: Inflation is forcing Americans to change their diets

The rise in the cost of living has prompted people to abandon meat and eat out less......»»

Category: topSource: marketwatchJun 23rd, 2022

Inflation Is Causing More Americans To Be Nervous About Their Savings

Inflation Is Causing More Americans To Be Nervous About Their Savings Authored by Bryan Jung via The Epoch Times, Rapidly rising high inflation rates are causing Americans to feel insecure about dipping into their emergency savings, according to a June 23 survey from The rise in everyday living expenses due to inflation throughout the country has forced Americans to reassess their household budgets. Inflation in May hit a 40-year historic high, forcing the Federal Reserve to boost interest rates in order to slow down the economy to control prices. The consumer price index rose by 8.6 percent in May, according to the June 14 U.S Bureau of Labor Statistics report. Some 63 percent of U.S. households have recently cut back on consumer spending, while 57 percent spent less on groceries, and 44 percent are reducing gas expenditures, according to a study from Breeze. About 35 percent are making fewer debt payments, which can put people even further into debt. About 58 percent of the 1,025 Americans surveyed are uncomfortable with the amount of money they have in their savings, up from 48 percent in July 2021 and up from 44 percent two years ago. Eroding Comfort Levels For those who answered that they were comfortable with their savings, 82 percent had at least three months’ worth of expenses saved, while those who were comfortable with their emergency savings are now at 42 percent, down from 54 percent two years ago. “The percentage of Americans who are comfortable with their emergency savings has gone from 54 percent to 42 percent in the past two years, while those [feeling] uncomfortable has jumped from 44 percent to a majority 58 percent,” says Greg McBride, CFA, Bankrate chief financial analyst. “Inflation, at the highest levels in 40 years, will erode the comfort level with and buying power of your emergency savings.” Out of those who responded that they were uncomfortable with their emergency fund, 75 percent said they had no savings or not enough to cover at least three months’ worth of living expenses. Meanwhile, only 43 percent surveyed who were very uncomfortable have any personal savings on hand. Of the more positive respondents, 29 percent are somewhat comfortable, while just 13 percent are very comfortable, while 82 percent in those two categories had at least three months of expenses accumulated in their savings. Some 23 percent of respondents admitted that they have no emergency savings at all, down from 25 percent in 2021, a sign that slightly more people may have more in their savings compared to before, likely due to remaining stimulus cash. At least 27 percent of households still have enough emergency savings to cover six months or more of expenses, up from 25 percent since 2020, the highest it has been since 2018. A total of 22 percent of households have enough saved to cover three to five months’ worth of expenses, the highest percentage in this category since 2011, while 28 percent had some savings, but not enough over the same time frame to cover expenses. Only 24 percent said that they have more than they had in savings from a year ago, while 34 percent said things remain the same. That figure is one of the lowest levels on record in 12 years since Bankrate started its poll. “Despite having more savings, comfort level is way down,” said McBride, who continued, saying that “inflation being at four-decade highs will erode your comfort level in the buying power of your emergency savings.” For households with higher annual incomes earning more than $100,000, 59 percent were comfortable with their savings, while 46 percent of those earning $50,000 to $99,999 reported being comfortable with their emergency funds. Difficulties Saving For households earning below $50,000, the number of those without any savings goes up to 37 percent. “Even with fewer households having no emergency savings and 56% having the same or more savings than one year ago, the majority of Americans are uncomfortable with the emergency savings they have in 2022, a change from the previous two years,” said McBride. Younger respondents are obviously having a more difficult time with savings, due to the fact that they have had less time to save. Some 40 percent of millennials had admitted that they have enough saved to cover three months of expenses, while that number was at a respective 47 percent for Generation Xers and 62 percent for baby boomers. Tyler Durden Fri, 06/24/2022 - 08:51.....»»

Category: dealsSource: nytJun 24th, 2022

Personal Finance Daily: Inflation is forcing Americans to change their diets and ‘eroding the comfort level’ Americans have about their cash savings

Thursday's top personal finance stories......»»

Category: topSource: marketwatchJun 23rd, 2022

: Inflation is forcing Americans to change their diets

The rise in the cost of living has prompted people to abandon meat and eat out less......»»

Category: topSource: marketwatchJun 23rd, 2022

Rabobank: We Are Heading For More Crashes, Bangs, Wallops

Rabobank: We Are Heading For More Crashes, Bangs, Wallops By Michael Every of Rabobank Crash! Bang! Wallop! What a Daily! Today’s obscure Alan Partridge title reference was inspired by a Tweet from The Economist’s @Birdyword in response to @CathieDWood arguing, “Volcker doubled the Fed Funds from 10% to 20% in less than a year. Powell’s Fed has increased the funds rate 7-fold in the lasty year and is pointing to another double from here. Its moves already are more draconian than Volcker’s”. Volcker doubled the Fed funds from 10% to 20% in less than a year. Powell’s Fed has increased the funds rate 7-fold in the last year and is pointing to another double from here. Its moves already are more draconian than Volcker’s. — Cathie Wood (@CathieDWood) June 19, 2022 His simple rebuttal was a screenshot from the ‘Father Ted’ episode where Father Crilly uses plastic toy cows to try to explain to idiot Father Dougal the difference between ‘small’ and ‘far away’. Wood’s ARKK fund is -9.8% on the last month, -59% year-to-date, and -75% from its all-time peak: in short, it is now both small(er) AND far away from its best. Yet clearly from her tweet, Wood does not get the punchline of real Fed funds still being highly negative (vs. CPI) regardless of how much it has risen from very, very small levels in percentage terms. We are very, very far from Volcker territory. We are nonetheless heading for more crashes, bangs, wallops --and corresponding Dailies-- because of how much more financialised and deindustrialised the US economy is now than under Tall Paul. As the US comes back from holiday, let’s see how overly-leveraged, fictitious-over-productive-capital markets handle the increasing talk of a back-to-back 75bps from the Fed next month as a starter. Tellingly, commodities are on the back foot. For all of the talk of ‘China’ and ‘stimulus’ and ‘property rebound’, which China’s own property experts CRIC refute, its markets saw a plunge in key metals and energy prices yesterday. More broadly, energy is also not trying to pop back up again yet. However, overall commodities still look to be more a ‘wallop’ than a ‘crash’ – at least until US rates get to a high enough level to flush out speculation and hoarding in a big ‘bang’… and we finally get to see how much real demand there is, and how much is ‘small vs. far away’. Indeed, as noted yesterday, Europe --like China-- is plunging back into coal production again as Russian gas-flows tail off rapidly. The EU is chastising individual European countries for this backsliding, which makes sense in terms of a green strategy using future technology and future inputs, but little in terms of being able to keep the lights on this winter with current ones. The US is also flailing for a response to high gasoline and diesel prices, and we have now seen two floated solutions: 1) subsidy cards for consumers - stymied by the US not having the chips to even make them, which speaks volumes about supply-side problems; and 2) that the US --like China-- should start a state oil refinery to reverse the 5% drop in capacity since Covid, but would still take years to happen, even if were politically ‘acceptable’, which it isn’t. The food situation, linked to energy, looks even worse. The Ukrainian think tank The Centre for Defence Strategies claims Russian soldiers are forcing Ukrainian farmers to sell 70% of their crops to Russian buyers at a 90% discount, or are preventing it being transported to areas still controlled by Kyiv; in effect using hunger as a weapon of war. But you don’t have to listen to the Ukrainians on this – you can listen to the Russians. At their ‘Davos’ in St Petersburg, we just heard Margarita Simonyan state, “all our hope is in the famine.” This “cynical joke” heard “across Moscow” means “the famine will start now: and they will lift the sanctions and be friends with us, because they realize it’s impossible not to be friends with us.” Yes, President Putin said otherwise at the same venue recently. But people say lots of things and don’t mean them. Like they won’t invade Ukraine. Or ‘Build Back Better’. Or they won’t militarise man-made islands in the South China Sea. Or they won’t interfere with US energy production. For both energy and food, the northern hemisphere winter is coming. And peace is not. Indeed, Lithuania’s land blockade of the rail route to the Russian enclave of Kaliningrad, entirely ignored by the world media at first, now picked up on, only escalates tensions. It remains to be seen what the response will be, but if it isn’t military then it will be like-for-like economic war: less gas, less food, more looking the other way and whistling as chaos then ensues. This isn’t a bug, it’s a feature. Meanwhile, geopolitics is becoming predictably unpredictable: Europe is full of problems, as is the UK, and both are raising problems for each other. Turkey and Greece are at serious loggerheads. Africa is seeing less European influence just as its resources become more vital to the EU. US ally Colombia voted in a former rebel leftist as president, shifting LatAm further from the US orbit - the next key election is Brazil on 2 October. Israel will call new elections for 25 October, which will likely produce unstable/caretaker Prime Minister Lapid or a comeback for Netanyahu. There is a flurry of activity in the Middle East centred around Iran, more of whose nuclear scientists are suddenly dying. Tensions in the Taiwan Straits are escalating as China claims they are not international waters, just after announcing its armed forces can operate abroad outside of declarations of war. The Uyghur Forced Labor Prevention Act (UFLPA) goes into effect today, blocking all imports to the US originating in whole or part from Xinjiang – though if/how this will be enforced remains to be seen. In ASEAN, the Philippine Senate just adjourned its last session without ratifying the Regional Comprehensive Economic Partnership (RCEP) agreement due to objections that accession will harm the country’s farmers. Even Kazakhstan and Russia just blocked each other’s oil and coal exports. Against this befuddling supply-side backdrop is there a way to raise rates without a crash (bang wallop)? No. But if rates aren’t raised, is there any way to avoid a different kind of inflationary crash (bang wallop)? No. Central banks are in trouble whatever happens. Tellingly, the AFR reports Treasurer Chalmers has overridden RBA Governor Lowe’s wishes and will appoint a panel of independent experts to review it, including a monetary policy expert from overseas. (NB, that won’t be me.) The review may consider the composition of the RBA board, the appointment processes, and the 2-3% CPI target. The AFR states, “some observers believe the board should have more professional economists to challenge the governor and deputy governor on technical monetary policy issues.” I would personally hope they have fewer economists and more logistics experts, and perhaps even a general. Then again, “some officials are concerned that any move to amend the legislation would risk the Greens in the Senate trying to add climate change and inequality to the bank’s mandate.” The RBA is already conducting an internal review of its Covid policies, such as the 0.1% cash rate it pledged not to raise until 2024, as today Lowe stated 4% was unlikely but not entirely out of the question by year-end, and that inflation will remain above target “for years”. There are also questions over A$350bn in QE and A$188bn in cheap loans to commercial banks. Yet the RBA is also under attack for its claims of "stronger upward pressure" on wage growth, a view originating from its liaison program, which is criticised as statistically imprecise. "I think the RBA had dug itself into a hole whereby it needed evidence that wages growth was starting to accelerate in order to satisfy its precondition for starting to raise rates, that underlying inflation was sustainably within the 2-3% target range," says former ANZ chief economist Saul Eslake. You mean a central bank might not ‘follow the science’?! Then again, the minimum wage did just rise 5.2%, and today’s minutes underlined that “The Board remains committed to doing what is necessary to ensure that inflation in Australia returns to the target over time.” Meanwhile, in China we may have a significant policy shift too. A PBOC notice yesterday flagged changes to “give full play to the role of cross-border RMB settlement business in serving the real economy, promoting trade and investment facilitation, and support the development of new forms of foreign trade.”  This includes that domestic banks can cooperate with non-bank payment institutions and legally qualified clearing institutions that have obtained internet payment business licenses for cross-border RMB clearance, i.e., cross-border e-commerce, market procurement trade, overseas warehouses and foreign trade services, and consumers who purchase goods or services. Maybe it’s nothing: and maybe it’s warming up for the use of e-RMB to trade across internet apps outside of SWIFT. I don’t think any major central bank is going to emerge from what is about to happen with its reputation enhanced or its current operating parameters intact. Very few are going to make it into the Ark: most will look like ARKK. That prospect is neither small nor far away: markets should prepare for the associated crashes, bangs, and wallops. Tyler Durden Tue, 06/21/2022 - 10:35.....»»

Category: blogSource: zerohedgeJun 21st, 2022

CNN Analyst Suggests Inflation Is Needed To Achieve Green Agenda

CNN Analyst Suggests Inflation Is Needed To Achieve Green Agenda As we have covered in the past here on ZH, the inflation/stagflation crisis is immensely damaging to the average person, with the threat of poverty and food shortages hanging over the majority of the population, but there are some people out there who see the crisis as a boon, specifically for the Green agenda and carbon taxation. CNN economic analyst Rana Foroohar follows the bizarre line of thinking in an interview with The Ezra Kline Show, suggesting that inflation is needed in order to pave the way for a carbon credit based economy.  She argued: “...This is something that I think, unfortunately, no politician, particularly the Democrats right now in advance of midterms or a presidential election want to land on, which is some of the transitions to a kinder, gentler, I believe more stable, and ultimately more resilient economy, are going to be inflationary in the short to medium term. What’s the cost of something if you actually have a real price on carbon, and then you have to tally in how much it costs to tote it over tens of thousands of miles from the South China Seas? What’s the cost if you have proper environmental and labor standards?  ...This is the conversation happening right now. And once you start pricing all those costs in, and you start really thinking of the economy in a different way, then yeah, it is certainly is inflationary..."   Foroohar then called on the U.S. and Europe to "put a price on carbon." The analyst follows a relatively new trend among the political left and globalists in seeking to justify the existence of price inflation as a means to an end; the “greater good” being the induction of Green New Deal-style legislation.   Some propagandists in the media claim that the inflationary crisis is an opportunity, while others try to claim that climate change is the direct cause of inflation, and if we don't accept carbon taxation then we will continue to suffer under an inflationary collapse.  But we all know what the game is here:  To use public fears of financial disaster to lure people into accepting authoritarian environmentalism because “Prices are already high anyway, so why not?” Even NASA and the NOAA openly admit that average global temperatures have only increased 1 degree Celsius in the past century.  Yes, that's 1 degree we're supposed to be terrified of.  Keep in mind that the official temperature record used by climate scientists started in the 1880s, so when the NOAA says that a recent temperature was “the hottest on record,” they are using a scale of a little over a century.  That's a tiny sliver of time in the vast weather history of the Earth.   In fact, the Earth today is rather cool compared to the numerous warming periods of the past, and these spikes in heat coincided with thriving expanses of life.  And, no man-made carbon emissions either.   There is zero proof that man-made carbon is the cause of the Earth's current warming cycle. Climate scientists, who receive large sums of money through funding as long as they toe the party line, argue that man-made carbon can be the only cause of climate change because “carbon rises as temperatures rise.”  In other words, correlation = causation.  This is not real science.  They make no mention of the fact that warming also tends to lead to more life on the planet, and thus more carbon.   The facts of Earth's climate history are generally ignored for the sake of ideology.  We are meant to believe that all those other warming periods were different, and this time warming (minimal warming) is caused only by car exhaust and industrialized cow farts?   Perhaps it is no coincidence that inflation is being exploited by Green ideologues and globalists as an excuse for carbon taxes?  Maybe that was the plane all along?   High prices in gas force the public into mass transportation and less independence (only rich people will be able to afford electric cars).  The public will be priced out of meat in their diet and be forced into vegetarianism/veganism (laboratory produced proteins lack the fats and fatty acids the human brain needs from real meats to function properly).  The public will be priced out of private property and owning a home, forcing them into mass housing systems.  They will be priced out of most retail goods, forcing them to accept the “Shared Economy” model created by the World Economic Foundation.  And, they might be priced out of the economy altogether, forcing them to accept Universal Basic Income and total dependency on the government, not to mention having a family would be impossible, so the population control agenda is served as well.      The inflation issue is a panacea, but only for globalists and Green cultists, which is probably why they can barely contain their excitement when discussing it.  Tyler Durden Tue, 06/21/2022 - 08:45.....»»

Category: worldSource: nytJun 21st, 2022

"We Now See The Fed Moving Toward An Attempted Controlled Unwind Position"

"We Now See The Fed Moving Toward An Attempted Controlled Unwind Position" By Larry McDonald, author of the Bear Traps Report Never forget – NOT allowing price discovery for a long period of time - then forcing the process onto markets with a “bayonet in the back” - at an ever-accelerating rate - is a virgin-central bank experiment. It comes at a high price. Never happened before. Inflation is forcing central bankers to allow price discovery. There was always price discovery before Lehman – but for much of the last 12 years markets have been in a Fed zombie trance. We mean a real - free market - "cost of capital." Light on this process is emerging through the cobwebs of "Pandora's Box." After leaving it closed for far too long. Indeed, the Fed ripped open the box with panicked shaking fingers. As academics - they cannot possibly measure the risk in what they are doing. They are focused on backward-looking economic data - NOT the thousands of NEW risk metrics flying out of the crypt. Financial conditions are tightening, at the fastest since Lehman. And even when central bankers do see the new emerging risk - they certainly will NOT tell us until the beast inside the market forces them to. That said, much like our weekend notes delivered near March 14 (QQQ counter trend rally +17%) and May 20 (QQQ counter-trend rally +12%), buy signals are mounting yet again. Central bankers are NOT idiots – they clearly see the emerging risks we see but have to stick to the stale script and bleed out the truth -- one drop at a time. BUT colossal market pressures and fast economic deterioration will force them to acknowledge the new risk landscape. The greater the systemic risk pressure, the faster the clowns will react. It ́s all about the rate of change of information. In a bull market, under normal conditions – central bankers do NOT have to get out of their cozy recliner – for years they are conditioned to sit back and relax. As the bear ́s claws arrive – fresh tracks can be seen on the trail staking Powell and Co. The fierce shift in the rate of change of both economic and systemic risk data presents fresh wounds to the reputations of our brain trusts. For months – their pawns (sell side banks and journalists) have been talking up a 4-5% Fed funds rate – pure lunacy on today ́s stage. The beast will NOT have it. We love the gold and silver miners here – and see the Fed moving toward an “attempted” controlled unwind position. They have acknowledged their inflation fight, now they must come clean on the financial stability - recession front. Tyler Durden Mon, 06/20/2022 - 19:55.....»»

Category: worldSource: nytJun 20th, 2022

Reimagining The World Economic Forum

Reimagining The World Economic Forum Authored by Mark Jeftovic via, The folks at The World Economic Forum, led by Klaus Schwab, never tire of “reimagining” everything. From food chains, digital identity, healthcare, even reimagining capitalism itself, everything seems to be on the table. Our betters at Davos have taken it upon themselves to make every aspect of our lives fair game for being reimagined, reconstituted, recalibrated, reordered and reset. Always along top-down technocratic lines they dream up at their exclusive, invite-only confabs. I don’t know about you, but I can’t remember asking nor empowering anybody else to reimagine my own life. I figure that’s my job. Shouldn’t we tell these guys not to worry about it – “We’ve got this” ? They seem undaunted and proceed to reorganize the world anyway. Maybe we should return the favour and reimagine The World Economic Forum and the self-appointed elites who populate its ranks… Reimagining Klaus Schwab Herr Schwab makes it hard not to imagine him as a SPECTRE-ish super villain straight out of a James Bond flick: But that’s not re-imagining him. To re-imagine means to change, transform, turn something that is into something it isn’t because you prefer it that way. So if we were to reimagine Klaus Schwab then perhaps we could start at the beginning, with Klaus Schwab’s father, Eugen Schwab who was a military industrial contractor to the Nazi regime during world war 2. According to investigative reporter Whitney Webb, the elder Schwab: “led the Nazi-supported German branch of a Swiss engineering firm into the war as a prominent military contractor. “ That company, Escher-Wyss, used slave labour in Nazi efforts to develop an atom bomb. Years later, when Schwab sat on the board of directors, he approved an initiative to help the Apartheid era government of South Africa in their pursuit of an a-bomb. In this era of open talk about reparations, perhaps reimagining Klaus Schwab could prescribe that the World Economic Forum pay reparations to descendants of Nazi-era slave labour (concentration camps) and for their part in reinforcing Apartheid in South Africa. Finally, given that Schwab was a protege of Henry Kissinger, who is considered by some to be a war criminal in his machinations toward multiple countries around the world; perhaps reimagining Klaus Schwab should also include some manner of Truth and Reconciliation process toward the countries and populations to which Schwab’s intellectual mentor inflicted so much pain and suffering. Reimagining Carbon Footprints of The Elite That the climate crisis requires a massive reordering of all our lives seems to have been already decided. When see some of the various pronouncements coming out of the myriad climate conclaves, including Davos, you’ll see they’re pushing for: Individual carbon footprint tracking Energy rationing (carbon taxes) Elimination of meat from our diets (“Contextualizing meat consumption”) Eventual elimination of private vehicle ownership Elimination of single-family homes (“upzoning” single-family areas) If one were to reimagine the World Economic Forum in terms of showing leadership and resolve for this ostensibly unprecedented crisis, then the logical and noble move would be to eliminate the most carbon intensive forms of travel and conspicuous consumption first. Private jets and super-yachts would have to go, immediately, and with no exceptions. Private jets could be melted down for scrap metal and reused, as per the UK Fires memo on Absolute Zero 2050. All super-yachts could be permanently moored in third-world nations and repurposed as low income housing. As of 2016 there were an estimated 10,000 super-yachts (over 28 meters) in the world, with 150 more being built every year. If a single super-yacht could be upzoned to house 50 low income families, we could provide permanent shelter for 500,000 families globally. Everybody needs a home, nobody needs a super-yacht. By re-contextualizing yacht and private jet ownership we can ameliorate the housing shortage in a carbon-neutral manner. All Davos meetings and super-summits could be held via remote video conference from this day forward, which would further reduce carbon footprints of holding such meetings. Finally, any Davos or WEF attendee who endorses or promotes action plans emanating from these proceedings should be legally bound to bringing their own consumption patterns in conformance to the recommendations, even before any such recommendations become policy. That would mean: getting rid of internal combustion vehicles, private jets, yachts, second, third, forth, fifth or sixth residences, and stop eating meat. Reimagining CBDCs and Social Credit Make no mistake Central Bank Digital Currencies will be the lubricant for which WEF inspired social credit programs are implemented. WEF talking points always include politically correct buzzwords like “inclusion”, “diversity” and “empowerment”, so what better way to reimagine CBDCs than to pivot the entire conversation toward a global, neutral digital currency that already exists and has no barriers to entry for anybody in the world? I am of course talking about Bitcoin, which exists now and already ticks all of the inclusion, diversity and empowerment boxes. Even better, it provides absolute inalienable rights to those who hold it, who could argue with that? Reimagining Constitutionally Enshrined Human Rights Speaking of human rights, the Davos crowd always pays them lip service in everything they do. The latest Schwab book “The Great Narrative” formally endorses the human rights as laid on in the UN’s Universal Declaration of Human Rights: one all-encompassing value framework has been ratified by the 193 Members States of the United Nations: the Universal Declaration of Human Rights.135 Its 30 articles detailing an individual’s “basic rights and fundamental freedoms” and affirming their universal character as “inherent, inalienable and applicable to all human beings form the bedrock of a universal value system. This book embraces humanistic values that unequivocally prioritize freedom, human dignity and a quest for the common good.” So let’s look at what those universal human rights actually are. If we look at the UN declaration of Human Rights, particularly Articles 12: No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks. Article 13: Everyone has the right to freedom of movement and residence within the borders of each state. Everyone has the right to leave any country, including his own, and to return to his country. Article 17: Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property. Article 18: Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance. Article 19: Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers. Then in reimagining the WEF we could posit them enforcing these globally ratified rights on their own membership and exclude or banish heads of state from any country that violated these rights over the past few years of lockdowns: namely Canada, Australia, the United States, the UK, almost every Eurozone country and any other nation that locked down their population, forced vaccinations, deplatformed dissenters or espoused the redistribution of wealth (property) in any way. Reimagining “The Great Reset Fourth Industrial Revolution Grand(iose) Narrative” Reimagining other people’s lives is fun. Once you have everything all figured out for everybody else it can be hard to understand why anybody would resist it. We’ve clearly laid out an inclusive, restorative, empowering set of principles for the Party of Davos to live by, so why won’t they do it? They won’t do what we reimagine for them, naturally, so how come it feels like there’s a certain expectation that we’ll subserviently comply whenever they want to “re-contextualize” our basic rights? The reality is nobody has any moral authority to reimagine anybody’s life but their own. That’s actually the objective point of the entire UN Universal Declaration of Human Rights. Thinking that one big super-brain or council of wise-persons can figure out the best way for over 8 billion independent minds and bodies to live is beyond imagination, it is pure delusion. The main downside is by believing it is so, they cause a lot of damage. This technocratic mindset is what writes the pages of history: a small cadre of self-appointed elites think they have it all figured out, and then whammo – inflation, wealth inequality, civil breakdown, economic ruin and tyranny. Trying to control the outcome for all effectively bakes-in the chaos. There is really only one thing anybody can control, which is their own reaction to whatever happens to them. That’s it. But it takes an act humility to realize that. For the Davos crowd, humility is a liability. Fortunately there is another narrative rising: the decentralized revolution narrative. It’s the freedom to act unilaterally regardless of what anybody else thinks, and doing so without violating anybody else’s rights to do the same. This gives rise to a noble alchemy, a positive feedback loop. It is the basis from which free markets and capitalism itself are born. It’s what launched the Reformation, the Enlightenment, the Renaissance and the Industrial and Information revolutions. We can set up an agreed upon set of rules of what all 8 billion of us can’t do to each other. We have those kinds of rules already, handed down throughout the generations. But we can’t decide what anybody else should do without inducing them through a mutually agreed upon exchange of value. The World Economic Forum is a last gasp of industrial age, late stage globalism. They may exert undue influence now, but it may have already passed its zenith. Reimagine Yourself Given that the Davos crew won’t have themselves reimagined, especially by us plebes, what we can do is really the only thing practical within the confines of incarnate reality: we can reimagine ourselves. In my previous post about protecting oneself from “Davos Man”, I quoted Neville Goddard, one of the preeminent thinkers from the Golden Age of New Thought. His books “Awakened Imagination” and “The Power of Awareness” provide the antidote against those who would cast your life in their own mind’s image (the Tarcher reprint edition has them both) Here is the secret that those who would rule over others don’t want you to know: It’s that imagination is an actual super-power. One bestowed on all of us. Imagination is the very gateway of reality. “Man,” said Blake, “is either the ark of God or a phantom of the earth and of the water.” “Naturally he is only a natural organ subject to Sense.” “The Eternal Body of Man is The Imagination: that is God himself, The Divine Body. Jesus: we are his Members.” I know of no greater and truer definition of the Imagination than that of Blake. By imagination we have the power to be anything we desire to be. Through imagination we disarm and transform the violence of the world. Our most intimate as well as our most casual relationships become imaginative as we awaken to “the mystery hid from the ages,” that Christ in us is our imagination. We then realize that only as we live by imagination can we truly be said to live at all It’s curious that Schwab and company frequently use that word “re-imagine“. Once you understand the true power of imagination, as described by Goddard, that it encapsulates the underlying creative power of the universe, then the act of re-imagining another’s life is a type of predation. It is vampirism, both economic and spiritual. At scale it manifests as mass formation psychosis. The Party at Davos (more like a coven, perhaps) would have you believe that power is  theirs, they are literally Priests of the Temple  in the church of Late Stage Globalism. But the reality is that everybody has this superpower. If you use yours, you ordain your own destiny. If enough people take control of their own psychic and mental temple, the one within, then the rulers of the darkness of this world lose their power. Without actively taking charge of your own thoughts and goals, your entire life will be something that just happens to you. When you are pursuing your own ideals and controlling your own thoughts you are expressing the universal life force in your own unique way. That doesn’t mean you are able to “command reality”, which is actually what the Davos crowd is attempting. But what goals and aspirations you do attain will be in spite of what the Klaus Schwab’s, the Party of Davos and the World Economic Forum think you should do, instead of what they permit you to do. If enough people do this: take the command of their own destinies, become as Sovereign Individuals, live in pursuit of their own goals and aspirations, then it won’t really matter what external groups from a waning era think. *  *  * You can learn more about the overall thesis behind the coming Monetary Regime Change by joining the Bombthrower mailing list.  Wherever you are on the path to being a Sovereign Individual, Bombthrower can help you navigate the terrain. (Gettr, Twitter, Telegram) Tyler Durden Sat, 06/18/2022 - 20:30.....»»

