Credit Bubble Bulletin
Weekly Commentary
February 25, 2022
by Doug Noland
My edited easy to read version follows
Ye Editor
For the Week Ending February 25, 2022:
GLOBAL STOCK INDEXES:
S&P500 up 0.8% (down 8.0% year-to-date)
Dow Industrials little changed (down 6.3%)
Utilities up 1.9% (down 6.7%)
Banks down 0.9% (up 2.8%)
Transports up 1.6% (down 7.7%)
S&P 400 Midcaps up 1.1% (down 6.3%)
Small cap Russell 2000 up 1.6% (down 9.1%)
Nasdaq100 up 1.3% (down 13.1%).
Semiconductors up 2.0% (down 12.5%)
Biotechs down 0.9% (down 9.8%).
With gold bullion down $9,
the HUI gold stock index fell 0.8% (up 8.4%)
U.K.'s FTSE slipped 0.3% (up 1.4% y-t-d).
Japan's Nikkei fell 2.4% (down 8.0% y-t-d).
France's CAC40 dropped 2.6% (down 5.6%)
German DAX sank 3.2% (down 8.3%)
Spain's IBEX 35 declined 1.2% (down 2.6%)
Italy's FTSE MIB dropped 2.8% (down 5.8%)
Brazil's Bovespa increased 0.2% (up 7.9%)
Mexico's Bolsa gained 0.5% (down 1.4%).
South Korea's Kospi slumped 2.5% (down 10.1%).
India's Sensex dropped 3.4% (down 4.1%).
China's Shanghai declined 1.1% (down 5.2%).
Turkey's Istanbul National 100 index
dropped 3.9% (up 5.1%).
Russia's MICEX collapsed 27.2%
(down 34.8%)
US BONDS:
Three-month Treasury bill rates
ended the week at 0.2875%.
Two-year government yields
jumped 10 bps to 1.57% (up 84bps y-t-d).
Five-year T-note yields
gained five bps to 1.87% (up 60bps).
Ten-year Treasury yields
increased three bps to 1.96% (up 45bps).
Benchmark Fannie Mae MBS yields
increased three bps
to a 31-month high 2.92% (up 85bps).
Federal Reserve Credit last week
jumped $27.0bn
to a record $8.886 TN.
Over the past 128 weeks,
Fed Credit expanded $5.159 TN,
or 138%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
declined three bps to 3.89%
(up 92bps year-over-year).
Fifteen-year rates slipped a basis point to 3.14%
(up 80bps).
Five-year hybrid ARM rates unchanged at 2.98%
(down 1bp)
Jumbo mortgage 30-year fixed rates
up five bps to 4.25% (up 107bps).
COMMODITIES:
Bloomberg Commodities Index
added 0.7% (up 13.3% y-t-d).
Spot Gold down 0.5% to $1,889 (up 3.3%).
Silver rose 1.5% to $24.27 (up 4.1%).
WTI crude oil up 52 cents to $96.62 (up 22%).
Gasoline up 2.2% (up 22%)
Natural Gas gained 0.9% (up 20%).
Copper down 0.9% (up 1%).
Wheat surged 6.9% (up 12%)
Corn added 0.5% (up 11%).
Bitcoin fell $862, or 2.1%,
this week, to $39,480 (down 15%).
NOTE:
All Ukraine news here
(there was a lot)
was deleted by Ye Editor
Current reports on TV and online
will be more up to date
than what was here.
DOUG NOLAND COMMENTARY
(just a few highlights)
... the world changed decisively for the worse with Thursday’s Russian invasion of Ukraine. This time, a historic development – the largest European war since WWII ...
... there is now a more distinct line that separates divergent views on morality.
Autocracy vs. Democracy.
I don’t believe China is “evil,” but this week Beijing further demonstrated that it operates with an impaired moral compass.
February 23
– Washington Examiner:
“China has given ‘tacit approval’ for Russian President Vladimir Putin’s latest invasion of Ukraine, in the judgment of U.S. officials, as part of a joint effort to undermine the institutions that American and allied leaders established to minimize conflict in the decades following World War II. ... ”
There will be only losers in the Russia/Ukraine War.
For Ukraine, catastrophic losses appear unavoidable.
An independent nation is at the brink of collapse and dissolution at the hands of the military of a foreign dictator.
... Putin ... I can only presume he expected the Ukrainians to roll over at the prospect of being mowed down by the great Russia military machine.
... In the heat of battle, Zelenskyy is demonstrating
extraordinary courage and leadership.
