Credit Bubble Bulletin
Weekly Commentary:
Inflation Acquiescence
by Doug Noland
Following is my edited easy to read version
Ye Editor
For the Week Ending May 27, 2022:
GLOBAL STOCK INDEXES:
S&P500 surged 6.6% (down 12.8% y-t-d)
Dow rose 6.2% (down 8.6%)
Utilities jumped 5.1% (up 3.5%)
Banks surged 9.2% (down 12.1%)
Transports rallied 7.1% (down 12.3%)
S&P 400 Midcaps recovered 6.5% (down 10.6%)
Small cap Russell 2000 rose 6.5% (down 15.9%)
Nasdaq100 advanced 7.1% (down 22.3%)
Semiconductors rallied 8.1% (down 21.1%)
Biotechs gained 3.9% (down 14.3%).
With gold bullion up $7,
the HUI gold stock index increased 1.6% (up 0.6%).
U.K.'s FTSE jumped 2.6% (up 2.7% y-t-d).
Japan's Nikkei increased 0.2% (down 7.0% y-t-d).
France's CAC40 surged 3.7% (down 8.9%)
German DAX rallied 3.4% (down 9.0%).
Spain's IBEX 35 surged 5.3% (up 2.5%).
Italy's FTSE MIB rose 2.2% (down 9.9%).
Brazil's Bovespa rose 3.2% (up 6.8%)
Mexico's Bolsa gained 1.8% (down 1.5%).
South Korea's Kospi little changed (down 11.4%).
India's Sensex increased 1.0% (down 5.8%).
China's Shanghai slipped 0.5% (down 14.0%).
Turkey's Istanbul National 100 rallied 2.8% (up 31.3%).
Russia's MICEX gained 1.4% (down 36.4%).
US BONDS:
Three-month Treasury bill rates
ended the week at 1.015%.
Two-year government yields
dropped 11 bps to 2.48% (up 174bps y-t-d).
Five-year T-note yields
fell eight bps to 2.72% (up 145bps).
Ten-year Treasury yields
declined four bps to 2.74% (up 123bps).
Long bond yields
dipped two bps to 2.97% (up 106bps).
Benchmark Fannie Mae MBS yields
dropped 12 bps 3.88% (up 181bps).
Federal Reserve Credit last week
declined $18.6bn to $8.901 TN.
Over the past 141 weeks,
Fed Credit expanded $5.174 TN, or 139%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
dropped 15 bps to 5.10% (up 215bps y-o-y).
Fifteen-year rates fell 12 bps to 4.31%
(up 204bps).
Five-year hybrid ARM rates
jumped 12 bps to 4.20% (up 161bps)
- the high since 2010.
Jumbo mortgage 30-year fixed rates
down 13 bps to 5.24% (up 214bps).
CURRENCY:
For the week, the U.S. Dollar Index
dropped 1.4% to 101.67 (up 6.3% y-t-d).
The Chinese (onshore) renminbi
declined 0.1% versus the dollar
(down 5.12% y-t-d).
COMMODITIES:
The Bloomberg Commodities Index
rose 2.5% (up 35.0% y-t-d).
Spot Gold increased 0.4% to $1,854 (up 1.3%).
Silver gained 1.6% to $22.11 (down 5.1%).
Copper increased 0.7% (down 4%).
WTI crude oil added $1.87 to $114.07 (up 53%).
Gasoline jumped 4.7% (up 80%)
Natural Gas surged 8.0% (up 134%).
Wheat dipped 1.0% (up 50%)
Corn slipped 0.2% (up 31%).
Bitcoin fell $480, or 1.7%, this week
to $28,800 (down 38%).
DOUG NOLAND'S COMMENTARY:
(highly edited)
... Is the Fed all inflation bark and no bite? After all, CPI (y-o-y) surged to over 8% - and has been above the Fed’s 2% target now for 15 months – yet the target policy rate is today at only 0.75% to 1.0%. Inflation is exacting a heavy toll on the population; politicians are under the gun and vocal. The Fed, of course, is compelled to present steely resolve. “Fed Minutes Show Urgency…” “Fed Minutes Show Strong Commitment…” “Officials ‘noted that a restrictive stance of policy may well become appropriate.’”
