Category: zerohedge

Authored by Mark Glennon via Wirepoints.org,

How about we expand preferences in hiring and promotion to base them on any characteristic whatsoever that might disadvantage somebody, regardless of whether the characteristic is inherited or self-inflicted?

That’s in a bill moving full steam ahead in Springfield and it’s a doozy. It’s House Bill 3914, the Positive Action Act. It already passed the Illinois House and is moving in the Senate.

It would have state agencies give hiring preference to anybody with a “protected characteristic.” The bill’s definition of that term is the key. It includes “any characteristic which may be used, either directly or indirectly, to discriminate against or place at a disadvantage such persons having that characteristic.”

So, it’s not just involuntary traits like race or gender, it’s anything that would disadvantage somebody, even if self-imposed. Anything.

As you think about examples of how absurd this is, it’s important to remember this is not about nondiscrimination. It’s about creating new preferences for anybody with a “protected characteristic.”

Consider, for example, people who are obese, short or unattractive. You probably think, as I do, that they usually should not be discriminated against in hiring and promotions.

But giving them a special preference is an entirely different matter, and that’s what the bill would do. Obesity, shortness and unattractiveness all fit under the bill’s definition of “protected characteristics.” It’s easy to find research confirming that those traits are penalized in the labor market. Some of that research was discussed in a New York Times article here.

To make the point, that article says Gregory Mankiw, an economist at Harvard and the former chairman of the Council of Economic Advisers, facetiously proposed taxing taller people more, since someone 6 feet tall can be expected to earn $5,525 more a year than someone who is 5-foot-5.

Mankiw was kidding but the bill is no joke. It’s serious about essentially the same concept, but far more broad.

Or what about applicants who are unintelligent, even those who are so because they haven’t been motivated enough to educate themselves? And what about those who simply lack experience? They, too, generally fare poorly in the labor market and those traits also fit within the definition of “protected characteristics.” The bill would call for them to get a preference over those who are smarter or more experienced, and no distinction would be made if those traits stemmed from simple lack of effort.

The bill does include one supposed limitation. It does not apply if the characteristic makes the person less qualified than other applicants. Specifically, the bill says that favorable consideration in the process of recruitment or promotion shall only be allowed if “the person having the protected characteristic is as qualified as the person not having the protected characteristic.”

But that’s all the bill says on this and that’s not much of a limitation.

For one thing, traits like intelligence, education and experience often only bear on qualification up to a certain point, especially for entry-level and low-skill jobs. The “as qualified as” standard therefore often loses any meaning.

Moreover, even beyond those circumstances, if the limitation were really meant to have meaning, it would contradict the clear purpose of the bill. Is the point to hire the most qualified person under all circumstances or to give a preference to others? Obviously, the purpose of the bill is to provide preferences and override blind selection based on qualifications and merit, so that’s how it would be interpreted and applied.

Another fundamental problem with the bill is that its concept of protected characteristics is impossibly vague. Countless traits arguably disadvantage some people in life, but the bill would call for state agencies to identify those traits and reward them. It’s important to note that the definition of protected characteristics is not limited to traits related to the job at issue. Any trait that makes life worse in or out of the workplace can be covered by the bill.

Beyond authorizing special preferences, the bill requires all agencies to “take positive action” to help those with protected characteristics and submit reports on their “positive action” progress.

The bill amends some 50 existing statutes to replace the term “affirmative action” with “positive action.”

Finally, the bill would require each state agency to perform an internal examination to identify all “eugenics-inspired policies” and other policies with a discriminatory impact, and issue an annual report to the Governor and the General Assembly.

Props to McHenry County Blog for calling this bill to our attention.

Sometimes – very rarely – Wall Street bites the hand that feeds it, and no hand has fed Wall Street more than the FAAMG companies which have spent tens of billions on brokerage commissions and internet advisory fees.

Which is why we found it very surprising that around the time Goldman and Morgan Stanley reiterated their positive views on the FAAMG “Generals”, with Goldman’s David Kostin writing over the weekend that “many investors have expressed the view that economic deceleration should support the outperformance of the largest “Big Tech” stocks in the market”, a view he agrees with…

… in a note from Citigroup, the bank’s internet analyst Jason Bazinet downgraded Apple and Facebook to Neutral from Buy as “caution is in order” for companies that derive revenue from digital advertising, and “The Sixth Turning is coming” for online ad revenues.

