GameStop collapsed 80% this week, with Express and AMC Entertainment down 48%, Vaxart 36%, and Siebert Financial 31%. Riches have been made and lost. Wealth was redistributed – and count me skeptical that the flow was from professional speculators to retail traders.

February 1 – Bloomberg (Matthew Boesler): “Federal Reserve Bank of Minneapolis President Neel Kashkari… became the latest central bank official to push back against the idea that the trading frenzy in GameStop Corp. and other hot stocks calls for a monetary policy response. ‘GameStop has gotten a lot of attention. If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,’ Kashkari said… ‘That’s for them to do, and if they make money, fine. And if they lose money, that’s on them… I’m not at all thinking about modifying my views on monetary policy because of speculators in these individual stocks.’”

Mr. Kashkari is not some nerdy academic economist unschooled in the nuisances of contemporary securities markets. Prior to his stint at the Treasury Department (hired by former Goldman CEO Hank Paulson), he was a Goldman Sachs investment banker. Kashkari left government work in 2009 for greener pastures at Pimco, where he worked as a managing director for about three years (including head of global equities).

I ponder the degree Kashkari and other Fed officials are concerned by the millions now actively speculating in U.S. equities and options markets. “If they lose money, that’s on them.” Seems like a reasonable perspective. We all need to take personal responsibility for our actions. But it’s just not that simple.

Destructive forces are at work – forces that have worked long and hard. Is it okay that for years now incentives have promoted speculation? And, at this point, it has all become deeply structural. The Fed is there to safeguard against financial crisis. Stocks will always recover and go higher, while recession ensures Trillions of QE and fiscal stimulus (the elixir for booming liquidity and corporate profits!). The biggest worry is not being fully “invested.” The upshot: Tens of millions of Americans are now actively speculating on ever-rising stock prices. In a system skewed for the “haves” and against the “have-nots,” we’re forced to participate in a speculative Bubble for fear of being the chumps left behind.

A massive infrastructure has evolved to ensure it is both easy and perfectly rational to throw “money” at inflating markets. Most of all, the Fed continues to devalue savings while backstopping the securities and derivatives markets, creating a deleterious incentive structure promoting speculation and market Bubbles. Especially after last year’s unprecedented monetary inflation, this mechanism exacerbates inequality while placing tens of millions of unwitting market speculators at major risk.

“If they lose money, That’s on Them.” That may be okay for a group of market players. It’s fine for the professional speculator community. But it is definitely not okay when market speculation has grown to become a major societal issue, especially with our social fabric already frayed and frail. I believed at the time it was immoral for Bernanke to have slashed savings rates to zero and forced savers into the securities markets. More than a decade of inflationism – along with the Fed repeatedly monkeying with the markets – has so distorted incentives and risk perceptions that it is impossible for the public to accurately assess market risk. When they lose serious money, it will be on the Fed.

The thought of the anger, animosity and vengeance that will be unleashed when the Bubble bursts is deeply troubling. The backlash will be momentous. A sweeping regulatory crackdown is inevitable. It will take years – or, more likely, decades – for trust to return. Wall Street and the Fed will be the main villains, while already fragile confidence in our government will be badly shaken. Capitalism will be in jeopardy.

It remains a challenge to communicate the deleterious effects of inflationism and unsound money. We’re in a period of monetary hyperinflation, yet there are no wheelbarrows or spiraling prices for bread and foodstuffs. Savings of lifetimes have not been wiped out.

The contemporary system of digitalized “money” and Credit, where central banks inject monetary inflation directly into the securities markets, has unique inflationary manifestations. It’s virtually miraculous superficially, with surging prices for stocks, bonds, real estate, private businesses and asset prices more generally. Wealth seemingly expands by the week. Yet Monetary Disorder is taking an increasingly heavy toll on financial, economic, social and political stability. Insecurities, inequities, animosities, distrust and anger fester.

I began posting the CBB in 1999 after I had become convinced of fundamental and momentous changes in finance. “Money” and Credit were expanding unchecked outside the traditional mechanism of bank lending and deposit growth. The proliferation of aggressive non-bank financial operators – from the GSEs, to the Wall Street firms, securitizations, derivatives, the leveraged speculating community and the like – was creating a powerful mechanism for unprecedented Credit expansion outside traditional bank reserve and capital requirement constraints.

History informs us of the perils associated with unchecked monetary inflation. It was obvious during the nineties that this new financial structure and attendant unfettered Credit growth were highly unstable – fueling asset inflation, speculation and serial Bubbles. I waited anxiously for the Fed to recognize this new system’s instability and danger. It became increasingly worrying when the Fed used mortgage Credit for system reflation following the bursting of the “tech” Bubble.

The dimensions of the Bubble Problem became clear to me when the Bernanke Fed responded to the bursting mortgage finance Bubble with bailouts and $1.0 TN of QE. I warned of the unfolding global government finance Bubble in 2009. I essentially gave up hope when the Fed’s 2011 “exit strategy” was scrapped in favor of another doubling of the Fed’s balance sheet to $4.5 TN. I thought I had witnessed “crazy” – that is, until 2020.

Over time, the entire world joined in to forge a unique global dynamic: in a historic first, global “money” and Credit expanded without limits to either quantity or quality. And with the world awash in liquidity (much dollar-denominated), China accumulated an international reserve horde surpassing $4.0 TN. Mushrooming reserves and trade surpluses ensured China became the greatest enthusiast for unbridled finance.

Chinese and EM investment booms pulled manufacturing jobs away from the U.S., while booming financial markets financed the American economy’s transformation to services, finance and asset-based wealth creation. Unfettered finance also fueled the technology revolution, as global manufacturing coupled with endless tech products and services created a powerful check on consumer price inflation. Misreading the forces behind disinflationary consumer price pressures, monetary policies were kept loose. Asset inflation and Bubble Dynamics were perpetually accommodated.

In early CBBs, I found value in a “financial sphere” and “economic sphere” analytical framework. I was worried that unchecked finance was ensuring myriad distortions and inflation in the “financial sphere” were having increasingly detrimental effects on “economic sphere” structural development. The more prolonged the Bubble in the “financial sphere,” the deeper the structural impairment to the real economy and the greater the toll on society.

I’m a strong proponent of Capitalism. I believe in free markets. But Capitalism and markets will not function effectively in a period of unsound money. Indeed, unchecked “money” and Credit and an inflating “financial sphere” are anathema to Capitalistic systems. I have “Austrian” and “libertarian” leanings. But I’ve always viewed the Austrian School’s theory of laissez-faire “free banking” as so hopelessly detached from modern realities as to hinder the broader debate.

Similarly, I’ve long held that talk of adopting a gold standard was a waste of time. As beneficial as they were during previous periods, there was zero chance of a return. The pressing need was for recognition and rectification of the more dangerous shortcomings in the current system of unfettered “money” and Credit growth. Measures that would restrain monetary inflation and the “financial sphere” Bubble, more generally, were the only mechanism available to protect Capitalism, free markets, the soundness of the “economic sphere” and social stability.

It’s been one major disappointment after another. From my analytical framework, the precisely wrong measures were – are being – taken. Unchecked “money” and Credit has proliferated to the point where the Fed’s balance sheet doubled in 73 weeks to $7.4 TN, as M2 “money” supply expanded $4.6 TN, or 31% (to $19.5 TN). The Federal government ran a historic $3.1 TN deficit last year – and Washington is gearing up for a repeat. The now customary solution to predictable economic hardship and inequality is, of course, additional monetary inflation. And I am reminded of a recurring delusion from great inflations throughout history: the notion that “just one more year” – “one final bout” of money printing will get us over the hump before the return to restraint and moderation.

Not surprisingly, the damage wrought by monetary inflation also grows exponentially. Inequality, the securities market Bubble and stock market mania, social strife and political instability. At this point, the “economic sphere” is but a sideshow.