Category: dealsSource: nytJun 18th, 2022

Lagarde Capitulates As The Euro-Zone Divides

Lagarde Capitulates As The Euro-Zone Divides Authored by Tom Luongo via Gold, Goats, 'n Guns blog, I know you probably get tired of me saying this but the Euro-zone is headed for a massive crisis.  On Thursday, June 9th, the ECB came out with its policy statement, less than one week before the next FOMC meeting statement (June 14th). It was a doozy.  Christine Lagarde attempted early on to project that soothing calm central bankers are supposed to exude even when everything is collapsing around them. But, truly this was Lagarde’s ‘Baghdad Bob’ moment.  She stood up there and read the ECB’s policy statement off the teleprompter like she had something caught in her throat, likely the remnants of what is left of her conscience, because even she couldn’t swallow the bullshit she was slinging. We have inflation under control.  We will still grow in 2022 (BWAHAHAHA!) and growth will accelerate in 2023 and 2024.  These people haven’t gotten one quarterly forecast right in … forever, and yet they project this idea that they have any clue what GDP growth will be in 2024? But, as Zerohedge pointed out, Lagarde then reversed herself during the press conference, trying to resurrect the ghost of Mario Draghi, saying that she stands ready to do ‘whatever it takes’ to stabilize the situation. From ZH: She notes there are existing instruments with the reinvestment capacity under the PEPP. “And if it is necessary, as we have amply demonstrated in the past, we will deploy either existing or new instruments that will be made available.” Lagarde states that “within our mandate we are committed to preventing fragmentation risks within the euro area.” So some kind of asset purchase scheme for peripherals? The vagueness is intentional as it appears Lagarde is trying to pull off a Draghi ‘Whatever it takes’ moment while keeping her foot on the hawkish pedal. As The IIF’s Robin Brooks pointed out: If the ECB says to markets: “we will defend Italy’s spread,” markets will for sure test that statement. So – in effect – what the ECB did today is to raise the odds of markets trying to force its hand.All this is avoidable. Don’t hike. The Euro zone is going into recession… The end result was obvious to anyone with ears to hear, we are reluctantly following the Fed’s lead in ending QE hoping that someone will still think that Italian BTP’s trading at 65 bps above US Treasuries of the same maturity is a ‘good deal,’ and invest in a country that now carries increasing redenomination risk.   If it wasn’t so over-the-top moronic, it would be funny.   Now with the horrific US CPI print red-pilling a whole lot of investors that the Fed has the green light to be even more hawkish, the mad scramble is on to figure out where to park that money that’s been frozen by the clown show that is US domestic politics. The Fed’s in control here, but not in the way a lot of people think. The next level of insight that should begin to take hold, especially if the next CPI print is equally awful, will be what I’ve been saying for a year now…. The Fed isn’t raising rates to combat inflation. The Fed is raising rates to break the ECB and Davos. Spread Eagled ECB Two months ago Italian debt, thanks to Lagarde’s lying and everyone’s front-running her trades, was trading at a premium to US debt.  Um, Chrissy, you’re going to need to see that spread vs. US debt be more like 650 bps (6.5%) rather than 65, if you want to attract even the average NFT investor at this point. The bond markets are all now moving away from the monetary experiments Lagarde inherited from Mario Draghi and she has neither the experience nor the gravitas to carry this charade off any longer. The big takeaway, and the reason why the euro had a mild bout of myocarditis Thursday Morning before collapsing on its way to the bathroom, is because Lagarde is open to creating a new, improved, QQEternity, alphabet soup program in the future if this ending QE ‘experiment’ doesn’t work. With the Fed now secure in its role as European liquidation agent, there’s nothing Lagarde can do other than follow the yellow brick road make the best of a terrible situation getting worse by the day. That said, I have to ask the serious question, are they really worried about Italy at this point?  It’s not like the folks at Davos Central didn’t manipulate the Italian political scene to achieve exactly this state of affairs. So, I honestly don’t think they care at all about Italy. In fact, I’d argue that they would rather have Mario Draghi ride Italy into the ground and turn the country into a smoking ruin in the hopes of saving the northern European currency bloc.   The whole point of putting Draghi in charge was to liquidate Italy.  Italy’s financial implosion would be just the cause celibre Davos has been trying to create to consolidate power within the ECB by taking complete control over its banking system when all the banks collapse. Think back to the Banco Popular implosion where it was forcibly liquidated by Draghi when he was ECB president and sold to Santander for $1.  The power that Draghi exhibited there was astounding. And it was a warning shot to investors that no one’s money is safe from the commissars at the ECB. While Draghi kept things together through strong-arming and, at the time, a sympathetic FOMC with Janet Yellen at the helm, the precedent was set then that the ECB has power over its member banks that the Fed doesn’t have. Today, looking at the situation, I’d say this is a very good thing. You’re going to see a lot of this going forward in Europe and too many commentators are not prepared for the idea that this is all deliberate. It’s not the plan they wanted, which was for this collapse of the Euro-zone to occur on their timetable not the markets, but it’s still the plan.  They hoped they’d have a compliant Fed putting the New York banks on notice that they have no friends left. Davos may be improvising here, because the Fed is clearly working them over the coals as Eurodollar markets dry up, but they are still trying to make the best of a bad situation. And that’s why Lagarde was trying to soften the market up by saying, “We have everything under control and still have tools.”  It’s all you ever hear from these central bankers, when, in reality, they have zero real clue anymore than we do. If the European banking system collapses in the way I am forecasting this is what will destroy the Eurodollar markets, as those banks which previously levered up their dollar balances will have zero ability to do so after they are absorbed by the ECB. Once this potential outcome is truly digested by the markets, and I think Friday’s complete shitshow was the beginning of that realization, then that’s when we are going to see rapid shifts in bond spreads, O/N money market rates and blow-outs in things like 1 month and 3 month USD LIBOR.  Speaking of that, the SOFR/1month LIBOR spread blew out to 44 bps on Wednesday.  After the ECB’s performance and the worse than expected US CPI print (8.6% vs. 8.3% expected), I’m having a hard time believing we won’t see a wider spread than the 53 bps we saw the day of the last FOMC meeting by Wednesday’s next FOMC meeting. The Political Fallout What is most important here is that the ECB being exposed as having no ‘there there’ undermines the political positions of nearly every major politician across the euro-zone.  It’s not like a banking crisis is going to make Olaf Scholz’ coalition in Germany stronger or Draghi’s caretaker government in Italy.   These guys will finally begin to feel real political anger for change as inflation eats away the middle class, high energy prices gut corporate profits and there is no end to the regulatory tyranny coming from Brussels, hell bent on forcing an anti-hydrocarbon agenda down everyone’s throat.   That said, you know Davos will try to keep a tight lid on the EU’s core, because it carries the most political power.  What they won’t be able to control, once this begins to unravel, is what the so-called periphery does. Bulgaria’s Davos-backed government lost a key partner this morning.  Boris Johnson is toast in the UK as the Night of the Tories Long Knives has come and gone. No one knows how to turn on their leadership like the Tories — Thatcher, May, now Johnson. Turkey has all but declared war on Greece over Erdogan’s creative interpretation Greece’s sovereignty, accusing it of militarizing islands in the Aegean. Estonia lost its majority last week over inflation not caused by Russia, but by their own rabid Russophobia. The economic realities of what Lagarde have set in motion but can’t control will be the collapse of nearly every major government in Europe over the next year or two while incentivizing countries like Hungary to declare independence from Brussels. This is why Lagarde was so keen to remind us that she is aware of ‘fragmentation risks’ and that she’s on top of it. Too bad this is more bucking bronco than bucolic burro. I’ve got the under on whether she lasts the 8 seconds or not.  The key is Russia continuing to grind out victories in Eastern Ukraine while using the time to reinforce its positions in the south and expose the utter bankruptcy of the West.   I told you that this was a race to someone’s Great Reset, not necessarily Davos’ when the war broke out. Putin is upping the operational tempo on the neolibs of The Davos Crowd in Europe and the White House and their neocon useful idiots in the US/UK foreign policy circles, Congress and intelligence services to create the ultimate geopolitical Russian cauldron for their avarice. Ukraine represents everyone’s existential threat. If the neocons lose, they are done as an influence within foreign policy circles in the West forever because they will have failed to penetrate Fortress Russia. If Davos loses, their grand plans for global domination become diminished to, at best, the European Union and some parts of the Commonwealth. If Russia loses, the entire Global South, fails to escape the fiat, debt-based slavery of the Western central banking cartel, because they will control the flow of Russian natural resources in such a way that they will not be stopped. More on this later. After Bojo the Bozo in the UK the big question is who’s next? There’s a lot of speculation that the German government will fall, but I’ve seen this story play out in Italy before.  The coalition could fail and the President Frank-Walter Steinmeyer, a Davos man through and through, will refuse to sanction new elections and should force the parties to cobble together a new technocratic government that will be indistinguishable in policy from the existing one. Since the Greens are embedded in nearly every state delegations to the German Bundesrat (upper house) there will be no real policy change since they control what legislation actually gets passed. This is why Scholz is so weak.   Since each state in the Bundesrat votes as a bloc, the Greens control 41 of the 69 votes there, giving them effective control over policy.  This was Merkel’s greatest achievement while Chancellor while also bamboozling Putin in to thinking the Minsk agreements were something other than a time-waster while NATO built and trained the Ukrainian army his men are now pummeling into dust. This is what she set up with each of the state governments, by refusing any AFD coalitions to form in any state, she ensured that no matter what happened, there would be no challenge to the Greens revolution of Germany’s legislative agenda.   Davos is setting up the failure of the German government to hand it to Brussels.  So, if the German government fails and Steinmeyer refuses to go for new elections, then the resultant caretaker government will be even weaker than Scholz’ government and ensure the complete betrayal of the German people to the EU.   And the worst part will be that they will still feel like they have control over what happens to them next because the German people are still told they control EU policy at the top. When in reality all that will happen is the EU will fracture along capital efficiency lines and the euro will drive it into bankruptcy, forcing real political fracturing. Eastern Europe will break off the moment the EU tries to enforce the energy embargo on Russia, especially if Russia gains Odessa and access to the Danube river system. Watch Bulgaria carefully as the next Soros-backed junta to fall completely to the economic reality of a dying EU. Good job, Chrissie, you’ve achieved the exact opposite of what you intended, which is a unitarian banking and political system.  Because, as always, people respond to incentives.  In the US, we said no to Climate Change, CBDC’s and gun control.  In Russia, they said no to debt and Nazis.  And in China, they simply said no to oligarchs who weren’t Chinese. Pretty easy to tear up the EUSSR under this scenario. Pretty easy to see what happens next. Tyler Durden Tue, 06/14/2022 - 02:00.....»»