What does Bazinet means by that?

The Sixth Turning — During last 15 years, Internet ads enjoyed three periods of accelerating growth: ’10 to ’12, ’15 to ’18 and today. But, they also exhibited three periods of decelerating growth: ‘08 to ‘10, ‘13 to ‘15 and ‘18 to ‘20.  Even if the bullish sell side forecasts are right, next wave of deceleration – the 6th turning – begins in 3Q21 (when yoy comps are tough) or 2Q22 (when two year stacked growth rates peak). Recent shifts – from accelerating to decelerating growth – has typically not been bullish for multiples.

With that in mind, Bazinet’s bearish thesis is that ehile strength in internet ads was very robust in the past two quarters (due to: 1) better macro, 2) robust eCommerce and 3) higher retailer web traffic), growth is likely to decelerate given difficult year-over-year comparisons ahead for three reasons.

1. First, among the top 10 Internet ad firms, in absolute dollar terms, sell side expects ~2x the annual growth from ’21 to ’25 versus ’18 to ’20.
2. Second, many investors believe ad intensity per dollar of economic activity is rising. We see little evidence of this.
3. Third, even if the sell side estimates are right, growth will likely decelerate after 2Q21 (on tougher comps)

“Historically”, Bazinet cautions, “that usually isn’t bullish for multiples” and as such he downgrades Alphabet and Facebook to Neutral.

We’re downgrading Alphabet and Facebook from Buy to Neutral. We now aren’t recommending any large cap, ad centric, Internet stock except Roku. We like Roku because we believe the connected TV market is still nascent.

A few more key highlights from the Citi report:

• Recent Strength Makes Sense – Internet ad strength was very robust in the last two quarters. From 1Q16 to 1Q21, Internet ad revenue was highly correlated (R2 of 0.97) to: US personal consumption (PCE), eCommerce spend and global retailer web traffic. In short, most of the recent strength makes sense to us.
• Sell Side Extrapolates the Strength – The sell side has taken 4Q20 and 1Q21 strength and extrapolated it over the next five years. Indeed, the sell side expects ~$75B of annual growth per year through 2025 versus ~$40B of annual growth in 2018 to 2020.
• Ad Intensity Not Rising – Many investors believe the ad intensity (or ad spend per dollar of economic activity) is rising. We see little evidence of this. For the last six years, US ad spend (across all mediums) has represented (a flattish) 1.6% of Personal Consumption Expenditures (PCE). As such, we see little evidence of ‘below the line’ ad spend moving up to advertising.

Of course, with Google and Facebook making up nearly half of the FAAMGs, is Citi’s downgrade effectively a shot at the “Generals”? Well, not according to Citi, which is quick to explain that “Amazon remains our favorite Internet stock because we see ample growth in B2B services beyond ads (e.g. AWS, FBA, Commissions and Logistics).”

Shares of GOOGL were down 0.7% premarket, while FB was down 1.3%.

 

“Transitory” or not, Goldman’s global head of commodities research, Jeffrey Currie, told Bloomberg this week that “we’re in a new world,” and nowhere is that more evident than in the record-setting increase in the price of commodities across the globe.

From US/Canadian lumber to Chilean copper and Chinese Iron Ore, prices are soaring with Bloomberg’s Spot Commodity Index up a stunning 62% YoY – the fastest pace since January 1980.

Source: Bloomberg

The latest surge came from China overnight, where benchmark iron ore futures surged 10% to a record high, steel prices rose 6%, and copper prices touched record highs on hopes for improved demand amid tightening supply.

“The boom in commodity prices is good news for the materials or the cyclical sectors,” said  Rupert Thompson, chief investment officer at Kingswood Group in London.

“It cements the idea that you’ve got further rotation towards value and commodity sectors. But on the other hand, you’ve got the clear risk that it does exacerbate worries about inflation.”  