I am reminded of the sage words from the late German economist Dr. Kurt Richebacher: “The only cure for a Bubble is to not let it inflate.” Over the years, I’ve often fielded the question, “Doug, if you were a policymaker, what would you do?” There are today no easy answers – no solutions that come without tremendous hardship. I know the sooner Bubbles are addressed, the better. But policymakers long ago missed their timing. The first law of holes: If you find yourself in a hole, stop digging. Yet governments and central banks will not slow their feverish excavation efforts until market forces dictate a change of course.

The entire global system is in the throes of late-phase “Terminal Phase” excess for a multi-decade Bubble. There has been unprecedented structural impairment. And the risk of bursting Bubbles is at this point so extreme that officials see no alternative other than to stick with massive and unrelenting monetary inflation.

The S&P500 rallied 4.6% this week, the largest gain since November. The Russell 2000 surged 7.7%, increasing y-t-d gains to 13.1%. Most major U.S. equities indices traded to record highs. After spiking to 38 the previous week, the VIX (equities volatility) Index collapsed to end this week at 21. Why the bipolar market behavior?

U.S. and global stock markets came close to an accident – and this week they recoiled forcefully. The pattern is familiar. Those having purchased near-term put options and other derivatives watched the value of their hedges get absolutely crushed. Meanwhile, the sellers of call options – that had been reducing their hedges as the market declined – were again forced to aggressively buy underlying stocks and instruments to hedge against a rapidly rising market. Brave traders betting on a market top have, once again, been whipsawed out of their short positions. And there’s all the trend-following and performance-chasing activities. Fear of Missing Out (FOMO). It’s a potent late-cycle brew of speculative trading sure to stoke volatility.

The synchronized nature of global market speculation is extraordinary. Major equities indices were up 9.6% this week in India, 7.0% in Italy, 5.9% in Spain, 4.9% in South Korea, 4.8% in France, 4.6% in Germany, 4.5% in Brazil, 4.0% in Japan, 3.6% in Turkey, 3.5% in Russia and 2.7% in Mexico. Bank stock indices surged 13.1% in Italy, 7.8% in Europe, 6.5% in Japan, and 8.7% in the U.S.

Italian and European markets were bolstered by news of Mario Draghi’s appointment to cobble together a coalition government in Italy. U.S. sentiment was boosted by generally encouraging economic news, though Friday’s January payroll data were a mild disappointment. New Covid cases and hospitalizations have dropped, while the vaccination rollout has gathered steam. News that the Democrats have decided to move forward quickly with Biden’s $1.9 TN stimulus proposal through budget reconciliation supported the bullish narrative.

But perhaps the most impactful market development was out of China. Liquidity conditions eased significantly, with China’s overnight funding rate collapsing to 1.88% from the previous Friday’s 3.33%. Global anxiety that Beijing might finally be determined to rein in Bubble excess was quickly supplanted by exultation that Chinese officials wouldn’t dare risk removing the punchbowl. Curiously, the Shanghai Composite gained only 0.4%, recovering but a fraction of the previous week’s drop. Perhaps Chinese equities discern this week’s loosened liquidity conditions were only a temporary phenomenon – with further tightening measures to follow over the coming weeks and months.

I get the dynamics behind heightened global equities market volatility. I find the Treasury market more intriguing. Ten-year Treasury yields jumped 10 bps this week to 1.17% – the high since March. Long-bond yields surged 14 bps to 1.97%, with yields up a notable 33 bps y-t-d to pre-pandemic levels. Notably, the 10-year Treasury inflation “breakeven” rate jumped 10 bps to 2.20% – right at the highs going back to 2014. The Bloomberg Commodities Index rose 3% this week, increasing 2021 gains to 5.7% (up 40% from April lows to near two-year highs). WTI Crude surged 8.9% to a one-year high $56.85

Inflationary pressures are building, and a colossal supply of Treasuries is in the pipeline. Bond market nervousness is justified. But I also appreciate the Treasury market must see the fragile stock market Bubble as tranquilizing. All bets are off if equities go into melt-up mode.

It has the feel of global markets having entered a period of acute instability. Equities have turned wildly volatile, while bonds are increasingly vulnerable. Currencies are unstable as well, as traders try to discern if there’s more to go in the dollar squeeze or whether the bear market rally is about to give way. And how crazy could things get in the physical commodities if squeeze dynamics really take hold?

It’s also worth mentioning the semiconductor shortage that has begun to hamper manufacturing for autos and other products. It’s one more manifestation of destabilizing monetary inflation. There is now the clear prospect for massive near-term fiscal stimulus, while the Fed is determined to keep its foot pressed firmly on the accelerator. It’s a combustible mix. It’s not a market backdrop I would be comfortable trading, though millions clearly don’t share this view.

For the Week:

The S&P500 surged 4.6% (up 3.5% y-t-d), and the Dow rose 3.9% (up 1.8%). The Utilities rallied 2.4% (up 1.8%). The Banks spiked 8.7% (up 8.5%), and the Broker/Dealers surged 8.8% (up 8.8%). The Transports rose 5.8% (up 2.3%). The S&P 400 Midcaps jumped 5.8% (up 7.4%), and the small cap Russell 2000 surged 7.7% (up 13.1%). The Nasdaq100 rose 5.2% (up 5.6%). The Semiconductors gained 3.4% (up 6.8%). The Biotechs jumped 4.2% (up 8.7%). Though bullion fell $34, the HUI gold index gained 1.1% (down 4.3%).

Three-month Treasury bill rates ended the week at 0.02%. Two-year government yields slipped a basis point to 0.10% (down 2bps y-t-d). Five-year T-note yields rose four bps to 0.46% (up 10bps). Ten-year Treasury yields jumped 10 bps to 1.17% (up 25bps). Long bond yields surged 14 bps to 1.97% (up 33bps). Benchmark Fannie Mae MBS yields gained three bps to 1.46% (up 12bps).

Greek 10-year yields jumped eight bps to 0.76% (up 13bps y-t-d). Ten-year Portuguese yields added two bps to 0.06% (up 3bps). Italian 10-year yields sank 11 bps to 0.53% (down 1bp). Spain’s 10-year yields rose three bps to 0.12% (up 8bps). German bund yields jumped seven bps to negative 0.45% (up 12bps). French yields rose five bps to negative 0.22% (up 11bps). The French to German 10-year bond spread narrowed two to 22 bps. U.K. 10-year gilt yields surged 16 bps to 0.48% (up 29bps). U.K.’s FTSE equities index recovered 1.3% (up 0.4% y-t-d).

Japan’s Nikkei Equities Index rallied 4.0% (up 4.9% y-t-d). Japanese 10-year “JGB” yields added a basis point to 0.06% (up 4bps y-t-d). France’s CAC40 surged 4.8% (up 1.9%). The German DAX equities index rose 4.6% (up 2.5%). Spain’s IBEX 35 equities index surged 5.9% (up 1.7%). Italy’s FTSE MIB index jumped 7.0% (up 3.8%). EM equities rallied sharply. Brazil’s Bovespa index rose 4.5% (up 1.0%), and Mexico’s Bolsa gained 2.7% (up 0.2%). South Korea’s Kospi index surged 4.9% (up 8.6%). India’s Sensex equities index surged 9.6% (up 6.2%). China’s Shanghai Exchange increased 0.4% (up 0.7%). Turkey’s Borsa Istanbul National 100 index recovered 3.6% (up 3.4%). Russia’s MICEX equities index jumped 3.5% (up 3.2%).

Investment-grade bond funds saw inflows of $6.151 billion, and junk bond funds posted positive flows of $1.337 billion (from Lipper).

Federal Reserve Credit last week declined $18.0bn to $7.367 TN. Over the past year, Fed Credit expanded $3.247 TN, or 78.8%. Fed Credit inflated $4.574 Trillion, or 163%, over the past 430 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week declined $1.6bn to $3.531 TN. “Custody holdings” were up $105bn, or 3.1%, y-o-y.

