Credit Bubble Bulletin

Credit Bubble Bulletin2020-05-20T17:01:05-06:00

Presented by Doug Noland

Daily Commentary

Thursday, May 13, 2021

[Yahoo/Bloomberg] U.S. Stocks Gain After Jobless Claims, PPI: Markets Wrap

[Reuters] Europe flattened by snowballing global correction

[Yahoo/Bloomberg] Oil Falls as Inflation Hits Sentiment and Colonial Pipe Restarts

[Reuters] Dollar holds gains after inflation surprise; Aussie dollar extends losses

[Yahoo Finance] Bitcoin, Dogecoin sink after Elon Musk walks back Tesla’s support for crypto transactions

[AP] April wholesale prices jump 0.6%, led by higher food costs

[AP] US unemployment claims drop to 473,000, a new pandemic low

[Dow Jones] Inflation Data Test Fed’s Strategy and Outlook

[Yahoo/Bloomberg] Fed Lists Six Reasons in Arguing Inflation Surge Will Pass

[Yahoo Finance] Gas shortage could last ‘weeks’ despite Colonial Pipeline restart: expert

[Reuters] Analysis: What U.S. inflation signs would cause Fed to change course?

[Yahoo Finance] McDonald’s is raising hourly wages for 36,5000 employees across the U.S.

[Reuters] Germany’s 2021 election and why it matters to markets

[Yahoo/Bloomberg] U.S. West Facing White-Knuckle Summer With Power in Short Supply

[Yahoo/Bloomberg] Chocolate’s About to Get More Expensive

[Bloomberg] Taiwan’s Stock Crash Deepens as Traders Unwind Leveraged Bets

[Bloomberg] China Property Stock’s Sudden Plunge on Spinoff Plan Spooks Bondholders

[NYT] Inflation Is Here. What Now?

[NYT] Jump in Consumer Prices Raises Stakes in Inflation Debate

[NYT] As Trillions Flow Out the Door, Stimulus Oversight Faces Challenges

[WSJ] Powell Gets His Inflation Wish

[WSJ] U.S. Ran Record $1.9 Trillion Budget Deficit in First Seven Months of Fiscal Year

[WSJ] Empty Lots, Angry Customers: Chip Crisis Throws Wrench into Car Business

[WSJ] SoftBank Pulls Back From Funding ‘Nasdaq Whale’

[FT] Investors brace for test of nerves as inflation worries mount

[FT] US-China tech war: Beijing’s secret chipmaking champions

[FT] How India’s Covid-19 crisis diminished Narendra Modi

Weekly Commentary

April 30, 2021: Fed Guessing

“I’m not sure why they think they know that it’s transitory. How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively? There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“ Jeffrey Gundlach, DoubleLine Capital

“Guessing” is giving the Fed the benefit of the doubt. It’s more of a declaration: inflation is not and will not be an issue. And I doubt there’s anything that would shift their approach. Our central bank has its heels firmly dug in. Monetary policy will remain ultra-loose, while their communications strategy at this point is little more than rationalization and justification. I can only assume they are fearful of the consequences of puncturing Bubbles. It’s been only 13 months since a near financial meltdown.

The deflating stock market Bubble was surely troubling for the Fed; money market fund liquidity issues concerning. The run on corporate bond and equities ETFs must have been scary – illiquidity and dislocation in the Treasury market darn right horrifying. After all, an unwind of Treasury market (and fixed-income) leverage would surely bring this entire historic party to an unceremonious conclusion. Policy must kick that can down the road as far as possible.

We’ve witnessed a historic experiment in monetary management go completely off the rails. Future historians will surely be confounded. They will see recklessness and policy negligence. Where was the oversight? Were there no checks and balances? How could a small group of unelected officials just create Trillions out of thin air – Trillions of dollars that fueled history’s greatest speculative manias?

With the potential momentous impact of monetary policies, central banking by its nature must be a conservatively managed institution. No big experiments. No big mistakes. Err on the side of prudence and caution. Never take your eye off money and Credit.

There is no basis for believing that massive “money printing” is a reasonable solution to any problem. History, meanwhile, is replete with inflationary catastrophe. Inflationism has a long list of spectacular failures. Monetary stability is fundamental to stable prices, markets, economies, societies and governments. Bubbles are dangerous phenomena that must be contained early – before risks become so great as to make them untouchable. (more…)

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