And scratching below the surface, the drivers of this massive inflationary spike in underlying commodity costs looks anything but ‘transitory’:

For copper, the long-term outlook is also being bolstered by a likely surge in demand as governments target huge investments in renewables and electric-vehicle infrastructure. While copper’s last march to record highs in 2011 was driven by China’s economic boom, analysts expect this rally to be supported by a much broader rise in metals usage.

The iron ore sector “is very, very hot,” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, said in Bloomberg Television interview. “Supply is still not able to meet that strong demand.”

Steelmakers in the rest of the world, such as ArcelorMittal SA, are also enjoying a boom as demand bounces back from pandemic lows. “There is a chance that ex-China demand can come back to such an extent that we still see steel demand pick up globally and that will see iron ore demand remain at these elevated levels,” CBA’s Dhar said.

Many are optimistically hoping for a ‘Goldilocks’ scenario with restrained wage pressures enabling central bank dovishness amid a global boom, but judging by recent ISM/PMI surveys, management are expecting to (and are already) passing on cost increases to end-users. So while the “goldilocks” may work for markets, it is crushing to the middle- and lower-income classes… and doesn’t look set to slowdown anytime soon.

“There’s still quite a lot of room to go,” Evy Hambro, global head of thematic investing at BlackRock Inc., said on Bloomberg Television.

“What we’re really doing is we’re testing the upper ranges of commodity markets to work out what the new price range is going to be.”

Finally, we note that the last time commodity price inflation was this hot, 10Y Treasury yields were over 13%, and if you’re banking on The Fed’s “all-knowing” eye to “monitor” this “transitory” event, DoubleLine’s Jeff Gundlach has some sage words of advice.

“I’m not sure why they think they know it’s transitory… how do they know that?”

“it’s not clear to me that inflation is going to go back down to around 2 to 2.5%… we don’t know, nobody knows… but we’re most concerned with the fact that The Fed thinks they know.“

Because their track-record is not so hot…

“when I go back to the global financial crisis, when we almost had a complete meltdown of the financial system, Ben Bernanke completely missed all of the problems that led to the crisis.”

Simply put, The Fed is “trying to paint the picture” of control, but as Gundlach makes clear: “they’re guessing.”

Do you feel lucky?

Authored by Charles Hugh Smith via OfTwoMinds blog,

But weirdly, and irrationally, bubbles pop anyway.

At long last, the moment you’ve been hoping for has arrived: you’re pitching your screenplay to a producer. Your agent is cautious but you’re confident nobody else has concocted a story as outlandish as yours. Your agent gives you the nod and you’re off and running:

Writer: Two guys start a cryptocurrency as a joke to parody the crypto craze, and they name it KittyCoin. It goes nowhere but then the greatest speculative bubble of all time takes off, it’s the dot-com and housing bubble times 100 but in everything, and within a couple months the entire economy is dependent on this bubble, and the bubble is dependent on KittyCoin, which has shot up 15,000 percent in a few weeks. A celebrity CEO who’s been promoting KittyCoin is invited to host a failing TV variety show, and now the whole economy depends on KittyCoin soaring even higher.

Producer: So it’s ‘The Big Short’ plus ‘Network’.

Writer: Something like that, only zanier.

Producer: I get the zaniness but it’s so implausible — it’s preposterous.

Writer: It’s an absurdist comedy.

Producer: But it ends with everyone being wiped out.

Writer: OK, a tragi-comedy.

And here we are, in the Greatest Bubble of All Time (GBOAT) hanging on the thin thread of speculators rotating out of one bubble into another even more improbable bubble. If there is no heir-apparent for the rotation, then players rotate back into an asset that already reached bubblicious heights and is awaiting the next booster.

The Everything Bubble is one for the ages, but alas, even the most glorious global Tulip Bulb manias crash back to Earth. So how do Everything Bubbles end? Like every other bubble ends:

Preposterous moves to implausible which moves to plausible which moves to inevitable. In other words, bubbles inflating to even more outlandish valuations are no longer merely plausible, they’ve become inevitable: the Federal Reserve will continue printing money forever, Americans have trillions of dollars in stimmy and savings they’re itching to spend, and so on.

All bubbles reach their zenith when plausible becomes inevitable. In the 1920s, it was radio which was clearly the next big thing and indeed it was. But the prospect of decades of growth drove valuations to heights which were disconnected from actual revenues and earnings, and so the bubble burst.

