Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, October 22, 2021
by Doug Noland
My easy to read edited version follows
Ye Editor
"The New York Fed’s one-year inflation expectations index rose to 5.3%, the high for data going back eight years. Excluding the summer of 2008, the University of Michigan one-year consumer inflation expectations (4.8%) were the highest since 1982. The five-year Treasury “break even” inflation rate this week jumped 15 bps (23bps in two weeks!), surpassing 2.9% for the first time in at least two decades."
For the Week Ending October 22, 2021:
S&P500 gained 1.6% (up 21.0% y-t-d)
The Dow rose 1.1% (up 16.6%)
Utilities jumped 2.5% (up 7.4%)
Banks surged 4.1% (up 45.7%)
Transports advanced 3.8% (up 26.1%)
S&P 400 Midcaps jumped 1.8% (up 21.3%)
Small cap Russell 2000 gained 1.1% (up 16.0%)
Nasdaq100 increased 1.1% (up 16.0%)
Semiconductors rose 1.7% (up 20.6%)
Biotechs slipped 0.4% (down 2.2%).
U.K.'s FTSE dipped 0.4% (up 11.5% y-t-d).
Japan's Nikkei declined 0.9% (up 5.0% y-t-d)
France's CAC40 was little changed (up 21.3%)
German DAX dipped 0.3% (up 13.3%).
Spain's IBEX 35 fell 1.0% (up 10.3%).
Italy's FTSE MIB added 0.3% (up 19.5%)
Brazil's Bovespa sank 7.3% (down 10.7%)
Mexico's Bolsa dropped 1.7% (up 17.8%).
South Korea's Kospi slipped 0.3% (up 4.6%).
India's Sensex declined 0.8% (up 27.4%).
China's Shanghai increased 0.3% (up 3.2%).
Russia's MICEX fell 1.5% (up 27.6%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.05%.
Two-year government yields
jumped six bps to 0.455% (up 33bps y-t-d).
Ten-year Treasury yields
rose six bps to 1.63% (up 72bps).
Long bond yields added three bps to 2.07%
(up 42bps).
Benchmark Fannie Mae MBS yields
surged nine bps to 2.12% (up 77bps).
Federal Reserve Credit last week
surged $85.3bn to a record $8.517 TN.
Over the past 110 weeks, Fed Credit
expanded $4.791 TN, or 129%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
rose four bps to a six-month high 3.09%
(up 29bps y-o-y).
Fifteen-year rates gained three bps to 2.33%
(unchanged).
Five-year hybrid ARM rates
slipped a basis point to 2.54% (down 33bps).
Jumbo mortgage 30-year fixed rates
down three bps to 3.18% (up 9bps).
COMMODITIES:
October 22 – Bloomberg (Devika Krishna Kumar):
“Stockpiles at the biggest U.S. crude oil depot are quickly approaching critically low levels. The last time that happened, crude cost more than $100 a barrel. The storage tanks in Cushing, Oklahoma, require a minimum level of oil to maintain normal operations, which traders generally believe is around 20 million barrels. Unusually for this time of year, stockpiles declined more than 4 million barrels over the past two weeks to 31 million and are expected to keep dropping rapidly due to the world's insatiable demand for U.S. light sweet crude.”
October 19 – Bloomberg (Joe Carroll):
“U.S. propane prices are so high and supplies so scarce that the market appears headed for ‘armageddon’ during the depths of winter, according to… IHS Markit Ltd. Stockpiles of the key heating fuel and manufacturing feedstock in the world’s biggest economy probably have already topped out for the year and will be stretched as cold weather descends in coming weeks, Edgar Ang, an IHS analyst, said… Prices for the first quarter of 2022 are so far above later-dated supplies that ‘it may indicate players are preparing for propane-market armageddon,’ Ang said. Some regions may face outright shortages before the end of winter, he said.”
The Bloomberg Commodities Index
declined 0.9% (up 32.9% y-t-d).
Spot Gold rose $25 to $1,793 (down 5.6%).
Silver surged 4.3% to $24.32 (down 7.9%).
WTI crude gained $1.48 to $83.76 (up 73%).