M2 (narrow) “money” supply dropped $52.8bn last week to $19.514 TN, with an unprecedented 48-week gain of $4.006 TN. “Narrow money” surged $4.041 TN, or 26.1%, over the past year. For the week, Currency increased $7.5bn. Total Checkable Deposits surged $145.5bn, while Savings Deposits sank $198.4bn. Small Time deposits declined $5.7bn. Retail Money Funds slipped $1.8bn.

Total money market fund assets fell $13.3bn to $4.313 TN. Total money funds surged $696bn y-o-y, or 19.2%.

Total Commercial Paper dropped $11.2bn to $1.057 TN. CP was down $62.2bn, or 5.6%, year-over-year.

Freddie Mac 30-year fixed mortgage rates were unchanged at 2.73% (down 72bps y-o-y). Fifteen-year rates added a basis point to 2.21% (down 76bps). Five-year hybrid ARM rates declined two bps to 2.78% (down 54bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down two bps to 2.87% (down 82bps).

Currency Watch:

For the week, the U.S. dollar index increased 0.5% to 91.042 (up 1.2% y-t-d). For the week on the upside, the Mexican peso increased 2.4%, the South African rand 2.1%, the Brazilian real 1.8%, the Australian dollar 0.4%, the Norwegian krone 0.4%, the British pound 0.2%, the Canadian dollar 0.2%, and the New Zealand dollar 0.1%. On the downside, the Swiss franc declined 1.0%, the euro 0.7%, the Japanese yen 0.7%, the South Korean won 0.5%, the Singapore dollar 0.4%, and the Swedish krona 0.1%. The Chinese renminbi declined 0.56% versus the dollar this week (up 0.95% y-t-d).

Commodities Watch:

February 2 – Bloomberg (Yvonne Yue Li): “The Reddit-fueled run-up in silver prices might be stalling, but the U.S. Mint said it is still rationing its sales of silver coins because of ‘continued exceptional market demand,’ as well as limited supplies and manufacturing capacity. The Mint is also allocating gold and platinum coin sales to authorized purchasers…”

The Bloomberg Commodities Index jumped 3.0% (up 5.7% y-t-d). Spot Gold declined 1.8% to $1,814 (down 4.5%). Silver ended a hyper volatile week little changed at $26.92 (up 1.9%). WTI crude surged $4.65 to $56.85 (up 17%). Gasoline jumped 6.2% (up 17%), and Natural Gas surged 11.7% (up 13%). Copper gained 2.0% (up 3.0%). Wheat dropped 3.3% (unchanged). Corn added 0.3% (up 13%). Bitcoin gained $3,218, or 9.3%, this week to $37,859 (up 30%).

Coronavirus Watch:

February 1 – Associated Press (Michael Kunzelman and Michelle Smith): “The deadliest month yet of the coronavirus outbreak in the U.S. drew to a close with certain signs of progress: COVID-19 cases and hospitalizations are plummeting, while vaccinations are picking up speed. The question is whether the nation can stay ahead of the fast-spreading mutations of the virus. The U.S. death toll has climbed past 440,000, with over 95,000 lives lost in January alone. Deaths are running at about 3,150 per day on average, down slightly by about 200 from their peak in mid-January.”

January 30 – Los Angeles Times (Emily Baumgaertner): “New data showing that two COVID-19 vaccines are far less effective in South Africa than in other places they were tested have heightened fears that the coronavirus is quickly finding ways to elude the world’s most powerful tools to contain it. The U.S. company Novavax reported this week that while its vaccine was nearly 90% effective in clinical trials conducted in Britain, the figure fell to 49% in South Africa…”

February 3 – Financial Times (Michael Pooler, Clive Cookson and Carolina Pulice): “A more transmissible strain of coronavirus linked to an explosion of infections in the Amazonian city of Manaus is believed to be spreading throughout Brazil, where it could become the main variant, according to scientists. Researchers revealed last month they had detected the P. 1 lineage of Sars-Cov-2 in the remote rainforest municipality… The variant has also been registered in São Paulo, as well as in several other countries. Specialists… said there was now a risk of the strain taking hold more broadly throughout Latin America’s largest nation…”

February 1 – Wall Street Journal (Sumathi Reddy): “Even people with asymptomatic Covid cases can have after-effects in their bodies, research indicates… An estimated one-quarter to one-third of Covid infections are asymptomatic… Multiple studies have shown asymptomatic patients can have irregular lung scans. A couple of small studies have found cardiac issues in student athletes, including those with asymptomatic infections. And a study looking at asymptomatic and mild cases of Covid in children found signs of possible small blood vessel damage. It’s not yet clear what health consequences any of these after-effects may have, if any, doctors say.”

Market Mania Watch:

January 30 – Bloomberg (Katherine Greifeld and Claire Ballentine): “Much has been made about the deeper meanings of GameStop and this week’s market mania: How it reflects the profound inequalities festering in American society, how it’s a clarion call against the Wall Street establishment, or how it’s even the beginnings of an extremely online populist movement ready to take down the powers that be. But what’s been obscured of late by the morality tale over the unalienable right of Redditors to pump up meme stocks as a way to redistribute wealth is this: that many of these mostly young men, cooped up with little else to do during the pandemic, have banded together for the pure, unadulterated rush of gambling and hitting it big, again and again… ‘It’s very much like a drug,’ Kelly Mothner, a licensed clinical psychologist… who specializes in gambling and addiction, said of the stock frenzy. ‘It’s big and it’s strong and it’s powerful and you want more of it. The thrill of it is creating a dopamine rush, which is pushing people to be very impulsive, with the notion that there’s something really big on the other side if they just keep at it.’”

February 3 – Bloomberg (Misyrlena Egkolfopoulou and Sarah Ponczek): “Turns out, no-fee stock trades can exact a very high price after all. Not only for the retail traders sitting on deep losses speculating on meme stocks, or for Robinhood, which faces recriminations for ‘gamifying’ the frenzy that spun out of control and was forced to scramble for billions in fresh cash, but also for the stock market itself, which must reckon with the wild swings that have little bearing on fundamental value. If the surreal events of the past week hold any lessons for investors, it’s this: that for all its benefits, the ‘democratization’ of the stock market, powered by the no-commission model, is far from without risks. Things can quickly and recklessly devolve into mob rule.”

February 4 – Bloomberg (Annie Massa and Sarah Ponczek): “As one beleaguered stock after another suddenly soared in January, so too did queries on Google: ‘How to trade options on Robinhood.’ Robinhood Markets’s options-trading platform, barely three years old, is charting a meteoric rise in the Covid-19 pandemic, establishing the firm as the venue of choice for throngs of retail investing enthusiasts. New disclosures show the app’s monthly volume of options executed tripled last year, making the firm the second-most active among peers behind Charles Schwab… Offering options is so lucrative that they accounted for two-thirds of Robinhood’s reported revenue from order flow, a significant source of income.”

January 29 – New York Times (Taylor Lorenz and Mike Isaac): “Zane Bannink, a high school senior in Wisconsin, said that he has used the Robinhood stock trading app since he turned 18 two months ago. So far, he’s made over $800. Jude Folmar, a 19-year-old college student…, said he’s been trading stocks since he was 13… He’s earned over $22,000. And Liam Gavaghan, a 21-year-old university student…, started trading about six weeks ago. He now spends hours scanning Reddit message boards focused on finance and talking to his friends about potential trades in a Discord voice chat room. He has made more than $9,000 on an initial investment of roughly $1,900 — money that he received as part of Canada’s Covid-19 stimulus relief package. ‘It’s risky as hell,’ Mr. Gavaghan said about trading stocks. ‘But holy cow, it’s almost like getting a high.’”

February 4 – Reuters (Noor Zainab Hussain and Jessica DiNapoli): “The family behind Koss Corp and some of the company’s top executives raked in about $45 million from a surge in the headphone maker’s stock price during a retail trading blitz that rocked Wall Street last week.”

