Credit Bubble Bulletin
by Doug Noland
Friday, February 11, 2022
My edited easy to read version follows:
Ye Editor
For the Week Ending February 11, 2022:
GLOBAL STOCK INDEXES:
S&P500 down 1.8% (down 7.3% year-to-date)
Dow Industrials down 1.0% (down 4.4%)
Utilities down 2.4% (down 7.3%)
Banks up 1.0% (up 7.0%)
S&P 400 Midcaps up 0.9% (down 6.8%)
Small cap Russell 2000 up 1.4% (down 9.6%)
Nasdaq100 down 3.0% (down 12.7%)
Semiconductors down 2.5% (down 14.7%)
Biotechs up 0.6% (down 7.4%).
With gold bullion up $50,
the HUI gold index surged 7.8% (up 2.5%).
U.K.'s FTSE rallied 1.9% (up 3.7% y-t-d).
Japan's Nikkei up 0.9% (down 3.8% y-t-d)
German DAX up 2.2% (down 2.9%).
Spain's IBEX 35 up 2.4% (up 1.0%).
Italy's FTSE MIB up 1.4% (down 1.4%)
Brazil's Bovespa up 1.2% (up 8.3%)
Mexico's Bolsa up 3.9% (unchanged).
South Korea's Kospi little changed (down 7.7%).
India's Sensex own 0.8% (down 0.2%)
China's Shanghai up 3.0% (down 4.9%).
Turkey's Istanbul National 100 up 5.5% (up 10.4%)
Russia's MICEX rose 2.2% (down 6.4%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.335%.
Two-year government yields
surged 19 bps to 1.51% (up 77bps y-t-d).
Five-year T-note yields
rose nine bps to 1.86% (up 59bps).
Ten-year Treasury yields
added three bps to 1.94% (up 43bps).
Long bond yields
increased three bps to 2.24% (up 34bps).
Benchmark Fannie Mae MBS yields
jumped 13 bps to a 31-month high 2.86%
(up 80bps).
Federal Reserve Credit last week
expanded only $10.2bn to $8.838 TN.
Over the past 126 weeks,
Fed Credit expanded $5.111 TN, or 137%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
jumped 14 bps to 3.69% (up 96bps y-o-y).
Fifteen-year rates
surged 16 bps to 2.93% (up 74bps).
Five-year hybrid ARM rates
rose nine bps to 2.80% (up 1bp).
Jumbo mortgage 30-year fixed rates
up 24 bps to 3.99% (up 115bps).
COMMODITIES:
February 7 – Bloomberg:
“Jeff Currie, the closely-followed head of commodities research at Goldman Sachs..., says he’s never seen commodity markets pricing in the shortages they are right now. ‘I’ve been doing this 30 years and I’ve never seen markets like this,’ Currie said... ‘This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.’ Futures curves in several markets are trading in super-backwardation -- a structure that indicates traders are paying bumper premiums for immediate supply. The downward sloping shape in prices is generally taken to mean commodities are severely undersupplied.”
Bloomberg Commodities Index
added 0.3% (up 10.8% y-t-d).
Spot Gold jumped 2.8% to $1,859 (up 1.6%).
Silver surged 4.7% to $23.59 (up 1.2%).
WTI crude oil up 79 cents to $93.10 (up 24%).
Gasoline jumped 2.2% (up 23%)
Natural Gas sank 13.8% (up 6%).
Copper added 0.4% (up 1%).
Wheat jumped 5.3% (up 4%)
Corn rose 4.8% (up 10%).