Gasoline slipped 0.2% (up 76%)
Natural Gas fell 2.4% (up 108%).
Copper sank 4.9% (up 28%).
Wheat jumped 3.0% (up 18%)
Corn rose 2.3% (up 11%).
Bitcoin fell $630, or 1.0%, this week
to $60,621 (up 109%).
Coronavirus Watch:
October 21 – CNBC (Holly Ellyatt):
“A newly-discovered mutation of the delta variant is being investigated in the U.K. amid worries that it could make the virus even more transmissible and undermine Covid-19 vaccines further. Still, there are many unknowns surrounding this descendent or subtype of the delta variant — formally known as AY.4.2 — which some are dubbing the new ‘delta plus’ variant.”
Market Mania Watch:
October 18 – CNBC (Robert Frank):
“The wealthiest 10% of Americans now own 89% of all U.S. stocks held by households, a record high that highlights the stock market’s role in increasing wealth inequality. The top 1% gained more than $6.5 trillion in corporate equities and mutual fund wealth during the Covid-19 pandemic, while the bottom 90% added $1.2 trillion, according to… the Federal Reserve. The share of corporate equities and mutual funds owned by the top 10% reached the record high in the second quarter, while the bottom 90% of Americans held about 11% of individually held stocks, down from 12% before the pandemic… The total wealth of the top 1% now tops 32%, a record…. Nearly 70% of their wealth gains over the past year and a half — one of the fastest wealth booms in recent history — came from stocks. ‘The top 1% own a lot of stock, the rest of us own a little,’ said Steven Rosenthal, senior fellow, Urban-Brookings Tax Policy Center.”
Inflation Watch:
October 19 – Wall Street Journal (Carol Ryan):
“No matter the mode of transport, moving goods from A to B has become more expensive. The quirks of consumer companies’ supply chains mean they won’t all be equally hit. Demand for consumer products has been unusually strong since countries began to reopen their economies. This has put pressure on global transport routes and increased the cost of logistics. In the first quarter of 2020, a company could ship goods by sea for $1,600 per 40-foot equivalent unit, or roughly one large shipping container. By September 2021, the bill had climbed to $10,200, Bernstein analysis shows. Air and road travel is also pricier, as there are fewer jets in the skies and transport firms are struggling to hire drivers. Europe is short of approximately 400,000 truckers, according to Transport Intelligence estimates. A similar shortage in the U.S. pushed spot rates for dry trucks up 13% on the year by the third quarter.”
U.S. Bubble Watch:
October 21 – CNBC (Jeff Cox):
“Weekly jobless claims hit another pandemic-era low last week as the elimination of enhanced benefits sent fewer people to the unemployment line. First-time filings for unemployment insurance totaled 290,000 for the week ended Oct. 16, down 6,000 from the previous period… This was the second week in a row that claims ran below 300,000.”
October 18 – Reuters (Ben Klayman):
“Thousands of workers remain on strike across the United States demanding higher pay and better conditions despite Hollywood make-up artists and camera operators reaching a deal over the weekend to avoid a walkout, and the tight jobs market has only emboldened them. Kevin Bradshaw is an employee at Kellogg Co's cereal plant in Memphis…, where most of North America's Frosted Flakes are made. He feels anything but great about cuts to healthcare coverage, retirement benefits and vacation time that union officials say the company is pushing for from about 1,400 workers on strike since Oct. 5 at plants in Michigan, Nebraska, Pennsylvania and Tennessee. ‘Enough is enough,’ said Bradshaw, vice president of Bakery, Confectionary, Tobacco Workers and Grain Millers International Union Local 252G... ‘We can't afford to keep giving away things to a company that financially has made record-breaking returns.’”