Category: blogSource: zerohedgeJun 14th, 2022

Transcript: Dan Chung

    The transcript from this week’s, MiB: Dan Chung, Alger Funds, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This… Read More The post Transcript: Dan Chung appeared first on The Big Picture.     The transcript from this week’s, MiB: Dan Chung, Alger Funds, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast I have an extra special guest, his name is Dan Chung, and he has been with Alger Asset Management since 1994, where he started out in the e-commerce and technology sector as an analyst before eventually becoming President, Chief Investment Officer and then CEO. Dan Chang has been running that firm for quite a while, with quite a tremendous track record. The firm has $35 billion to $40 billion in assets. In addition to the CEO and CIO roles, he also runs a couple of different portfolios to a great acclaim. Alger is, you know, best known as founded by Fred Alger. We’d talk a little bit about various mentors, as well as what the firm’s experience was in 9/11 and what they’ve done after that in terms of their own philanthropy. They’re a fairly unique growth firm that focuses on tech, healthcare, a variety of other things, specifically growth companies, and we’d go over how they’re managing through what is both a challenging, but target rich period with great opportunities. So with no further ado, my interview with Alger Management’s Dan Chung. ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is Dan Chung. He is the chief investment officer and chief executive officer at Alger Management, which runs over $35 billion in assets. He has been CIO since 2001. He earned his J.D. from Harvard in ’87, got a master’s in Law from NYU, before going to clerked for the Honorable Justice Anthony Kennedy at the Supreme Court of the United States. He is also a portfolio manager for multiple funds and strategies, including the $4.5 billion Alger Spectra Funds. Dan Chung, welcome to Bloomberg. DANIEL CHUNG, CEO AND CIO, ALGER ASSET MANAGEMENT: Thank you, Barry. So I’ve been looking forward to having this conversation with you for a while, and I have to start by asking, you had a storybook legal career, what happened? What made you say, “Yeah, to hell with Harvard and the Supreme Court, I’m going to switch gears and try something totally new?” CHUNG: Yeah. It was — it was a storybook career. And if I had another opportunity, I probably would have tested out what the legal world would have been like, but — where many of my friends still are today, including Justice Elena Kagan. RITHOLTZ: Were you a colleague of hers? CHUNG: We co-clerked together, and we went to law school together, and we served on the law review together. And she’s an amazing person. It’s very weird to have a friend who becomes a Supreme Court Justice. RITHOLTZ: Right. That’s kind of interesting. Do you guys ever stay in touch? Do you have a chat? CHUNG: You know, I was just getting to the point in my career where I wanted to sort of give back to the Harvard Law School. At that time, she was the dean. So you talked about a storied career, she was the dean. And so I — the last time I saw her on a one-on-one situation, it was like, you know, talking about “Let’s do something law and business.” And my whole issue was that lawyers are — you know, the vast majority of them are consulting in some way for businesses, and they don’t understand the business at all and it reduces the quality of their work. And she was — she was very into it. And then, I don’t know, a couple months later, she’s nominated for the Supreme Court. So that’s all over. RITHOLTZ: So — so she saved you writing a check like almost — CHUNG: Yeah, that’s true. Yeah, yeah, yeah, saved some money. RITHOLTZ: So – so you end up at Simpson Thacher, which is known for international law and corporate law and litigation. CHUNG: Right. RITHOLTZ: What were you doing for them and then how did that end up transferring over to finance? CHUNG: Right. So I — my parents are both academics and knew absolutely nothing about Wall Street, and only a little bit about business generally. I, on the other hand, was always interested in it, probably not in a very educated way, but probably from things like the movies. RITHOLTZ: Right. CHUNG: I did grow up in the Silicon Valley, and so — but my Silicon Valley was Hewlett-Packard, not – RITHOLTZ: Undergraduate Stanford, right? I recall. CHUNG: Undergraduate Stanford. So that was an interest I had there in the business and in Wall Street, and frankly, in New York. And like the Frank Sinatra song, you know, “If you can make it here, you can make it anywhere.” And so I wanted — I wanted to — in some ways, I was more driven by the idea to come to New York, work at a top-notch law firm. That will be a way to learn about business as well as, you know, business law. And essentially, along the way, I realized I loved the clients who were making deals, complicated financial investments, you know, using numbers, accounting, analysis, fundamental as well as accounting analysis to figure out, you know, what’s the — what’s the right price to pay for something? And — but I was just — I was, as a lawyer, just an observer. RITHOLTZ: Right. CHUNG: I’m not making any decisions, really. And so, at some point, I realized, I thought I would be more interested in that and I thought I would be good at it. So I — so I started to call around Wall Street to try to get a job on Wall Street, basically. RITHOLTZ: Really? And what was that process like? CHUNG: Well, it started off extremely well, and that the first person I told was a client and it was like a — I don’t know what their title was, certainly a VP, not an MD, I believe, but not the head of the group. But it was a financial derivatives and complex financial instruments group, Merrill Lynch. So I always think very fondly of Merrill Lynch, they’re a big client of ours. Thank you, Merrill. And the associate — you know, we’ve been working on something and the associate — I told the associate we’d become friendly. And he said, “If you’re leaving Simpson, I’m sure my boss would want to talk to you, probably give you a job.” I said, “Okay, great.” So — so I go down, meet his boss, and he says like, “I loved working with you.” You know, my dad was a math professor, so he actually said something to the effect of, “You’re one of the few lawyers who seem to actually understand like the math that we’re doing here.” RITHOLTZ: Right. CHUNG: That’s around options and derivatives. And I, you know — and basically, he gave me a job offer before I left his office, and he said, “It’s a standing offer. Stay at Simpson if you want, but anytime you want to leave, you got an offer here in our group, Merrill Lynch.” RITHOLTZ: Wow. CHUNG: And so — so that’s a confidence booster, right? RITHOLTZ: So here’s the question — CHUNG: That’s when I started looking around. RITHOLTZ: So — so was it the pre-existing math skills that translated to finance, or was it some of the legal training and experience that helped you once you started having a career in investing? CHUNG: I would say the math skills, it’s more about a number sense, seeing patterns in numbers, liking statistics, understanding probabilities. And again, like I mentioned, my father again, but he was actually a professor of Probability Theory. RITHOLTZ: Right. CHUNG: So — RITHOLTZ: Which I think is much more important for investors than the bulk of what you’re going to learn in the CFA exam. CHUNG: Yes. I mean, investing is basically, first, recognizing that nobody knows anything about the future. RITHOLTZ: Right. CHUNG: Anybody who tells you they’re predicting the future, you know, or sounds like they’re so confident that they’re going to be right, it’s like, you know — RITHOLTZ: They’re selling you something. CHUNG: They’re selling me stuff. So the only way really to approach it, at least from my perspective, and Alger’s is what are the probabilities of a bear case, a base case, a bull case? You know, what’s the black swan event? And you know, what works and what doesn’t work? What are the values, you know? And the stock market obviously is — I mean, it is the greatest real-world probability machine ever, right? RITHOLTZ: Exactly. Yeah. Absolutely. CHUNG: I mean, the price of it — of any asset in the stock market is essentially the combined probabilities of everybody, bullish, bearish, neutral, ignorant, highly-informed insiders, outsiders. RITHOLTZ: Dollar-weighted. CHUNG: What is that worth? RITHOLTZ: Right. CHUNG: And that changes because things happen and people change their minds a little bit, sometimes too much, and sometimes not enough, right? And that, I think, has always been — I’ve always been, I think, very good in number sense. I didn’t — I had to prove it at Alger. You know, I thought I had good number sense. I think — I think — I think I proved it at Alger. But the law I don’t want to underestimate. The law did — it did help me a lot. I think, one, I like complex situations because I know that a lot of people don’t, or they just don’t want to take the time to dig into them. And so, as a fundamental investing shop, getting into the details, getting into the complex situations is sometimes where you get the most opportunity — RITHOLTZ: Sure. CHUNG: — because of that. And then on the flip side, running the business, lawyers are very disciplined, organized, detailed, deadline-oriented. All of which is pretty good for a career, but it’s especially good if you’re trying to run a business. RITHOLTZ: So — so how did you end up at Alger? You joined in ’94. CHUNG: Right. RITHOLTZ: Was that your first job in finance out of Simpson Thacher? CHUNG: The first job in finance, and I ended up there because I — so I’ve gotten a couple offers on Wall Street. I had the Merrill Lynch one. I had gotten another offer. And I thought, you know, I don’t really know any serious Wall Street, you know, senior mentor types. So I should — I should try to find one to ask their advice, like where should I go? And at that time, the only one that I knew was my father-in-law. Fred Alger had just become my father-in-law. June ’93, I married his daughter, Alexandra, my wife today still. I can’t believe it’s been 29 years. So I hadn’t really met him much, but I knew he was on Wall Street and I knew that he did investing. And so, I figured it’s a great guy to ask. He must know the whole landscape. And I’ll never forget that — I didn’t know him really very well. You know, it’s sort of like, of course, we were engaged. So I’ve met him in some really kind of formal dinner with his wife. And you know, I’m the son-in-law. I have to admit I didn’t ask him permission to marry his daughter. I was — she isn’t that kind of woman and I’m not — I wasn’t that kind of guy. I sort of regret that, maybe I should have done it now. I hear kids are doing that now again. RITHOLTZ: It doesn’t surprise me. CHUNG: But I’m more like a ‘70s kid, because ‘70s kids didn’t ask permissions from their parents. Anyway — RITHOLTZ: So you speak to him about? CHUNG: So I say — yeah, I said, “I’m thinking of leaving the law firm and I have these offers on Wall Street. And I’d like your advice.” And he basically begins to tell me how bad both of the offers I have are. RITHOLTZ: Really? CHUNG: And how neither of the firms that I’m talking about are particularly good. Now, he stops there. But I would say less than a week later, maybe two weeks later, he calls me and says, “You know, what you got to really do is come down to my office and consider joining Alger.” RITHOLTZ: It took him two weeks to come around? CHUNG: Well, I think he was giving me like a little week to let it sink in. You know, look, he is a — he is who he is, not just a founder, but he was a master businessman because he’s pretty good at, let’s just say the M word of managing people has another word that’s a little bit, you know — RITHOLTZ: Motivated? CHUNG: Well, some people say manipulating. RITHOLTZ: Okay. CHUNG: You know, and I think he understood that I didn’t know much. And that is, you know — so anyway — RITHOLTZ: That turns out to be an insightful play on his part — CHUNG: Well — RITHOLTZ: — because not only do you join Alger — CHUNG: Yes. RITHOLTZ: — you eventually become president, then you become CIO, and then you become CEO. CHUNG: Right. RITHOLTZ: So clearly, he saw a potential in you to take over his work. CHUNG: Well, I’m going to — I’m going to be, you know, just really, really candid. I mean, his daughters all laugh about it because they said what they knew was that he had long longed for a successor that was in the family. His daughters had all passed — RITHOLTZ: Right. CHUNG: — you know, not interested. And that as soon as I said this thing, he had no interest in actually advising me in any accurate objective sense. It was a campaign — RITHOLTZ: Got it. CHUNG: — to get me onboard — RITHOLTZ: Oh, that’s funny. CHUNG: — using, you know, a very wildly and very intelligent 60-plus years of experience against a pretty naive, you know, 30-year-old. RITHOLTZ: Well, it seemed to have worked out. CHUNG: It worked okay. RITHOLTZ: It worked out well. CHUNG: Absolutely. (COMMERCIAL BREAK) RITHOLTZ: Let’s talk a little bit about Alger’s investment philosophy. I like this description, “Discovering companies undergoing positive dynamic change,” which immediately raises the question, how do you identify these companies? Is this quantifiable? How much of this is less definable and squishy and qualitative? What is positive dynamic change? CHUNG: So, this is our investment philosophy. It’s what the firm was founded on in 1964. It’s also what we’re recognized for, as essentially creating the growth style of investing. So what does that mean? It’s, first, a recognition that change is all around us, and in our industries, in our customers and competitors. And the competitive pressures in an industry are basically always about adapting to change. So, what we recognize in our philosophy is the opportunities for investors, in particular fundamental investors, are where the change is the greatest. And the reason for that is because where the change is the greatest, for example, in what has driven revenue growth, or profits, or, you know, customer demand, you know, where the change is the greatest in those — those key drivers and others for an industry, it’s where the opportunity for new winners to be created, you know, for old winners potentially to continue. But if they don’t adapt, they potentially become losers. So the pressure to change, wherever that’s the greatest, is always of extreme interest to us. And what we recognize within an industry is there are two areas where the change, or the pressure to change is always the greatest. And one is, where is the highest new growth in an industry? If you look at any industry and ask what’s the highest, fastest growing new product or service, that is the kind of change, right? And that’s inherently innovation, a change in preferences by consumers, or maybe a change in costs. But whatever is growing the fastest is a huge challenge because you can either be a leader and innovator and capture that high growth, or you can be the company that’s selling the product that is getting cannibalized, right? It’s growing — it was once growing perhaps, but it’s now growing slower and slower and slower. So if you think about a high growth, a great example I like to use is the music industry as it transitioned from record to tape, from tape to cassette, cassette to CD, CD to digital, each one of those technology transitions. At the beginning of it, the new media is always the fastest growing. I mean, yes, it’s starting from zero. RITHOLTZ: Right. CHUNG: But — but also in each one of those, we can see it’s ultimately completely eaten up the past technology. And so, if you’re a company selling records, music, or you’re selling the electronics that play music, or a producer of it, you have to be aware that the transitions there are important for your company to adjust to. And we can think of a lot of leading companies from, say, the ‘80s which I — you know, I — I grew up loving music and going to college. But Tower Records — RITHOLTZ: Sure. CHUNG: — HMV Records, Sony with the Walkman, you know, that today either went out of business, or are no longer leaders in, you know, streaming digital music, which is really dominated essentially by Apple, Spotify and a few other, as you know. So we know that high growth is one area where the change is extreme, and the opportunity to identify fundamentally as investors, who are the leaders? Who are the ones driving that change? Is it going to be durable? And of course, you know, the examples are countless. In retail, first, you had department stores, then you had the big box retailers. RITHOLTZ: Right. CHUNG: And then you had Amazon come along and end it all. And now, it’s all e-commerce. And so it’s important to basically be in the right position there. But the other part of our philosophy, again, it’s about change and where is the pressure to change? Well, interestingly, it’s what we call lifecycle change. So that’s often at the other end of the spectrum. It’s industries in decline, companies really struggling and in decline. RITHOLTZ: Negative dynamic change? CHUNG: Well, for our hedge fund, absolutely interested in the negative dynamic. RITHOLTZ: Meaning you could both go along with short? CHUNG: Absolutely. On the long side, we’re looking for the past positive dynamic change, so the industries or companies with potentially new management, new innovation, restructuring, or just new opportunities that can reaccelerate and reinvigorate their companies into a new growth phase. And again, often companies like these, sometimes they’re turnarounds, sometimes it’s just industries shifting. They offer great investment opportunities. Because again, the — the key insight about change is where — is where change is happening. And if it’s extreme, it often translates into worry, fear in investors and it often — that often translates into undervaluation, right, missed up — missing an opportunity, because instead of sort of leaning into the situation, investors flee to what they think is safety, right? RITHOLTZ: So — so let’s talk about that, because what you’ve been describing is a fundamental change at a company level, either with a product or a service that’s penetrating a new market, finding new consumer acceptance. How do you contextualize what’s been going on in this market since sometime towards the back half of 2021, where all those fast-growing, high-flying tech stocks had been taken out to the woodshed? And it’s not that anything fundamental has changed in these companies or their prospects, but maybe it’s inflation, or a new interest rate regime, or the end of the pandemic, but something in the macro environment is changing and causing investors to revalue these. How do you look at that sort of cyclical change relative to what you’ve been describing as a fundamental element? CHUNG: So this is probably one of the most dynamic periods, you know, we have really ever seen in 30 years. And when I say the period, I actually want to go back into pre COVID. So if you think about what we have seen in our country and across the world and in the markets, pre COVID, right, political change. RITHOLTZ: Right. CHUNG: COVID, right? A global pandemic hasn’t been seen in basically a hundred years, right? Especially influenza — RITHOLTZ: Literally a hundred years. CHUNG: A hundred years, literally a hundred years. And then there’s no modern market back then, so this is completely different. RITHOLTZ: Right. CHUNG: COVID forcing a global experiment in logistics, healthcare, e-commerce, delivery — RITHOLTZ: Remote work. Right. CHUNG: — remote work and also lifestyles, you know, that we haven’t seen. And now, yes, to me, we’re still in the same period. Now, we’re in the coming out, yes, where COVID is ending in one way or the other. Economies are still trying to recover from it. RITHOLTZ: Right. CHUNG: Supply chains were tangled up. Before, we’re barely recovering. And now, of course, we’ve been hit by Ukrainian-Russian war. RITHOLTZ: Right. CHUNG: And China, they’re really in their COVID crisis right now because of the way they managed to delay it through zero COVID policy, right? So there are an incredible number of things happening in this period that are very challenging, and certainly are, in the sense that Alger likes, but yet is, of course, a challenge, dynamic and changing, right? Now, to the near term market action, clearly, yes, interest rates and inflation caused by supply chain shortages, exacerbated by Russian-Ukrainian war. And then also the concerns about what’s happening in China, because reme.....»»

Category: blogSource: TheBigPictureJun 6th, 2022

Recession, Prices, & The Final Crack-Up Boom

Recession, Prices, & The Final Crack-Up Boom Authored by Alasdair Macleod via, Initiated by monetarists, the debate between an outlook for inflation versus recession intensifies. We appear to be moving on from the stagflation story into outright fears of the consequences of monetary tightening and of interest rate overkill. In common with statisticians in other jurisdictions, Britain’s Office for Budget Responsibility is still effectively saying that inflation of prices is transient, though the prospect of a return towards the 2% target has been deferred until 2024. Chancellor Sunak blithely accepts these figures to justify a one-off hit on oil producers, when, surely, with his financial expertise he must know the situation is likely to be very different from the OBR’s forecasts. This article clarifies why an entirely different outcome is virtually certain. To explain why, the reasonings of monetarists and neo-Keynesians are discussed and the errors in their understanding of the causes of inflation is exposed. Finally, we can see in plainer sight the evolving risk leading towards a systemic fiat currency crisis encompassing banks, central banks, and fiat currencies themselves. It involves understanding that inflation is not rising prices but a diminishing purchasing power for currency and bank deposits, and that the changes in the quantity of currency and credit discussed by monetarists are not the most important issue. In a world awash with currency and bank deposits the real concern is the increasing desire of economic actors to reduce these balances in favour of an increase in their ownership of physical assets and goods. As the crisis unfolds, we can expect increasing numbers of the public to attempt to reduce their cash and bank deposits with catastrophic consequences for their currencies’ purchasing power. That being so, we appear to be on a fast track towards a final crack-up boom whereby the public attempts to reduce their holdings of currency and bank deposits, evidenced by selected non-financial asset and basic consumer items prices beginning to rise rapidly. Introduction In the mainstream investment media, the narrative for the economic outlook is evolving. From inflation, by which is commonly meant rising prices, the MSIM say we now face the prospect of recession. While dramatic, current inflation rates are seen to be a temporary phenomenon driven by factors such as Russian sanctions, Chinese covid lockdowns, component shortages and staffing problems. Therefore, it is said, inflation remains transient — it’s just that it will take a little longer than originally thought by Jay Powell to return to the 2% target. We were reminded of this in Britain last week when Chancellor Sunak delivered his “temporary targeted energy profits levy”, which by any other name was an emergency budget. Note the word “temporary”. This was justified by the figures from the supposedly independent Office for Budget Responsibility. The OBR still forecasts a return to 2% price inflation but deferred until early 2024 after a temporary peak of 9%. Therefore, the OBR deems it is still transient. Incidentally, the OBR’s forecasting record has been deemed by independent observers as “really terrible”. Absolved himself of any responsibility for the OBR’s inflation estimates, Sunak is spending £15bn on subsidies for households’ fuel costs, claiming to recover it from oil producers on the argument that they are enjoying an unexpected windfall, courtesy of Vladimir Putin, to be used to finance a one-off temporary situation. That being the case, don’t hold your breath waiting for Shell and BP to submit a bill to Sunak for having to write off their extensive Russian investments and distribution businesses because of UK government sanctions against Russia. But we digress from our topic, which is about the future course of prices, more specifically the unmeasurable general price level in the context of economic prospects. And what if the OBR’s figures, which are like those of all other statist statisticians in other jurisdictions, turn out to be hideously wrong? There is no doubt that they and the MSIM are clutching at a straw labelled “hope”. Hope that a recession will lead to lower consumer demand taking the heat out of higher prices. Hope that Putin’s war will end rapidly in his defeat. Hope that Western sanctions will collapse the Russian economy. Hope that supply chains will be rapidly restored to normal. But even if all these expectations turn out to be true, old-school economic analysis unbiased by statist interests suggests that interest rates will still have to go significantly higher, bankrupting businesses, governments, and even central banks overloaded with their QE-derived portfolios. The establishment, the mainstream media and government agencies are deluding themselves over prospects for prices. Modern macroeconomics in the form of both monetarism and Keynesianism is not equipped to understand the economic relationships that determine the future purchasing power of fiat currencies. Taking our cue from the stagflationary seventies, when Keynesianism was discredited, and Milton Friedman of the Chicago monetary school came to prominence, we must critically examine both creeds. In this article we look at what the monetarists are saying, then the neo-Keynesian mainstream approach, and finally the true position and the outcome it is likely to lead to. Since monetarists are now warning that a slowdown in credit creation is tilting dangers away from inflation towards recession, we shall consider the errors in the monetarist approach first. Monetary theory has not yet adapted itself for pure fiat Monetarist economists are now telling us that the growth of money supply is slowing, pointing to a recession. But that is only true if all the hoped-for changes in prices comes from the side of goods and services and not that of the currency. No modern monetarist appears to take that into account in his or her analysis of price prospects, bundling up this crucial issue in velocity of circulation. This is why they often preface their analysis by assuming there is no change in velocity of circulation. While they have turned their backs on sound money, which can only be metallic gold or silver and their credible substitutes, their analysis of the relationship between currency and prices has not been adequately revised to account for changes in the purchasing power of pure fiat currencies. It is vitally important to understand why it matters. A proper gold coin exchange standard turns a currency into a gold substitute, which the public is almost always content to hold through cycles of bank credit. While there are always factors that alter the purchasing power of gold and its relationship with its credible substitutes, the purchasing power of a properly backed currency and associated media in the form of notes and bank deposits varies relatively little compared with our experience today, particularly if free markets permit arbitrage between different currencies acting as alternative gold substitutes. This is demonstrated in Figure 1 below of the oil price measured firstly in gold-grammes and currencies under the Bretton Woods agreement until 1971, and then gold-grammes and pure fiat currencies subsequently. The price stability, while economic actors accepted that the dollar was tied to gold and therefore a credible substitute along with the currencies fixed against it, was evident before the Bretton Woods agreement was suspended. Yet the quantity of currency and deposits in dollars and sterling expanded significantly during this period, more so for sterling which suffered a devaluation against the dollar in 1967. The figures for the euro before its creation in 2000 are for the Deutsche mark, which by following sounder money policies while it existed explains why the oil price in euros is recorded as not having risen as much as in sterling and the dollar. The message from oil’s price history is that volatility is in fiat currencies and not oil. In gold-grammes there has been remarkably little price variation. Therefore, the pricing relationship between a sound currency backed by gold differs substantially from the fiat world we live with today, and there has been very little change in monetarist theory to reflect this fact beyond mere technicalities. The lesson learned is that under a gold standard, an expansion of the currency and bank deposits is tolerated to a greater extent than under a pure fiat regime. But an expansion of the media of exchange can only be tolerated within limits, which is why first the London gold pool failed in the late 1960s and then the Bretton Woods system was abandoned in 1971. Under a gold standard, an expansion of the quantity of bank credit will be reflected in a currency’s purchasing power as the new media is absorbed into general circulation. But if note-issuing banks stand by their promise to offer coin conversion to allcomers that will be the extent of it and economic actors know it. This is the basis behind classical monetarism, which relates with Cantillon’s insight about how new money enters circulation, driving up prices in its wake. From John Stuart Mill to Irving Fisher, it has been mathematically expressed and refined into the equation of exchange. In his earlier writings, even Keynes understood monetarist theory, giving an adequate description of it in his Tract on Monetary Reform, written in 1923 when Germany’s papiermark was collapsing. But even under the gold standard, the monetarist school failed to incorporate the reality of the human factor in their equation of exchange, which has since become a glaring omission with respect to fiat currency regimes. Buyers and sellers of goods and services do not concern themselves with the general price level and velocity of circulation; they are only concerned with their immediate and foreseeable needs. And they are certainly unaware of changes in the quantity of currency and credit and the total value of past transactions in the economy. Consumers and businesses pay no attention to these elements of the fundamental monetarist equation. In essence, this is the disconnection between monetarism and catallactic reality. Instead, the equation of exchange is made to always balance by the spurious concept of velocity of circulation, a mental image of money engendering its own utility rather than being simply a medium of exchange between buyers and sellers of goods and services. And mathematicians who otherwise insist on the discipline of balance in their equations are seemingly prepared in the field of monetary analysis to introduce a variable whose function is only to ensure the equation always balances when without it, it does not. Besides monetarism failing to account for the human actions of consumers and businesses, over time there have been substantial shifts in how money is used for purposes not included in consumer transactions — the bedrock of consumer price indices and of gross domestic product. The financialisation of the US and other major economies together with the manufacture of consumer and intermediate goods being delegated to emerging economies have radically changed the profiles of the US and the other G7 economies. To assume, as the monetarists do, that the growth of money supply can be applied pro rata to consumer activity is a further error because much of the money supply does not relate to prices of goods and services. Furthermore, when cash and bank deposits are retained by consumers and businesses, for them they represent the true function of money, which is to act as liquidity for future purchases. They are not concerned with past transactions. Therefore, the ratio of cash and instant liquidity to anticipated consumption is what really matters in determining purchasing power and cannot be captured in the equation of exchange. Monetarists have stuck with an equation of exchange whose faults did not matter materially under proper gold standards. Besides ignoring the human element in the marketplace, their error is now to persist with the equation of exchange in a radically different fiat environment. The role of cash and credit reserves In their ignorance of the importance of the ratio between cash and credit relative to prospective purchases of goods and services, all macroeconomists commit a major blunder. It allows them to argue inaccurately that an economic slowdown triggered by a reduction in the growth of currency and credit will automatically lead to a fall in the rate of increase in the general price level. Having warned central banks earlier of the inflation problem with a degree of success, this is what now lies behind monetarists’ forecasts of a sharp slowdown in the rate of price increases. A more realistic approach is to try to understand the factors likely to affect the preferences of individuals within a market society. For individuals to be entirely static in their preferences is obviously untrue and they will respond as a cohort to the changing economic environment. It is individuals who set the purchasing power of money in the context of their need for a medium of exchange — no one else does. As Ludwig von Mises put it in his Critique of Interventionism: “Because everybody wishes to have a certain amount of cash, sometimes more sometimes less, there is a demand for money. Money is never simply in the economic system, in the national economy, it is never simply circulating. All the money available is always in the cash holdings of somebody. Every piece of money may one day — sometimes oftener, sometimes more seldom — pass from one man’s cash holding to another man’s ownership. At every moment it is owned by somebody and is a part of his cash holdings. The decisions of individuals regarding the magnitude of their cash holdings constitute the ultimate factor in the formation of purchasing power.” For clarification, we should add to this quotation from Mises that cash and deposits include those held by businesses and investors, an important factor in this age of financialisation. Aside from fluctuations in bank credit, units of currency are never destroyed. It is the marginal demand for cash that sets it value, its purchasing power. It therefore follows that a relatively minor shift in the average desire to hold cash and bank deposits will have a disproportionate effect on the currency’s purchasing power. Central bankers’ instincts work to maintain levels of bank credit, replacing it with central bank currency when necessary. Any sign of a contraction of bank credit, which would tend to support the currency’s purchasing power, is met with an interest rate reduction and/or increases in the note issue and in addition today increases of bank deposits on the central bank’s balance sheet through QE. The expansion of global central bank balance sheets in this way has been mostly continuous following the Lehman crisis in 2008 until March, since when they began to contract slightly in aggregate — hence the monetarists’ warnings of an impending slowdown in the rate of price inflation. But the slowdown in money supply growth is small beer compared with the total problem. The quantity of dollar notes and bank deposits has tripled since the Lehman crisis and GDP has risen by only two-thirds. GDP does not account for all economic transactions — trading in financial assets is excluded from GDP along with that of most used goods. Even allowing for these factors, the quantity of currency liquidity for economic actors must have increased to unaccustomed levels. This is further confirmed by the Fed’s reverse repo balances, which absorb excess liquidity of currency and credit currently standing at about $2 trillion, which is 9% of M2 broad money supply. In all Western jurisdictions, consuming populations are collectively seeing their cash and bank deposits buy less today than in the past. Furthermore, with prices rising at the fastest rate seen in decades, they see little or no interest compensation for retaining balances of currencies losing purchasing power. In these circumstances and given the immediate outlook for prices they are more likely to seek to decrease their cash and credit balances in favour of acquiring goods and services, even when they are not for immediate use. The conventional solution to this problem is the one deployed by Paul Volcker in 1980, which is to raise interest rates sufficiently to counter the desire of economic actors to reduce their spending liquidity. The snag is that an increase in the Fed funds rate today sufficient to restore faith in holding bank deposits would have to be to a level which would generate widespread bankruptcies, undermine government finances, and even threaten the solvency of central banks, thereby bringing forward an economic and banking crisis as a deliberate act of policy. The egregious errors of the neo-Keynesian cohort Unlike the monetarists, most neo-Keynesians have discarded entirely the link between the quantity of currency and credit and their purchasing power. Even today, it is neo-Keynesians who dominate monetary and economic policy-making, though perhaps monetarism will experience a policy revival. But for now, with respect to inflation money is rarely mentioned in central bank monetary committee reports. The errors in what has evolved from macroeconomic pseudo-science into beliefs based on a quicksand of assumptions are now so numerous that any hope that those in control know what they are doing must be rejected. The initial error was Keynes’s dismissal of Say’s law in his General Theory by literary legerdemain to invent macroeconomics, which somehow hovers over economic reality without being governed by the same factors. From it springs the belief that the state knows best with respect to economic affairs and that all the faults lie with markets. Every time belief in the state’s supremacy is threatened, the Keynesians have sought to supress the evidence offered by markets. Failure at a national level has been dealt with by extending policies internationally so that all the major central banks now work together in group-thinking unison to control markets. We have global monetary coordination at the Bank for International Settlements. And at the World Economic Forum which is trying to muscle in on the act we now see neo-Marxism emerge with the desire for all property and personal behaviour to be ceded to the state. As they say, “own nothing and you will be happy”. The consequence is that when neo-Keynesianism finally fails it will be a global crisis and there will be no escape from the consequences in one’s own jurisdiction. The current ideological position is that prices are formed by the interaction of supply and demand and little else. They make the same error as the monetarists in assuming that in any transaction the currency is constant and all the change in prices comes from the goods side: money is wholly objective, and all the price subjectivity is entirely in the goods. This was indeed true when money was sound and is still assumed to be the case for fiat currencies by all individuals at the point of transaction. But it ignores the question over a currency’s future purchasing power, which is what the science of economics should be about. The error leads to a black-and-white assumption that an economy is either growing or it is in recession — the definitions of which, like almost all things Keynesian, are somewhat fluid and indistinct. Adherents are guided religiously by imperfect statistics which cannot capture human action and whose construction is evolved to support the monetary and economic policies of the day. It is a case of Humpty Dumpty saying, “It means what I chose it to mean —neither more nor less” Lewis Caroll fans will know that Alice responded, “The question is whether you can make words mean so many different things”. To which Humpty replied,” The question is which is to be master —that’s all.” So long as the neo-Keynesians are Masters of Policy their imprecisions of definition will guarantee and magnify an eventual economic failure. The final policy crisis is approaching Whether a macroeconomist is a monetarist or neo-Keynesian, the reliance on statistics, mathematics, and belief in the supremacy of the state in economic and monetary affairs ill-equips them for dealing with an impending systemic and currency crisis. The monetarists argue that the slowdown in monetary growth means that the danger is now of a recession, not inflation. The neo-Keynesians believe that any threat to economic growth from the failures of free markets requires further stimulation. The measure everyone uses is growth in gross domestic product, which only reflects the quantity of currency and credit applied to transactions included in the statistic. It tells us nothing about why currency and credit is used. Monetary growth is not economic progress, which is what increases a nation’s wealth. Instead, self-serving statistics cover up the transfer of wealth from the producers in an economy to the unproductive state and its interests through excessive taxation and currency debasement, leaving the entire nation, including the state itself eventually, worse off. For this reason, attempts to increase economic growth merely worsen the situation, beyond the immediate apparent benefits. There will come a point when the public wakes up to the illusion of monetary debasement. Until recently, there has been little evidence of this awareness, which is why the monetarists have been broadly correct about the price effects of the rapid expansion of currency and credit in recent years. But as discussed above, the expansion of currency and bank deposits has been substantially greater than the increase in GDP, which despite its direction into financial speculation and other activities outside GDP has led to an accumulation of over $2 trillion of excess liquidity no one wants in US dollar reverse repos at the Fed. The growth in the level of personal liquidity and credit available explains why the increase in the general price level for goods and services has lagged the growth of currency and deposits, because at the margin since the Lehman crisis the public, including businesses and financial entities, has been accumulating additional liquidity instead of buying goods. This accelerated during covid lockdowns to be subsequently released in a wave of excess demand, fuelling a sharp rise in the general level of prices, not anticipated by the monetary authorities who immediately dismissed the rise as transient. The build-up of liquidity and its subsequent release into purchases of goods is reflected in the savings rate for the US shown in Figure 2 below. The personal saving rate does not isolate from the total the accumulating level of spending liquidity as opposed to that allocated for investment. The underlying level of personal liquidity will have accumulated over time as a part of total personal savings in line with the growth of currency and bank deposits since the Lehman crisis. The restrictions on spending behaviour during lockdowns in 2020 and 2021 exacerbated the situation, forcing a degree of liquidity reduction which drove the general level of prices significantly higher. Profits and losses resulting from dealing in financial assets and cryptocurrencies are not included in the personal savings rate statistics either. This matters to the extent that bank credit is used to leverage investment. Nor is the accumulation of cash in corporations and financial entities, which are a significant factor. But whatever the level of it, there can be little doubt that the levels of liquidity held by economic actors are unaccustomedly high. The accumulation of reverse repos representing unwanted liquidity informs us that the public, including businesses, are so sated with excess liquidity that they may already be trying to reduce it, particularly if they expect further increases in prices. In that event they will almost certainly bring forward future purchases to alter the relationship between personal liquidity and goods. It is a situation in America which is edging towards a crack-up boom. A crack-up boom occurs when the public as a cohort attempts to reduce the overall level of its currency and deposits in favour of goods towards a final point of rejecting the currency entirely. So far, economic history has recorded only one version, which is when after a period of accelerating debasement of a fiat currency the public finally wakes up to the certainty that a currency is becoming worthless and all hope that it might somehow survive as a medium of exchange must be abandoned. To this, perhaps we can add another: the consequences of a collapse of the world’s major monetary institutions in unison. How excess liquidity is likely to play out We have established beyond reasonable doubt that the US economy is awash with personal liquidity. And if one man disposes of his liquidity to another in a transaction the currency and bank deposit still exists. But aggregate personal liquidity can be reduced by the contraction of bank credit. As interest rates rise, thereby exposing malinvestments, the banks will be quick to protect themselves by withdrawing credit. As originally described by Irving Fisher, a contraction of bank credit risks triggering a self-feeding liquidation of loan collateral. Initially, we can expect central banks to counter this contraction by redoubling efforts to suppress bond yields, reinstitute more aggressive QE, and standing ready to bail out banks. These are all measures which are in the central banker’s instruction manual. But the conditions leading to a crack-up boom appear to be already developing despite the increasing likelihood of contracting bank credit. The deteriorating outlook for bank credit and the impact on highly leveraged banks, particularly in Japan and the Eurozone, is likely to accelerate the flight out of bank deposits to — where? Regulators have deliberately reduced access to currency cash so a bank depositor can only dispose of larger sums by transferring them to someone else. Before an initial rise in interest rates began to undermine financial asset values, a transfer of a bank deposit to a seller of a financial asset was a viable alternative. That is now an increasingly unattractive option due to the changed interest rate environment. Consequently, the principal alternative to holding bank deposits is to acquire physical assets and consumer items for future use. But even that assumes an overall stability in the public’s collective willingness to hold bank deposits, which without a significant rise in interest rates is unlikely to be the case. The reluctance of a potential seller to increase his bank deposits is already being reflected in prices for big ticket items, such as motor cars, residential property, fine and not-so-fine art, and an increasing selection of second-hand goods. This is not an environment that will respond positively to yet more currency debasement and interest rate suppression as the monetary authorities struggle to maintain control over markets. The global financial bubble is already beginning to implode, and the central banks which have accumulated large portfolios through quantitative easing are descending into negative equity. Only this week, the US Fed announced that it has unrealised portfolio losses of $330bn against equity of only $50bn. The Fed can cover this discrepancy if it is permitted by the US Treasury to revalue its gold note to current market prices – but further rises in bond yields will rapidly wipe even that out. Other central banks do not have this leeway, and in the cases of the ECB and the Bank of Japan, they are invested in considerably longer average bond maturities, which means that as interest rates rise their unrealised losses will be magnified. So, the major central banks are insolvent or close to it and will themselves have to be recapitalised. At the same time, they will be required to backstop a rapidly deteriorating economic situation. And being run by executives whose economic advisers do not understand both economics nor money itself, it all amounts to a recipe for a final cock-up crack-up boom as economic actors seek to protect themselves. As the situation unfolds and economic actors become aware of the true inadequacies of bureaucratic group-thinking central bankers, the descent into the ultimate collapse of fiat currencies could be swift. It is now the only way in which all that excess faux liquidity can be expunged. Tyler Durden Sat, 06/04/2022 - 13:30.....»»

