The U.S. Goods Trade Deficit jumped to a then record $76 billion back in July 2008. A few short months later, financial chaos unleashed the “great recession” economic crisis. Traditionally, large trade deficits are evidence of loose monetary conditions and resulting unsustainable spending patterns. By May 2009 – only 10 months from the all-time record – the Goods Trade Deficit had shrunk to a seven-year low $35 billion. It’s worth noting, as well, that M2 money supply expanded $253 billion, or 3.1%, during 2009.
Fast forward to the current crisis period. M2 has surged $419 billion in only six weeks. Over the past 38 weeks, M2 has expanded an unprecedented $3.60 TN, with year-over-year growth of $3.785 TN, or 24.7%. October’s Goods Trade Deficit was reported Wednesday at $80.3 billion, lagging only August’s record $83.1 billion. Last month’s Trade Deficit was actually 21% ahead of pre-crisis October 2019.
No doubt about it, this crisis period is unique. More than three Trillion worth of Fed liquidity injections coupled with a more than Three Trillion fiscal deficit has thrown traditional crisis dynamics on its head. In this New Age Crisis backdrop, financial conditions have actually dramatically loosened. Money supply has skyrocketed, and stocks have gone on a wild speculative moonshot. Corporate bond issuance surged to new records. And, as noted above, booming imports pushed the Goods Trade Deficit to an all-time high. At $170 billion, the second quarter Current Account Deficit was the largest since 2008.
The bloated services sector has accounted for a majority of historic job losses. Massive stimulus has bolstered spending on goods – which has fueled the rapid recovery of imports. Home sales have boomed, with the strongest house price inflation in years. It’s only fitting that stimulus-induced “Terminal Phase” Bubble excess now engulfs the housing sector as well. That asset inflation and Bubble excess run rampant in the throes of crisis should have us all worried.
Bear markets, recessions and even crises are fundamental to capitalistic systems. While painful, wringing excess out of both Financial and Economic Spheres is essential to long-term soundness and vitality. And the sooner the better. Wait too long and policymakers won’t risk reining in Bubble excess. Yet such analysis sounds hopelessly archaic these days, as excess, distortion and structural impairment compound in perpetuity.
Central banks have made the conscious – and fateful – decision to abrogate Capitalism’s adjustment and cleansing processes. A solid case can be made we’re at the most dangerous phase of the Bubble period: financial and economic fragilities (associated with decades worth of excess) ensure central bankers push extreme stimulus measures while turning a blind eye to outrageous excess.
Various thoughts come to mind when I ponder Janet Yellen. I recall one of her early press conferences. It was Jon Hilsenrath’s (of the Wall Street Journal) turn to pose a question to the new Fed chair. A beaming smile came across Yellen’s face, which struck me as unusual in that circumstance. But, mainly, it conveyed an endearing warmth and sincerity. She’s not the typical Washington operator. A career academic, she can at times appear naive. Yellen is certainly not a financial markets person. I don’t distrust her (which distinguishes her from her two most recent predecessors).
Janet Yellen as the new Secretary of the Treasury is being universally well-received by the markets. She is proven – a consummate dove. And it’s difficult not to admire her – such a long and distinguished career along with a notably humble, amiable and compassionate demeanor. But in my commitment to accurately chronicle history – determined to counter historical revisionism – there’s a salient aspect of Yellen’s career that should not be overlooked: Her failure as Fed chair.
Chair Yellen assumed the reins from Ben Bernanke in January 2014. Recall that the Fed took extraordinary measures – including expanding its balance sheet by $1 TN – in response to 2008 Crisis Dynamics. Yellen was Fed vice-chair when the Fed in 2011 publicly formalized it’s “exit strategy” from extreme monetary stimulus. Rather than normalize, the Fed fatefully again doubled the size of its holdings to $4.5 TN by October 2014. Fed assets expanded $500 billion during Yellen’s first year at the helm of the Federal Reserve – when there was a strong case for the Fed shrinking its balance sheet
The S&P500 returned 32.4% in 2013 and another 13.7% in 2014. The small cap Russell 2000 returned 38.8% in 2013 and added 4.9% the following year. The Nasdaq100 returned 36.9% and 19.4%. M2 expanded about 6% in 2014. At 7.15%, growth in Consumer Credit rose at the strongest rate since year 2000. Business debt expanded 6.7% in 2014, the briskest pace since booming 2007. After peaking at 10% in late-2009, the Unemployment Rate ended 2014 at 5.6%.
The Fed slashed rates to zero (zero to 0.25%) on December 16, 2008. Janet Yellen was in charge for a full two years before the Fed finally made a baby-step 25 bps adjustment off the “zero bound” in December 2015. The Yellen Fed then procrastinated a full year before taking its next little step. Rates were only at 1.25% when Yellen departed the Federal Reserve in February 2018. The S&P500 returned 67.3% during Yellen’s term as Fed chair, with the Nasdaq100 doubling in four years of exceptionally loose financial conditions.
The Bernanke Fed (with Yellen as vice chair) should have moved to commence the monetary policy normalization process. I always assumed Bernanke was hesitant to risk reversing his ultra-loose monetary course for fear of imperiling the “Bernanke doctrine” and its centerpiece of exploiting the securities markets as the primary mechanism for system reflation. It is not easy to explain why Yellen remained so timid in starting “normalization”.
It’s not hyperbole to call the Yellen Fed’s delay in pulling back extraordinary stimulus as an epic policy failure. Jerome Powell assumed control of the Fed with the intention of finally moving forward with rate normalization. But it was too late. The Fed had badly missed its timing. The Powell Fed ratcheted rates up to a still low 2.25% by December 2018 – and the wheels were coming off.
A highly speculative and levered securities marketplace can function only so long as financial conditions remain ultra-loose. Predictably, market structure evolved profoundly during a decade of unprecedented monetary stimulus and Fed backstopping. Trillions flowed into the perceived safe and liquid (“money-like”) ETF complex. Trillions of levered speculative holdings accumulated at home and abroad. Moreover, loose finance coupled with faith in the Fed’s liquidity backstop ensured mounting excess throughout the derivatives complex.