The same thing happened in the dot-com bubble, as the euphoria about decades of future growth lifted valuations to preposterous levels.

Every bubble has a speculative mania component and a credit-leverage component: since gains are inevitable, it would be irrational not to borrow money and leverage greater gambles to maximize the guaranteed gains.

Easy money is an essential fuel in the bubble rocket. With money this easy to borrow and leverage, it’s a slam-dunk that the bubble can keep expanding until some far distant time that’s so remote we don’t have to worry about it, because we’ll all sell at the top and be out long before the bubble pops. Uh, right. That’s exactly how it works.

Well, not quite. Almost no one gets out at the top, and many of those few who do anxiously re-enter just before the bubble finally pops. This is the pernicious consequence of bubbles becoming inevitable: there is simply no way the Fed will stop printing money, no way Americans won’t spend their stimmy, no way inflation won’t keep soaring, etc., and so future gains are inevitable.

This certainty pushes valuations to preposterous levels, but they keep on rising, proving the inevitability of continued expansion. This rational exuberance is based on the idea that the rocket will never run of out fuel. Put another way, easy money will always be available to greater fools who will gladly take an asset off our hands at much higher prices.

But weirdly, and irrationally, bubbles pop anyway. Bubbles tend to display symmetry, i.e. follow the same trajectory down that they took on the way up, but this isn’t a law of nature, it’s just a manifestation of psychology: there’s typically a last buy the dip pop higher as the multitudes (and their trading bots) have been trained by the inevitability of gains to consider every tiny dip lower as an opportunity to lock in ever greater gains.

The zaniness moves from absurd to tragi-comedy before anyone is aware the third act has begun.

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S&P futures started the weak flat with Nasdaq futures falling offset by surging commodity stocks as a new record in copper and iron ore prices stoked concern about whether inflation will derail a growth rebound in the world’s largest economy and spoil a record stock rally.  Metal producers were among the biggest gainers in premarket trading, with Freeport-McMoRan, Cleveland-Cliffs and United States Steel all up at least 3%.

At 715 am ET, Dow e-minis were up 109 points, or 0.31%, S&P 500 e-minis were up 3.25 points, or 0.08%, and Nasdaq 100 e-minis were down 35.5 points, or 0.26%. The tech-heavy index has been whipsawed by the prospect of inflation which threatens longer-term profit expectations typical of the industry A downgrade by Citi of Internet stocks such as GOOGL did not help. Treasury yields steadied as traders brace for a busy week of auctions.

Some notable premarket movers:

• Copper miner Freeport-McMoran rose 3.5% premarket, while aluminum giant Alcoa gained 3.6% and steelmaker United States Steel Corp was up 3.1% as copper prices touched a record high and aluminum scaled a new peak.
• Chevron, Occidental Petroleum and Exxon Mobil all rose about 1% after a cyber attack on top U.S. pipeline operator Colonial Pipeline shuttered fuel network that transports nearly half of the East Coast’s supplies, lifting oil prices.
• Cybersecurity firm FireEye jumped about 6% as industry sources said the company was among those helping Colonial Pipeline to recover from one of the most disruptive digital ransom schemes reported.
• Some banks dipped after Malaysia’s 1MDB and a former unit have filed suits against several banks entities including JPMorgan Chase and Deutsche Bank as the nation seeks to recover assets worth more than $23 billion linked to the scandal-plagued state-owned investment fund.

The S&P 500 and the Dow ended at record closing highs on Friday as an unexpected slowdown in monthly jobs growth eased inflation worries and fueled bets that the U.S. Federal Reserve would remain accommodative for longer.  With latest economic reports depicting that the U.S. economy is not recovering at the explosive pace as previously forecast, inflation numbers this week and comments from Federal Reserve officials could chart the next course for U.S. equities. Meanwhile, earnings season is in its final stretch with a record 87% of 439 S&P 500 companies beating estimates for profit. Analysts expect overall first-quarter earnings to jump 50.4% from a year ago, their strongest growth rate since 2010.

“Friday’s historical NFP (non-farm payrolls) miss has been a sigh of relief for the market; the Federal Reserve won’t pull away the punch bowl just yet,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. “The post-NFP-high could leave its place to some hangover by Wednesday, when the U.S. will announce the April inflation data.”