Category: worldSource: nytJun 4th, 2022

Academy Securities: Crypto Has Become A Leading Indicator... And For Those Of Us Who Missed This Rally, Do We Pile On, Or Do We Fight It?

Academy Securities: Crypto Has Become A Leading Indicator... And For Those Of Us Who Missed This Rally, Do We Pile On, Or Do We Fight It? By Peter Tchir of Academy Securities On Memorial Day I want to offer special thanks to all those who serve and have served their country. I also want to highlight this month’s Around the World which highlights: Finland and Sweden’s Application to NATO China’s Investments in Pakistan and Sri Lanka North Korean Preparations for another Nuclear Test. U.S. Special Operations Troops in Somalia Sunshine in My Pocket, or even A Pocketful of Sunshine After last week’s almost 7% gain across every major U.S. stock index, I’ve got nothing but positive songs running through my head. It seems appropriate for this holiday weekend and is a refreshing change from some of the darker songs and themes that have been the focus on many recent T-Report. Can’t stop the feeling seems like the most appropriate as stock futures are rallying again this morning, along with crypto, though bonds are selling off. Last week, I had the good sense to at least turn neutral in We Laughed, We Cried, but I let the ongoing malaise (at the time) in the crypto market, amongst other things leave me defensive. The big question, is whether this rally, which took us from up 10% on S&P futures (from a low of 3,807 to as high as 4,202 overnight) staying with us? Heck, one more week like that and we will have erased the 20% drop to bear market territory in presumably record time. Do those of us who missed this rally, pile on, or do we fight it? There are so many factors at work, with such major possible implications, that it is not an easy call, at least not for me. This Week’s Drivers Once again, there are several near-term drivers at work. Not the stories that will play out over months and will have the biggest impact in the direction of the economy, but those factors that will drive markets this week. While thinking weekly seems too short, in a market where 3% intraday swings have become the norm, it is also important. Factors that will “resolve” themselves this week: Month-end buying. There were supposed to be large “re-balancing” flows as bonds had done much better than stocks, though with the S&P posting a small gain on the month, and bonds down slightly, that flow has already played out. So we need to see how Tuesday and Wednesday play out. I suspect that the month-end buying has already played out and may be so heavily front-run that it acts as a drag on markets this week. Balancing against that is the holiday shortened week, which may just let the trend in place (higher) continue! The Fed. Without a doubt the Fed minutes helped markets, immensely! Whether it was the realization that the Fed will not crater the economy to save us from inflation, or that people now see many inflationary pressures receding, I don’t know. I’ve always been in the camp that the markets are pricing in far too many rate hikes, not because they will be inflation sooner, but because the economy will turn out to be more fragile than expected. Given some of the earnings warnings, chatter about being overstaffed, inventory builds, etc., I think the Fed will be cautious on hikes (which is bullish). But, and this is the big but, will the Fed support that dovish view this week as they speak? WE get Waller today, Williams and Bullard Wednesday, with Mester and Brainard speaking later this week. Will they confirm this more dovish view or will they try and dampen the recent enthusiasm? I’m concerned they could try and undo some of the recent moves in risk assets by hammering home on rate hikes. Also, not wanting to sound like Debbie Downer, but we haven’t really begun to see balance sheet reduction occur and that will be starting in earnest now. Crypto is rallying nicely. Angst over stable coins, the Ethereum conversion and new regulatory scrutiny are being overcome right now. I continue to watch crypto closely as I believe that it has become a leading indicator as price movement in crypto is forcing people to trade equities for liquidity and/or risk management. I remain bearish crypto for now, as I think more importantly than anything else, more people are vocal about crypto not accomplishing a lot of what has been promised (from payment system, to inflation hedge, etc.) but that is for a T-Report later in the week. The Bond Grab! Municipal bond closed end funds beat stocks last week!  Let that sink in for a moment. This “weird” part of the market saw funds rise anywhere from 6% to 10% (based on a semi-random sampling). Not only did the underlying muni market do well, but discounts to NAV declined, signaling strong retail interest. The muni market seemed to do exceptionally poorly throughout the year, but may finally have turned the corner. There is a lot of upside left in this market, if we have turned the corner. ETF flows. Not only did muni’s (MUB) seem more inflows, but IG (LQD), high yield (HYG, JNK), crossover (ANGL) and even leveraged loans (BKLN, SRLN) all had significant inflows last week. This could be a real turning point as the “chase for yield” comes back.  If the fear of higher yields is over or receding, then there could be a rush to lock in these current yields. LQD, for example (longer dated IG) yielded 2.75% for much of last year, and even after the recent rally in IG bonds, still yields almost 4.5%. Credit and bonds should continue to do well, which should be supportive of risk assets, though I think bonds with credit risk will outperform treasuries. Jobs, Economic Data. Is Good News Good or Bad? Will the data be good? I’m most concerned about the job situation. When some major companies discuss being overstaffed, it sends a shiver down my spine. We have still not “normalized” from COIVD. Yes, we don’t have the same number of jobs we had pre-COVID (which could be good longer term), but we saw hiring in response to the COVID economy and that economy is changing as re-opening has occurred. Mixed signals on consumer spending. The data seems somewhat mixed, but I’m getting concerned here, as any of the positive signs seem to be driven by increases in credit purchases, which may not be sustainable. My estimate is that the data will be weak, but not horribly weak (problems take time to show up in the data) and market skepticism on the economy seems high (I’ve come across the Citi Economic Surprise Index an inordinate number of times this week). Is Good News Good? Or vice versa. The bond market seems to be reacting to news “appropriately”. Good news pushes yields higher. Bad news pusher bond yields lower. Stocks seem to be trading with a “normal” correlation to bonds, which lets stocks go up even as bond yields go higher. That is the “normal” relationship and is what is going on again today. That is much healthier for markets than when stocks rally on bond yields going lower because of bad data. That tends not to be sustainable. So, the good news is that stocks rising as bond yields rise, means we can sustain this rally through good data. The bad news is, that data may still be getting worse, faster, than expectations are coming down. Inflation. A reprieve of food and energy? Maybe, but that may be very temporary. I remain in the camp that we will have higher inflation (3% to 4%) for longer (2 to 5 year), but that doesn’t mean we won’t see peaks and valleys within that. So maybe we get some easing on the inflation front, certainly from recent highs, but will we worry about consistently high prices? For now, we probably focus on rate of change (lower inflation than we had), but in the coming weeks, persistently high prices and the outlook for that to continue could weigh on the economy and markets. Insane price moves. I have absolutely no idea what MSPR does or is supposed to do. None. But, I don’t think anything is meant to De-SPAC (if that is the word) at $10 and trade down to $1.74 in a week. I’m confused on the market cap of this company and exactly what happened, but it seems sure to attract some attention and seems “odd” if not insane. We continue to see ginormous swings in market cap of some extremely large companies, that again, defy any sort of ‘efficient market’ hypothesis and point to the gambling, option trading, algo driven gyrations that have now become the norm. Bottom Line I’m neutral to slightly bullish on treasuries. The 10-year traded in a range of 2.74% to 2.85% last week. I could see us testing the upper end of that range, or approaching 3% on strong economic data, but think there is plenty of support and it can get to 2.5% in a hurry on bad economic news. I like credit products. The chase for yield seems to have legs and can go on, even if equities falter. I’d rather own credit (IG, High Yield, and muni’s, structured products, etc) than treasuries. I’d still be easing out of floating rate product into fixed income as I want to lock in duration here, especially on the credit side. While not for the faint of heart, CCC might be the best bang for the buck, as the chase for yield continues, but that is more like next week’s trade, as there is still plenty of opportunity in the other markets. Crypto, bearish, though am not going to fight this current pop. Which leaves us with stocks. Am I being stubborn because it sucks to miss a 7% rally? Is that what is holding me back from getting on board with this rally? It shouldn’t be. It especially shouldn’t be, because knowing that it is affecting my judgement should reduce how much it is affecting my judgement, but it is in the back of my mind. For stocks, and this is all crazy when 3% days are the norm, I’m looking for a pullback as we head into next month. While there is a good balance between risk and reward here, I think the preponderance of influences will weigh on stocks, but I am finally, for the first time in months, looking for buying opportunities rather than selling opportunities. Sectors that I like including anything travel related, homebuilders, emerging markets (especially Mexico) and even financials, while I’m leaning bearish on energy for the first time in almost 2 years!   Have a great Memorial Day and if you want to start the work week off right, tune into Bloomberg TV on Tuesday at 8am for Academy Securities! Tyler Durden Mon, 05/30/2022 - 12:15.....»»

Category: personnelSource: nytMay 30th, 2022

Czech Republic To join Poland And Hungary In Central European Gold Rush

Czech Republic To join Poland And Hungary In Central European Gold Rush Submitted by Ronan Manly, It was almost inevitable that the Czech Republic would buy more gold. With all of its regional neighbors having recently either repatriated large quantities of gold (Germany and Austria), or bought large quantities of gold (Poland and Hungary), it seems that the Czech Republic has now taken note and does not want to be left out of this Central European gold rush. On 26 May in an interview with Czech publication Ekonom, the incoming governor of the Czech National Bank (CNB), Aleš Michl, said that he plans to massively increase the central bank’s gold reserves from the current 11 tonnes to over 100 tonnes or more. The Czech Republic - At the centre of Central Europe 1000% Increase in Czech Gold Holdings Talking to Ekonom’s editor Vojtěch Wolf, and deputy editor-in-chief, Martin Petříček, the soon to be central bank governor explained his approach to the management of the Czech central bank’s reserves:   Ekonom question: "You have repeatedly said that the CNB should manage foreign exchange reserves differently, which have swelled in recent years. What is your vision on that?" Aleš Michl answer: "The reserve management team is professional, they have assignments from the bank board that perform well. I would like to give them a new assignment, to slightly increase the expected return on reserves. To do this, you need to have more stocks and more gold. And to do it gradually, step by step, it is a change of strategy over years."   Ekonom question: "How should the proportions of the individual components develop?" Aleš Michl answer: "In our Assets and Liabilities Committee, I will propose to, gradually over the years, increase equities from the current 16 percent of reserves to 20 percent or more. The central banks of Switzerland, Israel or large state sovereign wealth funds, led by Norway, do the same. And I will propose to have more gold, from 11 tonnes to 100 and more tonnes. Gradually, over several years. Gold is good for diversification, it has zero correlation with stocks." The 44 year old Michl has been a member of the Czech central bank board since December 2018, and will begin his 6-year term as CNB governor on 1 July 2022, after having been appointed to the role by Czech president Miloš Zeman. Aleš Michl - Incoming governor of the Czech central bank The Ekonom interview also gives some insights into how the new CNB governor thinks about managing the Czech central bank’s gold and foreign exchange reserves, with the word ‘wealth’ cropping up a number of times.     Michl - “My vision is to have a long-term profitable CNB. We are at a great loss now. I would like to set the strategy so that the expected return on assets, which are foreign exchange reserves, in the long run exceeds the cost of the central bank's liabilities, which are mainly deposits of banks that we have to pay interest on." Ekonom question: "For what reason?" Michl – “It is a vision to create a nation's wealth that exceeds my six-year term.” Elsewhere he again mentions the wealth of a nation: Michl - "Rather than predicting another devastating event, it is much easier to conclude that a country, nation, population, business or enterprise can better mitigate the effects of disasters if they have savings, wealth, rather than a pile of debt in better times. " The incoming governor does not go into detail how the about how the central bank’s expanded gold holdings will contribute to an increase in the expected return on reserves, i.e. will the new gold be actively managed (i.e. through gold loans and gold swaps) at for example, the Bank of England, or whether the gold will be held in its own vault on an allocated basis. Its not even clear where the current Czech central bank gold reserves are actually held. The annual financial report of the Bank for the year to 31 December 2021 does not specify the storage locations of any of the Bank's gold, merely stating that the gold reserves are divided into 10.2 tonnes in a  "Long-term reserve – gold placed abroad (marketable bars) and precious metals held at the Bank in the long term (bars, coins, medals)" and 0.2 tonnes in an "Operating reserve – precious metals held for the production of coins". Although previous years' editions of the same report state that some of the gold was held as short term (1 month) gold deposits, which implies gold lending (probably at the Bank of England).  Poland's gold bars in boxes begin airlifted from London to Warsaw, 2019 Czech Gold Fire Sale in 1998 - 56 tonnes Currently, the 10.9 tonnes of gold which the Czech central bank holds only represents 0.4% of its total reserves. According to the World Gold Council’s “Changes in World Official Gold Reserves” data, the Czech National Bank’s gold holdings fell by 2.9 tonnes between 2002 and 2022 (mostly due to gold in the holdings being used to mint and issue Czech gold coins), meaning that it held about 14 tonnes of gold prior to 2002. This is corroborated by the CNB’s own data, with a 2019 CNB research paper on central bank gold stating that: “The CNB sold off the bulk of its reserve gold in 1998. By this time, gold had ceased to meet the CNB’s needs in terms of liquidity, security and returns. Furthermore, the CNB needed to increase its international reserves to be able to intervene in support of the Czech koruna at times of currency turbulence. It thus sold 56 tonnes of gold, thereby gaining greater liquidity and return stability, and was left with 14 tonnes (CNB Archive, 2019).” Judging by Aleš Michl’s plan to bring the CNB gold pile back up above 100 tonnes, he is probably not too impressed with his predecessors for having sold 56 tonnes of Czech gold in 1998.       And it’s not clear why in 1998 the CNB claimed that gold “had ceased to meet the CNB’s needs in terms of liquidity, security and returns” because that is obviously a false statement, but in 2022 those very same reasons are being used to justify increasing the Czech gold holdings 10-fold. Back in the 1990s and early 2000s, a lot of central banks sold gold in circumstances which didn’t make financial sense, e.g. UK, Netherlands, Australia and Switzerland, and used equally bizarre claims to justify the sales. To this list you can add the Czech central bank in 1998. More plausible reasons for those widespread central bank gold sales in the 1990s and early 2000s may have been to either close out existing gold loans to bullion banks which had no chance of being repaid without forcing the gold price far higher, or else it was redistribution of central bank gold holdings behind the scenes from Western central banks to rising economic powers such as China, à la the Brodsky and Quaintance theory.  The Visegrád Group - Birds of a Feather In expressing a plan to increase its gold reserves by 10-fold to over 100 tonnes, the Czech central bank looks to be taking a page right out of the playbook of one of its Visegrád Group allies - Hungary. The Visegrád Group, also known as the ‘Visegrad Four’ or ‘V4’, is an economic, political, security and cultural alliance comprising the Czech Republic, Hungary, Poland and Slovakia which was formed in February 1991 in Visegrád in Hungary, during a meeting between the then president of the Czechoslovak Republic, Václav Havel, the then president of the Polish rRepublic, Lech Wałęsa, and the then prime minister of the Hungarian Republic, József Antall.   Recall that in October 2018 in a surprise move, the Hungarian central bank, Magyar Nemzeti Bank (MNB), announced that it had increased its gold reserves 10-fold from 3.1 tonnes to 31.5 tonnes. For details, see BullionStar article “In surprise move, Central Bank of Hungary announces 10-fold jump in its gold reserves”. The proposal of the incoming Czech central bank governor, Aleš Michl, to increase Czech gold reserves from 11 tonnes to more than 100 tonnes is a practical carbon copy of the Hungarian move, in terms of percentage increase (i.e. a 1000% increase, or 10-fold). Hungarian central bank gold bars arriving under heavy armed guard In 2021, the Hungarian central bank then raised the stakes further when it bought another 63 tonnes of gold bars, and in doing so tripled the its gold holdings from 31.5 tonnes to 94.5 tonnes. For details see the BullionStar article “Hungarian central bank boosts its gold reserves by 3000% in less than 3 years”. Likewise, fellow Visegrád Group member Poland sent shockwaves through the gold market when the Polish central bank announced in July 2019 that it had bought 125.7 tonnes of gold in London (100 tonnes in 2019 and 25.7 tonnes in 2018), thereby boosting its gold reserves at the time to 228.6 tonnes. See BullionStar article “Poland joins Hungary with Huge Gold Purchase and Repatriation” for further details. The Poles then promptly flew 100 tonnes of this gold from London back to Warsaw during the second half of 2019, using 8 special cargo flights that each airlifted 1,000 Good Delivery gold bars (100 tonnes in total). For further details see “Polish central bank airlifts 8000 gold bars (100 tonnes) from London to Warsaw”. The 2019 purchases were not the end of Poland’s gold buying as the Polish central bank president, Adam Glapiński, stated in October 2021 that they planned to buy an additional 100 tonnes of gold during 2022. See BullionStar article “Poland accelerates gold buying: Plans to purchase 100 tonnes during 2022” for further details. Exchange of Information According to the Visegrád Group website: “Czechia, Hungary, Poland and Slovakia have always been part of a single civilization sharing cultural and intellectual values and common roots in diverse religious traditions, which they wish to preserve and further strengthen.” “In order to preserve and promote cultural cohesion, cooperation within the Visegrad Group will enhance the imparting of values in the field of culture, education, science and exchange of information.” This “sharing of cultural and intellectual values” and “exchange of information” now appears to include the Visegrád Group countries deciding between themselves to buy vast quantities of gold bars. Hungary bought gold. Poland bought gold. And now the Czech Republic plans to buy gold. And lots of it. The Visegrád Countries - Czech Republic, Poland, Hungary and Slovakia So could Slovakia be next? Slovakia claims to hold 31.7 tonnes of monetary gold reserves, all of which is stored at the vaults of the Bank of England in London. When Poland repatriated 100 tonnes of gold from London in 2019, there were calls from a former prime minister of Slovakia, Robert Fico, that Slovakia should do likewise. But nothing came of that call. Still, it will be interesting to watch whether Slovakia announces in the future that it too has bought more gold, or plans to do so, given that all of its fellow members of the Visegrád Group – Hungary, Poland and the Czech Republic – are now big and active players in the central bank gold buying game. One major point which might prevent Slovakia buying gold is that unlike Hungary, Poland and the Czech Republic, Slokavia uses the Euro, and so has less monetary independence from the European Central Bank (ECB). Whereas each of Hungary, Poland and the Czech Republic still have their own fiat currencies, the forint, zloty, and koruna, respectively. Despite what Slovakia may or may not do, we now know there are a group of three independently-minded and strong allies in the centre of Europe, whose three central banks, namely the Czech National Bank,  Magyar Nemzeti Bank (Hungary), and Magyar Nemzeti Bank (Poland), are trail blazing a course in physical gold buying.      Conclusion When Hungary made its large gold purchase in 2021, it explained the rationale for buying in a press release, saying that gold “carries no credit or counterparty risks, [it] reinforces trust in a country in all economic environments, which still renders it one of the most crucial reserve assets worldwide”. Also that “the appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value”. In 2021, when Polish central bank president, Adam Glapiński, announced in an interview that the bank will buy another 100 tonnes of gold during 2022, he explained the buying rationale, saying that: “gold is free from credit risk and cannot be devalued by any country’s economic policy. Besides, it is extremely durable, virtually indestructible”. He also stated that gold is a “safe-haven asset, which means that its price usually increases in conditions of increased risk, financial and political crises or other turmoil in the global markets” and that “gold is characterised by a relatively low correlation with the main asset classes – especially the US dollar – which means that including gold in the reserves reduces the financial risk in the investment process”. To the above we can add the gold buying rationale of the Czech central bank’s incoming governor Aleš Michl - “Gold is good for diversification, it has zero correlation with stocks." While a brief comment for now, Michl hasn't started the governor's job yet. But expect more in-depth comments from him on gold later this year when he actually takes up the role. Watch this space!   This article was originally published on the website under a similar title "Czech Republic to join Visegrád Group allies in Central European Gold Rush". Tyler Durden Mon, 05/30/2022 - 06:20.....»»