Bitcoin gained $1,620,
or 4.0%, this week
to $42,357
(down 8.7%)
DOUG NOLAND'S COMMENTARY:
(highly edited)
INFLATION NEWS:
US:
January CPI +0.6% during January, with y-o-y inflation at a 40-year high 7.5%. Inflation is out of control. The Fed ... offers assurances that it is prepared to use “all its tools” to return inflation back to its comfortable 2% target level. ... After $5.1 TN of new “money” in 126 weeks, it’s fair to conclude the Federal Reserve has Lost Control of Inflation. The Fed would have to significantly tighten monetary policy, and inflict pain, if it were determined to wring inflationary pressures out of the system. ... Yet they don’t dare adopt this approach, as it comes with a high risk of losing something they desperately aim to maintain a semblance of control over: the financial markets.
“It is nothing short of preposterous that in an economy with 7.5% inflation, that in an economy with the tightest labor market we’ve seen in two generations, that the central bank is still as we speak growing its balance sheet.” Economist Larry Summers, February 11, 2022
ECU:
The European Cental Bank (ECB) is still printing “money” and its initial rate increase is still months away. Christine (German nickname “Madam Inflation”) Lagarde has Lost Control.
CHINA:
... So much for Beijing’s efforts to restrain runaway Credit expansion. Aggregate Financing expanded $5.092 TN, or 11.5%, over the past year to surpass $50 TN for the first time. Aggregate Financing surged 74% over five years. ... Credit (Aggregate Financing) expanded a blistering $5.1 TN over the past year ($11.4 TN in 25 months!). Yet China’s real estate Bubble is faltering, while the general economy has stagnated. ... China’s M2 money supply jumped $1.494 TN over the past three months, 50% higher than comparable growth from last year. M2 expanded 9.8% y-o-y, the strongest pace in almost a year.
NEWS FROM LAST WEEK:
Coronavirus Watch:
February 6
– Wall Street Journal
“In the past five or six weeks, the Omicron coronavirus (common cold, not Covid variant. Ye Editor) variant has likely gotten more people sick than any similar period since the 1918-1919 flu pandemic … causing worker shortages from hospitals to factories and spurring debate about Covid-19 restrictions, particularly since Omicron appears to be causing less serious illness. In England, more than one in six residents are estimated to have caught the coronavirus since Omicron emerged in late November…”
Covid Disruption Watch:
February 5
– Bloomberg:
“Paint maker PPG Industries CEO Michael McGarry described a day in the life of a plant manager… “They wake up in the morning, check their phone to see how many people call off sick... They go through the dock area to see how many trucks didn’t get picked up, and then they go to the receiving area and then find out what didn’t come in... And then they move it into the plant and the supply chain people are telling me that they’re going to have to make smaller batches because of lack of raw materials. And then the sales team is telling them, ‘oh, my God, if we don’t get paint out the door, here’s how many customers we’re going to impact.’”
Market Mania Watch:
February 8
– Financial Times:
"Private fund raisings are continuing at close to a record pace…after stocks from almost all the largest IPOs of 2021 have fallen dramatically from their early highs, with several including Rivian and Bumble tumbling more than 50%.”
Inflation Watch:
February 9
– Wall Street Journal:
“Americans took on more new debt in 2021 than in any year since before the 2008-09 financial crisis. Total household debt rose by $1.02 trillion last year, boosted by higher balances on home and auto loans, the Federal Reserve Bank of New York said... It was the largest increase since a $1.06 trillion jump in 2007. Total consumer debt now sits at around $15.6 trillion, compared with $14.6 trillion a year earlier. The increase is largely a function of a sharp rise in prices for homes and cars. The price of the average U.S. home rose close to 20% in 2021, boosting mortgage balances and pricing out many middle-class buyers. Rising prices for new and used cars drove auto-loan originations to a record $734 billion.”
February 7
– Wall Street Journal:
“Alexis Abell recently walked out of a BJ’s Wholesale Club outside Buffalo, N.Y., with 24 boxes of Kraft Macaroni & Cheese, a box of 50 frozen mozzarella sticks, a 40-pound bag of basmati rice and a 12-can pack of garbanzo beans. ‘I don’t want to be in a position again where I can’t get something,’ says Ms. Abell… She estimates her family is now spending about 25% more a week on food and staples than before the pandemic, and she is buying more than twice as much of some staples and household supplies … Americans continue to stockpile food and household goods.”
