Just the Facts

By: Doug Noland | Sat, Apr 8, 2017
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For the Week:

The S&P500 slipped 0.3% (up 5.2% y-t-d), while the Dow was about unchanged (up 4.5%). The Utilities added 0.3% (up 5.3%). The Banks fell 1.2% (down 1.0%), and the Broker/Dealers dropped 2.4% (up 2.7%). The Transports were little changed (up 0.7%). The S&P 400 Midcaps declined 0.8% (up 2.8%), and the small cap Russell 2000 fell 1.5% (up 0.5%). The Nasdaq100 dipped 0.3% (up 11.4%), and the Morgan Stanley High Tech index declined 0.2% (up 13.3%). The Semiconductors lost 1.2% (up 10.2%). The Biotechs sank 2.5% (up 13.1%). With bullion gaining $5, the HUI gold index rallied 3.3% (up 11.8%).

Three-month Treasury bill rates ended the week at 80 bps. Two-year government yields increased three bps to 1.29% (up 10bps y-t-d). Five-year T-note yields were unchanged at 1.92% (down 1bp). Ten-year Treasury yields slipped a basis point to 2.38% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).

Greek 10-year yields declined 11 bps to 6.79% (down 23bps y-t-d). Ten-year Portuguese yields fell 11 bps to 3.87% (up 12bps). Italian 10-year yields dropped 10 bps to 2.22% (up 41bps). Spain's 10-year yields declined five bps to 1.61% (up 23bps). German bund yields sank 10 bps to 0.23% (up 2bps). French yields fell eight bps to 0.89% (up 21bps). The French to German 10-year bond spread widened one to 66 bps. U.K. 10-year gilt yields fell six bps to 1.08% (down 16bps). U.K.'s FTSE equities index added 0.4% (up 2.9%).

Japan's Nikkei 225 equities index dropped 1.3% to a four-month low (down 2.4% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.06% (up 2bps). The German DAX equities index dipped 0.7% (up 6.5%). Spain's IBEX 35 equities index added 0.6% (up 12.6%). Italy's FTSE MIB index fell 0.9% (up 5.5%). EM equities were mixed. Brazil's Bovespa index lost 0.8% (up 7.0%). Mexico's Bolsa jumped 1.6% (up 8.1%). South Korea's Kospi slipped 0.4% (up 6.2%). India's Sensex equities index added 0.3% (up 11.6%). China's Shanghai Exchange jumped 2.0% (up 5.9%). Turkey's Borsa Istanbul National 100 index declined 0.5% (up 13.3%). Russia's MICEX equities index advanced 1.2% (down 9.5%).

Junk bond mutual funds saw inflows surge to $2.375 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined four bps to 4.10% (up 51bps y-o-y). Fifteen-year rates declined three bps to 3.36% (up 48bps). The five-year hybrid ARM rate added a basis point to 3.19% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.19% (up 51bps).

Federal Reserve Credit last week slipped $1.6bn to $4.435 TN. Over the past year, Fed Credit declined $8.8bn (down 0.2%). Fed Credit inflated $1.617 TN, or 58%, over the past 230 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $7.2bn last week to $3.214 TN. "Custody holdings" were down $43.4bn y-o-y, or 1.3%.

M2 (narrow) "money" supply last week expanded $12.3bn to a record $13.418 TN. "Narrow money" expanded $777bn, or 6.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits dropped $25bn, while Savings Deposits jumped $31.4bn. Small Time Deposits were little changed. Retail Money Funds added $1.8bn.

Total money market fund assets declined $6.0bn to $2.648 TN. Money Funds fell $91bn y-o-y (3.3%).

Total Commercial Paper gained $6.7bn to $993bn. CP declined $109bn y-o-y, or 9.9%.