Category: blogSource: zerohedgeMay 30th, 2022

Ukraine: A New Narrative As Europe Unravels?

Ukraine: A New Narrative As Europe Unravels? Authored by Bill Blain via, “When Italy tells you it is irrevocably committed to the relationship, it’s time to hire divorce lawyers..” May markets are finishing on a dead-cat bounce – things could get more unstable through June. The outcomes in Ukraine are looking less favourable, and Europe will struggle with sanctions. The weakest link is unsurprisingly Italy. A bigger crisis in terms of famine will shortly become apparent in North Africa.   There is a famous song that suggests “things can only better”. What if they don’t? Europe failed to agree new sanctions on Russia over the weekend. Talks will continue this week, but Hungary is stalling about quitting Russian oil. Sanctions are one of the aspects of its’ non-statehood the EU needs unanimity upon. The US is closed today. Stocks bounced back last week, but it had the whiff of a deceased feline. I suspect May 2022 will still go down as the month the Market Bubble popped. It’s easy to blame Central Banks for not acting earlier to hike rates to combat inflation. Hah. Their attempts to paint inflation as transitory now look laughable – but the reality is there is little central banks could have done earlier to combat galloping inflation pressures and inflationary shocks from sweeping across the economy. All they can do now is go with the flow and try to moderate the effects of the inflation tsunami: higher raw material and commodity prices, higher transport costs, higher energy costs, higher producer prices and, coming soon, rising social unrest and strikes as pay demands heat up. Worse is yet to come. Next month the UK will be effectively closed as the rail workers strike. Germany and France are both heading towards industrial relations crisis as the unions demand large wage hikes which could further crush their already lethargic economies. Policy is in disarray. In Germany, the government has given into demands for a massive hike in minimum wages. In the UK, Rishi Sunak is belatedly learning that popular chancellors garner popularity from giving away money. Trying to take it back… less so. He looks like he’s been bounced into the Windfall tax and consumer energy handouts – with the Labour Party looking likely to get much of the credit. Inflation, recession and negative growth are all on the cards. In such a situation its hardly surprising the temptation to try to lessen the economic damage being done across Europe by soaring energy prices on the back of Russian sanctions is rising. The edifice of a solid and united Europe standing firm behind the plucky Ukrainians is only a couple of microns deep. There is a very real chance it will crack in the coming weeks. June could be the month it happens and becomes apparent, potentially making a bad situation dramatically worse. The news out of Ukraine is not good. Russia has a history of starting wars badly. The parallel everyone cites is the Winter War against Finland in 1940. They lost thousands of men unprepared for winter or the Finns, were forced to retreat before effectively starting again and forcing Helsinki to concede. There is no doubt the Russians have taken a pasting in Ukraine as a result of flawed intelligence, the corruption of the FSB (where the team charged with a $2 bln hearts and minds campaign simply trousered the money themselves), and a lack of logistics planning. Umpteen generals later, and they are learning the hard way. They are now focused. The recent advances in the Donbas are still plodding, costly, slow and utterly destructive, but they are being described as solid by the military commentators who know these things. The Ukrainians are exhausted after 3 months of intense conflict. Trying to keep the economy going, and harvest crops is a significant call on manpower. They are desperately short of basic war stocks. Much of the aid promised by the west has been delivered, but troops then need to be trained to use it when they are needed on the front lines. And, many weapons promised to Kyiv have simply not arrived or are so old and worn out as to be unusable. Ukraine needs more modern weapons now to simply to hold the line – but the West remains frightened of escalation. The pendulum is swinging to Moscow. After their initial surprise, befuddlement and lack of a war-plan, the Russians now see a way to win. If they can keep Ukrainian defending forces pinned in place on the Donbas lines, then there is the possibility of encircling them to win a massive propaganda victory. The alternative is for Ukraine is to retreat – giving up the ground they’ve held at such high cost since 2014 – which again would be a massive propaganda coup for Moscow. The Russians don’t care whether Ukraine retreats or suffers a battlefield defeat. It’s all about the optics and the narrative. If they can score a propaganda win, it will reinforce calls from Europe’s weak links for an immediate ceasefire and negotiated peace. Italy is the weak link. But, also watch Greece and Hungary. Since Putin jailed the FSB’s leadership for their light-fingered approach to Ukraine, their successors have been spending Russian’s black propaganda money more carefully, targeting Italian politicians and looking for delivery on the “special relationship” they’ve been paying for decades. Berlusconi has failed to directly criticise his good old buddy Putin, and even said in Naples: “Europe should try to persuade Ukraine to accept Putin’s demands”, before backtracking the statement. Matteo Salvini’s League has condemned the Russian invasion, but Salvini himself has not named Putin in any of his bland statements. Italian media has proved unwilling to challenge or counter many of the outrageous statements peddled by Moscow about their “special military operation” – appearing to give Putin’s mouthpiece Sergeio Lavrov as much credence as statements out of Kyiv. It reflects the ownership of the media, its closeness to political interests and the fact much of the Italian establishment finds itself kompromated. Italy’s Confindustria business group is forcasting a 2% hit to Italian GDP in the back of slowing gas imports from Russia. 40% of Italy’s gas comes from Russia. Attempts to negotiate new supply and sources will take years to deliver. How easy it would be to turn the gas taps on. The US and UK will be watching carefully – explaining the rising number of stories in Italy about US spies active against Italian interests. If Italy cracks, then what’s to stop the German’s following them, taking to opportunity to relight its industrial pre-eminence with Russian Gas? Whatever the stories and the narrative being spread about Putin being ill, or of regime change in Moscow, it all hear-say, and unlikely according to the spooks. That leaves the possibility of a less than committed Europe and the Russian narrative to the rest of the World (which is largely unbothered about Russia’s invasion of a European neighbour) that it’s fighting a defensive action against the bellicose Anglo-Saxons being strengthened. However, although the current ructions in Europe are all about Energy, that is likely to be overwhelmed in June as the North African food crisis becomes very real. Without Russian and Ukraine food exports, famine is pretty much nailed on, triggering political upheaval, and critically for Europe (Greece, Hungary and Italy) a renewed refugee crisis. In short, June is looking… troubling. Tyler Durden Mon, 05/30/2022 - 08:30.....»»

Category: blogSource: zerohedgeMay 30th, 2022

A recession could end the Great Resignation and cut workers" bargaining power, warn business leaders at Davos

Employees have been using pandemic upheaval to demand higher wages and better conditions, but an economic downturn may alter the balance of power. Some workers have been quitting their jobs to win pay rises and more flexibility.Masafumi Nakanishi/Getty Images Workers have been using the Great Resignation to demand higher wages and better working conditions. A recession could change things, say senior executives who spoke to Insider at the Davos summit. Inflation in the US rose to 8.3% in April, prompting the Fed to raise interest rates.  The Great Resignation that's swept through the American workforce over the past two years has been an expression of worker power. The pandemic lockdowns liberated them from their daily routines, desks and overbearing bosses, with workers exerting a new level of control.They're resigning in their droves, no longer willing to put up with companies that don't give them what they want. In March, 4.5 million Americans quit their jobs, notching up the 10th consecutive month that resignations surpassed 4 million. But a looming recession could change things, according to senior executives Insider spoke to at the World Economic Forum in Davos this week.Coram Williams, finance chief of the Adecco Group, told Insider: "If some of the things that people are talking about come to fruition – if the levels of inflation are sustained, if interest rates continue to rise, if energy prices don't come down – I think it by definition shifts some of the balance." While the US economy is not yet in a downturn, some economists, Wall Street banks and execs warn that one may arrive by sometime next year.Supply chain woes, exacerbated by COVID-19 lockdowns in China, the Ukraine War and rising energy prices, coupled with a tight labor market pushed consumer price inflation up to 8.3% in the 12 months to April.Despite enjoying record rises in pay during the first quarter of the year, increases have not kept up with inflation. The Employment Cost index, the best monitor of pay levels, rose by 4.5% in the year to March. Federal Reserve officials, who already raised the main interest rate by half a percentage point this month, are expected to impose further increases over the coming months. Rising borrowing costs could slow demand sufficiently to help trigger a recession."I don't know whether it will be a soft or a hard landing," Williams added. "But it's clearly going to take some of the froth out of the world economy. And that means that you have some aspect of rebalancing within labor markets, which probably shifts the pendulum slightly for slightly more back towards the employer."However, that doesn't mean workers will suddenly be left completely powerless.Dogged by ongoing labor shortages, employers have been increasing pay and investing in perks and training to stem the flow. There's a growing awareness that forcing staff to return to a prepandemic, full-time office is unrealistic if companies want to attract the best talent. Ravin Jesuthasan, global transformation leader at Mercer, told Insider: "These concepts of flexibility are here to stay, it's just not going to go. I know many hope we'll just go back to where we were in January of 2020, but that's just not going to happen."Is the great resignation simply the great reshuffle?While Americans are quitting their jobs, they're not giving up work. They are seeking to take advantage of the labor shortage to move into roles that pay more and offer greater satisfaction and flexibility. Some are also setting up their own businesses. The unemployment rate for April stood at 3.6%, marginally above the 3.5% in February 2020, according to the Bureau of Labor Statistics. The labor force participation rate of 62.2% is about 1 percentage point below February 2020 levels. "You can call it what you like – we call it the 'Great Re-evaluation'. What's really happening is that people are reconsidering the jobs that they do, not reconsidering their participation in the labor market," Williams said.Stephanie Trautman, chief growth officer at tech giant Wipro, told Insider: "People are still evaluating, you know, what do I do? Do I enjoy what I do? Do I have the kind of opportunities?"As long as the labor shortage persists, many workers will continue to hold the upper hand.Read the original article on Business Insider.....»»

Category: smallbizSource: nytMay 27th, 2022

Gas prices, inflation dampening summer vacation plans

Scorching gas and everyday prices are forcing Americans to change their travel and budget plans this summer. FOX Business' Jeff Flock from the Jersey Shore......»»

Category: topSource: foxnewsMay 26th, 2022

Central Bankers" Narratives Are Falling Apart

Central Bankers' Narratives Are Falling Apart Authored by Alasdair Macleod via, Central bankers’ narratives are falling apart. And faced with unpopularity over rising prices, politicians are beginning to question central bank independence. Driven by the groupthink coordinated in the regular meetings at the Bank for International Settlements, they became collectively blind to the policy errors of their own making. On several occasions I have written about the fallacies behind interest rate policies. I have written about the lost link between the quantity of currency and credit in circulation and the general level of prices. I have written about the effect of changing preferences between money and goods and the effect on prices. This article gets to the heart of why central banks’ monetary policy was originally flawed. The fundamental error is to regard economic cycles as originating in the private sector when they are the consequence of fluctuations in credit, to which we can add the supposed benefits of continual price inflation. Introduction Many investors swear by cycles. Unfortunately, there is little to link these supposed cycles to economic theory, other than the link between the business cycle and the cycle of bank credit. The American economist Irving Fisher got close to it with his debt-deflation theory by attributing the collapse of bank credit to the 1930s’ depression. Fisher’s was a well-argued case by the father of modern monetarism. But any further research by mainstream economists was brushed aside by the Keynesian revolution which simply argued that recessions, depressions, or slumps were evidence of the failings of free markets requiring state intervention. Neither Fisher nor Keynes appeared to be aware of the work being done by economists of the Austrian school, principally that of von Mises and Hayek. Fisher was on the American scene probably too early to have benefited from their findings, and Keynes was, well, Keynes the statist who in common with other statists in general placed little premium on the importance of time and its effects on human behaviour. It makes sense, therefore, to build on the Austrian case, and to make the following points at the outset: It is incorrectly assumed that business cycles arise out of free markets. Instead, they are the consequence of the expansion and contraction of unsound money and credit created by the banks and the banking system. The inflation of bank credit transfers wealth from savers and those on fixed incomes to the banking sector’s favoured customers. It has become a major cause of increasing disparities between the wealthy and the poor. The credit cycle is a repetitive boom-and-bust phenomenon, which historically has been roughly ten years in duration. The bust phase is the market’s way of eliminating unsustainable debt, created through credit expansion. If the bust is not allowed to proceed, trouble accumulates for the next credit cycle. Today, economic distortions from previous credit cycles have accumulated to the point where only a small rise in interest rates will be enough to trigger the next crisis. Consequently, central banks have very little room for manoeuvre in dealing with current and future price inflation. International coordination of monetary policies has increased the potential scale of the next credit crisis, and not contained it as the central banks mistakenly believe. The unwinding of the massive credit expansion in the Eurozone following the creation of the euro is an additional risk to the global economy. Comparable excesses in the Japanese monetary system pose a similar threat. Central banks will always fail in using monetary policy as a management tool for the economy. They act for the state, and not for the productive, non-financial private sector. Modern monetary assumptions The original Keynesian policy behind monetary and fiscal stimulation was to help an economy recover from a recession by encouraging extra consumption through bank credit expansion and government deficits funded by inflationary means. Originally, Keynes did not recommend a policy of continual monetary expansion, because he presumed that a recession was the result of a temporary failure of markets which could be remedied by the application of deficit spending by the state. The error was to fail to understand that the cycle is of credit itself, the consequence being the imposition of boom and bust on what would otherwise be a non-cyclical economy, where the random action by businesses in a sound money environment allowed for an evolutionary process delivering economic progress. It was this environment which Schumpeter described as creative destruction. In a sound money regime, businesses deploy the various forms of capital at their disposal in the most productive, profitable way in a competitive environment. Competition and failure of malinvestment provide the best returns for consumers, delivering on their desires and demands. Any business not understanding that the customer is king deserves to fail. The belief in monetary and fiscal stimulation wrongly assumes, among other things, that there are no intertemporal effects. As long ago as 1730, Richard Cantillon described how the introduction of new money into an economy affected prices. He noted that when new money entered circulation, it raised the prices of the goods first purchased. Subsequent acquirers of the new money raised the prices of the goods they demanded, and so on. In this manner, the new money is gradually distributed, raising prices as it is spent, until it is fully absorbed in the economy. Consequently, maximum benefit of the purchasing power of the new money accrues to the first receivers of it, in his time being the gold and silver imported by Spain from the Americas. But today it is principally the banks that create unbacked credit out of thin air, and their preferred customers who benefit most from the expansion of bank credit. The losers are those last to receive it, typically the low-paid, the retired, the unbanked and the poor, who find that their earnings and savings buy less in consequence. There is, in effect, a wealth transfer from the poorest in society to the banks and their favoured customers. Modern central banks seem totally oblivious of this effect, and the Bank of England has even gone to some trouble to dissuade us of it, by quoting marginal changes in the Gini coefficient, which as an average tells us nothing about how individuals, or groups of individuals are affected by monetary debasement. At the very least, we should question central banking’s monetary policies on grounds of both efficacy and the morality, which by debauching the currency, transfers wealth from savers to profligate borrowers —including the government. By pursuing the same monetary policies, all the major central banks are tarred with this bush of ignorance, and they are all trapped in the firm clutch of groupthink gobbledegook. The workings of a credit cycle To understand the relationship between the cycle of credit and the consequences for economic activity, A description of a typical credit cycle is necessary, though it should be noted that individual cycles can vary significantly in the detail. We shall take the credit crisis as our starting point in this repeating cycle. Typically, a credit crisis occurs after the central bank has raised interest rates and tightened lending conditions to curb price inflation, always the predictable result of earlier monetary expansion. This is graphically illustrated in Figure 1. The severity of the crisis is set by the amount of excessive private sector debt financed by bank credit relative to the overall economy. Furthermore, the severity is increasingly exacerbated by the international integration of monetary policies. While the 2007-2008 crises in the UK, the Eurozone and Japan were to varying degrees home-grown, the excessive speculation in the American residential property market, facilitated additionally by off-balance sheet securitisation invested in by the global banking network led to the crisis in each of the other major jurisdictions being more severe than it might otherwise have been. By acting as lender of last resort to the commercial banks, the central bank tries post-crisis to stabilise the economy. By encouraging a revival in bank lending, it seeks to stimulate the economy into recovery by reducing interest rates. However, it inevitably takes some time before businesses, mindful of the crisis just past, have the confidence to invest in production. They will only respond to signals from consumers when they in turn become less cautious in their spending. Banks, who at this stage will be equally cautious over their lending, will prefer to invest in short-maturity government bonds to minimise balance sheet risk. A period then follows during which interest rates remain suppressed by the central bank below their natural rate. During this period, the central bank will monitor unemployment, surveys of business confidence, and measures of price inflation for signs of economic recovery. In the absence of bank credit expansion, the central bank is trying to stimulate the economy, principally by suppressing interest rates and more recently by quantitative easing. Eventually, suppressed interest rates begin to stimulate corporate activity, as entrepreneurs utilise a low cost of capital to acquire weaker rivals, and redeploy underutilised assets in target companies. They improve their earnings by buying in their own shares, often funded by cheapened bank credit, as well as by undertaking other financial engineering actions. Larger businesses, in which the banks have confidence, are favoured in these activities compared with SMEs, who find it generally difficult to obtain finance in the early stages of the recovery phase. To that extent, the manipulation of money and credit by central banks ends up discriminating against entrepreneurial smaller companies, delaying the recovery in employment. Consumption eventually picks up, fuelled by credit from banks and other lending institutions, which will be gradually regaining their appetite for risk. The interest cost on consumer loans for big-ticket items, such as cars and household goods, is often lowered under competitive pressures, stimulating credit-fuelled consumer demand. The first to benefit from this credit expansion tend to be the better-off creditworthy consumers, and large corporations, which are the early receivers of expanding bank credit. The central bank could be expected to raise interest rates to slow credit growth if it was effectively managing credit. However, the fall in unemployment always lags in the cycle and is likely to be above the desired target level. And price inflation will almost certainly be below target, encouraging the central bank to continue suppressing interest rates. Bear in mind the Cantillon effect: it takes time for expanding bank credit to raise prices throughout the country, time which contributes to the cyclical effect. Even if the central bank has raised interest rates by this stage, it is inevitably by too little. By now, commercial banks will begin competing for loan business from large credit-worthy corporations, cutting their margins to gain market share. So, even if the central bank has increased interest rates modestly, at first the higher cost of borrowing fails to be passed on by commercial banks. With non-financial business confidence spreading outwards from financial centres, bank lending increases further, and more and more businesses start to expand their production, based upon their return-on-equity calculations prevailing at artificially low interest rates and input prices, which are yet to reflect the increase in credit. There’s a gathering momentum to benefit from the new mood. But future price inflation for business inputs is usually underestimated. Business plans based on false information begin to be implemented, growing financial speculation is supported by freely available credit, and the conditions are in place for another crisis to develop. Since tax revenues lag in any economic recovery, government finances have yet to benefit suvstantially from an increase in tax revenues. Budget deficits not wholly financed by bond issues subscribed to by the domestic public and by non-bank corporations represents an additional monetary stimulus, fuelling the credit cycle even more at a time when credit expansion should be at least moderated. For the planners at the central banks, the economy has now stabilised, and closely followed statistics begin to show signs of recovery. At this stage of the credit cycle, the effects of earlier monetary inflation start to be reflected more widely in rising prices. This delay between credit expansion and the effect on prices is due to the Cantillon effect, and only now it is beginning to be reflected in the calculation of the broad-based consumer price indices. Therefore, prices begin to rise persistently at a higher rate than that targeted by monetary policy, and the central bank has no option but to raise interest rates and restrain demand for credit. But with prices still rising from credit expansion still in the pipeline, moderate interest rate increases have little or no effect. Consequently, they continue to be raised to the point where earlier borrowing, encouraged by cheap and easy money, begins to become uneconomic. A rise in unemployment, and potentially falling prices then becomes a growing threat. As financial intermediaries in a developing debt crisis, the banks are suddenly exposed to extensive losses of their own capital. Bankers’ greed turns to a fear of being over-leveraged for the developing business conditions. They are quick to reduce their risk-exposure by liquidating loans where they can, irrespective of their soundness, putting increasing quantities of loan collateral up for sale. Asset inflation quickly reverses, with all marketable securities falling sharply in value. The onset of the financial crisis is always swift and catches the central bank unawares. When the crisis occurs, banks with too little capital for the size of their balance sheets risk collapsing. Businesses with unproductive debt and reliant on further credit go to the wall. The crisis is cathartic and a necessary cleaning of the excesses entirely due to the human desire of bankers and their shareholders to maximise profits through balance sheet leverage. At least, that’s what should happen. Instead, a modern central bank moves to contain the crisis by committing to underwrite the banking system to stem a potential downward spiral of collateral sales, and to ensure an increase in unemployment is contained. Consequently, many earlier malinvestments will survive. Over several cycles, the debt associated with past uncleared malinvestments accumulates, making each successive crisis greater in magnitude. 2007-2008 was worse than the fall-out from the dot-com bubble in 2000, which in turn was worse than previous crises. And for this reason, the current credit crisis promises to be even greater than the last. Credit cycles are increasingly a global affair. Unfortunately, all central banks share the same misconception, that they are managing a business cycle that emanates from private sector business errors and not from their licenced banks and own policy failures. Central banks through the forum of the Bank for International Settlements or G7, G10, and G20 meetings are fully committed to coordinating monetary policies on a global basis. The consequence is credit crises are potentially greater as a result. Remember that G20 was set up after the Lehman crisis to reinforce coordination of monetary and financial policies, promoting destructive groupthink even more. Not only does the onset of a credit crisis in any one country become potentially exogenous to it, but the failure of any one of the major central banks to contain its crisis is certain to undermine everyone else. Systemic risk, the risk that banking systems will fail, is now truly global and has worsened. The introduction of the new euro distorted credit cycles for Eurozone members, and today has become a significant additional financial and systemic threat to the global banking system. After the euro was introduced, the cost of borrowing dropped substantially for many high-risk member states. Unsurprisingly, governments in these states seized the opportunity to increase their debt-financed spending. The most extreme examples were Greece, followed by Italy, Spain, and Portugal —collectively the PIGS. Consequently, the political pressures to suppress euro interest rates are overwhelming, lest these state actors’ finances collapse. Eurozone commercial banks became exceptionally highly geared with asset to equity leverage more than twenty times on average for the global systemically important banks. Credit cycles for these countries have been made considerably more dangerous by bank leverage, non-performing debt, and the TARGET2 settlement system which has become dangerously unbalanced. The task facing the ECB today to stop the banking system from descending into a credit contraction crisis is almost impossible as a result. The unwinding of malinvestments and associated debt has been successfully deferred so far, but the Eurozone remains a major and increasing source of systemic risk and a credible trigger for the next global crisis. The seeds were sown for the next credit crisis in the last When new money is fully absorbed in an economy, prices can be said to have adjusted to accommodate it. The apparent stimulation from the extra money will have reversed itself, wealth having been transferred from the late receivers to the initial beneficiaries, leaving a higher stock of currency and credit and increased prices. This always assumes there has been no change in the public’s general level of preference for holding money relative to holding goods. Changes in this preference level can have a profound effect on prices. At one extreme, a general dislike of holding any money at all will render it valueless, while a strong preference for it will drive down prices of goods and services in what economists lazily call deflation. This is what happened in 1980-81, when Paul Volcker at the Federal Reserve Board raised the Fed’s fund rate to over 19% to put an end to a developing hyperinflation of prices. It is what happened more recently in 2007/08 when the great financial crisis broke, forcing the Fed to flood financial markets with unlimited credit to stop prices falling, and to rescue the financial system from collapse. The state-induced interest rate cycle, which lags the credit cycle for the reasons described above, always results in interest rates being raised high enough to undermine economic activity. The two examples quoted in the previous paragraph were extremes, but every credit cycle ends with rates being raised by the central bank by enough to trigger a crisis. The chart above of America’s Fed funds rate is repeated from earlier in this article for ease of reference. The interest rate peaks joined by the dotted line marked the turns of the US credit cycle in January 1989, mid-2000, early 2007, and mid-2019 respectively. These points also marked the beginning of the recession in the early nineties, the post-dotcom bubble collapse, the US housing market crisis, and the repo crisis in September 2019. The average period between these peaks was exactly ten years, echoing a similar periodicity observed in Britain’s nineteenth century. The threat to the US economy and its banking system has grown with every crisis. Successive interest peaks marked an increase in severity for succeeding credit crises, and it is notable that the level of interest rates required to trigger a crisis has continually declined. Extending this trend suggests that a Fed Funds Rate of no more than 2% today will be the trigger for a new momentum in the current financial crisis. The reason this must be so is the continuing accumulation of dollar-denominated private-sector debt. And this time, prices are fuelled by record increases in the quantity of outstanding currency and credit. Conclusions The driver behind the boom-and-bust cycle of business activity is credit itself. It therefore stands to reason that the greater the level of monetary intervention, the more uncontrollable the outcome becomes. This is confirmed by both reasoned theory and empirical evidence. It is equally clear that by seeking to manage the credit cycle, central banks themselves have become the primary cause of economic instability. They exhibit institutional groupthink in the implementation of their credit policies. Therefore, the underlying attempt to boost consumption by encouraging continual price inflation to alter the allocation of resources from deferred consumption to current consumption, is overly simplistic, and ignores the negative consequences. Any economist who argues in favour of an inflation target, such as that commonly set by central banks at 2%, fails to appreciate that monetary inflation transfers wealth from most people, who are truly the engine of production and spending. By impoverishing society inflationary policies are counterproductive. Neo-Keynesian economists also fail to understand that prices of goods and services in the main do not act like those of speculative investments. People will buy an asset if the price is rising because they see a bandwagon effect. They do not normally buy goods and services because they see a trend of rising prices. Instead, they seek out value, as any observer of the falling prices of electrical and electronic products can testify. We have seen that for policymakers the room for manoeuvre on interest rates has become increasingly limited over successive credit cycles. Furthermore, the continuing accumulation of private sector debt has reduced the height of interest rates that would trigger a financial and systemic crisis. In any event, a renewed global crisis could be triggered by the Fed if it raises the funds rate to as little as 2%. This can be expected with a high degree of confidence; unless, that is, a systemic crisis originates from elsewhere —the euro system and Japan are already seeing the euro and yen respectively in the early stages of a currency collapse. It is bound to lead to increased interest rates in the euro and yen, destabilising their respective banking systems. The likelihood of their failure appears to be increasing by the day, a situation that becomes obvious when one accepts that the problem is wholly financial, the result of irresponsible credit and currency expansion in the past. An economy that works best is one where sound money permits an increase in purchasing power of that money over time, reflecting the full benefits to consumers of improvements in production and technology. In such an economy, Schumpeter’s process of “creative destruction” takes place on a random basis. Instead, consumers and businesses are corralled into acing herd-like, financed by the cyclical ebb and flow of bank credit. The creation of the credit cycle forces us all into a form of destructive behaviour that otherwise would not occur. Tyler Durden Sun, 05/22/2022 - 08:10.....»»

