Credit Bubble Bulletin

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

Presented by Doug Noland

Daily Commentary

Wednesday, October 20, 2021

[Yahoo/Bloomberg] Stocks Mixed, Bonds Hold as Traders Mull Recovery: Markets Wrap

[CNBC] 10-year Treasury yield hits 1.67%, its highest point since mid-May

[Reuters] Asian shares advance on earnings optimism, yen slips to 4-yr low

[Reuters] Oil falls as China considers intervention to ease coal crunch

[Yahoo/Bloomberg] Gold Rises After Fed Official Plays Down Rate Hike Prospects

[Yahoo/Bloomberg] China Sets Weaker-Than-Expected Yuan Fix, Boosts Cash Injection

[CNBC] Weekly mortgage demand drops over 6% after interest rates move even higher

[CNBC] Federal Reserve Chair Powell’s five measuring sticks on inflation aren’t holding up very well

[Yahoo/Bloomberg] China’s Falling Home Prices Cast Another Shadow Over Economy

[Yahoo/Bloomberg] China New-Home Prices Fall; Sinic Defaults: Evergrande Update

[Yahoo/Bloomberg] Kaisa Bonds Fall After Investor Meetings Canceled This Week

[Reuters] China’s new home prices stall for first time since COVID-19

[Reuters] Explainer: Is China finally ready to roll out a property tax?

[Yahoo/Bloomberg] Inflation Hits 4.4% in Canada, Deepening Central Bank Challenge

[Reuters] Bundesbank chief Weidmann quits early with one last inflation warning

[Reuters] Weidmann: the often lonely ECB voice against easy money

[Reuters] Turkey’s Erdogan faces uphill battle to curb ‘exorbitant prices’

[Reuters] ‘We don’t have water’: South American dam faces energy crunch as river ebbs

[Bloomberg] U.S. Propane Market Headed for ‘Armageddon’ This Winter, IHS Says

[Bloomberg] China’s Land Market Slump Threatens $1 Trillion Revenue Earner

[Bloomberg] Homebuilders Take Longer Than Ever to Finish as Backlogs Mount

[WSJ] Inflation Is Approaching a Tipping Point at the Grocery Store

[FT] China new home prices hit by first month-on-month fall since 2015

[FT] China coal futures drop on threat of state intervention in energy crisis

[FT] Bundesbank chief Jens Weidmann to step down

Weekly Commentary

October 1, 2021: Inflation Watch

August Personal Consumption Expenditures (PCE) inflation rose to 4.3% y-o-y, the largest gain in 30 years. The S&P CoreLogic National Composite Home Price Index posted a 19.7% y-o-y gain in July – the strongest housing inflation in data back to 1987. Zumper data show national apartment (two-bedroom) rent inflated 13.1% y-o-y, with Zillow national rental prices rising 11.5%. The Bloomberg Commodities Index ended the week with a year-over-year rise of 44.6%. A benchmark United Nations food index inflated 33% over the past year. University of Michigan consumer one-year inflation expectations were down slightly from July’s high to 4.6%, near a 13-year high – and only 0.5% below 40-year highs. Forecasts have September y-o-y consumer price inflation (CPI) at 5.3%, near the high since 1990.

We’ll begin with a Chair Powell comment from his September 22nd press conference:

“If you look at the last two or three years before the pandemic hit, you saw, after a lot of long progress, you saw a really strong labor market. And you saw wages at the low end moving up faster than everywhere else. Something that’s great to see. We also saw the lowest unemployment rates for minorities… We saw a really, really healthy set of dynamics. And, by the way, we also — there was no reason why it couldn’t continue. There were no imbalances in the economy, and then along came the pandemic. We were not, there was nothing in the economy that looked like a buildup of imbalances that could cause a recession. So, I was very much thinking that the country would really benefit from a few more years of this. It would have been — so we’re all quite eager to get back to that.”

This is somewhat confounding. If there were “no imbalances in the economy,” why then did the Fed resume QE in September 2019 – months ahead of the pandemic (with markets near all-time highs and unemployment at 50-year lows)? Federal Reserve Assets have ballooned $4.678 TN over the past two years (107 weeks), of which about $200 billion occurred prior to the Fed’s March 2020 crisis ramp up.

There were clearly worsening fragilities in market structure. It’s a key analytical point that the return of QE was in response to market “imbalances” – most notably instability in the “repo” market, which had clear potential to erupt as a catalyst to prick U.S. and global Bubbles. Recall also that U.S. “repo” market disorder followed on the heels of Chinese money market instability. Reenergized U.S., Chinese and global Bubbles could not have been more vulnerable heading into the pandemic. Their near implosions unleashed global monetary stimulus without precedent. (more…)

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