Credit Bubble Bulletin
- Chronicling History's
Greatest Financial Bubble
Friday, November 5, 2021
by Doug Noland
My edited easy to read version follows.
Ye Editor
For the Week Ending November 5, 2021:
GLOBAL STOCK INDEXES:
S&P500 gained 2.0% (up 25.1% y-t-d)
Dow rose 1.4% (up 18.7%)
Transports surged 5.9% (up 34.7%)
Utilities added 0.5% (up 7.7%)
Banks increased 0.4% (up 42.2%)
S&P 400 Midcaps jumped 4.0% (up 25.7%)
Small cap Russell 2000 surged 6.1% (up 23.4%)
Nasdaq100 advanced 3.2% (up 26.9%)
Semiconductors rose 8.8% (up 34.4%)
Biotechs declined 1.1% (down 2.1%)
With gold bullion jumping $35,
the HUI gold stock index
rallied 4.0% (down 13.6%)
U.K.'s FTSE added 0.9% (up 13.1% y-t-d).
Japan's Nikkei jumped 2.5% (up 7.9% y-t-d).
France's CAC40 surged 3.1% (up 26.8%)
German DAX rose 2.3% (up 17.0%).
Spain's IBEX 35 increased 0.8% (up 13.1%).
Italy's FTSE MIB jumped 3.4% (up 25.0%).
Brazil's Bovespa gained 1.3% (down 11.9%)
Mexico's Bolsa rose 1.3% (up 18.0%).
South Korea's Kospi was unchanged (up 3.3%).
India's Sensex increased 1.3% (up 25.8%).
China's Exchange dropped 1.6% (up 0.5%).
Russia's MICEX added 0.6% (up 26.9%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.0375%.
Two-year government yields
dropped 10 bps to 0.40% (up 28bps y-t-d).
Five-year T-note yields
sank 13 bps to 1.06% (up 70bps).
Ten-year Treasury yields
fell 10 bps to 1.45% (up 54bps).
Long bond yields
declined five bps to 1.89% (up 24bps).
Benchmark Fannie Mae MBS yields
dropped 11 bps to 1.90% (up 55bps).
Federal Reserve Credit last week
declined $7.6bn to $8.531 TN.
Over the past 112 weeks,
Fed Credit expanded $4.804 TN, or 129%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates fell five bps to 3.09% (up 31bps y-o-y).
Fifteen-year rates slipped two bps to 2.35% (up 3bps).
Five-year hybrid ARM rates declined two bps to 2.54% (down 35bps).
Jumbo mortgage 30-year fixed rates up four bps to 3.17% (up 19bps).
Doug Noland Commentary Highlights:
"These days, manias are everywhere – at home and abroad, stocks, bonds, derivatives, crypto, houses, etc. ... The Goldman Sachs Most Short Index surged 11.7%. The Dow powered past 36,000 – and it was Deja Vu All Over Again.
In no way did this amendment grant the Fed carte blanch to print Trillions. The crafter of this legislation had in mind the Fed restraining money and Credit growth to ensure monetary and price stability. And for the Fed to use its full-employment mandate these days as justification for zero rates, and QE is also making a mockery out of that mandate.
... The Fed blames COVID, global supply shocks and other factors beyond its control for temporarily elevated inflation. Do they honestly believe they can print $4.8 TN in 112 weeks without unleashing powerful inflationary dynamics? The Fed and the global central banking community today inflict great harm as they proceed on the greatest monetary policy blunder the world has ever experienced.
It’s readily apparent what Trillions of monetary inflation do for securities, crypto, and asset prices – for speculation and feeding a mania. The euphoria of a record equities market run and Dow 36,000.