Category: blogSource: zerohedgeMay 22nd, 2022

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy By Noi Mahoney of Freightwaves With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts. Diesel pump prices averaged $5.61 a gallon nationwide, 51% higher than diesel prices across the country in January Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.” “These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves.  Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs. Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public.  “One of the things we’ve been seeing in the U.S., particularly on the East Coast, is that diesel fuel inventories have been shrinking, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, still lots of trucks on the road and the supply is unable to keep up with demand,” Basu said. “The higher price of diesel fuel will become embedded in the cost of everything consumers purchase.”  Prices of fresh produce rising Jordan DeWart, a managing director at RedWood Mexico, based in Laredo, Texas, said the types of consumer goods that could be immediately affected by higher diesel prices include fresh produce. Redwood Mexico is part of Chicago-based Redwood Logistics. “With produce, that’s typically more in the spot rate business, and any of those smaller trucking companies are going to be heavily impacted by fuel costs,” DeWart said. The U.S. imported more than $15 billion in fresh produce from Mexico in 2021, including avocados, tomatoes, grapes, bell peppers and strawberries, according to the U.S. Department of Agriculture. “Everything coming northbound from Mexico through Laredo, the rates have been very sustained, but fuel prices keep going up, presumably with any differences being absorbed by the trucking companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially the smaller companies, they’re really feeling the pinch.” It’s not only cross-border operators feeling the pinch. Growers and shippers in Texas’ Rio Grande Valley are also suffering because of increased fuel costs, said Dante Galeazzi, president of the Texas International Produce Association (TIPA). “Our growers, shippers, importers, distributors … basically our entire supply chain has been and continues to be impacted by rising fuel costs,” Galeazzi told FreightWaves. “Between one-third to one-half of the costs for fresh produce is the logistics; you can see how quickly increases in that expense category can impact the base price.” The Rio Grande Valley is the epicenter of the Lone Star State’s fresh produce industry, stretching across the southeastern tip of Texas along the U.S.-Mexico border. More than 35 types of fruits and vegetables are grown in the valley, which contributes more than $1 billion to the state economy annually. “More concerning is that this wave of fuel increases is in line with the statistic that our industry is paying anywhere from 70% to 150% more year-over-year for OTR shipping,” Galeazzi said.  TIPA, which is based in Mission, Texas, represents growers, domestic shippers, import shippers, specialty shippers, distributors and material and service providers.  Right now, Rio Grande Valley growers and shippers are absorbing higher input costs instead of passing them on to consumers, but that could soon change, Galeazzi said. “While the fresh fruit and vegetable industry continues to experience rising input costs across the board (seed, agrochemicals, labor, fuel, packaging, etc.), we have yet to experience sufficient upstream returns associated with those expense increases,” Galeazzi said. “Our industry is citing an 18% to 22% anecdotal increase to overhead costs. Meanwhile food inflation for fresh produce is hovering around 7%. That means the costs are slowly being felt by consumers, but it’s not yet at a commensurate level with input expenses.” Diesel fuel prices at all time highs The cost of diesel continues to soar across the country. Diesel pump prices averaged $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That’s 51% higher than diesel prices nationwide in January.  California averaged the highest fuel prices across the U.S., at $6 per gallon of gas and $6.56 per gallon for diesel, according to AAA. Diesel prices are also at an all-time high of $6.41 in New York. The higher prices of diesel fuel and gasoline are being caused by a combination of factors, including surging demand and reduced refining capacity, along with the disruption to global markets caused by COVID-19, the current lockdown in China and the ongoing Russia-Ukraine conflict, said Rory Johnston, a managing director at Toronto-based research firm Price Street. “The overarching oil market is feeling much tighter because of the Russian-Ukraine situation,” Johnston, also writer of the newsletter Commodity Context, told FreightWaves. “What we’ve seen is a larger immediate impact from the loss of Russian refined products; in addition to exporting millions and millions of barrels a day of crude oil, Russia also exported a lot of refined products, most notably middle distillates, like gasoline or diesel.” Several refineries on the East Coast — including facilities in Newfoundland and Labrador, Canada — scaled back during the early days of the pandemic, which has hurt diesel capacity, Johnston said. “There was also a refinery in Philadelphia that exploded just prior to the COVID-19 period starting,” Johnston said. “There’s not enough refining capacity on the global level, and particularly in the West right now and particularly in the northeastern U.S.” He said he doesn’t foresee any relief from increasing diesel prices over the next few months or more. “Things are going to be really tight for at least the next year, barring any kind of economic recession and some kind of demand slowdown materially,” Johnston said.  DeWart said trucking companies that don’t have a fuel surcharge component or contract in place and are depending on spot rates could be in big trouble over the next several months as diesel prices either keep rising or stay higher than average.  “Their fuel costs keep going up, but they’re really not able to negotiate higher rates right now with a really tight spot market,” DeWart said. “It’s really impacting small trucking companies, anyone that decided to kind of play the spot market, rather than being locked in contracted rates. They’re really feeling the pain right now.” DeWart said for trucking companies, it’s critical to get some type of fuel reimbursement program in place “just to protect themselves in case the cost of fuel goes even higher.” Tyler Durden Wed, 05/18/2022 - 19:25.....»»

Category: smallbizSource: nytMay 18th, 2022

Rabobank: If The US Is Going To Win This War, It Needs Higher Rates, A Stronger Dollar, And Lower Commodity Prices

Rabobank: If The US Is Going To Win This War, It Needs Higher Rates, A Stronger Dollar, And Lower Commodity Prices By Michael Every of Rabobank Everything Old is New Again Using the matrix of both bond yields AND commodity prices I suggested yesterday as a judge of what the market is thinking vs. what the Fed then needs to be doing seems to have held water. Amid the usual “why bother paying attention to facts when one can buy dips” equity action, US 10-year yields surged 8bp back to 2.99% and 2-year yields 12bps to 2.69%, AND oil and wheat moved higher, the former to over $115 before dipping back to around $113, the latter starting lower but closing at a new record high. Bonds sold off after we got a hawkish Powell interview that showed he was looking at the continued rise in commodities, not any falls in demand. Specifically, Powell stated ”There’s an overwhelming need to get inflation under control”; that “this is not a time for tremendously nuanced readings of inflation: we need to bring it down in a convincing way. We do not see that right now. Some signs are promising, others are not”; and that the Fed “will push ahead with rate increases until we get as far as we need to get – we’ll keep going.” Indeed, Powell stressed, “Neutral is not necessarily a stopping point. If we have to go beyond neutral, we will not hesitate.” He also underlined “We will tighten until we are at a place where financial conditions are appropriate, and inflation is coming down.” In other words, bond yields cannot truly come down before key commodities do. Whocouldanooed? For those rightly thinking that rate hikes don’t help inflation driven by the supply side, which is seeing real incomes fall sharply for those outside Wall Street, there was no succour. Powell added the Ukraine war could last longer than expected, as could Chinese lockdowns, and that “there is a real possibility that globalisation does into reverse to some extent.” Indeed, while inflation is partly driven by supply bottlenecks, the Fed is not seeing much evidence of it “healing,” and, crucially, “is not setting policy based on the view we get relief from the supply side.” As such, “we clearly have a job to do on the demand side.” But what of the Fed’s 2020 shift to focus on the lowest possible unemployment rate for all Americans in order to bridge socio-economic chasms? Well, now Powell sees the natural rate of unemployment as likely higher than 3.6%, where it sits, and implied he expects joblessness to rise ahead, adding he wants to see only “healthy” nominal wage inflation consistent with 2% CPI, which it currently exceeding in many places. (Australia just saw a 2.4% y-o-y print for Q1, which was below consensus, and may take some heat out of Aussie markets.) Overall, Powell said there would be “pain involved” in doing what was necessary, and a “soft-ish” landing was only now “plausible”. So, yes, the implication is the recession Mr Market is talking of – just not the rates easing-of-financial-conditions Fed response he was already starting to price for. That was followed up by Evans arguing the Fed should raise rates to a 2.25%-2.5% neutral range “expeditiously”, and favours “front-Loaded” hikes to transition to a more measured pace, which would give them time to monitor supply chains --which are being noticed and have no resolution-- in order to evaluate tighter policy. In short, everything old is new again: hawkishness; wanting higher unemployment and lower nominal (and real) wage growth; and a Fed that is prepared to talk the talk – although walking the walk, or walking and chewing gum at the same time, is yet to be seen. Meanwhile, we got more central bank news from Europe, where Reuters says, ‘Exclusive-ECB's Lagarde gives national central bank chiefs louder voice on policy’. The details are that ECB President Lagarde “has given national central bank chiefs a bigger say in policy meetings, asking her own board to speak less and set aside more time for debate,” according to sources. Chief economist Lane and fellow board member Schnabel have been told to limit their presentations and leave more space for the central banks of the euro’s 19 countries to air their views. This is implied as being introduced because “a few voices typically dominate,” and “criticism has grown since last summer as Lane and his staff repeatedly underestimated the size and duration of inflationary pressures. The surge in prices, which some ECB policymakers warned were persistent, eventually prompted the central bank to change tack and open the door to higher interest rates.” So, this is not so much about democracy as the fact that the loudest voices on inflation have been completely wrong (by not seeing everything everywhere all at once, as noted yesterday). Regardless, it takes us back to an older era when a wider variety of speakers had a say. On which, wouldn’t it be nice if we also got business, trade/logistics, and union voices heard around the central bank table too today, rather than just the financial sector and academic economists like Lane? Their input would certainly be relevant, it appears. And why not national security figures too? The first modern central bank, the BOE, was set up to finance a major war, as were its European counterparts. (As the EU and UK are daggers drawn again over Northern Ireland, with trade war in the wind.) Today they cannot even do a good job of fighting inflation, let alone defending Western interests. Yet everything old may be new again there too due to the Ukraine metacrisis. US Treasury Secretary Yellen is now talking of a new Marshall Plan, which takes us back to the 1950s. Inconveniently, that involves winning the war first, which means US Lease-Lease, which is already in place, taking us back to the 1940s, and integrating military, economic, and financial components: after all, the measurement of ‘GDP’ originated in the US in WW2 as a tool to win it, not to set up the quarterly ‘guess the weight of the cake and make billions’ competition it has since become. If the US is going to win this war, it needs to address the economic component – which implies higher rates, a stronger dollar, and lower commodity prices to tame its inflation and reduce Russian income. Others might want similar FX movement, as the EIA notes today: “A strong US dollar means that countries that use currencies other than the US dollar pay more as crude oil prices increase. Since June 1, 2021, the Brent crude oil price has increased by 59% in US dollars and by 86% in euros.” Now imagine your currency collapses because you try to do ‘new normal’ QE while running commodity-driven trade deficits - and you don’t get Fed swap lines,… as Turkey’s TRY stumbles further over geopolitics, and China stops reporting foreign investor bond trades as capital outflows accelerate, and new home prices just dropped 0.3% m-o-m. Yet the US will also need to address the financial component. Being *very* charitable, that might explain why there are rumors flying around that the White House is considering de facto forcing Russia to default on its foreign debt by not extending a soon-to-lapse rule allowing Moscow to make such dollar payments. It will also involve joined-up actions such as offering India $500m in US military aid, approaching the levels offered to Egypt and Israel, to persuade it to switch from Russian to US weapons, as part of a broader geopolitical realignment. (Which was already underway via The Quad: this is also to help tip the balance as India decides between French and US planes.) Yet at the same time, this links back to supply chains. There are reports that Ukraine has already depleted a quarter and a third of the total US stock of Javelin and Stinger missiles, and current US production is in no way capable of replacing them: they are being fired far faster than they can roll off of production lines. Imagine what happens if the war drags on beyond the end of the year. Imagine if a new war begins somewhere else. Imagine the global military hegemon without the weaponry it needs to fight. And that dilemma brings us back to integrating military, economic, and financial components. Relatedly, we recently got another ‘old is new’ shift from the IMF, who are now officially more supportive of capital controls, pre-emptively in some cases. Those who follow a Godley approach to balance sheets would point out that there are many good reasons for introducing capital controls like the ones we had under Bretton Woods, which takes us back to 1945-1971. If you don’t have destabilizing global capital flows, you don’t have destabilizing global trade deficits, because the former drives the latter. Meanwhile, those who follow a geopolitical-realist approach to markets will extend the argument to say it is the US which is most likely to ultimately introduce capital controls (and more tariffs) against some countries which it runs large bilateral trade deficits with, i.e., no US capital outflows to China, and no capital inflows to the US from China, which would effectively decouple the two. And when one says ‘ultimately’, one is not looking too far into the future at the rate things are shifting and given the train of thought from the US Trade Representative. One is not only looking at China in this regard. Germany could be in the cross-hairs too if the country fails to follow through on its promise to rearm before the 2024 US presidential election, and instead goes for more appeasing ‘trundle durch bumble’. Imagine the rates impact of this kind of US policy shift towards trade only within an Anglosphere, or a Network of Liberty, or ‘Freedom Trade’ not free trade. Yet is not out of the question based on the current political and geopolitical trends and the iron logic of war. Far from it. Rather, everything old is new again. ”Don't throw the past away; You might need it some rainy day; Dreams can come true again; When everything old is new again Get out your white suit, your tap shoes and tails; Put it on backwards when forward fails; Better leave Greta Garbo alone; Be a movie star on your own” Tyler Durden Wed, 05/18/2022 - 11:05.....»»