European stocks were mixed as a really for banks and basic-resources companies such as Rio Tinto, BHP and Glencore countered declines in the tech and hospitality industries. Here are some of the biggest European movers today:

• Victrex shares rise as much as 9.5% after 1H results that Jefferies says were ahead of consensus.
• Superdry soars as much as 18% to the highest since January 2020 after the Telegraph’s Questor column said the stock has been “supercharged” recently, but recommended readers to “keep buying.”
• Hotel Chocolat jumps as much as 11% after the chocolatier reported revenue up 60% y/y for the eight-week period ended April 25. Liberum raised its price target to a Street-high, noting the “stellar period” despite stores being shut during Mother’s Day and Easter.
• ASTM rises as much as 8.7% in Milan and is the day’s best performer on the FTSE Italia All-Share Index after Gavio-Ardian’s NAF 2 raised its bid to EU28/share from EU25.60/share.
• Logista gains as much as 5.8% to highest level in 14 months after the Spanish distribution company reported a 33% increase in fiscal 1H net income versus the same period a year ago.
• Galapagos NV drops as much as 8.4% to the lowest since Dec. 2016 after a report that the biotech is seeking a “large deal” in the next 12 months.
• Juventus falls as much as 7.2%, the steepest decline since April 21, after the Italian soccer club lost to AC Milan on Sunday. The Turin, Italy based team is now fifth in Serie A, with only the top four clubs winning access to the top European competition.

Earlier in the session, Asian stocks climbed with key indexes in South Korea and Australia reaching new record highs, as prices of energy and other commodities surged. The materials group gave the biggest boost to the MSCI Asia Pacific Index, reaching its highest level in 13 years, helped by surging metals prices and strong company earnings. Energy stocks gained after a cyberattack put the largest U.S. oil-products pipeline out of action. Equities in Asia also got a lift from U.S. peers climbing to fresh records as weak jobs data bolstered the case for continued stimulus in the world’s largest economy. South Korea’s Kospi led gains among national benchmarks, as buying by institutional investors helped push it to a record. The main equity gauge in commodities-heavy Australia also reached a new high.

China stocks closed little changed on Monday after sliding late last week on news that the U.S. will likely maintain limits on investments in certain Chinese firms. Strength in steel and vaccine makers was partly offset by weakness in consumer and financial heavyweights. The CSI 300 ended 0.1% lower, weighed by a 2% drop in the consumer staples subgauge and a 0.6% decline in financials. Liquor maker Kweichow Moutai, pig breeder Muyuan Foods and Industrial Bank were some of the biggest drags on the index. Fosun Pharmaceutical gained by the 10% daily limit as its unit agreed to establish a joint venture with BioNTech for local production and commercialization of its Covid-19 vaccine. Steel makers continued to rally as iron ore futures soar, bringing the CSI 300 Materials Index up by 1.3%, led by Inner Mongolia Baotou Steel’s limit up and Jiangxi Copper’s 9.9% jump. The subgauge has risen for three straight sessions with a 5% increase. Citic Securities has joined a bullish chorus toward cyclical shares, touting strength in coal stocks due to tight supply which will likely lead to a price hike of the fuel. The broker also expects profitability for the sector to improve this quarter from a year ago, analysts including Zu Guopeng write in a note. The health-care heavy ChiNext Index climbed 0.4% and the Shanghai Composite added 0.3%. In Hong Kong, Meituan shares sank to a seven-month low after the Chinese e-commerce company’s billionaire chief executive officer shared and then deleted a poem on social media that some interpreted as a veiled criticism of Beijing

Japanese stocks rose, following U.S. peers higher after weaker-than-expected data eased concerns that the world’s largest economy will be withdrawing its stimulus. Auto and electronics makers were the biggest boosts to the Topix. SoftBank Group and Daikin were the largest contributors to gains in the Nikkei 225. Energy and metals-related stocks climbed with commodities prices, amid strong Japanese steelmaker earnings and the shutdown of the largest U.S. oil-products pipeline following a cyberattack. The yen was down about 0.2% to 108.85 per dollar after strengthening 0.5% Friday. U.S. stocks climbed to a record Friday, while Treasuries were little changed, after surprisingly weak jobs data eased fears about higher inflation and a cutback in stimulus. “U.S. rates didn’t jump as much last Friday following the jobs data. Relative stability there is helping money flow to risk assets,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank. “The yen is weaker today, also giving support to Japanese equities.”