February 10
– Bloomberg:
The Bloomberg Agriculture Spot Subindex, which tracks nine agricultural commodities, is nearing an all-time high. Prices across grains, oilseed and softs markets have rallied as supply shortfalls abound, a signal that food inflation already hitting consumers worldwide is unlikely to let up soon. This year ‘will be a very odd year,’ Peder Tuborgh, chief executive of Denmark-based dairy Arla Foods, said… ‘Demand has to cool off. You cannot eat or drink something that is not available, and only the price can make it cool off.’ The company, the world’s fifth-largest dairy, said inputs from energy to packaging rose 10% in January versus last year.”
February 10
– Bloomberg:
“The typical U.S. household is spending an additional $276 a month on goods and services because of rising inflation, according to Moody’s Analytics Inc… ‘Having inflation at 7.5% on a year-ago basis, compared with the 2.1% average growth in 2018 and 2019, is costing the average household $276 per month,’ said Ryan Sweet, a senior economist at Moody’s. The cost of inflation differs across income and demographic cohorts, he said.”
February 8
– Bloomberg:
“Aluminum surged to a 13-year high in London as booming demand and a swath of smelter closures from China to Europe bring the risk of shortages of the crucial industrial metal. Prices rose as much as 3.3% to $3,236 a ton on the London Metal Exchange, surpassing a peak in October to reach the highest since 2008.”
February 7
– Bloomberg:
“The era of expensive coffee is not going to end any time soon, judging from dwindling amounts held in reserves. Stockpiles of high-end arabica beans, a favorite of artisan coffee shops and chains like Starbucks Corp., totaled 1.078 million bags or about 143 million pounds, according to… ICE Futures U.S. exchange. That’s the lowest level for coffee bean inventories monitored by the New York exchange since February 2000.”
Biden Administration Watch:
February 7
– Reuters:
“U.S. President Joe Biden said… the Nord Stream 2 gas pipeline would be halted if Russia invades Ukraine and stressed unity with German Chancellor Olaf Scholz as the West rallies to avert a war in Europe... ‘If Russia invades, that means tanks or troops crossing the ... border of Ukraine again, then there will be ... no longer a Nord Stream 2. We, we will bring an end to it,’ Biden said. Asked how, given the project is in German control, Biden said: ‘I promise you, we'll be able to do it.’”
Federal Reserve Watch:
February 9
– CNBC:
“Atlanta Federal Reserve President Raphael Bostic said… he anticipates hiking interest rates three or four times this year, but he stressed that the central bank isn’t locked into a specific plan. Speaking on CNBC…, the policymaker signaled a view that is less aggressive than the market’s on rates. ‘In terms of hikes for the interest rates, right now I have three forecast for this year; he said. ‘I’m leaning a little towards four, but we’re going to have to see how the economy responds as we take our first steps through the first part of this year.’”
U.S. Bubble Watch:
February 8
– Associated Press:
“The U.S. trade deficit soared to a record $859.1 billion last year as Americans splurged on foreign-made electronics, toys and clothing during the economy’s unexpectedly robust recovery… The trade gap — the difference between what the United States sells and what it buys from foreign countries — surged 27% last year from $676.7 billion in 2020. U.S. exports rose 18% to more than $2.5 trillion. But imports rose more, climbing 21% to nearly $3.4 trillion.”
February 8
– MarketWatch:
“The number of small businesses that raised prices on customers in January rose to a 48-year high, reflecting higher costs of labor and materials amid the biggest surge in U.S. inflation since the early 1980s. The National Federation of Independent Business said a net 61% of small businesses increased prices at the beginning of the new year. That’s the highest percentage since 1974. The NFIB’s small business optimism index, meanwhile, slipped 1.8 percentage points in January to 97.1 — an 11-month low. ... ‘In addition to inflation issues, owners are also raising compensation at record high rates to attract qualified employees to their open positions.’”