How much of this is just superficial stuff – an expedient bordering on a ruse? Does the Fed have the resolve necessary to mount a serious inflation fight, one that would invariably unfold with significant market and economic turmoil? ...
... Fed policy has certainly not been speeding hurriedly to pull us from the wreckage wrought by runaway inflation. ...
... “I think the Fed is going to have to decide between two policy mistakes: Hit the brakes too hard and risk a recession or tap the brakes in a stop and go pattern – including a pause in the September meeting would be an example of that – and risk having inflation well into 2023.” Mohamed El-Erian, Bloomberg TV, May 27, 2022
The Philadelphia Oil Services Index jumped 11.8% this week,
the KBW Bank Index 9.2%, the Semiconductor (SOX) Index 8.1%,
the Nasdaq Industrials 7.8%, the Nasdaq100 7.2%,
and the NYSE Financial Index 7.1%.
The “average stock” Value Line Arithmetic Index gained 6.2%.
The SPDR S&P Retail ETF (XRT) surged 10.1%,
reversing last week’s 9.4% drubbing.
NEWS SUMMARY OF LAST WEEK:
Market Instability Watch:
May 24 – Bloomberg:
“Traders are offloading sector-specific funds at the fastest pace on record as the looming bear market seemingly spares no corner of the equity world. Roughly $11.9 billion has been pulled from sector exchange-traded funds so far in May, putting the category on track for the biggest monthly drawdown on record… That’s the first time those ETFs have posted net outflows since September 2020.”
Bursting Bubble / Mania Watch:
May 27 – Wall Street Journal:
“TerraUSD was touted as a blue-chip cryptocurrency. Now its investors are reeling from painful losses and asking if it was all a get-rich-quick scheme. A surgeon in Massachusetts can’t stop thinking about how he lost his family’s nest egg. A young Ukrainian considered suicide after losing 90% of his savings. Other investors have given up dreams of starting new businesses or quitting their day jobs. All of them were swept up in the mania for TerraUSD, whose total value swelled to $18 billion before collapsing earlier this month. The coin’s sudden downfall is a reminder that crypto—which enjoyed a huge bull market last year—is often little more than a casino, with weak regulation and few means of recourse for the losers.”
May 24 – Reuters:
“Snap Inc shares plunged more than 40% and sparked a sector-wide selloff on Tuesday after a profit warning from the Snapchat parent signaled tough times ahead for the once-booming digital ad industry. The company was on track to lose $15 billion in market capitalization, while shares of major online advertisers and social-media firms were set to lose a combine $200 billion in value from the rout… Snap said… it was expecting to miss quarterly revenue and profit targets set just a month earlier and would have to slow hiring and lower spending. Valuations for social media stocks are coming back down to earth after the companies posted unprecedented growth last year when advertisers began to recover from the pandemic, said Brian Wieser, global president of business intelligence at ad agency GroupM.”
May 24 – Bloomberg:
“If the SPAC craze is over, it’s going out with a bang by making a Miami lawyer who has owned speedboats named ‘Class Action’ and ‘Power of Attorney’ one of the richest people in the US -- if only briefly. MSP Recovery was valued at $32.6 billion in its merger with special purpose acquisition company Lionheart Acquisition Corp. II, the largest such combination ever in the US as measured by enterprise value. It began trading Tuesday on the Nasdaq, plunging more than 60% to $3.85…, less than an hour after its debut.”
Russia / Ukraine War Watch:
May 25 – Reuters:
“After making it through the spring planting season, sometimes with the help of bulletproof vests and helmets, Ukraine's farmers are facing another challenge – finding enough diesel for the harvest to come. The war with Russia cut fuel supplies just as farmers stepped up work for the spring season and they have lost about 85% of their normal supplies since the conflict started on Feb. 24, farmers, fuel distributors and analysts say.”