January 30 – Financial Times (Ortenca Aliaj and Robin Wigglesworth): “Renowned short-seller Jim Chanos says the GameStop saga has been the most ‘surreal’ episode in his career, and worries that things are going ‘completely off the rails’ with populist politicians looking to capitalise on the situation. ‘This was a week even us ancients haven’t seen before,’ Mr Chanos said… ‘I have been doing this for 40 years and I don’t remember a period like the past 10 days.’”

January 30 – Reuters (David Randall): “It sounds like the start of a parable: Investors stuck inside during a pandemic begin to bid up an asset until its price becomes untethered to reality. The value soars until one day the market runs out of buyers and freezes, causing prices to plummet and some unlucky few to lose fortunes more than ten times their annual incomes in the span of a few hours. The date: February 3, 1636. On that day, the infamous Dutch tulip bubble burst during an outbreak of the bubonic plague, illustrating that asset prices can plummet just as quickly as they soar, leaving only pain behind. Now, almost exactly 385 years and another pandemic later, Wall Street waits to see how long it will take for history to repeat itself.”

February 2 – Reuters (Imani Moise and Medha Singh): “Apex Clearing, which helps facilitate trades for brokerages, said the nearly 6 million accounts it opened in 2020 represented a 137% increase from the year before. About 1 million of those belonged to Gen Z investors born in the late-1990s or younger, with an average age of 19. Robinhood says the average age of the 13 million users on its platform is 31. In interviews with more than a dozen digital brokerage users, Reuters found a younger generation that approaches trading much differently than the suits of Wall Street. These are young women and men who feel comfortable on digital communities, whether monitoring threads on Reddit, following tips on Twitter or swapping ideas in Slack groups.”

February 5 – New York Times (Paul Sullivan): “The GameStop stock saga — with its element of David versus Goliath, not to mention its head-turning price gains followed by stomach-churning drops — may have been all the talk of Wall Street in the last couple of weeks. But that is just a sideshow. A bigger issue for investors may well be the increasing number of Ponzi schemes, which use money from new investors to pay earlier investors until the fraud falls apart… Over 600 Ponzi schemes have been detected in the past decade, said Marie Springer, who teaches at John Jay College of Criminal Justice…”

January 31 – CNBC (Stephanie Landsman): “PNC Financial’s Amanda Agati sees three reasons for the market’s speculative craze: No commission trading, low interest rates and another round of stimulus checks. Together, the firm’s chief investment strategist calls them a ‘perfect storm.’ ‘The rise in no commission trading, a la Robinhood and a number of retail trading apps, has no doubt added fuel to this fire,’ she told CNBC… ‘Also, the low interest rate environment that we continue to find ourselves in really has made the cost of significant risk taking pretty reasonable.’”

Market Instability Watch:

January 31 – Reuters (Joshua Franklin and Alden Bentley): “U.S. hedge funds last week bought and sold the most stock in more than 10 years amid wild swings in GameStop Corp shares that many had bet against, but their market exposure to stocks is still near record levels, according to… Goldman Sachs… ‘According to Goldman Sachs Prime Services, this week represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector,’ the investment bank wrote… ‘Despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs.’”

February 1 – Bloomberg (Erik Schatzker): “Carson Block, the activist short-seller famous for targeting Chinese frauds, recognizes familiar behavior in the rally of shares such as GameStop Corp. To him, the parabolic moves look less like the product of Reddit-driven retail orders than a short squeeze by hedge funds targeting other hedge funds. ‘I’ve wondered, is there coordination with these hedge funds?’ Block said… ‘What constitutes coordination? Did they cross the line? That could be interesting.’ For the moment, it’s an unproven theory. But if Block is right, what seemed like a history-making retail uprising last week was just as much a convenient smokescreen for internecine hedge-fund warfare.”

February 3 – Bloomberg (Elena Popina): “On the surface, stocks seem to be slowly going back to normal after a day-trader mania frayed nerves last week. Dig deeper, and markets are still pricing in a level of uncertainty that seems at odds with equities just steps away from an all-time high. The S&P 500 spent most of Tuesday trading within 0.5% of the all-time high from Jan. 25… Meanwhile, the Cboe VIX Index, a measure of 30-day implied volatility in the S&P 500, cooled from its own elevated levels last week, but held above the 25 line Tuesday. It’s rare to see volatility price swings this wide at the same time as stocks are so close to a record; the last time it happened on a closing basis was in the spring of 1999…”

January 31 – Bloomberg (Davide Scigliuzzo and Katherine Doherty): “It’s the kind of rescue that the most indebted companies in America can only dream of: a fresh injection of cash that doesn’t hurt their already depressed stock price or load even more costly debt onto their balance sheet. Yet thanks to the army of day traders who use Reddit to tout and bid up out-of-favor stocks and squeeze short sellers, firms such as American Airlines… and AMC Entertainment… have found themselves on the receiving end of just such a lifeline. Both took steps over the past week to sell hundreds of millions of dollars worth of shares and secure much-needed liquidity. Besides the companies themselves, there’s perhaps no bigger winner from the massive stroke of good fortune than their creditors.”

February 1 – New York Times (Nathaniel Popper, Michael J. de la Merced and David McCabe): “Robinhood, the trading app at the center of a frenzy over GameStop and other stocks, raised $2.4 billion from its investors over the weekend, adding to the $1 billion cash infusion it took last week as it tries to steady its finances. The extraordinarily high volume of trading by amateur investors in recent days… had put a strain on Robinhood’s balance sheet. As an online brokerage firm, the company is required to keep a certain cash cushion to insulate against potential losses, and the required cushion can grow quickly when trading volume and volatility are spiking. ‘This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform,’ Robinhood’s chief financial officer, Jason Warnick, said…”

February 1 – Financial Times (John Plender): “The trading frenzy in GameStop shares over the past week has provided further evidence of a yawning disconnect in markets. It is one more instance of a gap between Alice in Wonderland equity market valuations and the deeply uncertain outlook for profits and economies arising from the coronavirus. Retail investors’ success in inflicting a squeeze on hedge funds betting on a fall in stocks such as GameStop was as unexpected as their relish in the David and Goliath battle was palpable. Yet the resulting extraordinary gyrations in the market raise tricky questions about market efficiency, regulation and financial stability.”

January 30 – Financial Times (Philip Stafford and Joe Rennison): “The crucial role played by clearing houses in financial markets has been thrust into the spotlight after contentious moves by US brokers such as Robinhood and Charles Schwab to restrict retail investors’ bets on stocks at the heart of the Reddit-fuelled trading boom. Customers reacted angrily… as brokers moved to stop them opening new positions in certain red-hot stocks, accusing them of unfair treatment or even a Wall Street establishment plot. But the brokers gave a more mundane explanation: the extra volatility in share prices meant they had to hold more capital at the institutions that clear their trades.”

February 3 – Bloomberg (Daniel Flatley): “Robinhood Markets, GameStop Corp. and hedge funds are all on the wish list that House Financial Services Committee Chair Maxine Waters is assembling for a hearing that will dig into the Reddit-fueled stock trading that has shocked Wall Street and lawmakers. ‘I’m trying to get everybody that has a role to play,’ Waters said… ‘I want Reddit there. I want Robinhood there. I even want GameStop there. And I want a couple of the hedge funds there.’”

February 4 – Financial Times (Colby Smith): “A sell-off in 30-year Treasuries has pushed the US yield curve… to its steepest level in more than five years. Investors said the development reflected the prospects of a large additional injection of economic stimulus from the Biden administration, along with the stronger global growth expected as vaccination drives gather pace.”