In FX, the Bloomberg Dollar Spot Index slipped to its weakest level since January 21 on the back of the disappointing U.S. jobs report Friday while the pound climbed to its highest level since February after U.K. elections denied Scotland’s main independence party an outright majority and strengthened the grip of the Conservatives. The Australian dollar led commodity currencies higher, rising to its strongest level since February as iron ore futures surged amid a commodities boom. The yen dropped from near a two-week high as U.S. Treasury yields climbed. Super-long bonds advanced, while two- and five-year notes drifted lower.  The onshore yuan advanced to its strongest level since 2018 as it defied attempts by the central bank to slow its gains amid an improving outlook for China’s economy; PBOC set the daily reference rate at 6.4425, compared to the average estimate of 6.4370 in a Bloomberg survey of traders and analysts

In rates, Treasury futures pared losses into early U.S. session, leaving yields little changed with belly of the curve outperforming. Treasury yields are mixed after retreating from session highs, within 1bp of Friday’s close; 10-year around 1.57%. Gilts are under pressure with 10-year yield higher by ~2bp; U.K. pound rallied to the highest level since February after Scottish National Party fell short of a majority in the country’s parliament. On supply front, Treasury new-issue auctions Tuesday-Thursday totaling $126b. Dollar IG issuance is also in focus with two jumbo deals expected this week, as early as Monday. Corporate bond underwriters anticipate $40b-$45b this week in front-loaded USD IG sales, including two jumbo transactions; the larger one is expected as soon as Monday, the other as soon as Tuesday.

In commodities, copper jumped to a record while iron ore futures surged more than 10%, adding to concern about inflation. Oil surged with WTI and Brent both rising and gasoline surged as much as 4.2% to the highest since May 2018 after a cyberattack forced the closure of a key U.S. pipeline.  Ethereum rose above $4,000 for the first time ever after an increasingly bullish JPMorgan listed 6 reasons why ETH would keep rising.

Looking at today’s calendar, there are no major events; at 2pm the Fed’s Evans Discusses Economic Outlook.

Market Snapshot

• S&P 500 futures little changed at 4,226.00
• STOXX Europe 600 little changed at 444.83
• MXAP up 0.6% to 208.75
• MXAPJ up 0.5% to 698.13
• Nikkei up 0.5% to 29,518.34
• Topix up 1.0% to 1,952.27
• Hang Seng Index little changed at 28,595.66
• Shanghai Composite up 0.3% to 3,427.99
• Sensex up 0.7% to 49,543.66
• Australia S&P/ASX 200 up 1.3% to 7,172.80
• Kospi up 1.6% to 3,249.30
• Brent Futures up 0.6% to $68.72/bbl
• Gold spot up 0.3% to $1,836.40
• U.S. Dollar Index little changed at 90.20
• German 10Y yield rose 0.1 bps to -0.203%
• Euro little changed at $1.2157

Top Overnight News from Bloomberg

• President Joe Biden is preparing for his first face-to-face meeting with the top two congressional Republicans, Mitch McConnell and Kevin McCarthy, just as the GOP is ramping up opposition to his $4 trillion economic plan, a rallying point for the party amid infighting over allegiance to former President Donald Trump
• It’s back to square one for the dollar. Friday’s worse-than-expected U.S. employment data saw the Bloomberg Dollar Spot Index drop decisively below its 2021 uptrend, putting it back to little changed for the year. The biggest one-day slide in five months has also put the greenback at risk of a further decline toward the lowest since February 2018
• Three-month dollar-yen cross-currency basis sits around minus four basis points, the smallest in a year, in a sign investors are lending out more of the U.S. currency for better returns overseas. Three-month Japan government bills with a currency hedge currently yield about 0.17%, compared with only one basis point for similar-maturity Treasuries
• Developing world heavyweights including Brazil, China and India will report inflation data this week against a backdrop of quickening growth that’s being fueled by months of easy money and fiscal largess. Citigroup Inc.’s inflation-surprise index for emerging markets spiked last month to the highest since 2008, a sign investors may be underestimating the scale of the resurgence
• ECB will look at its PEPP program in June and “we can augment or reduce our purchases of assets as needed, so as to maintain favorable financing conditions, Chief Economist Philip Lane says in Le Monde newspaper interview
• Riksbank Governor Stefan Ingves says there’s still considerable scope for more monetary supported if necessary, according to minutes of the central bank’s latest rate meeting
• As China moves closer to rolling out the world’s first major sovereign digital currency, speculation over the global implications has reached a fever pitch