Currency Watch:

The U.S. dollar index gained 0.8% to 101.13 (down 1.2% y-t-d). For the week on the upside, the Mexican peso and Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.5%, the Australian dollar 1.7%, the British pound 1.4%, the South Korean won 1.4%, the Swedish krona 1.1%, the New Zealand dollar 0.9%, the Brazilian real 0.8%, the Norwegian krone 0.7%, the Swiss franc 0.6%, the Canadian dollar 0.6%, the euro 0.6% and the Singapore dollar 0.6%. The Chinese yuan declined 0.19% versus the dollar this week (up 0.64% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index advanced 1.2% (down 1.4% y-t-d). Spot Gold added 0.4% to $1,254 (up 8.9%). Silver fell 1.5% to $17.99 (up 12.6%). Crude jumped $1.69 to $52.29 (down 2.9%). Gasoline rose 2.3% (up 4%), and Natural Gas gained 1.8% (down 13%). Copper slipped 0.3% (up 6%). Wheat declined 0.6% (up 4%). Corn fell 1.3% (up 2%).

Trump Administration Watch:

April 4 - Reuters (David Brunnstrom, Matt Spetalnick and Ben Blanchard): "When U.S. President Donald Trump meets Chinese President Xi Jinping this week, their summit will be marked not only by deep policy divisions but a clash of personalities between America's brash 'tweeter-in-chief' and Beijing's cautious, calculating leader. They may have one thing in common: their rhetoric about restoring their nations to greatness. But the two men differ in almost every other respect, from their political styles to their diplomatic experience, adding uncertainty to what has been called the world's most important bilateral relationship. Five months after his election on a stridently anti-China platform, Trump appears to have set himself on a course for collision rather than conciliation with Xi, raising doubts as to whether the world's two biggest economies can find common ground."

April 3 - Financial times (Song Jung-a, Ben Bland and Tom Mitchell): "Donald Trump's warning that he could take unilateral action to eliminate North Korea's nuclear threat has sparked alarm among some analysts in Asia about the implications for South Korea, Japan and China of a military conflict with Pyongyang. 'China has great influence over North Korea. And China will either decide to help us with North Korea, or they won't,' Mr Trump told the Financial Times... 'If China is not going to solve North Korea, we will.' The comments by the US president came weeks after Rex Tillerson, secretary of state, declared during a visit to Asia that the US policy of 'strategic patience has ende'. Mr Tillerson said that Washington would not rule out any option in response to provocations by North Korea."

April 6 - Bloomberg (Elizabeth Dexheimer): "In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street's biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge... Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans... The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn't expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business."

April 5 - Reuters (Roberta Rampton and Jeff Mason): "'We're going to be coming out with some very strong - far beyond recommendations - we're going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it,' Trump told a meeting with a business leaders... 'We're going to do a very major haircut on Dodd-Frank. We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs,' Trump said."

April 4 - Bloomberg (Matthew Townsend, Ben Brody, and Elizabeth Dexheimer): "Donald Trump's surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America -- but some industries had barely applauded before they began gearing up for a fight. Trump's win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan's radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses' domestic sales and imports; their exports would be exempt. Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called 'border-adjusted' tax."

China Bubble Watch:

April 2 - Bloomberg: "China's deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year... In a sign of the struggles facing China's old economic model, most of them depend on heavy industry and construction... 'Weak companies can't sell bonds, which adds to the pressure on their cash flow,' said Liu Dongliang, a senior analyst at China Merchants Bank... 'The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further -- the current yield premium doesn't provide enough protection against credit risks.'"

April 4 - Reuters (Jake Spring): "The crisis at Huishan Dairy, one of China's biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt. China Huishan Dairy Holdings Co Ltd embraced what its executives called 'innovative financing', from the sale and leaseback of its cows, to selling wealth management products for rich investors - financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China. Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention... It has reported a key finance executive missing. Its misfortunes are a reminder that even as banks' bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets... 'When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,' said Shawlin Chaw, Control Risks analyst focused on Greater China."