Biden Administration Watch:

February 5 – Bloomberg: “The House is set to take up the 2021 budget passed by the Senate after an all-night session that helped clear the path for President Joe Biden’s $1.9 trillion Covid-19 relief plan. A bipartisan House group is pushing to split off funding for coronavirus vaccines and testing. The House will need to vote again on the 2021 fiscal year budget resolution that sets up a legislative course to enact Biden’s stimulus without Republican votes. The Senate made slight amendments to the resolution the House passed Wednesday night. The bipartisan House group… is urging a quick vote on a $160 billion standalone package, adding to pressure on Speaker Nancy Pelosi as she aims to pass Biden’s broader relief plan.”

February 3 – Bloomberg (Erik Wasson, Justin Sink and Jennifer Jacobs): “President Joe Biden told House Democrats… that backing anything less than $1,400 stimulus checks would mean starting his presidency with a broken promise… Biden said he was open to considering tighter eligibility requirements for stimulus checks but signaled he wasn’t willing to reduce the standard of a $1,400 payment outlined in his aid package… Republican lawmakers have suggested both reducing the amount of the next round of stimulus checks and sending them to a smaller group of Americans.”

February 3 – Bloomberg (Liz McCormick and Christopher Condon): “The U.S. Treasury held steady its planned issuance of longer-dated securities at a quarterly debt auction next week as the department awaits the result of the Biden administration’s push for a fresh coronavirus relief package. The Treasury already boosted its so-called quarterly refundings in each of the last three quarters… With the outcome of President Joe Biden’s push for a $1.9 trillion stimulus bill uncertain, the department held off on tweaking its issuance of longer-dated securities.”

February 2 – Bloomberg: “The Senate… began a process that would let Democrats pass President Joe Biden’s $1.9 trillion stimulus without Republican votes… With a 50-49 vote Tuesday, the Senate opened debate on a budget resolution for the 2021 fiscal year, a maneuver that would clear the way for the president’s relief plan to pass in the chamber with a simple majority rather than the 60-vote threshold for most legislation. Senate Majority Leader Chuck Schumer said that the process, known as reconciliation, is open to GOP participation and the stimulus package can still be tweaked with their input. But he said Democrats won’t risk moving slowly or timidly to bolster the economy.”

February 2 – Bloomberg (Justin Sink and Jordan Fabian): “President Joe Biden and congressional Democrats signaled they’re intent on a large pandemic relief bill, potentially without Republican support, even after a White House meeting with GOP senators… that both sides described as productive. While the 10 senators who participated described the meeting as ‘excellent’ with ‘a very productive exchange of views,’ in a joint statement, White House Press Secretary Jen Psaki said Biden had emphasized that Congress had to act urgently and ‘boldly’ and had pointed out many areas of disagreement with the Republicans.”

February 2 – Wall Street Journal (Andrew Duehren and Richard Rubin): “A group of Senate Republicans outlined their roughly $618 billion coronavirus-relief offer…, including a round of $1,000 direct checks for many adults, as Democrats began a process that would allow them to pass President Biden’s $1.9 trillion plan along party lines.”

February 3 – Bloomberg (Saleha Mohsin and Christopher Condon): “Treasury Secretary Janet Yellen has summoned U.S. financial regulators to discuss recent volatility in financial markets, in her first public effort to address the tumult involving GameStop Corp. shares and broker-dealer Robinhood Markets Inc. Yellen called a meeting with the Securities and Exchange Commission, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission… The Biden administration and regulators have faced pressure in recent days to respond to the market frenzy.”

January 31 – Financial Times (Demetri Sevastopulo): “After months of Republican concern that Joe Biden would be soft on Beijing, the new US president received unexpected praise from a leading China hawk after less than two weeks in the White House. ‘President Biden [and his team] are off to a great start on China,’ Robert O’Brien, the final national security adviser to Donald Trump said… Following four years of turbulent policymaking, Democrats and Republicans expect a more structured approach under Mr Biden. But experts are watching closely for signs of how hawkish he will be towards the most important US bilateral relationship.”

February 1 – Reuters (Susan Heavey and Doina Chiacu): “U.S. Secretary of State Antony Blinken sharply criticized Russia over its crackdown on protesters supporting jailed opposition leader Alexei Navalny and said the United States was reviewing possible responses to Moscow’s actions.”

February 4 – CNBC (Lauren Feiner): “Sen. Amy Klobuchar, D-Minn., unveiled a sweeping antitrust reform bill…, setting a tough tone as she becomes chair of the Senate Judiciary subcommittee on antitrust. Klobuchar has been a frequent critic of what she and other lawmakers have viewed as lax enforcement of existing antitrust laws and has called for strong measures against some of the major tech firms. While she has introduced several bills in the past seeking reforms to various aspects of antitrust law, her Competition and Antitrust Law Enforcement Reform Act is a comprehensive proposal calling for a major revamping of policing standards. If enacted, it would bring significantly more risk to companies like Facebook and Google, which are already facing federal lawsuits, and to any dominant firm seeking to acquire another company.”

February 2 – Reuters (Pete Schroeder and Chris Prentice): “With hedge funds at the center of market drama for the second time in less than 12 months, the GameStop saga is likely to expedite a regulatory review of the ever-larger role non-bank firms play in the financial markets, regulatory experts said. Scrutiny of the non-bank financial sector was already expected to be high on newly appointed Treasury Secretary Janet Yellen’s agenda after hedge fund de-leveraging contributed toward turmoil in the U.S. Treasuries market in March 2020.”

February 1 – Axios (Dan Primack): “Private equity has once again found itself in the crosshairs of Sen. Elizabeth Warren (D-Mass.), this time for ‘treating the stock market like a casino.’ What she said: Warren’s broadside was part of a letter sent Friday to the SEC, asking it to investigate and provide more information on how it plans to address the recent stock market volatility… The overall letter deserves plaudits for its balance, expressing concerns about possible market manipulation on both sides of the trades… At the very least, Warren correctly points out that none of us really know the buy-side composition. But then she lists ‘private equity’ first among those allegedly distorting the securities markets, ahead of hedge funds and other investors. Even though private equity, by definition, doesn’t participate in short-term public equities investing.”

February 3 – Reuters (Trevor Hunnicutt, David Lawder and Andrea Shalal): “The U.S. Treasury announced several hires to top posts…, and sources said the new officials plan to push a key part of President Joe Biden’s economic agenda: ramping up tax enforcement and regulation at home and overseas… Yellen is expected to push for broad changes to global tax enforcement and regulation, with the personal blessing of Biden, a person with direct knowledge of the matter. Biden is seeking sharper enforcement of existing laws to reduce income inequality and to pay for spending proposals…”

February 3 – Bloomberg (Saleha Mohsin and Eric Martin): “The U.S. Treasury is leaning toward backing a boost of as much as $500 billion to the International Monetary Fund’s resources, helping it support developing nations against the Covid-19 crisis… Treasury Secretary Janet Yellen could make a decision as soon as the end of February, when finance ministers and central bankers from the Group of 20 meet… That event… will be held virtually on Feb. 26.”

Federal Reserve Watch:

February 2 – Reuters (Ann Saphir): “Dallas Federal Reserve Bank President Robert Kaplan said… that while the Fed’s massive bond-buying program is creating plenty of liquidity in financial markets, there are no signs of broad market instability at present. ‘I don’t see anything right now systemic,’ Kaplan said…, responding to a question about a possible link between the Reddit-fueled frenzy in GameStop Corp shares and monetary policy… ‘Some of the current situation you are seeing – one of the factors – is there is a lot of liquidity, and some of that relates to Fed purchases of $80 billion of Treasuries and $40 billion of mortgage-backed securities every month: I think it’s wise for us to acknowledge that.’”