NEWS FROM LAST WEEK:
Coronavirus Watch:
November 2
– Reuters
(Tina Bellon and
Eric M. Johnson):
“In Wichita, Kansas, nearly half of the roughly 10,000 employees at aircraft companies Textron Inc and Spirit AeroSystems remain unvaccinated against COVID-19, risking their jobs in defiance of a federal mandate, according to a union official. ‘We're going to lose a lot of employees over this,’ said Cornell Beard, head of the local Machinists union district. Many workers did not object to the vaccines as such, he said, but were staunchly opposed to what they see as government meddling in personal health decisions.”
November 4
– Reuters
(Krisztina Than and
Nikolaj Skydsgaard):
“Coronavirus infections are hitting record levels in many countries across Europe as winter takes hold, prompting a call for action from the World Health Organization which described the new wave as a ‘grave concern’. Soaring numbers of cases, especially in Eastern Europe, have prompted debate on whether to reintroduce curbs on movement before the Christmas holiday season and on how to persuade more people to get vaccinated.”
Market Mania Watch:
October 31
– Wall Street Journal
(Alexander Osipovich and
Gunjan Banerji):
“High-speed trading firms are paying brokers billions of dollars a year to execute options orders, leading them to promote the risky trades whose popularity has boomed among small investors. The practice, called payment for order flow, has made options a cash cow for brokerages such as Robinhood Markets Inc. and TD Ameritrade. They can make twice as much or more from selling customers’ options orders as they do from selling order flow for stocks. In the 12 months through June, the 11 largest U.S. retail brokerages collected $2.2 billion for selling customers’ options orders, according to Larry Tabb… at Bloomberg Intelligence. That was about 60% higher than their take from selling equities orders.”
Inflation Watch:
November 2
– CNBC
(Abigail Johnson Hess):
“Today, typical college costs (including tuition and fees, room and board, and allowances for books and supplies, transportation and other personal expenses) range from $27,330 for public in-state university students to $55,800 for private nonprofit college students… According to the researchers’ analysis of… data for the years 1980 to 2019, college costs have increased by 169% over the past four decades — while earnings for workers between the ages of 22 and 27 have increased by just 19%.”
November 4
– Reuters
(Chris Kahn):
“Americans are increasingly turning away from the coronavirus and focusing their attention elsewhere, especially toward rising consumer prices and other economic areas where Democrats are less trusted, Reuters/Ipsos polling shows… While COVID-19 continues to claim more than 1,000 lives a day in the United States, the Oct. 18-22 national opinion survey shows the country's fixation on public health and diseases has faded since the beginning of the year. In October, just 12% of U.S. adults rated public health issues like the coronavirus as a top national priority, down from 20% in February. Meantime, two-thirds of the country, including majorities of Democrats, Republicans and independents, say that ‘inflation is a very big concern for me.’”
November 4
– Reuters
(Francesco Guarascio):
“World food prices rose for a third straight month in October to reach a fresh 10-year peak, led again by increases in cereals and vegetable oils, the UN food agency said… The October reading was the highest for the index since July 2011. On a year-on-year basis, the index was up 31.3% in October.”
November 4
– Bloomberg
(William Horobin):
“The global surge in energy prices pushed inflation in the OECD area to 4.6% in September, the highest rate since 2008. The report on the 38-member group adds pressure to major central banks that have said the situation is largely transitory and shied from any sudden tightening of policy to contain prices.”
November 3
– Financial Times
(John Redwood):
“In a world of disrupted supply chains and marked shortages of energy, products and transport capacity, there is a lot of inflation about. In Germany, it has hit 4.5%, Spain 5.5%, the US 5.4% and in Brazil more than 10%... The central banks told us price rises would be modest as lockdowns ended. They expected inflation to retreat quickly as economies returned to normal. At the end of last year the US Fed thought it would rise to just 1.8% this year. In March they adjusted that up to 2.4%. Today’s rate is more than double that. The European Central Bank in December 2020 thought EU inflation would only by 1% this year, but eurozone inflation is currently four times that.”