February 7
– Wall Street Journal:
"At the end of last year, there were about 411,000 fewer homes on the market that were considered affordable for households earning between $75,000 and $100,000 than before the pandemic… At the end of 2019, there was one available listing that was affordable for every 24 households in this income bracket. By December 2021, the figure was one listing for every 65 households.”
– Bloomberg:
“The share of Americans who say it’s a good time to buy a house hit an all-time low of 25% in a monthly Fannie Mae survey. The pandemic-era surge in U.S. housing prices, combined with increased concerns about job stability and rising mortgage rates, are deterring potential buyers from trying to purchase a home. ‘Younger consumers -- more so than other groups -- expect home prices to rise even further,’ said Doug Duncan, Fannie Mae’s chief economist. ‘They also reported a greater sense of macroeconomic pessimism.’
February 10
– Bloomberg:
“Mortgage rates in the U.S. jumped to the highest level since January 2020, before the pandemic rocked financial markets. The average for a 30-year loan was 3.69%, up from 3.55% last week, Freddie Mac said in a statement Thursday. That was the highest since Jan. 2, 2020, when rates averaged 3.72%.”
February 10
– Bloomberg:
“For first-time buyers, mortgage payments jumped to 25.6% of household incomes in the fourth quarter, the worst affordability level in three years, according to the National Association of Realtors. The share was 22.4% a year earlier. The surge in purchase prices combined with rising mortgage rates added $201 a month to a typical home-loan payment…”
“Credit-card balances increased every quarter in 2021 to end the year at $856 billion, the Federal Reserve Bank of New York said... The fourth-quarter gain was the largest in figures dating back 22 years, and while the total amount is still below pre-Covid levels, the gap is closing rapidly.”
February 9
– Bloomberg:
“More than $40 billion worth of residential real estate valued at $10 million or higher changed hands in 2021, according to… real estate brokerage Compass Inc. That’s more than double the amount in 2020. In New York’s Long Island alone, five properties — not in the Hamptons — sold for $10 million or more last year, totaling $101 million.”
February 9
- Bloomberg:
“Tickets to Sunday’s Super Bowl between the Los Angeles Rams and the Cincinnati Bengals are the most expensive on record at $7,542 on average, according to ticket reseller TickPick.”
China Watch:
February 8
– Reuters:
“China's blue-chip index slumped to a 19-month low on Tuesday, with new-energy vehicle stocks leading the losses, as investors fretted over the prospect of the U.S. government adding more Chinese entities to the export control list.”
Europe Watch:
February 9
– Financial Times:
“The new head of Germany’s central bank has said it is time for Europe to tighten its financial belt by ending the exceptional monetary and fiscal stimulus that helped the economy to rebound swiftly from the pandemic. Joachim Nagel, who took over as Bundesbank president last month, has called for a ‘normalisation’ of eurozone monetary policy in response to record inflation and said EU fiscal rules should be ‘stricter’ to prevent countries ignoring them."
Japan Watch:
"With most bond traders in Tokyo already well on their way home to start a long weekend, the central bank offered to buy an unlimited amount of bonds at a fixed rate, pushing back against weeks of trader speculation about policy normalization. The central bank will buy 10-year bonds at 0.25%... This is the first such operation since July 2018 as yields creep closer to the limit of tolerated levels under the BOJ’s yield curve control framework.”
Environmental Watch:
February 7
– Bloomberg:
“China’s dependency on coal is likely to worsen this year as the authorities struggle to rein in prices ... as Chinese miners dug up more than 4 billion tons of the dirtiest fossil fuel for the first time in 2021. The effort to stave off power outages involved unleashing some 300 million tons of capacity that’s still producing, and which is likely to add another 1% or 2% to annual output this year, according to… the Shanghai Shipping Exchange.”
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