The S&P500 suffered a 15% swoon in December 2018, with somewhat larger losses for the Nasdaq100 and the small cap Russell 2000. Perhaps more importantly, instability erupted in corporate Credit. Powell was widely criticized for raising rates that December in the face of market instability. I commended him at the time for his effort to weaken the markets’ reliance on the “Fed put.” Markets, however, would have no part of it. A decade of excesses and latent fragilities has done their damage. Markets castigated Powell into immediately reversing course – into announcing his “pivot.”
And rather than slacken, the Fed “put” emerged more powerful than ever. The episode confirmed what the markets had already assumed: Bubble excess and associated fragility had reached the point of no return. The Fed was hamstrung by an epic Bubble and associated systemic fragility. Power had shifted decisively to the financial markets, with the Federal Reserve’s subservient role relegated to shielding and pacifying an increasingly unstable system.
The Fed was cutting rates again by July (2019), and the Fed’s balance sheet was again inflating in September. Despite stock prices at record highs and unemployment at multi-decade lows, the Fed was compelled to adopt “insurance” monetary stimulus to counteract late-cycle vulnerability in “repo” and other short-term funding markets (used for leveraged speculation). The Fed’s 2019 stimulus exacerbated speculative excess, forging a marketplace keen to disregard myriad risks including an advancing pandemic. Market excess, distortions and the incapacity for self-adjustment contributed to March’s near market meltdown.
From a July 2017 Reuters report: “U.S. Federal Reserve Chair Janet Yellen said… she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.” The Yellen Fed disregarded the massive accumulation of speculative leverage outside of the banking system, along with fragilities that would force the Fed and global central bankers to resort to grotesque pandemic response monetary inflation.
November 24 – Financial Times (James Politi and Colby Smith): “Shortly after Joe Biden picked Kamala Harris to be vice-president in August, Janet Yellen, the former US Federal Reserve chair, briefed the pair on the slump triggered by the coronavirus pandemic and what they could do about it. According to one person…, Ms Yellen told the Democratic ticket that interest rates were low and likely to stay there for a long time, creating considerable fiscal space for new stimulus and investment. The intervention was well-received by Mr Biden and Ms Harris, whose economic plan calls for billions of dollars of government spending. Now Ms Yellen, 74, is set to be nominated by Mr Biden to be the next US Treasury secretary, handing her a second act at the pinnacle of American economic policymaking.”
Do low rates essentially create unlimited capacity for deficit spending? Or is this a crazy late-cycle dynamic whereby Fed largess is distributing ropes for our federal government, the leveraged speculators, corporations and the U.S. household sector to hang themselves?
It’s difficult for me to believe that Secretary Yellen will avoid having to contend with a historic financial and economic crisis. And Wall Street is quite comfortable that Yellen is precisely the right individual to work intimately with the Powell Fed to orchestrate whatever crisis response necessary to sustain the greatest Bubble in human history. The scenario of the Federal Reserve knee-deep in partisan political muck – with its credibility and reputation soiled in the eyes of at least half of a deeply divided nation – seems more likely by the week.
For the Week:
The S&P500 jumped 2.3% (up 12.6% y-t-d), and the Dow rose 2.2% (up 4.8%). The Utilities were little changed (up 0.4%). The Banks surged another 5.4% (down 17.9%), and the Broker/Dealers jumped 4.7% (up 21.4%). The Transports advanced 2.7% (up 15.2%). The S&P 400 Midcaps jumped 2.7% (up 6.9%), and the small cap Russell 2000 surged 3.9% (up 11.2%). The Nasdaq100 advanced 3.0% (up 40.4%). The Semiconductors jumped 3.0% (up 42.3%). The Biotechs gained 2.1% (up 8.8%). With bullion sinking $83, the HUI gold index sank 5.4% (up 16.2%).
Three-month Treasury bill rates ended the week at 0.0725%. Two-year government yields slipped a basis point to 0.15% (down 142bps y-t-d). Five-year T-note yields declined a basis point to 0.37% (down 133bps). Ten-year Treasury yields added a basis point to 0.84% (down 108bps). Long bond yields jumped five bps to 1.57% (down 82bps). Benchmark Fannie Mae MBS yields increased a basis point to 1.36% (down 135bps).
Greek 10-year yields fell four bps to 0.65% (down 78bps y-t-d). Ten-year Portuguese yields declined a basis point to 0.01% (down 43bps). Italian 10-year yields fell four bps to 0.59% (down 82bps). Spain’s 10-year yields dipped one basis point to 0.06% (down 41bps). German bund yields declined a basis point to negative 0.59% (down 59bps). French yields were little changed at negative 0.35% (down 46bps). The French to German 10-year bond spread widened one to 24 bps. U.K. 10-year gilt yields declined two bps to 0.28% (down 54bps). U.K.’s FTSE equities index increased 0.3% (down 15.6%).
Japan’s Nikkei Equities Index surged 4.4% (up 12.6% y-t-d). Japanese 10-year “JGB” yield rose two bps to 0.03% (up 4bps y-t-d). France’s CAC40 gained 1.9% (down 6.4%). The German DAX equities index advanced 1.5% (up 0.7%). Spain’s IBEX 35 equities index jumped 2.7% (down 14.2%). Italy’s FTSE MIB index surged 3.0% (down 4.9%). EM equities were mostly higher. Brazil’s Bovespa index surged 4.3% (down 4.4%), while Mexico’s Bolsa declined 0.7% (down 4.5%). South Korea’s Kospi index rose 3.1% (up 19.8%). India’s Sensex equities index added 0.6% (up 7.0%). China’s Shanghai Exchange gained 0.9% (up 11.7%). Turkey’s Borsa Istanbul National 100 index increased 0.4% (up 16.1%). Russia’s MICEX equities index jumped 3.0% (up 3.2%).
Investment-grade bond funds saw inflows of $5.937 billion, and junk bond funds posted positive flows of $1.196 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates were unchanged at a record low 2.72% (down 96bps y-o-y). Fifteen-year rates were unchanged at 2.28% (down 87bps). Five-year hybrid ARM rates jumped 31 bps to 3.16% (down 27bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps to 2.97% (down 105bps).
Federal Reserve Credit last week jumped $24.4bn to a record $7.214 TN. Over the past year, Fed Credit expanded $3.212 TN, or 80.3%. Fed Credit inflated $4.403 Trillion, or 157%, over the past 420 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week jumped $16.8bn to $3.459 TN. “Custody holdings” were up $43.8bn, or 1.3%, y-o-y.