April 4 - Financial Times (Jennifer Hughes): "The disclosure that China Huishan Dairy's founder pledged 71% of his company's shares for loans before the group's stock collapsed has raised fears that more companies could be at risk if other large shareholders have followed his example. Share-backed lending is common in Asia and a sought-after business in Hong Kong for banks keen to build deeper links with favoured tycoons, whose wealth is often tied up in their company's stock. Private equity funds also regularly borrow against the value of their holdings in listed groups. While the loans carry strict triggers and borrowers forfeit shares if they cannot meet margin calls promptly, the extreme nature of Huishan's crash — the shares plummeted 85% in 45 minutes before dealing was halted and are still not trading — means it is unclear whether Yang Kai might be forced to cede control of the group."

April 6 - Bloomberg (Lianting Tu, Carrie Hong, and Denise Wee): "The first ever downgrade of a Chinese local-government financing vehicle by an international ratings agency is reigniting concern over the debt-saddled entities, amid angst there could be more cuts to come. S&P Global Ratings reduced its credit rating on Jiangsu NewHeadline Development Group, a construction services provider and one of the largest financing firms owned by Lianyungang City -- in China's eastern Jiangsu province... S&P attributed the cut to the local government's high debt burden and said the LGFV's credit profile will remain under pressure for the next two years. 'I wouldn't be surprised if we see more downgrades by rating agencies,' said Anne Zhang, executive director at... JPMorgan... 'If S&P downgrades, we might see Fitch start to review their ratings as well.'"

April 7 - Bloomberg: "The scent of doom is returning to China's local government bond market. S&P Global Ratings pulled the trigger on the first ever downgrade of a Chinese local-government financing vehicle Thursday, citing the city in eastern Jiangsu province's high debt burden. Traders and analysts are uneasy as well, with 18 of 29 polled in a Bloomberg News survey saying they'd sooner buy corporate debt than LGFV bonds. Concern Beijing is trying to wean local bodies off their support is quelling demand for the debt, with the yield premium on LGFV notes versus company bonds swelling to near the most since March 2014."

April 3 - Financial times (Don Weinland): "China's so-called bad banks are thriving as alternative lenders, evolving from bad-debt managers into some of the country's largest financial conglomerates just as margins at the big state-owned banks come under pressure. China's four centrally controlled asset management companies (AMCs) were set up in 1999 to swallow toxic assets from banks, and have had their assets grow expansively over the past five years. Assets at Cinda Asset Management Company... rose 360% to Rmb1.1tn ($160bn) between 2012 and 2016... The four groups — Cinda, Huarong, Great Wall and Orient — have been the primary buyers of non-performing loans in China. But they have also profited from low interest rates in recent years, borrowing cheaply and lending to companies at much higher rates to restructure problematic loans."

April 5 - Reuters (Yawen Chen and Nicholas Heath): "Activity in China's service sector expanded at its weakest pace in six months in March, hurt by slower growth in new orders and intensifying cost pressures... The Caixin/Markit services purchasing managers' index (PMI) for March fell to 52.2 from February's 52.6..."

Global Bubble Watch:

April 4 - Reuters (Dion Rabouin): "Global debt rose to 325% of the world's gross domestic product in 2016, totalling $215 trillion, an Institute for International Finance report released... showed, boosted by the rapid growth of issuance in emerging markets. Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320% of GDP in 2015. Emerging market debt saw a 'spectacular rise' to $55 trillion outstanding in 2016, equal to 215% of their GDP. This was driven mostly by non-financial corporate debt, the report said. Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006... Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance... Developed market countries accounted for $160 trillion, the lion's share of global debt, reaching... 390% of those markets' combined GDP. The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with U.S. and UK public sector debt having more than doubled since 2006."

April 5 - Bloomberg (Fergal O'Brien): "Inflation across Organization for Economic Cooperation and Development member nations is accelerating, with the average reaching the fastest in five years in February. The increase was driven by energy prices, where the year-on-year change jumped to 11.1% from 8.5%, and food. Among the OECD's biggest economies, the fastest inflation was in the U.S..."