February 4 – Bloomberg (Catarina Saraiva, Steve Matthews and Matthew Boesler): “Federal Reserve officials played down the economic impact of recent stock-market volatility, in the latest sign the U.S. central bank is not close to scaling back its massive bond purchases. ‘We should be monitoring to make sure that volatility doesn’t spill over into other parts of the financial market but at this point this is not one of those kinds of situations,’ Cleveland Fed President Loretta Mester told CNBC… The remarks follow others from U.S. central bankers playing down the economic implications of the frenzy…”

February 3 – Reuters (Ann Saphir): “Chicago Federal Reserve Bank President Charles Evans… forecast a rapid economic rebound this year, but said monetary policy will need to remain super-easy to boost ‘too low’ inflation, even as prices are expected to temporarily spike this spring. ‘It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized,’ Evans said… ‘So I see us staying the course for a while.’”

U.S. Bubble Watch:

February 3 – Reuters (Lucia Mutikani): “U.S. private payrolls rebounded more than expected in January, suggesting the labor market recovery was back on track… The ADP National Employment Report showed private payrolls increased by 174,000 jobs last month after dropping by 78,000 in December.”

February 1 – Reuters (Lucia Mutikani): “U.S. construction spending raced to a record high in December as historically low mortgage rates powered outlays on private projects. The Commerce Department said… construction spending increased 1.0% to $1.490 trillion, the highest level since the government started tracking the series in 2002.”

February 1 – Reuters (Lucia Mutikani): “U.S. manufacturing activity slowed slightly in January, while a measure of prices paid by factories for raw materials and other inputs jumped to its highest level in nearly 10 years, strengthening expectations inflation will perk up this year. The moderation in activity reported by the Institute for Supply Management reflected a flare-up in COVID-19 infections, causing labor shortages in factories and their suppliers…”

February 3 – CNBC (Diana Olick): “Mortgage rates fell for the first time in nearly a month, and that lit a fire under current borrowers who may have thought they missed the boat on refinancing their loans… Mortgage applications to purchase a home were essentially flat for the week, rising just 0.1%. Purchase demand was 16% higher than a year ago…”

February 2 – Dow Jones (Joseph De Avila): “Home buyers purchased the most homes in Connecticut in 15 years in 2020, propelling median-sale prices to a record high… There were 38,641 single-family home sales in the state in 2020, a 16.6% jump from the prior year, according to the Warren Group… That was the most Connecticut home sales since 2005. Median sales prices also rose to $300,000 in 2020, a 15.4% increase from the prior year and the highest price on record in the state.”

February 3 – Reuters (Ben Klayman): “General Motors Co became the latest automaker hit by the global shortage of semiconductor chips as the U.S. automaker said… it will take down production next week at four assembly plants.”

February 2 – Financial Times (Derek Brower and Anjli Raval): “The pandemic’s devastating impact on Big Oil was illustrated on Tuesday when some of the world’s biggest energy groups reported record annual losses, marking a brutal 12 months for an industry under mounting pressure to speed up a transition to cleaner fuels. ExxonMobil… racked up losses of more than $20bn last year — the first annual loss in its history… ‘The past year presented the most challenging market conditions ExxonMobil has ever experienced,’ said Darren Woods, chief executive.”

Fixed Income Watch:

February 1 – New York Times (Emily Flitter, Matt Phillips and Peter Eavis): “Last spring, just as Denny’s was shutting down its nationwide chain of 24-hour diners for weeks of pandemic-induced lockdowns, its lenders were warning it to quickly pay down its debt — or else. With banks demanding prohibitively high interest rates, Denny’s leaders turned to the last clean, well-lighted place…: the stock market. Denny’s issued enough new stock last year to raise almost $70 million… And it was just one of many companies saved by stock investors who snapped up their shares as the market marched higher… The trend, in which stocks go up even as the economy flounders, has continued into 2021, and companies are still taking advantage of it. On Thursday, AMC Entertainment Holdings became the latest business to try to soak up the benefits of the absurdist market dynamic.”

February 1 – Financial Times (Joe Rennison): “The riskiest companies in the world are enjoying the benefits of the global hunt for higher returns, sending the yield on the dollar denominated debt of some of the lowest-rated businesses close to historic lows. The average yield across US triple C rated debt in the US dropped to a recent nadir of 7.6% this month, closing in on its all-time low of 7.35 set in 2014… This year’s rise in the price of bonds issued by the lowliest rated borrowers is a sign of how investors are willing to overlook the persistent spread of coronavirus and an uneven economic recovery.”

February 3 – Bloomberg (Laura Benitez): “Borrowers from the low end of the junk spectrum have launched a flurry of bond deals to tap demand from investors keen to lock in higher yields. About 2 billion euros ($2.41bn) of triple C-rated debt has launched so far this year, accounting for around a fifth of total high-yield issuance… That makes January the busiest period for the rating category since July.”

February 3 – Bloomberg (Caleb Mutua): “Bond investors are shoveling money at technology companies, allowing them to borrow at rates that might be less than zero after inflation. On Monday, Apple Inc. borrowed $14 billion, its largest bond offering since 2013. The five-year portion of the deal featured a yield of just around 0.75 percentage points, a figure below recent measures of U.S. inflation rates. In Asia, Alibaba Group Holding Ltd. is holding investor calls on Wednesday for a dollar bond offering of as much $5 billion.”

February 5 – Bloomberg (Paula Seligson and Davide Scigliuzzo): “Money managers are having such a tough time getting their hands on debt in the $2.8 trillion market for junk bonds and leveraged loans that they’re calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them. Investors have driven billions of dollars of these kinds of debt sales this year, including $550 million of bonds from Rackspace Technology Inc. this week…”

February 3 – Bloomberg (Nic Querolo): “The federal government isn’t the only one running up debt to cover its budget deficits. As states and cities braced for pandemic-related shutdowns to batter tax collections, many turned to the municipal-bond market to soften the hit, contributing to a record-setting surge in debt sales last year.”

February 1 – Bloomberg (Anastasia Bergeron): “Municipal-bond rating downgrades exceeded upgrades last year for the first time since 2014, according to Moody’s… There were 309 downgrades compared with 296 upgrades in 2020… The cuts affected $215.2 billion, or about 84% of the total debt affected by rating changes last year. About $42.1 billion of debt saw higher ratings… New York State, New York City and their related entities accounted for the largest share of the rating cuts by dollar amount, with nearly $100 billion of downgrades combined…”

February 2 – Bloomberg (Jeremy Hill and Katherine Doherty): “More U.S. bankruptcy filings are happening with restructuring plans already in place, a trend that’s likely to extend as companies look to save time and money by reorganizing before they get to court. CiCi’s Holdings Inc., parent of the unlimited pizza buffet chain, entered bankruptcy last month with a plan to hand ownership to lenders. Alpha Media Holdings… filed for Chapter 11 with a similar deal already agreed. Department store chain Belk Inc. hopes to go one step further this month by filing a pre-packaged bankruptcy, meaning it will complete negotiations with all parties, solicitation and voting in advance.”

February 5 – Financial Times (Joe Rennison and Colby Smith): “Money is pouring back into funds that invest in US leveraged loans for the first time in more than two years… Mutual funds and exchange traded funds that buy US loans took in $509m for the week ending February 3, extending a five week run of inflows to a total of $3.2bn…”

China Watch:

February 3 – Bloomberg: “China drained funds from the financial system after a key cost of short-term borrowing tumbled from its highest level since 2015, showing officials remain wary of excess liquidity. The People’s Bank of China withdrew a net 80 billion yuan ($12bn) of liquidity on Wednesday. The central bank offered just 100 billion yuan of seven-day funds even as 180 billion yuan matured. That means 480 billion yuan will now come due before the Lunar New Year holiday starts next week. The overnight repo rate fell 37 bps to 1.86%, in line for the lowest since Jan. 15. The rate surged to 3.3433% last month…”

January 31 – Reuters (Stella Qiu and Ryan Woo): “China’s factory activity expanded at the slowest pace in seven months at the start of 2021, weighed down by falling export orders amid a surging global pandemic and rising costs, a business survey showed… The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery in China… The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) dropped to 51.5 last month, the lowest level since June last year and easing markedly from December’s reading of 53.0.”