M2 (narrow) “money” supply jumped another $41.3bn last week to a record $19.108 TN, with an unprecedented 38-week gain of $3.601 TN. “Narrow money” surged $3.785 TN, or 24.7%, over the past year. For the week, Currency increased $4.5bn. Total Checkable Deposits slipped $6.4bn, while Savings Deposits surged $52.6bn. Small Time deposits declined $7.2bn. Retail Money Funds dipped $2.1bn.
Total money market fund assets declined $5.0bn to $4.324 TN. Total money funds surged $748bn y-o-y, or 20.9%.
Total Commercial Paper increased $0.8bn to $984bn. CP was down $155bn, or 13.6% year-over-year.
For the week, the U.S. dollar index declined 0.7% to 91.79 (down 4.9% y-t-d). For the week on the upside, the Norwegian krone increased 2.0%, the Swedish krona 1.4%, the New Zealand dollar 1.4%, the Australian dollar 1.2%, the South African rand 1.0%, the Brazilian real 1.0%, the South Korean won 1.0%, the euro 0.9%, the Canadian dollar 0.8%, the Swiss franc 0.6%, the Singapore dollar 0.4%, the Mexican peso 0.3%, and the British pound 0.3%. For the week on the downside, the Japanese yen declined 0.2%. The Chinese renminbi declined 0.23% versus the dollar this week (up 5.85% y-t-d).
November 24 – Financial Times (Hudson Lockett): “China’s currency is set to record its best six months against the dollar on record as the country’s containment of coronavirus and economic recovery provide a competitive advantage investors expect will last well into 2021. The rise of the renminbi… underscores a reversal of fortunes as China shifted from being the centre of the pandemic to having it largely under control as cases surge in the US and Europe.”
The Bloomberg Commodities Index increased 0.9% (down 7.5% y-t-d). Spot Gold dropped 4.4% to $1,788 (up 17.8%). Silver sank 7.0% to $22.775 (up 27.1%). WTI crude jumped $3.10 to $45.52 (down 26%). Gasoline surged 8.9% (down 24%), and Natural Gas jumped 7.6% (up 30%). Copper rose 3.4% (up 22%). Wheat gained 1.3% (up 9%). Corn rose 1.6% (up 12%).
November 22 – Reuters (Jeff Mason and Trevor Hunnicutt): “After weeks of waiting, President Donald Trump’s administration on Monday cleared the way for President-elect Joe Biden to transition to the White House, giving him access to briefings and funding even as Trump vowed to continue fighting the election results.”
November 24 – Bloomberg (Saleha Mohsin): “Treasury Secretary Steven Mnuchin will put $455 billion in unspent Cares Act funding into an account that his presumed successor, former Federal Reserve Chair Janet Yellen, will soon need authorization from Congress to use. The money will be placed in the agency’s General Fund… Most of it had gone to support Federal Reserve emergency-lending facilities, and Mnuchin’s clawback would make it impossible for Yellen as Treasury secretary to restore for that purpose without lawmakers’ blessing.”
November 25 – NPR (Will Stone and Sean McMinn): “Far more people in the U.S. are hospitalized for COVID-19 now than at any other moment of the coronavirus pandemic — more than twice as many as just a month ago. Hospitals in some of the hardest-hit states are exhausting every health care worker, hospital room and piece of equipment to evade the worst-case scenario, when crisis plans have to be set in motion and care may have to be rationed. Many states are warning they’re on the brink. On the ground, equipment and staff shortages are already straining the system and changing how hospitals provide care.”
November 24 – The Hill (John Bowden): “Americans are lining up in historic numbers at food banks across the country this week as the COVID-19 pandemic exacerbates levels of food insecurity for millions of people. As the Thanksgiving holiday draws closer, news reports from states around the U.S. indicate that more Americans face food insecurity now than at any time in recent decades. Video obtained by CNN on Tuesday from the Meadowlands entertainment complex in New Jersey showed residents waiting for several hours to obtain prepackaged boxes of meals for the Thanksgiving holiday.”
November 23 – CNBC (Emily DeCiccio): “The Cleveland Clinic’s Chief Caregiver Officer Kelly Hancock urged her community to follow social distancing and mask guidelines as Covid-19 grips hundreds of those working inside of one of America’s best hospitals. ‘We had a record today, we saw nearly 12,000 new cases in the state of Ohio of Covid-positive patients, and so when you think about the increase and the hospitalizations that results in, it’s incredible,’ Hancock said… ‘We’re experiencing close to 1,000 of our caregivers who’ve been affected by Covid-19, and unable to come in and care for those patients.’ The Cleveland Clinic reported that 970 caregivers are out due to the virus, triple the number from two weeks ago.”
November 25 – Reuters: “Countries around the world agonised over new coronavirus curbs ahead of Christmas and other holidays as global infections approached 60 million on Wednesday and U.S. officials pleaded with Americans to stay home over Thanksgiving.”
Market Instability Watch:
November 25 – Bloomberg (Vildana Hajric and Lu Wang): “For perspective on how frenetic the U.S. equity market has been in 2020, consider share volume on Thanksgiving eve. In what passes for a relatively light session of late, almost 11 billion shares changed hands during Wednesday’s session, 6% below the pandemic-era average. While it’s the slowest session in more than a week, it’d rank among the five busiest in 2019. A year ago, fewer than 6 billion shares traded during the session prior to the Thanksgiving holiday. Along with surging megacaps, high volatility and, recently, the reemergence of reopening plays, super-high volume has been a hallmark of the pandemic trading scene. Daily volume has averaged 11 billion this year, up 50% from 2019.”
November 23 – Financial Times (Colby Smith): “Global financial conditions have eased to levels seen before the coronavirus crisis rocked markets in March, reflecting central banks’ success in soothing investor jitters. A measure of financial stress compiled by the US Treasury department has dropped to roughly minus 3, the lowest level since late February. It peaked at 10 in the midst of March’s financial-market tumult. The ructions embroiled the US Treasury market… rippled across the globe. Financial conditions are key for policymakers since markets provide essential lubrication for the broader economy. A sharp tightening, such as the one seen during the 2008-09 financial crisis, can chill business activity and ultimately contribute to declines in output.”