November 1
– Bloomberg
(Kim Chipman and
Megan Durisin):
“Benchmark wheat in Chicago climbed above $8 a bushel for the first time in almost nine years as importers boost purchases amid adverse weather conditions and soaring fertilizer prices that risk denting next year’s harvests. The advance may ramp up already high food costs worldwide… Some farmers are now contending with dry soil at planting time, as well as a run up in fertilizer prices. Wheat is on its longest streak of monthly gains since 2007.”
November 4
– Bloomberg
(Elizabeth Elkin):
“A shortage of nitrogen fertilizer is getting so bad that farmers won’t be able to get what they need for their fields in the near future. That’s according to executives at CF Industries Holdings Inc... If the owner of the world’s largest nitrogen facility is right and farmers have to scale back fertilizer applications, that could lower corn yields, pushing up the price of food even further.”
November 1
– Bloomberg
(Marvin G. Perez):
“Cotton prices surged near a 10-year high as forecasts for lower Indian supply heightened concern that a global deficit will get worse, threatening to increase costs for clothing… Prices have jumped more than 45% this year, cutting into margins for apparel makers and threatening to raise prices for everything from t-shirts to jeans.”
November 1
– Bloomberg
(Maxwell Adler):
“New Yorkers are in for a 24% increase in their heating bills this winter as a global natural gas shortage is sending prices for the fuel surging. Utility Consolidated Edison Inc. is warning New York customers they’ll pay $341 per month on average to heat their homes from November through March 2022, marking a $66 increase from last winter…”
Federal Reserve Watch:
October 29
– Bloomberg
(Simon Kennedy):
“Goldman Sachs… economists said they now expect inflation will force the Federal Reserve to hike interest rates next July, a year earlier than previously expected… Economists led by Jan Hatzius said the Fed will raise its benchmark from a range of zero to 0.25% soon after it stops tapering its massive asset-purchase program. A second increase will follow in November 2022 and the central bank will then raise rates two times a year after that, they said.”
U.S. Bubble Watch:
November 4
– Associated Press
(Martin Crutsinger):
“The U.S. trade deficit hit an all-time high of $80.9 billion in September as American exports fell sharply while imports, even with supply chain problems at American ports, continue to climb. The September deficit topped the previous record of $73.2 billion set in June… The deficit is the gap between what the United States exports to the rest of the world and the imports it purchases from foreign nations. In September, exports plunged 3% to $207.6 billion while imports rose 0.6% to $288.5 billion.”
November 4
– Reuters
(Lucia Mutikani):
“The number of Americans filing new claims for unemployment benefits fell to the lowest level in nearly 20 months last week, suggesting the economy was regaining momentum… The tightening labor market is driving up wages as companies scramble for workers, contributing to keeping inflation high. Labor costs surged in the third quarter…, with productivity sinking at its steepest pace in 40 years… Initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 269,000 for the week ended Oct. 30…”
November 1
– Associated Press
(Ken Sweet and
Emily Swanson):
“Americans’ opinions on the U.S. economy have soured noticeably in the past month, a new poll finds, with nearly half expecting economic conditions to worsen in the next year. Just 35% of Americans now call the national economy good, while 65% call it poor, according to a poll by The Associated Press-NORC Center for Public Affairs Research. That’s a dip since September, when 45% of Americans called the economy good, and a return to about where views of the nation’s economy stood in January and February, when the pandemic was raging... The deterioration in Americans’ economic sentiments comes as the cost of goods is rising nationwide, particularly gas prices, and bottlenecks in the global supply chain have made purchasing everything from furniture to automobiles more difficult.”
October 31
– Wall Street Journal
(Amara Omeokwe):
“The Covid-19 pandemic has boosted retirements among baby boomers, further straining the tight labor supply and leaving a hole for employers to fill. Older workers who could least afford to retire early—those with lower incomes and less education—have been more likely to leave the workforce during the pandemic… The question is whether their retreat is temporary or permanent. Some retired because of Covid-19 fears, and others after failing to find suitable work. The rising value of stocks, homes and other assets also has prompted a group of more affluent boomers to also retire earlier than expected, economists said.”
