled’. The Chinese leader stressed that his preference is to take over Taiwan by peaceful means. But, since voluntary surrender by Taiwan is close to inconceivable, that leaves military force.”
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