November 22 – Bloomberg (Michael P. Regan): “The sun was just rising over New York on Nov. 9 when an announcement from Pfizer Inc. set in motion what would be one of this year’s heaviest days of volume in the U.S. stock market — and one of the most shocking sessions in recent memory for the quants who trade in it. The surprising success rate of a coronavirus vaccine trial from Pfizer and its partner triggered a massive reaction in stocks. For investors who carve the equity market into assorted characteristics that drive the performance of share prices, it looked like this: Factors such as momentum and growth that had helped lead this year’s rally were crashing, while under-performing groups like value and small caps were soaring.”
November 26 – Bloomberg (Eric Lam and Todd White): “Bitcoin plunged on Thursday in a sell-off that saw other digital assets fall as much as 27%, a slide likely to stoke speculation about the durability of the latest boom in cryptocurrencies. The largest token fell more than 8% in Thursday trading after slumping as much as 13%, heading for one of its worst days since the pandemic-spurred liquidation in March. The rout began just hours after Bitcoin rose to within $7 of its record high of $19,511, the culmination of a more than 250% surge in past nine months.”
November 25 – Bloomberg (Yakob Peterseil): “Two professors have just lent academic heft to a suspicion running rampant on Wall Street all year: The options market is whipsawing share prices like never before. As retail investors spur a boom in derivatives trading to rival actual stock volumes, dealers rushing to hedge themselves are said to have fueled the 2020 melt-up in tech names from Netflix Inc. to Microsoft Corp. They’re also suspected of amplifying two big drawdowns in September and October. New research sheds light on just how this dynamic tends to play out. A study from the Imperial College Business School and the University of St. Gallen has concluded that structural changes to the industry in the past two decades mean dealers are indeed contributing to intra-day volatility as they balance their exposures. It’s the latest evidence supporting traders who have long argued that the derivatives boom is increasing market fragility.”
November 24 – Reuters (Chuck Mikolajczak): “U.S. stocks rallied on Tuesday and the Dow breached the 30,000 level for the first time, as investors anticipated a 2021 economic recovery on coronavirus vaccine progress and the formal clearance for President-elect Joe Biden’s transition to the White House.”
Global Bubble Watch:
November 21 – Reuters (Raya Jalabi, Ryan Woo and Andrea Shalal): “Leaders of the 20 biggest economies… vowed to ensure a fair distribution of COVID-19 vaccines, drugs and tests around the world and do what was needed to support poorer countries struggling to recover from the coronavirus pandemic. ‘We will spare no effort to ensure their affordable and equitable access for all people, consistent with members’ commitments to incentivize innovation,’ the leaders said in a draft G20 communique… ‘We recognise the role of extensive immunization as a global public good.’”
November 22 – Bloomberg (Chris Anstey and Enda Curran): “China’s 2001 entry into the World Trade Organization transformed the global economic order. Yet even as China became the factory to the world, its financial system remained a closed shop, with strict controls on the flow of money in and out. For years there’s been talk of a ‘two-way opening,’ but slow progress. Now the admission of foreign investors into China’s $15 trillion bond market—cemented this year when the country rounded out its inclusion in all three of the top global indexes—may just mark the big bang equivalent to WTO entry. Global pension funds, starved for yield in a low-growth world, will now have access to safe government debt that pays more than 3%.”
November 27 – Wall Street Journal (Mike Bird): “This October, U.S. housing sales hit their highest level since 2006. China’s residential real-estate investment was up 14% relative to the same month last year. Around the world, many housing markets have shrugged off a colossal economic slump, helped by low interest rates. In the short term, such investment is a boost to economic activity in a year where headline figures have collapsed. But there are significant downsides. The fact that housing booms can be a longer-term risk to financial stability is well known, but a growing body of research suggests that even where there is no market blowup, surges in prices and investment can have a deleterious impact on productivity.”
November 26 – Bloomberg (Megan Durisin): “Roughly 40% of the world’s people live in farming areas facing large water shortages, and scarce supplies pose an increasing risk to food security as populations swell and the climate changes, the United Nations said. About 3.2 billion people live in agricultural areas with ‘high to very high’ water shortages and competition over resources is rising… Many farms that depend on rain are at risk as severe droughts become more common, and bigger global incomes are spurring demand for water-intensive foods like meat and dairy. Of the total, 1.2 billion people… are in areas with severely constrained water supplies, and the amount of freshwater available per person has dropped 20% in the past two decades…”
Trump Administration Watch:
November 27 – Bloomberg (Arsalan Shahla and Patrick Sykes): “Iran said Israel and the U.S. were likely behind the assassination of one of its top nuclear scientists on Friday and vowed revenge, sharply escalating tensions in the Persian Gulf in the final weeks of Donald Trump’s presidency. Mohsen Fakhrizadeh was the head of research and innovation at Iran’s Ministry of Defense, according to a government statement. He was killed close to the Damavand campus of Islamic Azad University, about… 37 miles… east of central Tehran… ‘Terrorists murdered an eminent Iranian scientist today. This cowardice—with serious indications of Israeli role—shows desperate warmongering of perpetrators,’ Iranian Foreign Minister Mohammad Javad Zarif said…”
November 23 – Dow Jones (Bob Davis): “Senior Trump administration officials say they are pushing for new hard-line measures against Beijing, even as President Trump winds down his final two months in office. The most ambitious effort would create an informal alliance of Western nations to jointly retaliate when China uses its trading power to coerce countries, administration officials say. They say the plan was sparked by Chinese economic pressure on Australia after that country called for an investigation into the origins of the Covid-19 pandemic. China is trying to beat countries into submission by egregious economic coercion,’ said one senior official. ‘The West needs to create a system of absorbing collectively the economic punishment from China’s coercive diplomacy and offset the cost.’”
November 23 – Wall Street Journal (Bob Davis): “Senior Trump administration officials say they are pushing for new hard-line measures against Beijing, even as President Trump winds down his final two months in office. The most ambitious effort would create an informal alliance of Western nations to jointly retaliate when China uses its trading power to coerce countries, administration officials say. They say the plan was sparked by Chinese economic pressure on Australia after that country called for an investigation into the origins of the Covid-19 pandemic. ‘China is trying to beat countries into submission by egregious economic coercion,’ said one senior official. ‘The West needs to create a system of absorbing collectively the economic punishment from China’s coercive diplomacy and offset the cost.’”