November 1
– CNBC
(Leslie Josephs):
“American Airlines on Monday canceled more than 460 flights, or 16% of its mainline schedule, as the carrier scrambled to stabilize its operation after reporting staffing shortages that led to travel disruptions for tens of thousands of people over the weekend. The… airline canceled more than 2,300 mainline flights since Friday, blaming the issues on high winds on Thursday and a shortfall of crews. On Sunday alone, it canceled more than 1,000 flights, or 30% of its operation… That affected more than 136,000 customers…”
China Watch:
October 31
– Bloomberg:
“China’s economy showed signs of further weakness in October as power shortages and surging commodity prices weighed on manufacturing, while strict Covid controls put a brake on holiday spending. The official manufacturing purchasing managers’ index fell to 49.2…, the second month it was below the key 50-mark that signals a contraction in production… Another worrying sign in the data was the pick-up in inflationary pressure in October. Both input and output prices for manufacturers jumped, suggesting producers are passing on higher costs to customers. Producer-price inflation is already at its highest level in almost 26 years.”
October 31
– Bloomberg:
“China’s major developers saw home sales tumble last month, prolonging the real estate slump and putting more pressure on growth in the world’s second-largest economy. New-home sales by area at the nation’s top 100 developers fell 32% in October from a year earlier, a report by… China Real Estate Information Corp. showed... Sales rose 1.4% from a month earlier. Both September and October are traditionally fast seasons for homebuying, but sentiment has evaporated amid the widening crisis…”
November 4
– Bloomberg:
“Chinese developer Kaisa Group… missed payments on wealth management products it guaranteed, the latest sign of stress in the nation’s beleaguered real estate industry. The company has faced ‘unprecedented pressure on its liquidity’ due to unfavorable factors such as credit rating downgrades and a challenging property market environment, Kaisa said…”
Global Bubble Watch:
October 31
– Reuters
(Jan Strupczewski,
Crispian Balmer,
Andrea Shalal and
Jason Lange):
“Leaders of the world's 20 biggest economies (G20) will endorse an OECD deal on a global minimum corporate tax of 15%..., with a view to have the rules in force in 2023. ‘We call on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to swiftly develop the model rules and multilateral instruments as agreed in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023,’ the draft conclusions… said.”
Geopolitical Watch:
October 29
– Bloomberg:
“Taiwan has no future prospect other than unification with China, Chinese Foreign Minister Wang Yi said in Rome at the G-20 summit. Wang was responding to questions on efforts by countries including the United States to support Taiwan’s greater participation in the United Nations and in the international community, according to a statement posted on China’s foreign ministry website... Chinese officials slammed the U.S. earlier in the week and warned its support for Taiwan could pose ‘huge risks’ to relations between Beijing and Washington.”
November 1
– Associated Press
(Robert Burns):
“China’s growing military muscle and its drive to end American predominance in the Asia-Pacific is rattling the U.S. defense establishment. American officials see trouble quickly accumulating on multiple fronts — Beijing’s expanding nuclear arsenal, its advances in space, cyber and missile technologies, and threats to Taiwan. ‘The pace at which China is moving is stunning,’ says Gen. John Hyten, the No. 2-ranking U.S. military officer, who previously commanded U.S. nuclear forces and oversaw Air Force space operations. At stake is a potential shift in the global balance of power that has favored the United States for decades.”
November 4
– Bloomberg
(Javier Blas,
Grant Smith and
Salma El Wardany):
“OPEC+ is heading for a politically consequential showdown with President Joe Biden, as Saudi Arabia and its allies must choose whether to heed American demands for more oil. The cartel looked set to rebuff the request, triggering a bare-knuckle fight with the White House, which is worried that inflation caused by high energy prices could derail its economic agenda. ‘You take a look at oil prices,’ Biden told reporters… Fuel costs are high because of ‘the refusal of Russia or the OPEC nations to pump more oil.’”
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