January 30 – Reuters (Ryan Woo, Tina Qiao and Colin Qian): “Activity in China’s services sector expanded at a slower pace in January…, weighed by a flare-up in new coronavirus outbreaks. The official non-manufacturing Purchasing Managers’ Index (PMI) slipped to 52.4 from 55.7 in December…”

February 3 – Bloomberg (Molly Dai): “China saw a record number of corporate defaults last year and that trend looks set to continue as policy makers try to tighten credit and pull back on stimulus this year. Those stresses aren’t distributed evenly across the country though, with companies in the provinces of Liaoning, Qinghai and Henan facing the most difficulty in raising funds at the moment… The data shows that firms in those three regions issued new bonds equal to less than 30% of the debt that matured over the last three months… The ratio was 116% nationwide in January. The wide variation between provinces highlights another aspect of the unbalanced nature of China’s recovery, with the richer eastern provinces booming but other areas such as the rust-belt north-east being left behind.”

February 4 – Bloomberg: “Ant Group Co. and at least a dozen banks are paring back their years-long cooperation on consumer lending platforms that fuel the spending of at least 500 million people across China. Regulators have signaled their intention to curb online loans in recent months, prompting banks and Ant itself to discuss lending caps…”

February 1 – Bloomberg: “Pockets of risk are growing in China’s offshore bond market with property developers selling some $2.8 billion of short-dated dollar notes last month, a two-year high. Borrowers have rushed to issue this type of risker debt that carries immediate repayment pressure as Beijing looks to place tighter policy restrictions on the sector to reduce financial risk.”

January 31 – Reuters (Ryan Woo and Meg Shen): “Three units of HNA, once China’s most acquisitive conglomerate, said nearly $10 billion had been embezzled by shareholders, in disclosures to stock exchanges that come amid a government-led probe into the deeply indebted group. A total of 61.5 billion yuan ($9.57bn) had been embezzled by shareholders and other related parties…”

January 30 – Financial Times (Chris Flood): “China’s mutual fund industry assets surged 48% to a record $3.1tn (Rmb20tn) in 2020 but huge demand for new funds is stoking fears that volatile investor inflows could spur a stock market bubble… UBS forecasts mainland mutual fund assets could reach $16tn by 2030. Assets held in US mutual funds currently stand at about $23tn.”

February 4 – Financial Times (Nicolle Liu and Primrose Riordan): “Hong Kong’s new national security education curriculum will force teachers to warn primary students as young as six years old against ‘subversion’ and to throw out library books considered dangerous to the Chinese state. Hong Kong’s education bureau released the guidelines…, which will also impact expat students at international schools. The department said that while they accepted these schools’ curricula was different, teachers would be expected to ensure students ‘acquire a correct and objective understanding’ of principles in line with Beijing’s tough national security law introduced last year.”

Global Bubble Watch:

February 3 – Reuters (Noor Zainab Hussain): “Companies raised $546 billion from new bond and share issues in January, as a flood of central bank money-printing and recovering stock markets brought record numbers of new listings, SPAC deals and share sales, Refinitiv data showed… The numbers included $106.15 billion in initial public offerings (IPOs), SPACs and secondary offerings, with the amount of money raised by SPACs alone soaring 20 times to $24.26 billion from a year earlier… Companies also raised nearly $439.9 billion in corporate debt in January, a 5% fall since the same period last year, but still the second largest January in 25 years.”

January 31 – Reuters (Jonathan Cable and Leika Kihara): “Global manufacturing activity remained resilient in January although some countries suffered amid a resurgence in coronavirus infections, underscoring the fragile and uneven nature of the economic recovery. Factories across parts of Europe, as well as in China and Japan, struggled as renewed lockdown measures alongside supply shortages hurt activity, surveys showed.”

February 4 – Financial Times (Emiko Terazono): “Global food prices have reached their highest in almost seven years, further raising the spectre of food inflation and hunger at a time when the Covid-19 pandemic continues to hit economies around the world. The UN Food and Agriculture Organization’s food price index for January rose by a tenth from a year ago to its highest level since July 2014… Substantial buying of corn by China and lower-than-expected production in the US helped send the gauge… to its eighth consecutive monthly increase, the longest rising streak in a decade.”

February 2 – Bloomberg (Isis Almeida, Ann Koh and Michael Hirtzer): “Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers. Global competition for the ribbed steel containers means that Thailand can’t ship its rice, Canada is stuck with peas and India can’t offload its mountain of sugar. Shipping empty boxes back to China has become so profitable that even some American soybean shippers are having to fight for containers to supply hungry Asian buyers. ‘People aren’t getting their goods where they need them,’ said Steve Kranig, director of logistics at IM-EX Global Inc… ‘One of my customers ships 8 to 10 containers of rice every week from Thailand to Los Angeles. But he can only ship 2 to 3 containers a week right now.’”

January 31 – Reuters (Swati Pandey): “Australian home loan approvals surged again in December while housing prices jumped to a record high with analysts predicting the robust demand for property will extend further as borrowing rates stay at all-time lows.”

February 5 – Bloomberg (Chloe Lo, Julia Fioretti and Ishika Mookerjee): “Kuaishou Technology, the operator of China’s most popular short-video service after ByteDance Ltd.’s Douyin, jumped 161% in its Hong Kong debut after a $5.4 billion initial public offering that attracted hundreds of billions of dollars of orders.”

Central Bank Watch:

February 1 – Reuters (Swati Pandey): “Australia’s central bank held rates at near-zero in a widely expected decision on Tuesday but surprised markets by expanding its bond buying programme by another A$100 billion ($76.4bn) to help strengthen the economic recovery.”

EM Watch:

February 1 – Bloomberg (Vrishti Beniwal, Abhijit Roy Chowdhury and Siddhartha Singh): “India unveiled a spending plan worth almost a half-trillion dollars as Prime Minister Narendra Modi’s government seeks to dig Asia’s third-largest economy out of a pandemic-induced slump. Fueled by a bigger-than-expected spending deficits and borrowing… the 35 trillion rupee ($480bn) budget sent bonds tumbling and stocks rallying. It also aims to bolster the nation’s financial stability, including setting up a company to manage a growing pile of bad loans.”

February 1 – Bloomberg (Subhadip Sircar and Kartik Goyal): “India’s central bank is under pressure to step in to keep yields in check after the government surprised bond markets with a bigger-than-expected borrowing plan. That puts the burden on Governor Shaktikanta Das to calm bond traders… He’s already had to assuage them that a recent measure to mop up excess liquidity isn’t a step toward changing the RBI’s accommodative policy and the central bank has rejected bids at two auctions of benchmark debt after investors sought higher yields.”

Europe Watch:

February 4 – Bloomberg (Alessandra Migliaccio): “Every time Italy is about to go off the rails, there’s always been the same solution: call in the technocrat. Former European Central Bank President Mario Draghi is the latest in a long list of fixers. That’s when you know things are really bad, either because the finances are in such disarray that bond markets are panicking or because the usual bickering among parties has turned into complete political gridlock. It’s a peculiar way for a western democracy to function, especially since the outsider brought in to solve the most intractable of problems is not elected by the people.”

February 2 – Financial Times (Martin Arnold and Valentina Romei): “The eurozone economy fell into a double-dip contraction in the final quarter of last year, shrinking 0.7% from the previous three months… The drop reversed some of the previous quarter’s strong growth, leaving gross domestic product down 6.8% over the full year after the bloc’s historic recession in the first half of 2020…”

February 3 – Reuters (Jonathan Cable): “The euro zone’s economic downturn deepened in January as renewed restrictions to quell the spread of the coronavirus hit the bloc’s dominant service industry hard, offsetting a robust performance by manufacturers… HS Markit’s final January Composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to 47.8 from December’s 49.1…”

February 3 – Financial Times (Martin Arnold): “Inflation in the eurozone has shot up to its highest level since the coronavirus pandemic hit last year… Headline consumer price inflation hit an 11-month high of 0.9% in January, up from minus 0.3% in December… The fastest jump in more than a decade was driven by a combination of one-off factors rather than a revival in underlying demand, as many of the bloc’s shops, schools and leisure venues remain closed due to lockdowns to stem the spread of the virus.”