November 23 – Reuters (Karen Lema): “U.S. national security adviser Robert O’Brien… assured the Philippines and Vietnam, countries both locked in maritime rows with China, that Washington has their backs and would fight to keep the Indo-Pacific region free and open. ‘Our message is we’re going to be here, we’ve got your back, and we’re not leaving,’ said O’Brien, on a visit to the Philippines after concluding a trip to Vietnam… ‘I think when we send that message – that peace-through-strength message – is the way to deter China. It is a way to ensure the peace,’ O’Brien said.”
Biden Administration Watch:
November 27 – Reuters (Marwa Rashad, Samia Nakhoul, Jeffrey Heller and Dan Williams): “A historic meeting between Israel’s prime minister and Saudi Arabia’s crown prince has sent a strong signal to allies and enemies alike that the two countries remain deeply committed to containing their common foe Iran. Last Sunday’s covert meeting in the Saudi city of Neom, confirmed by Israeli officials but publicly denied by Riyadh, conveyed a coordinated message to U.S. President-elect Joe Biden that Washington’s main allies in the region are closing ranks.”
November 24 – Wall Street Journal (Kate Davidson): “Janet Yellen, President-elect Joe Biden’s nominee to be Treasury secretary, will confront an economic recovery that appears to be losing momentum and uncertain prospects for additional stimulus from Congress. If confirmed by the Senate, Ms. Yellen would play a key role pushing for more aid for an economy battered by the coronavirus pandemic and related shutdowns, especially if Congress is unable to reach an agreement on a relief package before Mr. Biden takes office on Jan. 20.”
November 25 – Wall Street Journal (Jon Hilsenrath and Nick Timiraos): “When she led President Clinton’s Council of Economic Advisers in the late 1990s, Janet Yellen confided to her husband, economist George Akerlof, about the challenges she faced navigating Washington’s political storms. Those storms are about to become Ms. Yellen’s headache again. As President-elect Joe Biden’s pick for Treasury secretary, Ms. Yellen is looking at the most political role she has had in nearly three decades of high-profile policy making. Her job will be to formulate and defend Mr. Biden’s policies at a time when the economy is at a crossroads and the capital is deeply polarized. Tough debates loom about how much more the government should borrow and spend to advance a recovery that is slowing and vulnerable as Covid-19 spreads, but also is poised to bounce back if vaccines are successfully and quickly distributed.”
November 20 – Reuters (David Lawder and Andrea Shalal): “U.S. Treasury Secretary Steven Mnuchin’s decision to de-fund several Federal Reserve coronavirus lending programs on Dec. 31 is ‘deeply irresponsible,’ President-elect Joe Biden’s transition team said…, and threatens to undermine the country’s fragile economic state. Ending support for Fed programs that ‘could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible,’ Biden’s camp said…”
Federal Reserve Watch:
November 25 – Bloomberg (Matthew Boesler and Catarina Saraiva): “Federal Reserve officials discussed at their Nov. 4-5 meeting providing more guidance on their bond-buying strategy ‘fairly soon,’ though they didn’t see a need for immediate adjustments… The economy is enduring surging Covid-19 infection rates and the Trump administration last week declined to extend several Fed emergency lending facilities that the central bank publicly lobbied to keep on the books. ‘Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon,’ according to meeting minutes…”
November 23 – Reuters (Ann Saphir): “Chicago Federal Reserve Bank President Charles Evans said… there is still ‘quite a long ways to go’ for the U.S. recovery from the coronavirus crisis, adding that he expects the Fed to keep interest rates at their current near-zero level until perhaps into 2024. ‘If the economy picks up next year and we get on top of the virus and the vaccines are very effective and they are deployed quickly and throughout, then we are going to be in a much better situation,’ Evans told the Iowa Bankers Association.”
U.S. Bubble Watch:
November 25 – Associated Press (Martin Crutsinger and Paul Wiseman): “Gripped by the accelerating viral outbreak, the U.S. economy is under pressure from persistent layoffs, diminished income and nervous consumers, whose spending is needed to drive a recovery from the pandemic. A flurry of data released Wednesday suggested that the spread of the virus is intensifying the threats to an economy still struggling to recover from the deep recession that struck in early spring. The number of Americans seeking unemployment aid rose last week for a second straight week to 778,000, evidence that many employers are still slashing jobs more than eight months after the virus hit. Before the pandemic, weekly jobless claims typically amounted to only about 225,000.”
November 25 – Reuters (Jonnelle Marte): “The number of Americans receiving unemployment benefits under pandemic programs set to expire the day after Christmas continued to rise in early November… As of Nov. 7… a total of 13.7 million people were receiving unemployment benefits through emergency CARES Act-related programs expiring Dec. 26. That is up from 13.1 million for the week ending Oct. 31… Some 4.5 million people collect pandemic emergency unemployment compensation (PEUC), which provides 13 extra weeks of benefits for people who have exhausted state benefits. Enrollment is growing steadily as more people use up their regular benefits, which last for up to 26 weeks in most states.”
November 23 – Bloomberg (Alex Tanzi): “Millions of Americans expect to face eviction by the end of this year, adding to the suffering inflicted by the coronavirus pandemic raging across the U.S. About 5.8 million adults say they are somewhat to very likely to face eviction or foreclosure in the next two months, according to a survey completed Nov. 9 by the U.S. Census Bureau. That accounts for a third of the 17.8 million adults in households that are behind on rent or mortgage payments. The CARES Act… allows homeowners to pause mortgage payments for up to a year if they experience hardship as a result of the pandemic. Borrowers who signed up at the start of the program could face foreclosure by March.”
November 25 – MarketWatch (Greg Robb): “The U.S. trade deficit in goods widened in October as consumer spending remains one of the bright spots in the economy. The deficit in internationally traded goods widened to $80.3 billion last month from $79.4 billion… Exports rose $3.4 billion in October to $126 billion. Imports of foreign goods rose $4.4 billion last month to $206.3 billion. Imports are back to pre-pandemic levels.”
November 25 – CNBC (Berkeley Lovelace Jr. and Noah Higgins-Dunn): “New York Gov. Andrew Cuomo… urged the federal government to provide funding to distribute a coronavirus vaccine, saying states currently don’t have the money. ‘The states are broke,’ Cuomo said… ‘Washington never approved the state and local funding. They estimate that the cost to the states to distribute a vaccine … $8 billion. So far, the government provided $200 million.’ He said distributing a vaccine is going to be much harder than anticipated, citing the early difficulties states had in administering Covid tests.”