April 3 - Bloomberg (Luke Kawa): "So much for America First. In the first quarter, investors dumped an U.S. exchange-traded fund that holds mid and small-cap U.S. stocks and flooded into another that owns large emerging-market equities. The iShares Russell 2000 ETF... was hit with $1.41 billion in outflows since the start of the year, the most among U.S.-listed equity ETFs. The iShares Core MSCI Emerging Markets ETF... attracted $6.63 billion in assets, the most among funds tracked by Bloomberg."

April 5 - Bloomberg (Kim Chipman and Erik Hertzberg): "Toronto's housing market showed no signs of cooling last month, with the average sale price soaring the most in almost three decades as the cost of a detached downtown home climbed to nearly C$1.6 million ($1.2 million). Prices increased by a third in every major housing category, including townhouses and condominiums, amid intense competition among buyers..."

April 2 - Bloomberg (Emily Cadman): "Australian house prices rose the most in almost seven years in March as the country's housing boom accelerated. Average home values in Australia's eight state and territory capitals rose 12.9% in the 12 months through March, the fastest pace since May 2010, according to... CoreLogic... The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002. Sydney home values climbed 5% in the first three months of the year."

April 4 - Bloomberg (Emily Cadman): "Australian regulators may take further steps to rein in mortgage lending amid growing concern booming home prices pose a risk to the financial system. Restrictions on interest-only loans announced last week were a 'tactical response' to growth in lending to property investors, Australian Prudential Regulation Authority Chairman Wayne Byres said... The regulator 'can and will do more, or less, as conditions evolve,' he said... Australian house prices rose the most in almost seven years in March, data from CoreLogic... showed. The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002."

Fixed Income Bubble Watch:

April 4 - Wall Street Journal (Christopher Whittall): "High-grade corporate bonds surged when the European Central Bank added them to its €2.3 trillion purchase program last year. Now, with a slowdown in ECB buying on the horizon—alongside potentially risky European elections—some investors are bracing for a selloff. The ECB started paring its monthly purchases of European debt from €80 billion to €60 billion in April, meaning it will buy around €1.9 billion fewer corporate bonds every month..."

April 4 - Financial Times (Nicholas Megaw): "Growing risk appetite as investors embraced the so-called 'Trump trade' helped issuance of high-yield corporate bonds in Europe more than double in the first quarter, but from a very low base, according to data from Fitch... Total junk bond issuance of €30bn was 2.5 times greater than in the first quarter of 2016... The riskiest debt, with credit ratings below B-, made up the highest share of total high-yield issuance since 2013, highlighting the extent of market optimism."

ECB Watch:

April 4 - Reuters (Stephen Jewkes): "Italy's Target 2 liabilities rose to a new record high in March pointing to growing imbalances in the position of different central banks within the euro zone. The Bank of Italy's position within the Target 2 system, which settles cross-border payments in the euro zone, is monitored because its increase can indicate financial stress. The Bank of Italy said on Friday its Target 2 position rose to 419.8 billion euros ($446.2bn) in March from 386.1 billion euros in February."

April 6 - Bloomberg (Alessandro Speciale): "Mario Draghi may have hoped to put an end to the bubbling debate on the European Central Bank's exit strategy on Thursday. It didn't take long for a reminder of how complicated this will be. Speaking in Frankfurt, the ECB president sought to quash the idea that policy makers will begin tightening policy sooner than planned and dispel doubts about the planned route to the eventual stimulus exit. Less than three hours later, Bundesbank President Jens Weidmann re-opened the issue, saying that a discussion on forward guidance is 'legitimate.' The conflicting signals are exactly what executive board member Benoit Coeure warned about last week when he said public disagreements may hamper the effectiveness of policy."

Europe Watch:

April 3 - Reuters (Jonathan Cable): "Factories across the euro zone struggled to keep up with demand last month despite increasing activity at the fastest rate in nearly six years, according to a survey that showed them again hiking prices. IHS Markit's final manufacturing Purchasing Managers' Index for the euro zone rose to 56.2 in March, the highest since April 2011, from February's 55.4."

April 3 - Bloomberg (Zoe Schneeweiss): "Euro-area unemployment fell to the lowest level in almost eight years in February, in a sign that the region's economy is strengthening. Joblessness decreased to 9.5%... That's the lowest since May 2009..."