Category: blogSource: zerohedgeMay 18th, 2022

Futures Slide After Dismal Target Earnings, Plunging Mortgage Apps

Futures Slide After Dismal Target Earnings, Plunging Mortgage Apps The brief bear market rally in US stocks was set to end with a whimper following Tuesday’s strong dead cat bounce, after Fed Chair Jerome Powell gave his most hawkish remarks to date. Hope that China lockdowns would soon end turned to skepticism, as the yuan slumped after its biggest gain since October, while dismal guidance from Target - which warned that inflation was crushing margins - confirmed what Walmart said yesterday, namely that the US consumer is running on fumes. An 11% plunge in the latest weekly mortgage applications only reaffirmed that a hard-landing is inevitable and just a matter of time. Nasdaq 100 futures dropped 1%, while S&P 500 futures slipped 0.7% after US stocks surged on Tuesday. Treasury yields hit session highs, rising back to 3.0%, and the dollar snapped a three-day losing streak. Bitcoin got hammered again, sliding back under $30k. Among the biggest premarket movers, Target crashed 22% with Vital Knowledge calling its margin shortfall “more dramatic” than what Walmart posted on Tuesday, citing industry-wide macro problems. The retailer reduced its full-year forecast on operating income margin to about 6% of sales this year. It also reported first-quarter adjusted earnings per share that came in below expectations. Food and gas inflation is drawing money away from discretionary and general merchandise spending, forcing “aggressive” discounting to clear out product in the latter category, Vital’s Adam Crisafulli said in a note. Elsewhere in US premarket trading, Tesla slipped 1% after its price target was cut at Piper Sandler. Meanwhile, Twitter Inc. also traded slightly lower even as the social media platform’s board said it plans to enforce its $44 billion agreement to be bought by Elon Musk. Here are some other notable premarket movers: US tech hardware stocks may be in focus as Jefferies Group LLC strategists have turned bullish on the likes of IBM (IBM US), Cisco Systems (CSCO US) and Microchip Technology (MCHP US) after this year’s steep declines for US information technology shares National CineMedia (NCMI US) shares jump as much as 33% in US premarket trading after AMC Entertainment (AMC US) reported a 6.8% stake in the cinema advertising company. AMC shares gain 1.2% in premarket trading. DLocal Ltd. (DLO US) shares gain as much as 15% in US premarket trading after the Uruguay-based payment platform posted 1Q revenue that doubled from the year-earlier period and topped expectations. Doximity (DOCS US) shares fall as much as 19% in US premarket trading, after the online healthcare platform provider’s forecast for 1Q revenue missed the average analyst estimate, prompting analysts to slash their price targets on the stock. Penn National (PENN US) may be active on Wednesday as Jefferies raised the recommendation to buy from hold. The company’s shares rose 4% in premarket trading. On Tuesday, Powell said the Fed will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat, which initially pushed stocks lower but then was faded as risk closed near session highs as nothing Powell said was actually new. The S&P 500 is emerging from the longest weekly slump since 2011 as investors have been gripped by fears of hawkish monetary policy and surging inflation driving the economy into a recession. As also discussed yesterday, Bank of America’s survey published yesterday showed that fund managers are the most underweight equities since May 2020 and are piling into cash. “This is one of the most challenging markets I have been in in my career,” Henry Peabody, fixed income portfolio manager at MFS Investment Management, said on Bloomberg Television. “I suspect at a certain point of time we’re going to have the liquidity of the markets challenged. They really haven’t been thus far.” As the Fed embarks on interest-rate hikes, frothy growth shares, including the tech sector, have suffered in particular as higher rates mean a bigger discount for the present value of future profits. This marks a major shift in investor outlook after tech stocks had been some of the market’s best performers for years. “Investor sentiment and confidence remain shaky, and as a result, we are likely to see volatile and choppy markets until we get further clarity on the 3Rs — rates, recession, and risk,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. Rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns. In what’s seen as his most hawkish remarks to date, Powell said that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. “We’ll have this kind of volatility as people jump in and look at opportunities to buy as markets decline,” Shana Sissel, director of investments at Cope Corrales, said on Bloomberg Television, referring to the Wall Street bounce. The Fed is going to struggle to achieve a soft economic landing, she added. In Europe, the Stoxx 600 Index was little changed, with energy stocks outperforming. Spain's IBEX outperformed, adding 0.5%. ABN Amro slumped almost 10% after the Dutch lender reported first-quarter results burdened by rising costs.  The Stoxx Europe 600 Basic Resources sub-index drops, underperforming other sectors in the broader regional benchmark on Wednesday as base metals ended a three-day rebound and as iron ore declined. Base metals paused a recovery from this year’s lows, with copper and aluminum stalling after hawkish remarks from Federal Reserve Chair Jerome Powell. Iron ore futures declined as investors weighed China’s faltering economy and the prospect of support measures amid a mixed outlook for steel demand. Basic resources index -0.6%, halting three days of gains; broader benchmark little changed. Siemens Gamesa jumped as much as 15% as Siemens Energy weighs a bid for the shares of the troubled Spanish wind-turbine maker it doesn’t already own. Here are the most notable movers: European oil and gas stocks rise amid higher crude prices and broker upgrades, while renewables rallied after Siemens Energy confirmed it was considering a buyout offer for Siemens Gamesa. Shell gains as much as 1.8%, BP +1.8%, Equinor +3.4%, Gamesa +15%, Vestas +7.7% Air France-KLM shares rise as much as 7.5% in Paris on news that container line CMA CGM intends to take a stake of up to 9% in the French carrier following the signing of a long-term strategic partnership in the air cargo market. Rockwool shares gain as much as 8.3%, most since Feb. 15, as the company boosts its sales in local currencies forecast for the full year. British Land shares rise as much as 4.2%, as the company’s results show a strong recovery and a good performance in the UK landlord’s portfolio, analysts say. Vistry shares climb as much as 8% with analysts saying the UK homebuilder’s trading update looks positive, particularly the robust momentum in its sales rate. The Stoxx Europe 600 Basic Resources sub-index drops, underperforming other sectors in the broader regional benchmark on Wednesday as base metals ended a three-day rebound and as iron ore declined. Rio Tinto slips as much as 1.5%, Antofagasta -2.7%, Anglo American -1.5% Prosus shares fall as much as 4.2% and Naspers sinks as much as 6.7% after Tencent reported first- quarter revenue and net income that both missed analyst expectations. TUI shares drop as much as 13% in London after the firm announced an equity raise in order to repay a chunk of government aid that helped see it through the coronavirus crisis. ABN Amro shares declined as much as 11% after the lender reported 1Q earnings that showed higher costs related to money laundering. Experian shares fall as much as 5.1% after the consumer-credit reporting company reported full-year results, with Citi saying organic growth missed consensus. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. The pound weakened and gilt yields fell as traders speculated that the Bank of England will struggle to rein in inflation and avoid a recession. Elsewhere, the Biden administration is poised to fully block Russia’s ability to pay US bondholders after a deadline expires next week, a move that could bring Moscow closer to a default. Sri Lanka, meantime, is on the brink of reneging on $12.6 billion of overseas bonds, a warning sign to investors in other developing nations that surging inflation is set to take a painful toll. Earlier in the session, Asian stocks advanced for a fourth session as strong US economic data allayed worries about the global growth outlook, while Chinese equities slipped. The MSCI Asia-Pacific Index rose as much as 1%, extending its rebound from an almost two-year low reached last Thursday. Materials shares led the gains, with Australia’s BHP Group climbing 3.2%. Benchmarks in most markets were in the black, with Indonesia, Taiwan and Singapore chalking up gains of at least 1%.  Upbeat retail sales and industrial production data from the US underpinned sentiment, so much so that investors barely reacted to hawkish comments from Federal Reserve Chair Jerome Powell. He indicated that policy makers won’t hesitate to raise interest rates beyond neutral levels to contain inflation. Equities in China bucked the trend. Property shares paced the drop after data showed the decline in China’s new home prices accelerated in April, while tech shares also lost steam ahead of Tencent’s earnings which missed expectations and slumped. Local investors may be underwhelmed by a lack of details from Chinese Vice Premier Liu He’s fresh vow to support tech firms. Liu said the government will support the development of digital economy companies and their public listings, in remarks reported by state media after a symposium with the heads of some the nation’s largest private firms. Lee Chiwoong, chief economist at Mitsubishi UFJ Morgan Stanley Securities, said Liu’s comments point to an easing of the crackdown on internet firms. “The Chinese government is stepping up measures to support the economy following the slowdown,” Lee said.  “As bottlenecks stemming from lockdowns in Shanghai ease, that impact will gradually show up in the economy,” Lee added. “We should be able to clearly see an economic recovery in the second half of this year.” Japanese equities gained as investors assessed strong US economic data and comments by Federal Reserve Chair Jerome Powell on the outlook for interest rate hikes.  The Topix Index rose 1% to close at 1,884.69. Tokyo time, while the Nikkei advanced 0.9% to 26,911.20. Sony Group Corp. contributed the most to the Topix gain, increasing 2.9%. Out of 2,172 shares in the index, 1,345 rose and 749 fell, while 78 were unchanged. Chinese stocks erased losses intraday after earlier disappointment over a much-anticipated meeting between Vice Premier Liu He and some of the nation’s tech giants. Overnight, data showed US retail sales grew at a solid pace in April, while factory production rose at a solid pace for a third month. Australia's stocks also gained, with the S&P/ASX 200 index rising 1% to close at 7,182.70, extending its winning streak to a fourth day. Miners contributed the most to its advance. All sectors gained, except for consumer staples and financials. Eagers slumped after saying that its 1H profit will be lower than it was a year ago and flagged reduced new vehicle deliveries. Wage data was also in focus. Australian wages advanced at less than half the pace of consumer-price gains in the first three months of the year, reinforcing the RBA’s signal that it will stick to quarter-point hikes.  In New Zealand, the S&P/NZX 50 index rose 1.1% to 11,258.28 India’s benchmark equities index fell, snapping two sessions of gains, weighed by declines in engineering company Larsen & Toubro Ltd.    The S&P BSE Sensex dropped 0.2% to close at 54,208.53 in Mumbai, after rising as much as 0.9% earlier in the session. The NSE Nifty 50 Index fell 0.1% to 16,240.30.  Larsen & Toubro slipped 2% and was the biggest drag on the Sensex, which saw 17 of its 30 member stocks decline. Sixteen of 19 sectoral sub-indexes compiled by BSE Ltd. dropped, led by a gauge of realty shares.   State-run Life Insurance Corporation, which debuted Tuesday, rose 0.1% to 876 rupees, still below the issue price of 949 rupees. In earnings, of the 34 Nifty 50 firms that have announced results so far, 20 have either met or exceeded analyst estimates, while 14 have missed. Consumer goods company ITC Ltd. is scheduled to announce results on Wednesday. In FX, the Bloomberg Dollar Spot Index reversed an early loss and the greenback advanced versus all of its Group-of-10 peers apart from the yen. The pound was the worst G-10 performer, tracking Gilt yields lower and paring the previous day’s gains. A widely expected jump in UK inflation prompted investors to pare back bets on BOE rate hikes. Money markets are pricing around 120bps of BOE rate hikes by December, down from 130bps from the previous day. UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. Consumer prices surged 9% in the year through April. The euro fell for the first day in four and weakened beyond $1.05. The Bund curve has twist flattened as traders bet on a faster pace of ECB tightening after Bank of Finland Governor Olli Rehn said there’s broad agreement among members of the Governing Council that policy rates should exit sub-zero terrain “relatively quickly.” That’s to prevent inflation expectations from becoming de- anchored, he said. The Aussie swung between gains and losses while Australia’s bonds trimmed earlier declines after a report showed wage growth last quarter was less than economists forecast. The wage price index climbed an annual 2.4% last quarter, trailing economists’ expectations and coming in well below headline inflation of 5.1%. The yen rose as US yields declined amid fragile risk sentiment. Japanese government bonds were mixed, with a decent five-year auction lending support while an overnight rise in global yields weighed on super-long maturities. In rates, Treasuries were under pressure, though most benchmark yields remained within 1bp of Tuesday’s closing levels. 10-year yields rose just shy of 3.00%, higher by less than 1bp with comparable bund yield +3.3bp and UK 10-year flat. TSY futures erased gains amid a series of block trades in 5- and 10-year note contracts starting at 5:20am ET, apparently selling flow. According to Bloomberg, six 5-year block trades and two 10-year block trades -- all 5,000 lots -- have printed since 5:20am, apparently seller-initiated as cash yields concurrently rebounded from near session lows. Wednesday’s $17b 20-year new-issue auction at 1pm ET may also weigh on the market. 20-year bond auction is this week’s only nominal coupon sale; WI yield ~3.37% exceeds all 20-year auction stops since then tenor was reintroduced in 2020, is ~27.5bp cheaper than last month’s result. Elsewhere, the UK yield curve bull-steepened with the short end richening ~5bps, while pound falls after inflation surged to a four-decade high. Money markets pare BOE rate-hike wagers. Bund curve bear-flattens while money markets bet on a faster pace of ECB tightening after ECB’s Rehn said the central bank needs to move quickly from negative rates. In commodities, WTI trades within Tuesday’s range, adding 1.6% to around $114. Most base metals are in the red; LME tin falls 1.5%, underperforming peers, LME aluminum outperforms, adding 1%. Spot gold is little changed at $1,815/oz. Looking to the day ahead now, and data releases include the UK and Canadian CPI readings for April, along with US data on housing starts and building permits for the same month. Central bank speakers include the Fed’s Harker and the ECB’s Muller. Earnings releases include Cisco, Lowe’s, Target and TJX. Finally, G7 finance ministers and central bank governors will be meeting in Germany. Market Snapshot S&P 500 futures down 0.5% to 4,065.50 STOXX Europe 600 down 0.2% to 438.11 MXAP up 0.8% to 164.43 MXAPJ up 0.7% to 539.81 Nikkei up 0.9% to 26,911.20 Topix up 1.0% to 1,884.69 Hang Seng Index up 0.2% to 20,644.28 Shanghai Composite down 0.2% to 3,085.98 Sensex up 0.3% to 54,469.39 Australia S&P/ASX 200 up 1.0% to 7,182.66 Kospi up 0.2% to 2,625.98 German 10Y yield little changed at 1.03% Euro down 0.4% to $1.0505 Brent Futures up 1.5% to $113.66/bbl Gold spot down 0.0% to $1,815.04 U.S. Dollar Index up 0.33% to 103.70 Top Overnight News from Bloomberg Sweden’s biggest pension company has begun buying government bonds amid a “paradigm shift” in the market that pushed yields to their highest level since 2018. The CIO views Treasuries as “quite attractive” after a prolonged period of razor-thin yields that forced the company into alternative and riskier asset classes to preserve returns across its $117 billion portfolio While outright China bulls may be hard to find, shifts in positioning at least point to improving sentiment. Bearish bets on stocks are being abandoned in Hong Kong, expectations for yuan volatility are falling, domestic equity traders have stopped unwinding leverage and foreigners have slowed their once-record exit from government bonds The EU is set to unveil a raft of measures ranging from boosting renewables and LNG imports to lowering energy demand in its quest to cut dependence on Russian supplies. The 195 billion-euro ($205 billion) plan due Wednesday will center on cutting red tape for wind and solar farms, paving the way for renewables to make up an increased target of 45% of its energy needs by 2030, according to draft documents seen by Bloomberg that are still subject to change A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed as the regional bourses only partially sustained the momentum from global peers. ASX 200 was led higher by outperformance in the mining and materials related sectors, while softer than expected wage price data reduced the prospects of a more aggressive RBA rate hike next month. Nikkei 225 briefly reclaimed the 27,000 level but retreated off its highs as participants digested GDP data which printed in negative territory, albeit at a narrower than feared contraction. Hang Seng and Shanghai Comp were subdued with large-cap tech stocks pressured in Hong Kong including despite beating earnings expectations and with Tencent bracing for the expected slowest revenue growth since its listing, while the mainland was hampered by the mixed COVID-19 situation as Shanghai registered a 4th consecutive day of zero transmissions outside of quarantine, although Beijing was said to lockdown some areas in its Fengtai district for 7 days. Top Asian News Shanghai authorities issued a new white list containing 864 financial institutions permitted to resume work, according to sources cited by Reuters. China, on May 20th, is to remove some COVID test requirements on travellers to China from the US, according to embassy. China's Foreign Ministry says the BRICS foreign ministers are to meet on May 19th. Goldman Sachs downgrades its 2022 China GDP growth forecast to 4.0% from 4.5%. European bourses are rangebound and relatively directionless, Euro Stoxx 50 U/C, taking impetus from a mixed APAC session which failed to sustain US upside. Stateside, futures are modestly softer and a firmer Wall St. close; ES -0.2%. Limited Fed speak due and near-term focus on retail earnings. Tencent (0700 HK) Q1 2022 (CNY): adj. net profit 25.5bln (exp. 26.4bln), Revenue 135.5bln (exp. 141bln). Lowe's Companies Inc (LOW) Q1 2023 (USD): EPS 3.61 (exp. 3.22/3.23 GAAP), Revenue 23.70bln (exp. 23.76bln). SSS: Lowe's Companies: -4.0% (exp. -2.5%); Lowe's Companies (US): -3.8% (exp. -3.7%). -0.2% in the pre-market Top European News UK Chancellor Sunak is reportedly mulling bringing forward the 1p income tax cut to the basic rate by one year, according to iNews citing Treasury insiders. Other reports suggest that Sunak is putting plans together to raise the warm home discount by hundreds of GBP in July ahead of lowering taxes in autumn to assist with the cost of living crisis, according to The Times. EU is to offer the UK new concessions on the Northern Ireland protocol but has threatened a trade war if UK PM Johnson refuses to agree to a compromise, according to The Telegraph. In FX Sterling slides to the bottom of the major ranks as fractionally sub-forecast UK CPI dampens BoE rate hike expectations; Cable reverses from just over 1.2500 to sub-1.2400, EUR/GBP nearer 0.8500 after dip below 0.8400 only yesterday. Hawkish Fed chair Powell helps Buck bounce ahead of US housing data, DXY towards the upper end of 103.770-180 range. Aussie hampered by softer than expected wage metrics that might convince the RBA to refrain from 40bp hike in June, AUD/USD heavy on the 0.7000 handle. Yen relatively resilient in wake of Japanese GDP showing less contraction in Q1 than feared, USD/JPY closer to 129.00 than 129.50. Euro loses momentum irrespective of comments from ECB’s Rehn echoing Summer rate hike guidance as final Eurozone HICP is tweaked down, EUR/USD fades from 1.0550+ to test support around 1.0500. Loonie treads cautiously before Canadian inflation metrics as oil prices come off the boil, USD/CAD back above 1.2800 within 1.2795-1.2852 range. In Fixed Income Gilts sharply outperform as UK CPI falls just shy pf consensus and dampens BoE tightening expectations. 10 year UK bond rebounds towards 119.50 from sub-119.00 lows, while Bunds lag below 152.50 and T-note under 119-00. Record high cover for 2052 German auction and low retention sets high bar for upcoming 20 year US offering. Central Banks ECB's Rehn says June forecasts are seen near the adverse scenario from March, first rate increase will likely take place in the summer. Many colleagues back stance for quick moves. ECB's de Cos says the end of APP should be finalised early in Q3, first hike shortly afterwards. Further rises could be made in subsequent quarters of medium-term outlook remains around target; the build-up of price pressures in EZ in recent months raises the likelihood of second-round effects, which have not strongly materialised. In commodities WTI and Brent are modestly supported after yesterday's lower settlement; currently, firmer by just over USD 1.00/bbl. Focus has been on the narrowing WTI/Brent spread, particularly going into US driving season; see link below for ING's views. US Energy Inventory Data (bbls): Crude -2.4mln (exp. +1.4mln), Cushing -3.1mln, Gasoline -5.1mln (exp. -1.3mln), Distillates +1.1mln (exp. unchanged). Spot gold and silver are modestly firmer but capped by a firmer USD, yellow metal just shy of USD 1820/oz. US Event Calendar 07:00: May MBA Mortgage Applications, prior 2.0% 08:30: April Building Permits MoM, est. -3.0%, prior 0.4%, revised 0.3% 08:30: April Housing Starts MoM, est. -2.1%, prior 0.3% 08:30: April Building Permits, est. 1.81m, prior 1.87m, revised 1.87m 08:30: April Housing Starts, est. 1.76m, prior 1.79m DB's Jim Reid concludes the overnight wrap Another reminder of my webinar replay from last week discussing our recession call for 2023 and an update on credit spreads. In it I said that while we have high conviction that HY spreads would be +850bp in H2 2023, the outlook over the next few weeks and months may actually be positive from this starting point. I would say I am nervous of that view but I still don't think that the real economic pain comes until deeper into 2023 when the lagged impact of an aggressive Fed starts to bite. Click here to view the webinar and to download the presentation. Good luck to Glasgow Rangers and Eintracht Frankfurt in tonight's Europa League final. These are not teams that any would have expected to reach this final and I will watch with stress free divided loyalties. My father's family were all from the former and supported Rangers while the latter play at the fabulously named Deutsche Bank Park. So good luck to both. I suspect I'll be less stress free in 11 days' time when Liverpool are out for revenge against Real Madrid in the Champions League Final. At the moment I’m feeling nervously optimistic. Talking of which, investor optimism has returned to markets over the last 24 hours as more positive data releases raised hopes that the US economy might be more resilient in the near-term than many have feared. The economic concerns won't go away, but stronger-than-expected numbers on retail sales and industrial production helped the S&P 500 (+2.02%) close at its highest level in over a week. Remember monetary policy acts with a lag and it would be very unusual historically if the data rolled over imminently. By this time next year it will likely be a very different story. The higher yield momentum was reinforced by a Powell speech after Europe went home but there was a steady march of slightly hawkish central bank speakers through the day. Before we review things keep an eye out for UK CPI just after this goes to press. The headline rate is expected to be a huge 9.1%. Expect a lot of headlines reporting of 40 year highs. With regards to Powell, most in focus was his claim that policy rates would rise above neutral if that was required to tame inflation. While the sentiment was not necessarily new, his explicit comment that neutral rates are “not a stopping point” garnered focus, noting that the Fed was looking for “clear and convincing evidence” that inflation was subsiding. The rates market have already priced terminal policy rates above the Fed’s estimate of neutral, but a combination of the risk on, and stronger data meant that equities could go up alongside yields. Earlier in the day we got a smattering of communications from Fed regional Presidents, none of which registered as materially but it reinforced the direction of travel after a month to date where markets have repriced the Fed lower. Indeed, even resident hawk, St Louis Fed President Bullard, reiterated Powell’s message in that the Fed was on course for 50bp hikes at the upcoming meetings and said that “I think we have a good plan for now”. Sovereign bonds had already sold off significantly ahead of all that Fedspeak, aided by the broader risk-on tone yesterday, but continued drifting higher through the US session. Yields on 10yr Treasuries closed +10.4bps to a one-week high of 2.99%, driven by a +7.9bps rise in real yields to 0.24%. The moves were more pronounced at the front-end however, and the 2yr yield rose by a larger +13.1bps as investors priced in a more aggressive path of hikes over the next 12 months after data showed the economy was performing stronger than the consensus had anticipated. In terms of the headlines, retail sales were up by +0.9% in April (vs. +1.0% expected), but the growth in March was revised up to +1.4% (vs. +0.5% previously). Retail sales excluding autos and gas were up by +1.0% as well (vs. +0.7% expected), whilst the industrial production number was another that came in above expectations at +1.1% (vs. +0.5% expected). Europe also had a large move in yields, which followed comments by Dutch central bank Governor Knot who became the first member of the Governing Council to openly float the idea of a 50bp hike. Although he said that “my preference would be to raise our policy rate by a quarter of a percentage point”, he said that “bigger increases must not be excluded” if data were to show inflation “broadening further or accumulating”. So even though he’s one of the more hawkish members of the council, that’s still a significant milestone in that larger moves are being openly discussed, and echoes what we saw with the Fed at the turn of the year when the policy trajectory became increasingly aggressive. Market pricing reflected that shift yesterday, and for the first time overnight index swaps were pricing in that the ECB would hike by more than 100bps by their December meeting and thus catching up with the DB House View. That growing belief behind additional hikes led to a fresh selloff in sovereign bonds, with those on 10yr bunds (+10.9bps), OATs (+10.5bps) and BTPs (+11.7bps) all moving higher. The biggest moves were seen from gilts (+15.0bps) however, which followed data that pointed to an increasingly tight labour market in the UK, and overnight index swaps nearly doubled the probability of a 50bp rate hike from the BoE in June, with the odds moving from 17% on Monday to 33% yesterday. Over in equities, stronger risk appetite led to a significant rebound yesterday, with the S&P 500 (+2.02%) hitting a one-week high, whilst the NASDAQ (+2.76%) saw an even larger rebound in spite of the simultaneous rise in yields. Walmart (-11.38%) was by far the worst performer in the S&P, which came as it cut its earnings per share forecast, which it now expected to decrease by 1%, relative to previous guidance that expected it to rise by the mid single-digits. But that was the exception, and every sector except consumer staples moved higher on the day, with the more cyclical areas leading the advance. Over in Europe the STOXX 600 (+1.22%) posted a strong performance of its own, bringing its advance to more than +5% since its recent closing low just over a week ago. Overnight in Asia, performance in regional stock indices is diverging partly on the back of economic data. Japan’s Q1 GDP (-1.0%) contracted less than expected (-1.8%), lifting the Nikkei (+0.50%) this morning. In China, though, rising covid cases and waning optimism about government’s support of tech companies weighed on the Shanghai composite (-0.37%) and the Hang Seng (-0.66%). New home prices (-0.30%) in the country also slid for an eighth month in a row. This slight souring of sentiment has extended to S&P 500 futures (-0.23%) with the US 10y yield edging back lower by -2.2bps. Elsewhere, tensions over Brexit ratcheted up again yesterday after UK Foreign Secretary Truss announced plans to introduce legislation that would override parts of the Northern Ireland Protocol. Truss said that the UK’s preference “remains a negotiated solution with the EU” and that the bill would contain an “explicit power to give effect to a new, revised Protocol if we can reach an accommodation”, but that “the urgency of the situation means we can’t afford to delay any longer.” Unsurprisingly the EU did not react happily, and Commission Vice President Šefčovič said in a statement that if the UK moved ahead with the bill, then “the EU will need to respond with all measures at its disposal.” Staying on the UK, the latest employment data out yesterday pointed to an increasingly tight labour market, with the unemployment rate falling to 3.7% in the three months to March (vs. 3.8% expected), which is the lowest it’s been since 1974. Furthermore, the number of vacancies was larger than the total number of unemployed for the first time, and the more up-to-date estimate of payrolled employees in April saw an increase of +121k (vs. +51k expected). Elsewhere in Europe, the latest estimate of Euro Area GDP growth in Q1 showed a bigger than expected expansion of +0.3% (vs. +0.2% previously). Elsewhere the chances of a Russian sovereign debt default increased, following the Treasury department confirming a temporary waiver that allowed Russia to pay US creditors would expire on May 25. Meanwhile, the US is reportedly considering a tariff on Russian oil in conjunction with European allies, as the saga about banning imports to Europe drags on. To the day ahead now, and data releases include the UK and Canadian CPI readings for April, along with US data on housing starts and building permits for the same month. Central bank speakers include the Fed’s Harker and the ECB’s Muller. Earnings releases include Cisco, Lowe’s, Target and TJX. Finally, G7 finance ministers and central bank governors will be meeting in Germany. Tyler Durden Wed, 05/18/2022 - 07:51.....»»