November 24 – CNBC (Diana Olick): “Covid-induced demand from homebuyers over the summer caused an exceptionally strong spike in home prices. Values jumped 7% annually in September, up from a 5.8% annual gain in August, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. That is the largest annual gain since September 2014. Prices are now nearly 23% higher than their last peak in 2006. The 10-City Composite was up 6.2% year over year, up from 4.9% in the previous month. The 20-City Composite posted a 6.6% gain, up from 5.3% in the previous month.”
November 22 – CNBC (Nassa Anwar): “The past year saw a record number of listings by special purpose acquisition companies — better known as SPACs, but these ‘shell companies’ are hardly a modern phenomenon. From January to October 2020, some 165 SPACs were listed, according to… Refinitiv. That’s nearly double the number of global SPAC IPOs issued in the whole of 2019 and five times that of 2015. Entrepreneurs, hedge fund managers and sports executives are among those who have established SPACs, an increasingly popular method of taking companies public.”
November 21 – Wall Street Journal (Josh Mitchell): “The U.S. government stands to lose more than $400 billion from the federal student loan program, an internal analysis shows, approaching the size of losses incurred by banks during the subprime-mortgage crisis. The Education Department, with the help of two private consultants, looked at $1.37 trillion in student loans held by the government at the start of the year. Their conclusion: Borrowers will pay back $935 billion in principal and interest. That would leave taxpayers on the hook for $435 billion… The analysis was based on government accounting standards and didn’t include roughly $150 billion in loans originated by private lenders and backed by the government.”
November 25 – Reuters (Radhika Anilkumar): “Walt Disney Co said… it would lay off about 32,000 workers, primarily at its theme parks, an increase from the 28,000 it announced in September, as the company struggles with limited customers due to the coronavirus pandemic.”
Fixed Income Watch:
November 21 – Financial Times (Nikou Asgari, Joe Rennison, Tommy Stubbington and David Carnevali): “Lowly rated companies have seized on recent Covid-19 vaccine breakthroughs to borrow in an ebullient market, as investors look towards the prospect of an effective jab boosting the financial outlook of riskier borrowers. Companies at the bottom of the ratings ladder and those whose earnings have been decimated by the pandemic have tapped into the buoyant mood to push debt deals over the line while offering juicy returns to investors with increased appetites for risk. The success of such deals reflects the hopes resting on a vaccine-induced economic rebound next year. Historic central bank actions and low interest rates offered by high-grade borrowers have also encouraged investors to hunt for returns in riskier corners of the market.”
November 25 – Bloomberg (Amanda Albright): “Clark County, Nevada, drew on a reserve account to make an upcoming debt payment due for bonds sold to finance a stadium for the Las Vegas Raiders football team. The county, home to Las Vegas, withdrew $11.6 million from a reserve fund to make a nearly $16 million debt payment due Dec. 1… It affected a reserve fund sub-account, which will be left with a balance of about $47.9 million, while another sub-account with a $9.4 million balance wasn’t drawn upon. Clark County sold $645.1 million in investment-grade bonds in 2018 to help finance the cost of the National Football League stadium where the Raiders play. Drawing on reserves for debt payments is typically a sign that borrowers are struggling to pay their debt, and multiple issuers have done so during the pandemic-induced recession.”
November 27 – Bloomberg: “China’s central bank arrested a selloff in government debt this week with daily cash injections into the interbank market, helping offset some of the concern over tightening liquidity. The yield on bonds due in a decade is in line for a weekly drop of 1 basis point, last trading at 3.32%. The cost surged 15 bps in the first three weeks of November, hitting the highest since May 2019 last week. The People’s Bank of China added a net 40 billion yuan to the financial system on Friday, bringing the total this week to 130 billion yuan.”
November 23 – Financial Times (Sun Yu): “Beijing has warned it will show ‘zero tolerance’ for financial misconduct after several high-profile bond defaults by state-owned companies roiled the Chinese debt market. Speaking at a meeting for the committee that oversees China’s financial sector over the weekend, vice premier Liu He said authorities would ‘severely’ crack down on illegal behaviour on bond financing, ranging from ‘malicious’ transfer of assets to misuse of funds. The comments come as one of China’s largest coal companies Yongcheng Coal and Electricity Holding Group this week faces potential defaults on Rmb26.5bn ($4bn) worth of bonds after it missed a Rmb1bn debt payment earlier this month.”
November 23 – Bloomberg: “China’s top financial regulators pledged a ‘zero tolerance’ approach to violations in the bond market, in a meeting over the weekend to discuss its stability following a number of defaults in recent weeks. ‘The recent increase in default cases is the result of a combination of cyclical, institutional and behavioral factors,’ according to a meeting summary of the State Council’s Financial Stability and Development Committee… The group, presided over by Vice Premier Liu He, didn’t elaborate on those factors… ‘We must investigate and deal with fraudulent issuance, false information disclosure, malicious transfer of assets, misappropriation of issued funds and other illegal activities, and severely punish all kinds of debt evasion to protect the legitimate rights and interests of investors,’ according to the statement.”
November 24 – Financial Times (Tom Mitchell and Sun Yu): “When a state-owned coal company in central China defaulted on a bond worth $152m this month, the slip-up seemed unlikely to send tremors through the world’s second-largest economy. Prior to the default by Yongcheng Coal and Electricity Holding Group on November 10, only five Chinese state-owned enterprises (SOEs) had failed to pay back bondholders in the first 10 months of 2020, according to Fitch… — consistent with levels in recent years. But within a fortnight, Tsinghua Unigroup, a high-profile state technology group, would also default. That prompted China’s top financial official, vice-premier Liu He, to warn borrowers that Beijing would take a ‘zero tolerance’ approach to misconduct in financing deals, such as misleading disclosures, or attempts by companies to evade their debts. The developments have rattled China’s nearly $4tn corporate debt market, of which state-owned enterprises are estimated to account for more than half. In the week after Yongcheng Coal’s default, at least 20 Chinese companies suspended plans for new debt issues totalling Rmb15.5bn ($2.4bn), all citing ‘recent market turmoil’.”