October 18 – Reuters (Lucia Mutikani):
“Production at U.S. factories fell by the most in seven months in September as an ongoing global shortage of semiconductors depressed motor vehicle output, further evidence that supply constraints were hampering economic growth… The report… followed on the heels of data last week showing a solid rise in inflation in September. Though retail sales rose last month, that reflected higher prices for motor vehicles. ‘While the hurricane disruption and weather effects will fade, labor and product shortages are still worsening, which will continue to weigh on manufacturing output over the coming months and quarters,’ said Michael Pearce, a senior U.S. economist at Capital Economics…”
October 19 – CNN (Vanessa Yurkevich):
“The trucking industry is short 80,000 drivers, a record high, Chris Spear, President and CEO of the American Trucking Associations, tells CNN. That's a 30% increase from before the pandemic… ‘That's a pretty big spike,’ Spear added. Many drivers are retiring, dropping out of the industry. Increased consumer demand, prompting a need for more drivers, also plays a big role in the shortfall. This comes at a time when US ports are backlogged -- primarily because there are few trucks and drivers to pick up cargo -- creating a supply chain slowdown.”
October 19 – Reuters (Lucia Mutikani):
“U.S. homebuilding unexpectedly fell in September and permits dropped to a one-year low amid acute shortages of raw materials and labor, supporting expectations that economic growth slowed sharply in the third quarter… Housing starts dropped 1.6% to a seasonally adjusted annual rate of 1.555 million units last month, the lowest level since April. Data for August was revised down to a rate of 1.580 million units from the previously reported 1.615 million units… Prices for copper, another essential material in home building, have soared more than 16% since the end of September, buoyed by decades-low supplies.”
October 19 – Bloomberg (Jordan Yadoo):
“Homebuilders appear to be taking longer than ever to get from start to finish. The number of houses in the U.S. that remain under construction exceeded the number of those completed by the most on record in September… It’s the fourth month in a row that so-called completions have lagged… The number of houses under construction rose 1.3% to a rate of 1.43 million units, the highest since 1974. Completions fell 4.6% to a rate of 1.24 million units, the lowest since August 2020…”
China Watch:
October 15 – CNN (Michelle Toh):
“Evergrande's unraveling is still commanding global attention, but its troubles are part of a much bigger problem. For weeks, the ailing Chinese real estate conglomerate has made headlines as investors wait to see what will happen to its enormous mountain of debt. As the slow-moving crisis unfolds, analysts are pointing to a deeper underlying issue: China's property market is cooling off after years of oversupply… Mark Williams, chief Asia economist at Capital Economics, estimates that China still has about 30 million unsold properties, which could house 80 million people… On top of that, about 100 million properties have likely been bought but not occupied, which could accommodate roughly 260 million people, according to Capital Economics estimates. Such projects have attracted scrutiny for years, and even been dubbed China's ‘ghost towns.’”
October 19 – South China Morning Post (Orange Wang):
“A worse-than-expected third quarter economic performance for China has indicated there could be more pain ahead in the final three months of the year, while stoking fears of ‘stagflation’, analysts say. On Monday, new data from the National Bureau of Statistics showed China’s gross domestic product (GDP) for the three months ending September grew by 4.9% from a year ago, missing market expectations of 5% growth and well below the 7.9% gain seen in the second quarter and the blistering 18.3% expansion between January and March.”
October 17 – Bloomberg:
“China’s residential property slump dragged on last month as the debt crisis at China Evergrande Group spread to other developers, keeping buyers away. Home sales by value tumbled 16.9% in September from a year earlier, following a 19.7% drop in August… Real estate investment slid for the first time since the onset of the coronavirus shut swathes of the economy at the start of last year, down 3.5% from a year earlier… ‘No one is buying new properties because they are getting afraid,’ Helen Qiao, chief Greater China economist at Bank of America Corp, said... ‘So we could see further downside on the economy.’”
October 17 – Reuters (Liangping Gao and Ryan Woo):
“China's September new construction starts slumped for a sixth straight month, the longest spate of monthly declines since 2015, as cash-strapped developers put a pause on projects in the wake of tighter regulations on borrowing. New construction starts in September fell 13.54% from a year earlier, the third month of double-digit declines… That marks the longest downtrend since declines in March-August 2015, the last property malaise.”
October 20 – Bloomberg:
“China Evergrande Group scrapped talks to offload a stake in its property-management arm and said real estate sales plunged about 97% during peak home-buying season, worsening its liquidity crisis on the eve of a dollar-bond deadline that could tip the company into default. In statements to the Hong Kong exchange late Wednesday, Evergrande added that it had made no further progress on asset sales and may not be able to meet its financial obligations.”