Category: blogSource: zerohedgeMay 18th, 2022

Futures Slide After China"s "Huge" Data Miss Sparks "Broad-Based Recession Talk"

Futures Slide After China's "Huge" Data Miss Sparks "Broad-Based Recession Talk" Friday's bear market rally dead-cat bounce appears to be over, and global stocks have started the new week in the red with US equity futures lower after a "huge miss", as Bloomberg put it, in Chinese data fueled concerns over the impact of a slowdown in the world’s second-largest economy. As reported last night, China’s industrial output and consumer spending hit the worst levels since the pandemic began, hurt by Covid lockdowns. And even though officials took another round of measured steps to help the economy by cutting the interest rate for new mortgages over the weekend to bolster an ailing housing market, even as they left the one-year policy loan rate was left unchanged Monday, few believe that any of these actions will have a tangible impact and most continue to expect much more from Beijing.  As such, after a weekend that saw even Goldman's perpetually optimistic equity strategists slash their S&P target (again) from 4,700 to 4,300, and amid growing fears that a recession is now inevitable, Nasdaq 100 futures slid as much as 1.2%, before paring losses to 0.4% as of 730 a.m. in New York. S&P 500 futures were down 0.3%. 10Y Treasury yields were flat at 2.91% and the dollar dipped modestly while bitcoin traded just above $30,000 dropping from $31,000 earlier in the session. Among notable moves in premarket trading, Spirit Airlines jumped as much as 21% following a report that JetBlue Airways is planning a tender offer at $30 a share in cash. Major US technology and internet stocks were down after rebounding on Friday, while Tesla shares dropped, with the electric-vehicle maker set to recall 107,293 cars in China over a potential safety risk. Twitter shares fall 3.4% in premarket trading on Monday, on course to wipe out all the gains the stock has made since billionaire Elon Musk disclosed his stake in the social media platform. Twitter fell to as low as $37.86 -- below the the April 1 close of $39.31, before Musk disclosed his stake. US stocks have been roiled this year, with the S&P 500 on tick away from a bear market as recently as last Thursday, on worries of an aggressive pace of rate hikes by the Federal Reserve at a time when macroeconomic data showed a slowdown in growth. Data from China on Monday highlighted a massive toll on the economy from Covid-19 lockdowns, with retail sales and industrial output both contracting. Although lower valuations sparked a rally in stocks on Friday, strategists including Morgan Stanley’s Michael Wilson warned of more losses ahead as equity markets also price in slower corporate earnings growth. Goldman Sachs strategists led by David Kostin cut their year-end target for the S&P 500 on Friday to 4,300 points from 4,700.  "The broad-based recession talk is the major catalyzer this Monday,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “Activity in US futures hint that Friday’s rebound was certainly nothing more than a dead cat bounce” just as we said at the time.  The risk of an economic downturn amid price pressures and rising borrowing costs remains the major worry for markets. Goldman Sachs Group Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.” Traders remain wary of calling a bottom for equities despite a 17% drop in global shares this year, with Morgan Stanley warning that any bounce in US stocks would be a bear-market rally and more declines lie ahead. In Europe, the Stoxx Europe 600 index fell as much as 0.8% before paring losses, with declines for tech and travel stocks offsetting gains for basic resources as industrial metals rallied. The Euro Stoxx 50 falls 0.4%. IBEX outperforms, adding 0.3%. Tech, personal care and consumer products are the worst performing sectors. Here are some of the biggest European movers today: Basic Resources stocks outperformed with broad gains among mining and steel companies; ArcelorMittal +3.5%; SSAB +2.6%; Glencore +2.1%; Voestalpine +3.1%. Sartorius AG and Sartorius Stedim shares gain as UBS upgrades both stocks to buy following a “significant de-rating” for the lab-equipment companies, seeing supportive global trends. Carl Zeiss Meditec gains as much as 4.9% after HSBC raised its recommendation to buy from hold, saying the medical optical manufacturer is “well-equipped to deal with supply chain challenges.” Interpump rises as much as 7.6%, extending winning streak to five days, as Banca Akros upgrades the stock to buy from accumulate following Friday’s 1Q results. Casino shares jump as much 5.8% after the French grocer said it’s started a process to sell its GreenYellow renewable energy arm, confirming a Bloomberg News report from Friday. Ryanair shares decline as much as 4.3% on FY results, with analysts focusing on the low-budget carrier’s recovery outlook. They note management is cautiously optimistic about summer travel. Vantage Towers shares decline after the company posted FY23 adjusted Ebitda after leases and recurring free cash flow forecasts that missed analyst estimates at mid- points. Unilever falls after a 13-F filing from Nelson Peltz’s Trian shows no position in the company, according to Jefferies, damping speculation after press reports earlier this year that the fund had built a stake. Michelin shares fall as much as 3.7% after being downgraded to neutral from overweight at JPMorgan, which says it writes off any chance of seeing a recovery in volume production growth in FY22. Earlier in the session, Asian stocks eked out modest gains as surprisingly weak Chinese economic data spurred volatility and caused traders to reassess their outlook on the region. The MSCI Asia-Pacific Index was up 0.1%, paring an earlier advance of as much as 0.9%  on stimulus hopes. The region’s information technology index rose as much as 1.5%, with TMSC giving the biggest boost. A sub-gauge on materials shares fell the most. Equities in China led losses, as Beijing’s moves to cut the mortgage rate for first-time home buyers and ease lockdown restrictions in Shanghai failed to reverse the downbeat mood. Asian stocks were trading higher early Monday, building on Friday’s rally, only to trim or reverse gains as data showed a sharper-than-expected contraction in Chinese activity in April. Signs of an earnings recovery in China are needed for investors to come back, Arnout van Rijn, chief investment officer for APAC at Robeco Hong Kong Ltd., said on Bloomberg Television. “It looks like China is not going to meet the 15% earnings growth that people were looking for just a couple of months ago. So now we’re looking for five, 10, maybe it’s even going to fall to zero.”   Meanwhile, JPMorgan analysts, who had called China tech “uninvestable” in March, upgraded some tech heavyweights including Alibaba in a Monday report, citing less regulatory uncertainties. Benchmarks in Japan, Australia, India and Taiwan maintained gains while Hong Kong also recovered some ground later in the day. Markets in Singapore, Thailand, Malaysia and Indonesia were closed for holidays.      Japanese equities were mixed, with the Topix closing slightly lower after worse-than-expected Chinese economic data amid the impact from virus-related lockdowns. The Topix fell 0.1% to close at 1,863.26, with Honda Motor contributing the most to the decline after its forecast for the current year missed analyst expectations. The Nikkei advanced 0.5% to 26,547.05, with KDDI among the biggest boosts after announcing its results and a 200 billion yen buyback. “Though the lockdowns in China are pushing down the economy and causing supply chain difficulties, there’s a positive outlook since the weekend that there could be a gradual easing of the lockdowns as it seems that virus cases have peaked out,” said Masashi Akutsu, chief strategist at SMBC Nikko Securities. In Australia, the S&P/ASX 200 index rose 0.3% to 7,093.00, trimming an earlier advance of as much as 1.1% after soft Chinese economic data stoked concerns about global growth. Read: Aussie, Kiwi Slump After Weak China Data: Inside Australia/NZ Brambles was the top performer after confirming it’s in talks with private equity firm CVC Capital Partners on a takeover proposal. Qube also climbed after completing a A$400 million share buyback.  In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,157.66. In rates, Treasuries were steady with yields within 1bp of Friday’s close. US 10-year yield near flat ~2.91% with bunds cheaper by ~5bp, gilts ~3.5bp amid heavy. German 10-year yield up 5 bps, trading narrowly below 1%. Italian 10-year bonds underperform, with the 10-year yield up 8 bps to 2.93%. Peripheral spreads are mixed to Germany; Italy and Spain widen and Portugal tightens. The Italy 10-year was cheaper by more than 6bp on the day amid renewed ECB jawboning. Core European rates are higher, pricing in ECB policy tightening. During Asia session, Chinese data showed industrial output and consumer spending at worst levels since the pandemic began. The dollar issuance slate includes CBA 3T covered SOFR; $30b expected for this week as syndicate desks seek opportunities for pent-up supply. Three-month dollar Libor +1.13bp at 1.45500%. In FX, the Bloomberg Dollar Spot Index was little changed while the greenback advanced against most of its Group-of-10 peers. Treasuries inched lower, led by the front end, and outperformed European bonds. The euro inched up against the dollar. Italian bonds dropped, leading peripheral underperformance against euro- area peers, while money markets showed increased ECB tightening wagers after policy maker Francois Villeroy de Galhau said a consensus is “clearly emerging” at the central bank on normalizing monetary policy and that June’s meeting will be “decisive.” He also signaled that the weakness of the euro is focusing the minds of ECB policy makers at a time when the currency is heading toward parity with the dollar. The euro may resume its rally versus the pound in the spot market as options traders pile up bullish wagers. The pound fell against both the dollar and euro, staying under selling pressure on concerns that high UK inflation will weigh on the economy. Markets await testimony from Bank of England Governor Andrew Bailey and other central bank officials later in the day, ahead of a reading of April inflation later in the week. Australian and New Zealand dollars fell after Chinese industrial and consumer data fanned concerns of a further slowdown in the world’s second-largest economy. In commodities, WTI drifts 0.4% lower to trade above $110. Spot gold pares some declines, down some $6, but still around $1,800/oz. Most base metals trade in the green; LME tin rises 3.4%, outperforming peers. Bitcoin falls 4.6% to trade below $30,000 Looking ahead, we get the US May Empire manufacturing index, Canada April housing starts, March manufacturing, wholesale trade sales. Central bank speakers include the Fed's Williams, ECB's Lane, Villeroy and Panetta, BOE's Bailey, Ramsden, Haskel and Saunders. We get earnings from Ryanair, Take-Two Interactive. Market Snapshot S&P 500 futures down 0.3% to 4,008.75 STOXX Europe 600 little changed at 433.33 MXAP up 0.2% to 160.34 MXAPJ up 0.2% to 523.32 Nikkei up 0.5% to 26,547.05 Topix little changed at 1,863.26 Hang Seng Index up 0.3% to 19,950.21 Shanghai Composite down 0.3% to 3,073.75 Sensex up 0.6% to 53,119.79 Australia S&P/ASX 200 up 0.3% to 7,093.03 Kospi down 0.3% to 2,596.58 German 10Y yield little changed at 0.98% Euro up 0.1% to $1.0424 Brent Futures down 1.4% to $109.98/bbl Gold spot down 0.8% to $1,797.30 US Dollar Index little changed at 104.46 Top Overnight News from Bloomberg NATO members rallied around Finland and Sweden on Sunday after they announced plans to join the alliance, marking another dramatic change in Europe’s security architecture triggered by Russia’s war in Ukraine The euro area’s pandemic recovery would almost grind to a halt, while prices would surge even more quickly if there are serious disruptions to natural-gas supplies from Russia, according to new projections from the European Commission UK energy regulator Ofgem plans to adjust its price cap every three months instead of every six. Changing the level more often would help consumers to take advantage of falling wholesale prices more quickly, it said in a statement Monday. This would also mean higher prices filter through bills quicker Boris Johnson has warned Brussels that the UK government will press ahead with unilateral changes to parts of the Brexit agreement if it does not engage in “genuine dialogue” While debt bulls on Wall Street have been crushed all year, market sentiment has shifted markedly over the past week from inflation fears to growth. That theme gathered more strength Monday, when data showing China’s economy contracted sharply in April set off fresh gains for Treasuries China’s economy is paying the price for the government’s Covid Zero policy, with industrial output and consumer spending sliding to the worst levels since the pandemic began and analysts warning of no quick recovery. Industrial output unexpectedly fell 2.9% in April from a year ago, while retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop Japanese manufacturers are increasingly looking to move offshore operations to their home market, according to a Tokyo Steel Manufacturing Co. executive. The rapidly weakening yen, global supply-chain constraints, geopolitical risks and shifting wages patterns are prompting the switch, Kiyoshi Imamura, a managing director of the steelmaker, said in an interview in Tokyo last week A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed after disappointing Chinese activity data clouded over the early momentum from Friday’s rally on Wall St. ASX 200 was higher as tech stocks were inspired by US counterparts and amid M&A related newsflow with Brambles enjoying a double-digit percentage gain after it confirmed it had talks with CVC regarding a potential takeover by the latter. Nikkei 225 kept afloat as earnings releases provided the catalysts for individual stocks but with gains capped by a choppy currency. Hang Seng and Shanghai Comp initially gained with property names underpinned after China permitted a further reduction in mortgage loan interest rates for first-time home purchases and with casino stocks also firmer in the hope of a tax reduction on gaming revenue. However, the mood was then spoiled by weak Chinese data and after the PBoC maintained its 1-year MLF rate. Top Asian News PBoC conducted a CNY 100bln in 1-year MLF with the rate kept unchanged at 2.85% and stated the MLF and Reverse Repo aim to keep liquidity reasonably ample, according to Bloomberg. Beijing extended work from home guidance in several districts and announced three additional rounds of mass COVID-19 testing in most districts including its largest district Chaoyang, according to Reuters. Shanghai will gradually start reopening businesses including shopping malls and hair salons in China's financial and manufacturing hub beginning on Monday following weeks of a strict lockdown, according to Reuters. Shanghai city official said 15 out of the 16 districts achieved zero-COVID outside quarantine areas and the city's epidemic is under control but added that risks of a rebound remain and they will need to continue to stick to controls. The official said the focus until May 21st will be to prevent risks of a rebound and many movement restrictions are to remain, while they will look to allow normal life to resume in Shanghai from June 1st and will begin to reopen supermarkets, convenience stores and pharmacies from today, according to Reuters. Chinese financial authorities permitted a further reduction in mortgage loan interest rates for some home buyers whereby commercial banks can lower the lower limit of interest rates on home loans by 20bps based on the corresponding tenor of benchmark Loan Prime Rates for purchases of first homes, according to Reuters. China's stats bureau spokesman said economic operations are expected to improve in May and that China is steadily pushing forward production resumption in COVID-hit areas, while they expect China's economic recovery and rebound in consumption to quicken but noted that exports face some pressure as the global economy slows, according to Reuters. Macau is reportedly considering a tax cut for casinos amid a decline in gaming revenue in which a cut could be as much as 5% off the current 40% levied on casino gaming revenue, according to Bloomberg. European bourses are mixed, Euro Stoxx 50 -0.6%, following a similar APAC session with impetus from Shanghai's reopening offset by activity data and geopolitics. Stateside, futures are lower across the board, ES -0.4%, with the NQ marginally lagging as yields lift; Fed's Williams due later before Powell on Tuesday. US players are focused on whether the end-week bounce is a turnaround from technical bear-market levels or not. China's market regulator says Tesla (TSLA) has recalled 107.3k Model 3 & Y vehicles, which were made in China. JetBlue (JBLU) is to launch a tender offer for Spirit Airlines (SAVE); JetBlue is to offer USD 30/shr, but prepared to pay USD 33/shr if Spirit provides JetBlue with requested data, WSJ sources say. Elon Musk tweeted that Twitter’s (TWTR) legal team called to complain that he violated their NDA by revealing the bot check sample size and he also tweeted there is some chance that over 90% of Twitter’s daily active users might be bots. Top European News UK PM Johnson is reportedly set to give the green light for a bill on the Northern Ireland protocol, according to the Guardian. UK PM Johnson said he hopes the EU changes its position on the Northern Ireland protocol and if not, he must act, while he sees a sensible landing spot for a protocol deal and will set out the next steps on the protocol in the coming days, according to Reuters. UK PM Johnson is expected to visit Northern Ireland on Monday for talks with party leaders in an effort to break the political deadlock at Stormont, according to Sky News. Irish Foreign Minister Coveney says the EU is prepared to move on reducing checks on goods coming into the region from Britain, via Politico. UK Cabinet ministers have turned on the BoE regarding rising inflation, whereby one minister warned that the Bank was failing to "get things right" and another suggested that it had failed a "big test", according to The Telegraph. Group of over 50 economists warned that the UK's post-Brexit plans to boost the competitiveness of its finance industry risk creating the sort of problems that resulted in the GFC, according to Reuters. European Commission Spring Economic Forecasts: cuts 2022 GDP forecast to 2.7% from the 4.0% projected in February. Click here for more detail. Central Banks ECB's Villeroy expects a decisive June meeting and an active summer meeting, pace of further steps will account for actual activity/inflation data with some optionality and gradualism; but, should at least move towards the neutral rate. Will carefully monitor developments in the effective FX rate, as a significant driver of imported inflation; EUR that is too weak would go against the objective of price stability.   ECB’s de Cos said the central bank will likely decide at the next meeting to end its stimulus program in July and raise rates very soon after that, while he added that they are not seeing second-round effects and are monitoring it, according to Reuters. FX Euro firmer following verbal intervention from ECB’s Villeroy and spike in EGB yields EUR/USD rebounds from sub-1.0400 to 1.0435 at best. Dollar up elsewhere as DXY pivots 104.500, but Yen resilient on risk grounds as Chinese data misses consensus by some distance; USD/JPY capped into 129.50. Franc falls across the board after IMM specs raise short bets and Swiss sight deposits show SNB remaining on the sidelines; USD/CHF above 1.0050 at one stage. However, HKMA continues to defend HKD peg amidst CNY, CNH weakness in wake of disappointing Chinese industrial production and retail sales releases. Norwegian Crown undermined by pullback in Brent and narrower trade surplus, EUR/NOK over 10.2100. SA Rand soft as Gold retreats to test support around and under Usd 1800/oz. Loonie slips with WTI ahead of Canadian housing starts, manufacturing sales and wholesale trade, Sterling dips before BoE testimony; USD/CAD 1.2900+, Cable sub-1.2250. Fixed income EGBs rattled by ECB rhetoric inferring key policy meetings kicking off in June and extending through summer. Bunds down towards 153.00 and 10 year yield back up around 1%, Gilts almost 1/2 point adrift and T-note erasing gains from 12/32+ above par at best. Eurozone periphery underperforming with added risk-off angst following much weaker than expected Chinese data. In commodities WTI and Brent are pressured, but well off lows, and torn between China's lockdown easing and poor activity data amid numerous other catalysts Specifically, the benchmarks are around USD 110/bbl and USD 111/bbl respectively, Saudi Aramco Q1 net income rose 82% Y/Y to INR 39.5bln for its highest quarterly profit since listing, according to Sky News. Saudi Energy Minister says they are going to get to 13.2-13.4mln BPD, subject to what is done in the divided zone, by end-2026/start-2027; can maintain production when there, if the market demands this. OPEC+ to continue with monthly output increases, according to Bahrain's oil minister via Reuters. Iraqi state-run North Oil Company said Kurdish armed forces took control of some oil wells in northern Kirkuk, according to Reuters. Iraq oil minister says they aim to increase oil production to 6mln BPD by end-2027, OPEC is targeting a energy market balance not a price; adding, current production capacity is 4.9mln BPD, will reach 5mln BPD before the end of 2022. China is to increase fuel prices from Tuesday, according to China's NDRC; gasoline by CNY 285/t and diesel by CNY 270/t. US Event Calendar 08:30: May Empire Manufacturing, est. 15.0, prior 24.6 16:00: March Total Net TIC Flows, prior $162.6b DB's Jim Reid concludes the overnight wrap Markets managed a big bounce on Friday but the mood has soured again in the Asian session after a weak slew of data from China as covid lockdowns had an even worse impact than expected. Industrial production (-2.9% vs +0.5% expected), retail sales (-11.1% vs -6.6% expected) and property investment (-2.7% vs -1.5% expected) all crashed through estimates by a large margin. The slump in retail sales and industrial production was the weakest since March 2020. The latter also had the lowest print on record, with the worst decline coming from auto manufacturing (-31.8%). The surveyed jobless rate (6.1% vs estimates of 6.0%) also ticked up by more than expected from 5.8% in March and is now close to the high of 6.2% in February 2020. Although the 1-year policy loan rate was left unchanged today, the PBoC did ease the rate on new mortgages this weekend. In other data releases, Japan’s April PPI (+10.0%) came in above estimates of +9.4%, the highest since 1980. Amid this, the Shanghai Composite (-0.51%) and the Hang Seng (-0.43%) are in the red, and outperformed by the KOSPI (-0.21%) and the Nikkei (+0.46%). The sentiment has soured in American markets too, with S&P 500 futures also trading lower (-0.68%) and the US 10y yield declining by -2.2bps. Oil (-1.48%) is edging lower too on growth concerns. After last week’s meltdown in crypto markets, Bitcoin is back at above $30k this morning – a jump since the lows of nearly $26k last Thursday but way short of the $38k it traded at in the beginning of the month and $68k early last November. The infamous TerraUSD, the stablecoin that fuelled the crypto slide, is at $0.18. It is supposed to trade at $1 at all times. Looking forward now and there's not a standout event to focus on this week but they'll be plenty to keep us all occupied. US retail sales (tomorrow) looks like the highlight alongside Powell's speech the same day. There will also be US housing data smattered across the week and UK and Japanese inflation on Wednesday and Friday respectively. Let's start with US retail sales as it will be a good early guide for Q2 GDP. Our US economists are anticipating a +1.7% print, up from +0.7% in March. Rebounding auto sales should help the headline number. For more on the consumer, Brett Ryan put out this chartbook last week on the US consumer (link here). US industrial production is out the same day. We have a long list of central bank speakers this week headed by Powell and Lagarde (tomorrow) and BoE Bailey today. There are many more spread across the week and you can see the list in the day by day event list at the end. We do have the last ECB meeting minutes on Thursday but the subsequent push towards a July hike might make these quite dated. US housing will be a big focus next week. It's probably too early for the highest mortgage rates since 2009 to kick in but with these rates around 220bps higher YTD, some damage will surely soon be done after the highest YoY price appreciation outside of an immediate post WWII bounce, in our 120 year plus housing database. On this we will see the NAHB housing market index (tomorrow), April’s US building permits and housing starts (Wednesday), and existing home sales (Thursday). Turning to corporate earnings, it will be another quiet week after 457 of the S&P 500 companies and 368 of the STOXX 600 companies have reported earnings this season so far. Yet, it will be an important one to gauge how the US consumer is faring amid inflation at multi-decade highs, including reports such as Walmart, Home Depot (tomorrow), Target and TJX (Wednesday). Results will also be due from China's key tech and ecommerce companies like (tomorrow), Tencent (Wednesday) and Xiaomi (Thursday). Other notable corporate reporters will include Cisco (Wednesday), Applied Materials, Palo Alto Networks (Thursday) and Deere (Friday). A quick recap of last week’s markets now. Fears that global growth would slow due to the tightening task at hand for central banks sent ripples across markets, without a clear specific catalyst. Equities declined, credit spreads widened, the dollar rallied, and sovereign yields declined. The S&P 500 fell for the sixth consecutive week for the first time since 2011, falling -13.0% over that time. Even with a +2.39% rally on Friday, it fell -2.41% last week. Large cap technology firms underperformed, with the NASDAQ falling -2.80% (+3.82% Friday), while the FANG+ index fell -3.48% (+5.45% Friday). Volatility was elevated, with the Vix closing above 30 for 6 straight days for the first time since immediately following the invasion, narrowly avoiding a 7th straight day above 30 by closing the week at 28.8. European equities outperformed, with the STOXX 600 climbing +0.83% after a banner +2.14% gain Friday. The Itraxx crossover ended the week at 446bps, its widest level since June 2020. Crypto assets sharply declined, with Bitcoin down -12.51% and Coinbase -34.58% over the week, with a number of so-called ‘stablecoins’ breaking their pledged parity, forcing some to stop trading. The growth fears drove a flight to quality. The dollar index increased +0.87% (-0.27% Friday) to its highest levels since 2002. Only the yen outperformed the US dollar in the G10 space. Sovereign yields rallied significantly, with 10yr Treasuries, bunds, and gilts falling -19.3bps (+8.5bps Friday), -23.0bps (+6.2bps Friday), and -28.7bps (+4.7bps Friday), respectively. Reports that the EU was considering softening their oil-related sanctions due to member resistance combined with growth fears to send oil prices much lower at the beginning of the week, with Brent crude futures almost breaking $100/bbl. When all was said and done, a gradual rally over the back half of the week saw Brent merely -1.04% lower (+3.82% Friday). On the back of disappointing data from China it is down -1.48% this morning. There was a lot of high-profile central bank speak to work through, as there will be this week. The main takeaways included Fed officials aligning behind a series of +50bp hikes the next few meetings, downplaying the chances of +75bp hikes until September at the earliest. Meanwhile, momentum in the ECB is growing toward a July policy rate hike, with policy rates breaching positive territory by the end of the year. In terms of data Friday, the University of Michigan survey of inflation expectations for the next five years was unchanged at 3 percent, though inflation has weighed on consumers’ perception of the current situation. Tyler Durden Mon, 05/16/2022 - 08:02.....»»

Category: blogSource: zerohedgeMay 16th, 2022