November 24 – Bloomberg: “A string of defaults by Chinese state-owned companies has sent shockwaves across the world’s second-largest credit market. But some bonds have fared much worse than others as investors clamber to avoid the next potential blowup. Among the most notable losers: notes issued by Pingdingshan Tianan Coal Mining Co., Jizhong Energy Group Co., Tianjin TEDA Investment Holding Co. and Yunnan Health & Culture Tourism Holding Group. While none of the companies have missed debt payments, and all four are rated AAA by Chinese domestic ratings firms, their bonds have tumbled by at least 14% since Nov. 10. That’s when a surprise default by a state-owned Chinese coal producer cast fresh doubt on the implicit guarantees that have long underpinned government-backed borrowers.”
November 26 – Bloomberg: “China’s brokers and money managers are grappling with an increasingly volatile funding market after a string of corporate defaults made banks less willing to lend. A gauge of short-term borrowing costs in China’s exchange market jumped as much as 167 bps on Thursday, the most since June, after falling 186 bps the previous day. Wednesday’s plunge… came amid speculation state-backed entities were injecting liquidity. Non-bank financial institutions typically use the exchange venue to borrow cash when it gets hard for them to seek it in the interbank market. Compared to banks, it has been more difficult for these institutions to borrow in recent weeks because commercial lenders turned more cautious given a series of high-profile credit defaults.”
November 24 – Reuters (Andrew Galbraith, Samuel Shen and Tom Westbrook): “A spurt of missed debt repayments by three Chinese state-owned firms – a coal miner, a chipmaker and an automobile company – has shaken local markets and heightened speculation that a campaign to wean the economy off heavy credit is back. The defaults have angered investors, who say their faith in the firms’ top-notch ratings, seemingly sound finances and implicit state backing has been violated. While the notable lack of state support for struggling state-owned enterprises (SOEs) suggests Beijing now has more confidence in the economy’s ability to absorb such failures, it has caught many bondholders off guard.”
November 23 – Bloomberg: “An increasingly popular fundraising tool in China is offering a potential lifeline for cash-strapped companies, as a string of high profile defaults tightens scrutiny of the country’s credit market. Private share placements are booming after rules were relaxed in February, helping revive that form of equity financing. This year has seen 151 deals raise 321 billion yuan ($49bn) as of Monday, the most since 2017… Private offerings have surpassed other equity-linked fundraising tools like public placements, rights issues and convertible bonds in volume. More than 500 private placements are in the pipeline, seeking to raise at least 709 billion yuan.”
November 22 – Bloomberg: “Two companies backed by local governments in Guangdong province have stepped in to provide a lifeline for beleaguered developer China Evergrande Group after a key strategic investor demanded an exit, according to a person familiar with the matter. Firms owned by the city governments of Shenzhen and Guangzhou will buy equity worth 30 billion yuan ($4.6bn) from existing investors in Hengda Real Estate, a unit that holds Evergrande’s main property assets in China…”
Central Bank Watch:
November 25 – Financial Times (Jamie Smyth): “New Zealand’s central bank will reimpose mortgage lending restrictions from March amid concerns historically low interest rates are creating a housing bubble in the country… Residential property prices have surged by almost 20% over the past 12 months, pushing the median price of a house in Auckland, New Zealand’s most populous city, above NZ$1m ($700,000) for the first time…”
November 23 – Reuters (Balazs Koranyi): “Euro zone firms are increasingly vulnerable amid a pandemic-induced recession but public support, including cheap cash from the European Central Bank, have limited the damage so far, a new ECB report showed… ‘Corporate vulnerabilities have increased to levels last observed at the peak of the euro area sovereign debt crisis, but remain below levels reached in the aftermath of the global financial crisis,’ the ECB said…”
November 25 – Financial Times (Jamie Smyth): “Yves Mersch is preparing to take a final stand as one of the European Central Bank’s dwindling band of conservative monetary policy hawks by resisting any broadening of its stimulus measures to purchase a wider array of assets than it already does. The 71-year-old is the longest serving member of the ECB’s governing council… has watched with growing frustration as it has adopted an increasingly accommodative policy stance. He is stepping down after next month’s monetary policy meeting, at which the ECB is widely expected to further expand the unprecedented array of stimulus measures it has launched this year in response to the economic and financial fallout from the coronavirus pandemic.”
November 24 – Bloomberg (Srinivasan Sivabalan and Selcuk Gokoluk): “The much-awaited rally 2.0 in emerging-market stocks may already be under way. Investors’ risk appetite got a boost after Joe Biden’s U.S. presidential win and successes in vaccine development, pushing the benchmark MSCI gauge toward its best month since March 2016. The emerging-market equity rebound since the coronavirus rout in March is now worth $8.3 trillion, meaning more shareholder wealth has been added in the past eight months than in the two-year rally beginning 2016.”
November 27 – Reuters (Jamie McGeever): “Brazil’s unemployment rate rose to a record high 14.6% in the three months to September, official figures showed on Friday, as the easing of COVID-19 social distancing and lockdown measures encouraged people to look for work again.”
November 27 – Bloomberg (Vrishti Beniwal and Karthikeyan Sundaram): “India entered an unprecedented recession with the economy contracting in the three months through September due to the lingering effects of lockdowns to contain the Covid-19 outbreak. Gross domestic product declined 7.5% last quarter from a year ago… That was milder than an 8.2% drop forecast…, and a marked improvement from a record 24% contraction the previous quarter.”
November 21 – Bloomberg (Hari Govind and Rene Vollgraaff): “South Africa fell deeper into junk territory after Moody’s… and Fitch… lowered the country’s credit ratings… The ratings cuts come after the coronavirus pandemic pummeled the government’s finances and pushed the economy into its longest recession in almost three decades. Finance Minister Tito Mboweni said… the downgrades will have immediate implications for borrowing costs and will constrain the fiscal framework.”
November 24 – Reuters (Jamie McGeever): “Brazil’s debt has ballooned to unprecedented levels due to the COVID-19 pandemic and the government faces a $112 billion refinancing cliff early next year, with April’s funding needs the highest ever for a single month. Publicly, at least, Treasury officials in Latin America’s top economy insist there will be no problem getting investors to extend their loans. Their so-called liquidity cushion can cover at least three months of borrowing. Additionally, almost all of Brazil’s debt is denominated in reais and over 90% of it is held by domestic investors, many of whom are compelled to hold it by banking rules.”
November 27 – Bloomberg (Alexander Weber): “Economic confidence in the euro area fell sharply in November, the first deterioration in seven months, after governments imposed new restrictions to halt the spread of the coronavirus. A European Commission sentiment index dropped to 87.6 from 91.1 the previous month, with retailers, services providers and consumers particularly pessimistic. An indicator for employment expectations declined for a second month.”