April 3 - Financial times (Dan McCrum): "Italian government bond prices were lower on Monday, as investors focused on signs of political sclerosis rather than economic data pointing to strength in manufacturing and a drop in the ranks of the unemployed. The difference between Italian 10-year sovereign bonds and the benchmark German Bund — a key measure of investor confidence as it shows the premium traders are demanding to buy Italian debt — hit a more than three-year high on Monday of 2.03%."

April 4 - Financial times (Mehreen Khan): "The yield gap between French and German two-year debt has blown out to its highest level since the eurozone crisis as investors snap up German assets ahead of France's presidential elections in three weeks' time. The two-year spread - a measure of the premium investors demand to hold French over German debt - has hit 47 bps, surpassing the 42 bps reached during the height of jitters about Marine Le Pen's chance of victory in France's presidential elections and the widest since the bloc's debt crisis abated five years ago. The spread has swollen from 26bps just 10 days ago..."

April 2 - Reuters (Dominique Vidalon): "French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a 'change in civilization'."

Federal Reserve Watch:

April 5 - Reuters (Lindsay Dunsmuir and Howard Schneider): "Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed. The minutes... of the March 14-15 policy discussion... also showed that the rate-setting committee had a broad discussion about whether to phase out or halt reinvestments all at once. 'Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year'..."

April 6 - Bloomberg (Catherine Bosley and Lucy Meakin): "Federal Reserve Bank of San Francisco President John Williams said it may take the U.S. central bank around five years to shrink its balance sheet to a more normal size once that process gets underway. Speaking with reporters..., Williams said it made sense to begin the roll-off toward the end of 2017. The length of time it takes would depend on how far officials want to trim a balance sheet swollen to $4.5 trillion by three rounds of asset purchases... 'The number of years we're thinking about just based on the arithmetic is something like 5 years,' said Williams..."

April 4 - Bloomberg (Craig Torres, Christopher Condon , and Jeanna Smialek): "The Federal Reserve's inspector general says it will be ending its investigation into the 2012 release of confidential information. Even after the scandal cut short the career of one top Fed official, the answer to the most important question remains a mystery. Who did the initial leaking? Richmond Fed President Jeffrey Lacker resigned abruptly... as he announced his role in the unauthorized disclosure of information to Medley Global Advisors about policy options that the central bank was considering in 2012. His explanation suggested he was confirming facts the Medley analyst already knew. It was a sudden career stop for a Fed president who was frequently in opposition to the Fed board consensus on interest-rate policy, and the news will likely revive questions in Congress about the value of the central bank's discretion and transparency."

April 3 - Bloomberg (Matthew Boesler and Shahien Nasiripour): "The rising burden of student debt is weighing on interest rates in the U.S., and it would be a 'reasonable conversation' for policy makers to explore making college tuition free, Federal Reserve Bank of New York President William Dudley said. The growing pile of student debt is 'obviously one headwind to economic activity' that 'probably pushes in that direction of lower equilibrium real rates' because it limits households' spending power, Dudley said... Fed officials have been trying to estimate the so-called equilibrium level of interest rates that keeps economic growth on a steady and sustainable pace. The concept has increasingly dominated the debate about where to set the U.S. central bank's benchmark rate and how quickly to move after policy makers in December 2015 embarked on their first tightening cycle in nearly a decade."

U.S. Bubble Watch:

April 7 - Wall Street Journal (Jon Sindreu and Christopher Whittall): "What if selling insurance against tornadoes made tornadoes occur less frequently? Something like that may be behind the incredible calm in global financial markets. The theory, advanced by several money managers, bankers and analysts, describes a type of feedback loop in which calm markets make selling insurance against sharp swings in asset prices profitable, which makes the markets more calm, which then makes selling insurance yet more attractive. And on and on. Behind the loop is a danger: If a giant shock—a big tornado—does materialize, the loop could suddenly run in the other direction, amplifying big moves rather than damping them."