The neophyte politician is in an exclusive club
(seemingly of one): A national leader
willing to face down Putin.
And it’s difficult to believe Putin saw this coming,
and it makes a tremendous difference.
This is not Crimea circa 2014.
...The Ukrainian people are an inspiration.
“I think this is the time where we need to,
at the invitation of Ukraine, declare Ukraine
a no-fly zone enforced by NATO
and the United States.
We certainly have the capability to do that.
... We can shut down
Russian air operations,
even if we don’t directly
engage Russian troops
on the ground…
Vladimir Putin has threatened
the use of nuclear weapons.
That shows you how dangerous
this man is. And he only stops
when his bayonet hits a brick wall.
The United States and NATO
must be that brick wall tonight.
"... NATO and the United States
would crush Russia in the air in a second.”
Congressman Adam Kinzinger,
appearing on CNN, February 25, 2022.
... might Putin be losing touch with reality.
... Each day the Ukrainians hold out
the greater the pressure on U.S.
and European governments
to provide military assistance.
.. China refused to even call it an invasion,
let alone denounce Russia’s aggression.
Now China will provide Russia a lifeline,
surely subverting western sanctions.
I’ll assume the U.S. and the
“non-autocratic” block will rally
around Taiwan's independence.
It was one wild week for acutely
unstable global markets,
but we’ll leave that for another day.
NEWS FROM LAST WEEK
Coronavirus Watch:
February 22
– Wall Street Journal:
“A more infectious type of the Omicron variant has surged to account for more than a third of global Covid-19 cases sequenced recently, adding to the debate about whether countries are ready for full reopening. Health authorities are examining whether the sub-variant of Omicron, known as BA.2, could extend the length of Covid-19 waves that have peaked recently in Europe, Japan and some other places. ‘We’re looking not only at how quickly those peaks go up, but how they come down,’ World Health Organization epidemiologist Maria Van Kerkhove said. ‘And as the decline in cases occurs… we also need to look at: Is there a slowing of that decline? Or will we start to see an increase again?’”
February 22
– Bloomberg:
“Omicron is ripping through cargo ships, raising concerns that a surge in cases, coupled with China’s tightened quarantine requirements for vessels, could delay supply chain stabilization for the shipping industry. Covid outbreaks are hitting ships globally, with cases increasing ‘exponentially,’ said Francesco Gargiulo, CEO of the International Maritime Employers’ Council Ltd., which represents shipping companies.”
Inflation Watch:
February 25
– CNBC:
“A key inflation measure showed that prices rose at their fastest level in nearly 39 years, but it didn’t deter consumers from spending aggressively, the Commerce Department reported Friday. The core personal consumption expenditures price index, the Federal Reserve’s primary inflation gauge, rose 5.2% from a year ago, slightly more than the 5.1% Dow Jones estimate. It was the highest level since April 1983. Including food and energy prices, headline PCE was up 6.1%, the strongest gain since February 1982.”
February 20
– Associated Press:
“Krystal Guerra’s Miami apartment has a tiny kitchen, cracked tiles, warped cabinets, no dishwasher and hardly any storage space. But Guerra was fine with the apartment’s shortcomings. It was all part of being a 32-year-old graduate student in South Florida… That was until a new owner bought the property and told her he was raising the rent from $1,550 to $1,950, a 26% increase that Guerra said meant her rent would account for the majority of her take-home pay... ‘I thought that was insane,’ said Guerra… ‘Am I supposed to stop paying for everything else I have going on in my life just so I can pay rent? That’s unsustainable.’ Guerra is hardly alone. Rents have exploded across the country, causing many to dig deep into their savings, downsize to subpar units or fall behind on payments and risk eviction…”
U.S. Bubble Watch:
February 23
– Bloomberg:
“The U.S. labor market is even hotter than the picture given by an unemployment rate nearing a 50-year low, according to research by some economists that warns of sustained inflationary pressures. Goldman Sachs… economists led by Jan Hatzius found there’s a shortage of 4.6 million workers, the most since the World War II period. That figure compares the total number of jobs -- including the near-record for those still open -- and the size of the labor force, or the number of people employed plus those looking for work.”