November 26 – Bloomberg (Carolynn Look and Piotr Skolimowski): “The euro-area economy is seeing initial signs of strained financing conditions, European Central Bank chief economist Philip Lane said… ‘There are some worrying signals in recent survey data,’ he said…, citing indicators on lending, investment, and access to finance for small- and medium-sized businesses. ‘We will recalibrate our instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery.’”
November 22 – Reuters (Holger Hansen): “German Finance Minister Olaf Scholz plans to take on at least 160 billion euros ($190bn) in new debt in 2021 to help stave off the economic impact of the COVID-19 pandemic… This is at least 64 billion euros higher than the 96 billion euros initially foreseen by Scholz for next year.”
November 22 – Bloomberg (Ferdinando Giugliano): “The public outcry against bank bailouts during the financial crisis prompted European governments to constrain the use of public money to help lenders in crisis. New trouble at the region’s oldest bank will test whether these rules can outlast the pandemic. The Italian government faces an impossible decision over Banca Monte dei Paschi di Siena SpA. Italy nationalized the bank in 2017 but had to commit to returning it to the market promptly to abide by European Union state-aid rules. The deadline for a sale — set for the end of 2021 — is approaching fast, but the bank faces a fresh capital shortfall and a dearth of possible investors.”
November 26 – Wall Street Journal (Megumi Fujikawa): “One of Japan’s biggest stock investors just reported record gains of more than $50 billion after a well-timed bet. But the person who engineered the windfall won’t be getting a Wall Street-style bonus this holiday season, and some have even started saying he shouldn’t play the market so much. That’s because the hot-hitting portfolio manager is Gov. Haruhiko Kuroda, head of Japan’s central bank. Mr. Kuroda has led the Bank of Japan’s push, unusual among global central banks, to invest in the Tokyo stock market as a way of rousing the nation’s animal spirits. In March, he doubled the BOJ’s annual ceiling for its purchases of exchange-traded funds to the equivalent of $115 billion.”
Leveraged Speculation Watch:
November 23 – Wall Street Journal (Juliet Chung): “Billionaire hedge-fund manager Jamie Dinan told employees and investors in York Capital Management… the firm was largely getting out of its struggling hedge-fund business to focus on better-performing units. Mr. Dinan said he planned to shut down York’s European hedge funds and to turn its flagship U.S. hedge fund into one running mainly internal money. The strategies together manage less than $3 billion after years of weak performance and investor defections. York still expects to run roughly $9 billion in private equity, private debt and other vehicles that lock up client capital for longer periods. York’s assets under management have come down significantly from a high of $26 billion in 2015.”
November 24 – Bloomberg (Patrick Winters and Marion Halftermeyer): “Credit Suisse Group AG’s Thomas Gottstein has had to contend with losses on loans to rich clients, reports on questionable deals the bank arranged for others, and a lackluster trading performance. Now the asset management unit, traditionally a stable business, is turning into a major headache for the 56-year-old… Credit Suisse said… it expects to book a $450 million impairment on its stake in York Capital Management, as the U.S. investment firm founded by Jamie Dinan winds down most of its hedge-fund strategies in the wake of this year’s market upheaval. The Swiss bank agreed to take a 30% stake in York in 2010, offering to pay at least $425 million at the time to give clients access to alternative investments.”
November 24 – Bloomberg (Davide Scigliuzzo, Lisa Lee and Paula Seligson): “The biggest private equity firms in the U.S. are unleashing a flurry of new leveraged buyouts and debt-funded dividends, seeking to make up for lost time after staying on the sidelines for much of 2020. From Blackstone Group Inc. to KKR & Co., firms have been pivoting from repairing the balance sheets of companies they own to hunting for new investments and realizing gains on businesses that performed well during the pandemic. North American buyout activity, which was 57% off last year’s pace at the end of June, is now only 32% behind.. But with interest rates at record lows, seemingly insatiable demand from bond and loan buyers and almost $1.6 trillion of pent-up cash, industry watchers say the ramp up in deal making might just be getting started.”
November 25 – Axios (Barak Ravid): “The Israel Defense Forces have in recent weeks been instructed to prepare for the possibility that the U.S. will conduct a military strike against Iran before President Trump leaves office, senior Israeli officials tell me. Why it matters: The Israeli government instructed the IDF to undertake the preparations not because of any intelligence or assessment that Trump will order such a strike, but because senior Israeli officials anticipate ‘a very sensitive period’ ahead of Biden’s inauguration on Jan. 20.”
November 26 – Financial Times (Editorial Board): “‘If you make China the enemy, China will be the enemy’. That sentence, attributed to a Chinese government official, has been splashed all over the Australian press in recent days. It deserves to resonate well beyond that country’s shores. The rapid deterioration in the relationship between Beijing and Canberra is much more than a bilateral affair. It demonstrates how a more assertive China is now seeking to intimidate nations that are a long way from its shores, by resorting to a bullying style of ‘wolf warrior’ diplomacy. The treatment of Australia sets a worrying precedent since China is making demands that would impinge upon the country’s domestic system — affecting basic liberties such as freedom of speech. Democratic countries should watch this conflict closely and be prepared to support each other in pushing back against Chinese pressure.”
November 23 – Reuters (Karen Lema): “China’s embassy in the Philippines has denounced the United States for ‘creating chaos’ in Asia, after a visiting White House envoy backed countries in disputes with China and accused Beijing of using military pressure to further its interests… ‘It shows that his visit to this region is not to promote regional peace and stability, but to create chaos in the region in order to seek selfish interests of the U.S.,’ the embassy said…”
November 23 – Reuters (Yew Lun Tian and Karen Lema): “China will respond to the reported visit of a U.S. Navy admiral to Taiwan and firmly opposes any military relations between Taipei and Washington, the Chinese Foreign Ministry said on Monday as a senior U.S. official praised their ties with Taipei.”
November 24 – Reuters: “China is considering drawing up a blacklist of ‘diehard’ supporters of Taiwan’s independence, the government said…, which may see Beijing try to take legal steps against democratically-elected President Tsai Ing-wen. Taiwan condemned the plan after the pro-Beijing Hong Kong-based newspaper Ta Kung Pao first reported on it this month. China’s widely-read Global Times tabloid has said the list could include senior Taiwanese government officials.”