Global Bubble Watch:
October 19 – Associated Press (David McHugh, Colleen Barry, Joe McDonald and Tatiana Pollastri):
“Power shortages are turning out streetlights and shutting down factories in China. The poor in Brazil are choosing between paying for food or electricity. German corn and wheat farmers can’t find fertilizer, made using natural gas. And fears are rising that Europe will have to ration electricity if it’s a cold winter. The world is gripped by an energy crunch — a fierce squeeze on some of the key markets for natural gas, oil and other fuels that keep the global economy running and the lights and heat on in homes. Heading into winter, that has meant higher utility bills, more expensive products and growing concern about how energy-consuming Europe and China will recover from the COVID-19 pandemic. Rising energy costs are another pressure point on businesses and consumers already feeling the pinch of higher prices from supply chain and labor constraints.”
October 19 – Financial Times (Neil Hume):
“The world’s largest carmakers could face a potentially crippling shortage of aluminium, as China’s power crisis threatens supplies of a key component used to make the lightweight metal. Magnesium is an essential raw material for the production of aluminium alloys, which are used in everything from gearboxes, to steering columns, seat frames and fuel tank covers. Owing to production curbs in China, which has a near monopoly on the magnesium market, stockpiles of the metal are running dangerously low across Europe.”
Europe Watch:
October 19 – CNBC (Sam Meredith):
“Russia has opted against sending more natural gas supplies to Europe, curbing hopes that Moscow may ease its grip on the market shortly after President Vladimir Putin said the country would be prepared to help. Highly anticipated auction results on Monday showed Russia’s state gas giant Gazprom had not booked additional gas transit capacity for November either through the Ukrainian pipeline system or lines into western Europe via Poland.”
Environmental Watch:
October 18 – Wall Street Journal (Matthew Dalton):
“At a July global climate gathering in London, South African environment minister Barbara Creecy presented the world’s wealthiest countries with a bill: more than $750 billion annually to pay for poorer nations to shift away from fossil fuels and protect themselves from global warming. The number was met with silence from U.S. Climate Envoy John Kerry, according to Zaheer Fakir, an adviser to Ms. Creecy. Other Western officials said they weren’t ready to discuss such a huge sum. For decades, Western countries responsible for the bulk of greenhouse-gas emissions have pledged to pay to bring poorer nations along with them in what is expected to be a very expensive global energy transition. But they have yet to fully deliver on that promise. Now the price of the developing world’s cooperation is going up.”
October 16 – Wall Street Journal (Katherine Blunt):
“California is racing to secure large amounts of power in the next few years to make up for the impending closure of fossil-fuel power plants and a nuclear facility that provides nearly 10% of the electricity generated in the state. The California Public Utilities Commission has ordered utilities to buy an unprecedented amount of renewable energy and battery storage as the state phases out four natural-gas-fired power plants and retires Diablo Canyon, the state’s last nuclear plant, starting in 2024. While the companies are moving quickly to contract for power, the California Energy Commission and the state’s grid operator have recently expressed concern that the purchases may not be enough to prevent electricity shortages in coming summers.”
Geopolitical Watch:
October 18 – Bloomberg (Brendan Scott, Jon Herskovitz, and Kari Soo Lindberg):
“China’s reported launch of a hypersonic missile into orbit has raised concerns that U.S. rivals are quickly neutralizing the Pentagon’s missile defenses even as it invests tens of billions of dollars in upgrades. In a test two months ago, the Chinese military sent a nuclear-capable missile into low-orbit space and around the globe before cruising down to its target, the Financial Times reported… Although the weapon missed its mark by about two dozen miles, the paper said, the technology, once perfected, could be used to send nuclear warheads over the South Pole and around American anti-missile systems in the northern hemisphere.”
October 19 – Reuters (Hyonhee Shin and Josh Smith):
“North Korea test-fired a new, smaller ballistic missile from a submarine, state media confirmed…, a move that analysts said could be aimed at more quickly fielding an operational missile submarine… The White House urged North Korea to refrain from further ‘provocations’…”
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