April 3 - CNBC (Jeff Cox): "The bullish beginning of 2017 did more than set a sizzling pace for the year — it actually pulled some long-dormant cash off the sidelines. As the S&P 500 gained 4.7%, and bonds managed to stay above water, investors yanked about $75 billion out of low-yielding money market accounts and put it to work, according to... the Investment Company Institute and TrimTabs... That money accounted for a sizable chunk of the $162 billion that flowed to both stocks and bond funds during the quarter, TrimTabs said. The money market total is through February..."

April 7 - Bloomberg (Gabrielle Coppola, Matt Scully and David Welch): "On countless occasions in recent years, the U.S. auto industry has relied on cheap and easy credit from Wall Street to get it through rough patches. Not this time. With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. 'We've been having a party for a few years and it was fun,' said Maryann Keller, an industry consultant... 'Now lenders are getting back to basics.'"

April 3 - Bloomberg (Vince Golle): "America's factories continued to expand in March at a robust pace, demonstrating momentum in an industry that struggled for the better part of the last two years, Institute for Supply Management data showed... ISM's diffusion index eased to 57.2 from February's 57.7, which was the highest since August 2014... Factory employment gauge climbed to 58.9, the strongest reading since June 2011, from 54.2. Prices-paid index increased to 70.5, the highest since May 2011, from 68..."

April 5 - Bloomberg (Patricia Laya): "American service companies expanded in March at the slowest pace in five months, adding to signs of tepid economic growth in the first quarter, a survey by the Institute for Supply Management showed... ISM'S non-manufacturing index eased to 55.2 (forecast was 57) from February's 57.6, which was the highest since 2015..."

April 3 - Bloomberg (Jamie Butters and David Welch): "U.S. auto sales trailed estimates, with Kia Motors Corp. and Ford Motor Co. reporting some of the biggest declines, as heavy incentive spending failed to contain plunging demand for sedan and compact models... Combined deliveries for Kia and its affiliate Hyundai Motor Co. slumped 11%, and Ford's dropped 7.2% last month... General Motors Co., Fiat Chrysler Automobiles NV and Toyota Motor Corp. also fell short of expectations."

April 3 - CNBC (Diana Olick): "Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years. Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with 'tappable' equity up to 39.5 million, according to Black Knight Financial Services... But the fact that mortgage rates were lower last year makes it less likely today's borrowers would want to refinance this year. About 68% of tappable equity belongs to borrowers with mortgage rates below today's levels."

April 7 - Wall Street Journal (Jay Greene): "Just as oil and gas companies plow billions of dollars in searching for new energy reserves, big technology companies are spending lavishly on a global footprint of sophisticated computers to run every startup and corporate colossus's business in the cloud. Amazon.com Inc. upped the ante this week, announcing plans to plunk down a massive collection of data centers in Stockholm. It is the latest move in a high-stakes race to own the biggest piece of a market that is expected to reach into the hundreds of billions of dollars. Amazon and its chief rivals— Microsoft Corp. and Alphabet Inc.'s Google—are aggressive players in so-called hyperscale computing, which provides digital horsepower that scales quickly when needed in real time... Combined, Amazon, Microsoft and Alphabet doled out $31.54 billion in 2016 in capital expenditures and capital leases, according to company filings. That is up 22% from 2015."

April 7 - Bloomberg (David M Levitt): "One of the most visible symbols of San Francisco's technology-fueled boom is nearing completion and reshaping the city's skyline. Builders laid the final beam yesterday for Salesforce Tower, a $1 billion skyscraper that now stands as the tallest office building west of Chicago. The 1,070-foot tower is set to be finished this summer and the main tenant, Salesforce.com Inc., expects to start moving in by the end of the year... It's the biggest and most ambitious project in what city Supervisor Jane Kim called San Francisco's largest construction boom since the 1906 earthquake... There is 5.9 million square feet of offices under construction in the city, with about 38.8% pre-leased..."