Economic War / Iron Curtain Watch:
May 21 – Wall Street Journal:
“Apple Inc. has told some of its contract manufacturers that it wants to boost production outside China, citing Beijing’s strict anti-Covid policy among other reasons, people involved in the discussions said. India and Vietnam, already sites for a small portion of Apple’s global production, are among the countries getting a closer look from the company as alternatives to China, the people said. More than 90% of Apple products such as iPhones, iPads and MacBook laptops are manufactured in China by outside contractors, according to analysts.”
U.S. / Russia Watch:
May 25 – Bloomberg:
“Russia will service its dollar debt in rubles after the expiry of a sanctions loophole closed the option of payments in the US currency, potentially putting Moscow on track to default. The announcement came a day after the US confirmed the end of the waiver, creating another headache for Russia as it tries to get funds to investors. A payment in rubles would breach the terms on a 2026 dollar bond with coupons due this Friday, triggering a 30-day grace period before Russia could potentially slip into default.”
Inflation Watch:
May 27 – Associated Press:
“ ... airlines have thousands fewer employees than they did in 2019, and that has at times contributed to widespread flight cancellations. People who are only now booking travel for the summer are experiencing the sticker shock. Domestic airline fares for summer are averaging more than $400 a round trip, 24% higher than this time in 2019, before the pandemic, and a whopping 45% higher than a year ago…”
May 24 – National Geographic:
“... according to noted Canadian energy researcher Vaclav Smil, two-fifths of humanity—more than three billion people—are alive because of nitrogen fertilizer… The chemical fertilizer trifecta that tripled global grain production—nitrogen (N), phosphorus (P), and potassium (K)—enabled the greatest human population growth the planet has ever seen. Now, it is in short supply, and farmers, fertilizer companies, and governments around the globe are scrambling to avert a seemingly inevitable tumble in crop yields.”
May 25 – Bloomberg:
“Eggs will get even more expensive after US production plummeted to a seven-year low during one of the worst-ever bird flu outbreaks. The price for eggs is set to rise as much as 21% compared to a year ago, the biggest increase among all food staples tracked by the US Department of Agriculture. In April, the outlook was for an increase of 6% to 7%. The outbreak of avian influenza has affected more than 38 million birds in the US…”
U.S. Bubble Watch:
May 24 – Dow Jones:
“S&P 'flash' surveys fall in May to lowest level in several months. The numbers: U.S. businesses expanded at the slowest pace in several months, a pair of surveys showed, reflecting the effects of high inflation, ongoing supply shortages and some softening in customer demand. The S&P flash U.S. services index drop to a three-month low of 53.5 in May from 55.6 in the prior month. The flash U.S. manufacturing index, meanwhile, slid to a three-month low of 57.5 from 59.2… New orders rose at the slowest pace since August 2020, when the coronavirus was still affecting large swaths of the U.S. economy… The so-called input price index rose to a new series high.”
May 24 – Reuters:
“Sales of new U.S. single-family homes tumbled to a two-year low in April… New home sales plunged 16.6% to a seasonally adjusted annual rate of 591,000 units last month, the lowest level since April 2020. March's sales pace was revised down to 709,000 units from the previously reported 763,000 units. Sales dropped 5.9% in the Northeast and tumbled 15.1% in the Midwest. They plummeted 19.8% in the densely populated South and decreased 13.8% in the West. Economists… had forecast that new home sales, which account for 9.5% of U.S. home sales, would fall to a rate of 750,000 units. Sales dropped 26.9% on a year-on-year basis in April. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006… The median new house price in April soared 19.6% from a year ago to a record $450,600. The average house price surged at a much faster 31.2% to $570,300…”
May 26 – CNBC:
“Sharply higher mortgage rates have caused a sudden pullback in home sales, and now sellers are rushing to get in before the red-hot market cools off dramatically. The supply of homes for sale jumped 9% last week compared with the same period a year ago, according to Realtor.com. That is the biggest annual gain the company has recorded since it began tracking the metric in 2017. Real estate brokerage Redfin also reported that new listings rose nearly twice as fast in the four weeks ended May 15 as they did during the same period a year ago.”