February 22
– CNN:
“Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, the biggest increase in 34 years of data and substantially ahead of 2020's 10.4% gain. All regions saw price gains last year, but increases were strongest in the South and the Southeast, each of which were up over 25%. Phoenix, Tampa and Miami reported the highest annual gains among the 20 cities in the index in December. Phoenix led the way for the 31st consecutive month with prices 32.5% higher than the year before. It was followed by Tampa with a 29.4% increase, and Miami, with a 27.3% increase. ‘We continue to see very strong growth at the city level,’ said Craig J. Lazzara, managing director at S&P... ‘All 20 cities saw price increases in 2021, and prices in all 20 are at their all-time highs.’”
February 23
– Bloomberg:
“Erin Damato and her husband have been seriously looking for a home since last fall to accommodate their growing family, and they’re finding that nearly $1 million isn’t enough to meet their needs anywhere in New Jersey. They bid $828,000 for a house listed last month for about $750,000 in West Orange, about 20 miles west of New York City, only to find out from their real estate agent that their offer was the sixth best of more than 20 received by the sellers. She estimates the home sold for close to $1 million. ‘It’s been incredibly frustrating,’ Damato, 35, said… ‘House prices have gone up about $100,000 since we’ve been looking.’ … January was the most competitive month ever in the U.S., with about 70% of offers subject to bidding wars, up from about 60% a year earlier, according to… Redfin Corp.”
China Watch:
February 22
– Bloomberg:
“China’s efforts to prop up the beleaguered real-estate market are expanding to some of the country’s largest cities, with authorities moving to stem the economic damage from the slump. The Shanghai branch of China’s central bank urged commercial banks to accelerate real-estate loans and ensure growth in both residential mortgages and loans to developers over the next few months…”
February 23
– Bloomberg:
“Shimao Group Holdings Ltd. missed some trust payments and hasn’t reached an agreement to extend repayments on about 6 billion yuan ($948 million) of high-yield products with the nation’s largest trust firm. The builder didn’t make payments for principal and interest on a portion of the trust products that came due last week…”
February 24
– Bloomberg:
“Losses in Chinese debt markets are spreading beyond the battered real estate sector, sending the nation’s investment-grade bonds to a 21-month low as creditors grow increasingly wary of blue-chip borrowers including Alibaba Group Holding Ltd. Renewed concerns about the Chinese government’s crackdown on tech companies are compounding worries about everything from rising U.S. rates to the Russia-Ukraine conflict and weak consumer spending. The tumble in Alibaba’s bonds sent the yield spread on its 10-year dollar note to a record high on Thursday.”
February 22
– Bloomberg:
“China’s domestic liquefied natural gas price surged to a record on frigid temperatures, a scenario that may spur its importers to snap up cargoes from the spot market and further tighten global supplies. The national average price for the fuel, carried by trucks to factories or vehicle refueling stations, rallied nearly 80% in the last month…”
Geopolitical Watch -- Taiwan:
February 23
– Reuters:
“Taiwan is ‘not Ukraine’ and has always been an inalienable part of China, China’s foreign ministry said on Wednesday, as Taiwan President Tsai Ing-wen called for the island to beef up vigilance on military activities in response to the crisis. The comments come after British Prime Minister Boris Johnson flagged the risk for Taiwan in a warning last week about the damaging worldwide consequences if Western nations failed to fulfil their promises to support Ukraine's independence… Speaking in Beijing, Foreign Ministry spokesperson Hua Chunying dismissed any link between the issues of Ukraine and Taiwan. ‘Taiwan is not Ukraine,’ she said. ‘Taiwan has always been an inalienable part of China. This is an indisputable legal and historical fact.’”
February 24
– Reuters:
“Taiwan's air force scrambled again on Thursday to warn away nine Chinese aircraft that entered its air defence zone, Taiwan's defence ministry said, on the same day that Russia invaded Ukraine, a crisis being watched closely in Taipei. Taiwan, which China claims as its own territory, has complained of regular such missions by the Chinese air force over the last two years, though the aircraft do not get close to Taiwan itself.”
February 23
– CNN:
“As the world’s attention focuses on the escalating crisis between Russia and Ukraine, a spotlight has also been turned on an island halfway around the world -- self-governing Taiwan. On the surface, there may be parallels: both Taiwan and Ukraine are Western-friendly democracies whose status quo could be upended by powerful autocracies. In Taiwan’s case, China’s Communist Party seeks eventual ‘reunification’ with the island it claims as its territory despite having never governed it -- and has not ruled out doing so by force. For Ukraine, that threat is unfolding: Russian President Vladimir Putin has said he considers Russians and Ukrainians as ‘one people,’ and it's yet unclear how far he'll go to realize that claim… World leaders themselves have implied connections between the fates of Ukraine and Taiwan in recent weeks.”
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