April 7 - Wall Street Journal (AnnaMaria Andriotis): "Credit-card debt breached the $1 trillion threshold in the U.S., joining auto loans and student debt in crossing that level, and hitting its highest mark since the nation's last recession. The new data from the Federal Reserve marks the latest sign of a growing appetite for household debt. Rising consumer borrowing is often a positive sign for the U.S. economy as it typically means consumers are spending more on big-ticket items, such as cars, and smaller purchases often charged on cards. And while some are concerned about auto lending to risky borrowers and defaults on student loans, the quality of most credit-card debt remains strong."

April 5 - Bloomberg (Oshrat Carmiel): "A home on Manhattan's Upper East Side sold for $79.5 million..., making it the highest price ever paid for a townhouse in the borough. The 20,500-square-foot property, at 19 E. 64th St., had been owned by the Wildenstein family, billionaire art dealers whose gallery was located at the site for more than 80 years. The previous record for a Manhattan townhouse was the $53 million paid for 4 E. 75th St., in 2006..."

Japan Watch:

April 5 - Reuters (Stanley White): "Activity in Japan's services sector expanded at the fastest pace in 19 months in March as outstanding business improved, allowing companies to charge more for their goods... The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 52.9 in March on a seasonally adjusted basis from 51.3 in February."

EM Watch:

April 2 - Bloomberg (Filipe Pacheco): "It's been a tumultuous few days in Latin America, with anti-government protests in Venezuela and Paraguay, an attack on the opposition presidential candidate in Ecuador and recurring unrest in Brazil, where the president's popularity is tumbling amid attempts to reform the pension system. All are reigniting concern about political stability in some of this year's best-performing emerging markets and key U.S. trading partners."

April 3 - Bloomberg (Rene Vollgraaff): "South Africa lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years in response to a cabinet purge by President Jacob Zuma... S&P cut the foreign-currency rating to BB+, the highest junk score, on Monday and warned that a deterioration of the nation's fiscal and macroeconomic performance could lead to further reductions... Moody's..., which rates the nation at two levels above junk with a negative outlook, said the rating is under review for a downgrade."

April 6 - Bloomberg (Anirban Nag): "India unexpectedly raised the reverse repo rate while keeping the benchmark unchanged, effectively tightening policy to step up the fight against accelerating inflation. Bonds fell. The reverse repo rate was raised to 6% from 5.75% while the benchmark repurchase rate was kept steady at 6.25%, the Reserve Bank of India said..., citing excess funds in the banking system after the government's clampdown on cash."

April 6 - Reuters (Jason Hovet and Jan Lopatka): "The Czech central bank scrapped its cap on the crown currency on Thursday, allowing it to float freely to stronger levels against the euro for the first time since 2013."

Leveraged Speculation Watch:

April 7 - Bloomberg (Katia Porzecanski): "Equity hedge funds are getting a pick-me-up after a harsh 2016, when they suffered almost a third of the industry's withdrawals, amid a global stock rally. The long-short strategy returned 3.2% in the first quarter on an asset-weighted basis, marking the best start to a year since 2013, according to Hedge Fund Research Inc. The strategy was the top performer over the period, with the average hedge fund returning 2.3%, on a fund-weighted basis."

Geopolitical Watch:

April 7 - Washington Post (David Filipov and Anne Gearan): "Russia on Friday condemned a U.S. missile strike against Syrian government forces as an attack on its ally and said it was suspending an agreement to minimize the risk of in-flight incidents between U.S. and Russian aircraft operating over Syria. Even as Russian officials expressed hope that the strike against Syrian President Bashad al-Assad's forces would not lead to an irreversible breakdown in U.S. relations with Moscow, the Kremlin's decision to suspend the 2015 memorandum of understanding on the air operations immediately raised tensions in the skies over Syria."

April 5 - Wall Street Journal (Carol E. Lee and Felicia Schwartz): "A confluence of crises in Syria and North Korea is forcing President Donald Trump to re-evaluate his fledgling foreign policy, deciding which advisers he will listen to and which campaign pledges to jettison. The apparent chemical-weapons attack in Syria and the latest ballistic missile test by North Korea raise the stakes for two upcoming events: Mr. Trump's summit this week with Chinese President Xi Jinping... and Secretary of State Rex Tillerson's planned visit next week to Russia, a patron of the Syrian regime."