May 22 – Wall Street Journal:
“ ... Fifty-seven percent of small-business owners expect economic conditions in the U.S. to worsen in the next year, up from 42% in April and equal to the all-time low recorded in April 2020, according to a survey of more than 600 small businesses… The measure is one part of a broader confidence index that in May posted its largest year-over-year drop since the Covid-related shutdowns of April and May 2020. Despite rising prices, the portion of small businesses that expects revenue to increase in the coming year fell to 61%, down from 79% in May 2020.”
May 21 – CNBC: “
The average amount of personal savings dropped 15% from $73,100 in 2021 to $62,086 in 2022, according to Northwestern Mutual's recent 2022 Planning & Progress study. And 60% of U.S. adults say that the pandemic has been ‘highly disruptive’ to their finances. The annual study was conducted by The Harris Poll between Feb. 8 and Feb. 17 of this year, with data pulled from responses from 2,381 American adults.”
May 25 – Bloomberg:
“The US federal budget deficit will shrink dramatically this year -- to an estimated $1 trillion -- due to a surge in tax revenue and the expiration of pandemic-related aid programs, the Congressional Budget Office said. The shortfall is also seen narrowing to $984 billion in the 2023 fiscal year, which begins Oct. 1. The deficits this year and next are notably smaller than the $2.8 trillion in 2021…”
China Watch:
May 24 – Bloomberg:
“President Xi Jinping’s punishing Covid Zero policy has angered Chinese citizens by invading the one place they’ve retained some small bit of privacy: their homes. A video of ‘Big White’ hazmat pandemic enforcers dousing disinfectant over an apartment in the eastern Chinese city of Xuzhou — even emptying the refrigerator for sterilization — sparked outrage on China’s Twitter-like Weibo. The clip was shared 50,000 times and clocked 10 million views before being censored. ‘Home is the last frontier for the Chinese,’ a blogger who goes by the name West Slope wrote afterward, in an essay viewed 100,000 times on messaging app WeChat. ‘Videos of unruly household invasions break the last psychological line of defense for many.’”
Global Bubble and Instability Watch:
May 23 – Wall Street Journal:
"... Long the world’s top importer of wheat, Egypt has been hammered by Russia’s invasion of Ukraine, which has disrupted wheat supplies from both countries. The pair previously supplied more than 80% of Egypt’s imports. In a country where political discontent often follows spikes in food prices, the potential for bread shortages is among the most urgent security challenges the Egyptian state has faced since the 2013 coup…”
Geopolitical Watch:
May 25 – Bloomberg:
“China followed President Joe Biden’s vow to defend Taiwan militarily by announcing it held military exercises close to the democratically ruled island, underscoring its anger over the US stance. The air and sea ‘combat readiness patrol’ was ‘a solemn warning about the recent collusion between the US and Taiwan,’ Colonel Shi Yi said… ‘On the Taiwan issue, the US side says one thing and does another, giving repeated encouragement to ‘Taiwan independence’ forces. This is hypocritical and futile, and will only lead the situation to a dangerous situation, and it will also face serious consequences,’ Shi added.”
May 25 – Reuters:
“North Korea fired three missiles on Wednesday, including one thought to be its largest intercontinental ballistic missile, after U.S. President Joe Biden ended an Asia trip where he agreed to new measures to deter the nuclear-armed state. South Korea's deputy national security adviser, Kim Tae-hyo, said the North also appeared to have conducted multiple experiments with a detonation device… In response to the missile launches, the United States and South Korea held combined live-fire drills, including surface-to-surface missile tests involving the U.S. Army Tactical Missile System (ATACMS) and the South's Hyunmoo-2 SRBM, both militaries said.”
Climate and Energy Watch:
https://elonionbloggle.blogspot.com/2022/05/energy-news-summary-of-last-week.html
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