Japan Watch:

February 3 – Reuters (Daniel Leussink): “Japan’s services sector shrank at the fastest pace in five months in January, as a heavy blow to demand from a resurgence in coronavirus infections and a state of emergency in parts of the country… The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 46.1 from the prior month’s 47.7, marking the lowest reading since August.”

Leveraged Speculation Watch:

January 31 – CNBC (Pippa Stevens and Leslie Picker): “Hedge fund Melvin Capital Management lost 53% in January amid a record rally in GameStop and other stocks the fund was betting against… The heavy losses come as retail investors piled into popular hedge fund short targets, including the struggling video game retailer. Shares of GameStop finished last week with a gain of 400%, bringing its total return this year to 1,625%. The stock closed Friday’s session at $325. As recently as October it traded under $10.”

January 31 – Wall Street Journal (Alexander Osipovich): “Small investors banding together online to pump up stocks like GameStop Corp. say they are defying Wall Street. But one of the biggest players in global markets stands to benefit from their frenetic trading. Citadel Securities, the electronic-trading firm owned by hedge-fund billionaire Ken Griffin, has played a quiet but critical role in the frenzy of the last two weeks. The firm—an affiliate of Mr. Griffin’s hedge fund, Citadel—executes orders placed by customers of Robinhood Markets Inc., TD Ameritrade and other online brokerages that have enjoyed surging volumes during the coronavirus pandemic. Citadel Securities makes money by selling stocks or options for slightly more than it’s willing to buy them. The difference is often just a fraction of a penny per share. But repeated millions of times a day, it adds up to serious money.”

February 2 – Bloomberg (Nishant Kumar, Hema Parmar, and Katherine Burton): “Steve Cohen’s Point72 Asset Management has opened to new cash and raised more than $1.5 billion in commitments in a matter of days… The move comes after the hedge fund provided $750 million in emergency cash to Gabe Plotkin’s Melvin Capital, which was struggling with GameStop Corp. and other short bets gone sour. Citadel’s hedge funds, along with founder Ken Griffin and his firm’s partners, put $2 billion into Melvin.”

January 30 – Financial Times (Michael Mackenzie): “Few tears are being shed for the hedge funds that were humbled by an army of retail investors in a wild week of trading on Wall Street. Sometimes maligned as predators, these short selling funds have now become a target for the rage of small traders, who — on social media sites such as Reddit — have painted them as members of an elite stacking the odds against the individual investor. One such fund even threw in the towel on Friday. After 20 years in the shorting business, Citron Research said it would no longer publish reports identifying stocks to sell and would now focus on identifying opportunities to buy.”

February 1 – Reuters (Huw Jones): “Wall Street’s retail trading frenzy has distorted markets, global hedge funds industry body AIMA said…, adding it was concerned that lawmakers were encouraging such moves. Retail investors gathering in social media chatrooms like Reddit have been driving up the price of stocks like GameStop shorted by hedge funds, with the focus shifting to other parts of the market on Monday, such as silver. ‘What is dangerous, amid this trading frenzy, is that retail investors have been chasing prices so far above any sane valuation and that many will end up nursing losses,’ AIMA CEO Jack Inglis said…”

February 3 – Bloomberg (Katherine Burton, Hema Parmar and Melissa Karsh): “As word spread in late January that Melvin Capital had been the target of a short squeeze that cost it almost $4 billion, hedge fund investors braced themselves for yet another blow after a disappointing decade. But even though a few funds were walloped by double-digit losses… the industry’s performance numbers last month show that most navigated the Reddit-fueled trading frenzy with only a few bruises. As a group, long-short hedge funds lost 5.9% on an asset-weighted basis during the month, according to Goldman Sachs…”

Geopolitical Watch:

February 4 – CNBC (Christian Nunley): “President Joe Biden warned Moscow… that the United States will not hesitate to raise the cost on Russia and defend American interests in his first major foreign policy address since taking office. ‘I made it very clear to President Putin in a manner very different from my predecessor that the days of the United States rolling over in the face of Russian aggressive actions, interfering with our elections, cyberattacks, poisoning its citizens, are over,’ Biden said. ‘We will not hesitate to raise the cost on Russia and defend our vital interests and our people, and we will be more effective in dealing with Russia when we work in coalition and coordination with other like minded partners,’ the president said.”

February 2 – Wall Street Journal (Niharika Mandhana, Warren P. Strobel and Feliz Solomon): “Myanmar’s transition from military rule toward democracy that began a decade ago was trumpeted as a strategic victory for Washington in China’s backyard. Eager to blunt Beijing’s influence, Myanmar opened its doors to diplomatic and commercial ties with the West. On Monday, Myanmar’s soldiers seized power in a coup, detaining Aung San Suu Kyi and other civilian leaders. An announcer on army-backed TV declared the military’s top general was running the country. The takeover, coming against the backdrop of a deepening U.S.-China rivalry, pits the foreign-policy strategies of the two powers against each other. And it thrusts Myanmar on to the front lines of an increasingly tense geopolitical competition for global leadership.”

February 2 – Reuters: “Myanmar police have filed charges against ousted leader Aung San Suu Kyi for illegally importing communications equipment and she will be detained until Feb. 15 for investigations… The move followed a military coup… and the detention of Nobel Peace laureate Suu Kyi and other civilian politicians. The takeover cut short Myanmar’s long transition to democracy and drew condemnation from the United States and other Western countries.”

February 2 – Financial Times (Kathrin Hille and Demetri Sevastopulo): “When a group of Chinese warplanes simulated an attack on a US aircraft carrier last week, Beijing was delivering a warning. The USS Theodore Roosevelt was entering the South China Sea, disputed waters that Beijing claims as its own but where Washington insists on asserting freedom of navigation for everyone else, when six Chinese H-6K heavy bombers flanked by four J-16 fighter jets flew into Taiwan’s air defence zone. ‘That manoeuvre killed three birds with one stone: they signalled to the Americans that they regard the US military as a destabilising force here; they intimidated Taiwan; and they got some valuable practice at the same time,’ said a Taiwanese former senior military commander.”

February 1 – Bloomberg (Justin Sink and Jordan Fabian): “China’s top diplomat warned the U.S. not to cross the country’s ‘red line,’ in a pointed speech that pushed back against early moves by President Joe Biden to press Beijing on human rights. Yang Jiechi, who sits on the Communist Party’s 25-member Politburo, said… the two sides ‘stand at a key moment’ to rebuild ties and cooperate after Biden’s inauguration. But he placed the onus on the U.S. to repair the damage caused by the ‘misguided policies’ of… Trump. ‘We in China hope that the United States will rise above the outdated mentality of zero-sum, major-power rivalry and work with China to keep the relationship on the right track,’ Yang… said. He urged the U.S. to stop ‘harassing Chinese students, restricting Chinese media outlets, shutting down Confucius Institutes and suppressing Chinese companies’ and said Hong Kong, Tibet and Xinjiang affairs were a ‘red line that must not be crossed.’”

February 1 – Reuters (Yew Lun Tian and Vincent Lee): “China’s top diplomat called… for Beijing and Washington to put relations back on a predictable and constructive path… ‘The United States should stop interfering in Hong Kong, Tibet, Xinjiang and other issues regarding China’s territorial integrity and sovereignty,’ Yang said…”

February 4 – Reuters (Tuvan Gumrukcu and Ece Toksabay): “Turkey’s interior minister accused the United States… of being behind a 2016 failed coup that Ankara has blamed on a U.S.-based Muslim preacher, the Hurriyet daily reported, at a time when Turkey is seeking improved ties with its NATO ally.”