April 6 - Reuters (Tim Kelly and Ju-min Park): "Diplomatic and economic measures taken to rein in North Korea's missile program have not had the desired effect, a senior U.S. military commander said on Thursday after the North's latest test triggered a flurry of calls among world leaders. U.S President Donald Trump led calls with leaders and senior officials from Japan and South Korea on Thursday to discuss the latest provocation from Pyongyang, hours before Trump begins a much-anticipated summit with Chinese counterpart Xi Jinping."

April 5 - Wall Street Journal (Carol E. Lee Dion Nissenbaum and Farnaz Fassihi): "President Donald Trump said a suspected chemical attack by the Assad regime was 'a terrible affront to humanity' that changed his mind about the Syrian strongman, signaling a more aggressive U.S. policy toward Syria. Mr. Trump didn't elaborate on how his administration would respond to the latest attack, which killed at least 85 people, but said it made him re-evaluate his approach to Syrian President Bashar al-Assad and his regime."

April 4 - CNBC (Clay Dillow): "OKINAWA-While the world watches mounting military tensions in the South China Sea, another, more ominous situation is brewing in the East China Sea that could be the trigger point for a major war between the superpowers. At the heart of tensions are eight uninhabited islands controlled by Japan that are close to important shipping lanes, rich fishing grounds and potential oil and gas reserves. China contests Japan's claims and is escalating its military activity in Japan airspace. In response, Japan has been doubling its F-15 jet intercepts. The situation increases the risk of an accidental confrontation — and could draw other countries, like the United States, into a conflict. It's a topic President Trump will likely bring up with Chinese President Xi Jinping at his Mar-a-Lago estate this week."

 


 

Doug Noland

Author: Doug Noland

Doug Noland
Credit Bubble Bulletin

Doug Noland

I just wrapped up 25 years (persevering) as a "professional bear." My lucky break came in late-1989, when I was hired by Gordon Ringoen to be the trader for his short-biased hedge fund in San Francisco. Working as a short-side trader, analyst and portfolio manager during the great nineties bull market - for one of the most brilliant individuals I've met - was an exciting, demanding and, in the end, a grueling and absolutely invaluable learning experience. Later in the nineties, I had stints at Fleckenstein Capital and East Shore Partners. In January 1999, I began my 16 year run with PrudentBear, working as strategist and portfolio manager with David Tice in Dallas until the bear funds were sold in December 2008.

In the early-nineties, I became an impassioned reader of The Richebacher Letter. The great Dr. Richebacher opened my eyes to Austrian economics and solidified my lifetime passion for economics and macro analysis. I had the good fortune to assist Dr. Richebacher with his publication from 1996 through 2001.

Prior to my work in investments, I worked as a treasury analyst at Toyota's U.S. headquarters. It was working at Toyota during the Japanese Bubble period and the 1987 stock market crash where I first recognized my love for macro analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated summa cum laude from the University of Oregon (Accounting and Finance majors, 1984) and later received an MBA from Indiana University (1989).

By late in the nineties, I was convinced that momentous developments were unfolding in finance, the markets and policymaking that were going unrecognized by conventional analysis and the media. I was inspired to start my blog, which became the Credit Bubble Bulletin, by the desire to shed light on these developments. I believe there is great value in contemporaneous analysis, and I'll point to Benjamin Anderson's brilliant writings in the "Chase Economic Bulletin" during the Roaring Twenties and Great Depression era. Ben Bernanke has referred to understanding the forces leading up to the Great Depression as the "Holy Grail of Economics." I believe "The Grail" will instead be discovered through knowledge and understanding of the current extraordinary global Bubble period.

Disclaimer: Doug Noland is not a financial advisor nor is he providing investment services. This blog does not provide investment advice and Doug Noland's comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. The Credit Bubble Bulletins are copyrighted. Doug's writings can be reproduced and retransmitted so long as a link to his blog is provided.

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