A quick look at global markets courtesy of Newsquawk

Asian equity markets began the week mostly positive as the region reacted to last Friday’s disappointing jobs data stateside where Non-Farm Payrolls severely missed expectations and saw major US indices hit fresh record highs as the data supported the case for continued stimulus efforts. ASX 200 (+1.3%) was led higher by the mining related sectors after underlying commodity prices extended on gains which saw copper prices print fresh record levels and Dalian iron ore futures jumped by 10% at the open to hit limit up, while the energy sector was also lifted following a ransomware attack that forced the shutdown of the Colonial Pipeline, which is the largest refined products pipeline in the US and transports 45% of the east coast’s fuel supply. Furthermore, M&A related newsflow added to the encouragement with Crown Resorts among the best performers after it received an improved offer from Blackstone and a separate merger proposal from Star Entertainment. Nikkei 225 (+0.6%) benefitted from favourable currency flows and as participants took the recent state of emergency extension within their strides as this was widely flagged beforehand, although there were increased concerns regarding the Olympics after a recent poll showed 59% of the Japanese public think the games should be cancelled. Hang Seng (-0.1%) and Shanghai Comp. (+0.3%) were less decisive amid lingering concerns of a regulatory crackdown and with the Chinese telecom firms hampered after their failed appeal against a NYSE delisting. However, energy and biopharmaceuticals names outperformed after Sinopharm’s COVID-19 vaccine was approved by the WHO for emergency use listing and Fosun Pharma’s subsidiary agreed with BioNTech to set up a JV for COVID-19 vaccine production and commercialization. Finally, 10yr JGBs were lacklustre amid the mostly positive risk tone in the region and following the recent tumultuous price action in T-notes in the aftermath of the US jobs data, although downside in JGBs was stemmed amid the presence of the BoJ in the market for JPY 925bln of JGBs with 1yr-5yr maturities.

Top Asian News

• China’s Much-Hyped Digital Yuan Fails to Impress Early Users (1)
• Thai Lender Ngern Tid Surges on Debut After $1.1 Billion IPO (1)
• Inflation Debate Hits Emerging Markets With Pimco Standing Firm
• HSBC On Track to Hire 1,000 Wealth Managers in Asia by 2021

Cash bourses in Europe trade mixed (Euro Stoxx 50 -0.3%) after the lukewarm momentum at the cash open lost steam as participants await the next catalyst – with the Monday docket somewhat mundane but the rest of the week looking livelier with US CPI/Retail Sales, Chinese inflation, ECB minutes, German ZEW, monthly oil market reports, the Aussie budget and UK GDP. US equity futures meanwhile are similarly mixed with some mild underperformance seen in the tech-laden NQ as US yields continue to recover from the NFP trough, with the US 10yr meandering around 1.60%. Back to Europe, the indices vary in performance – the IBEX 35 (+0.1%) and FTSE 100 (+0.1%) are kept afloat by the notable outperformance in basic resources as copper and iron ore prices continue to rip higher as speculative bets mount over the recovery and ramp-up in EV production. This sees the likes of Rio Tinto (+3.2%), BHP (+2.8%), Antofagasta (+2.5%) among the Stoxx 600 winners at the time of writing. Elsewhere, banks are supported by the high yield environment whilst Italy’s FTSE MIB (+0.5%) outperforms as its heavyweight banking sector cheers further rhetoric surrounding banking consolidations. The downside meanwhile sees Travel & Leisure – with UK airlines lower (easyJet -3.3%, Ryanair -1.2%, IAG -2.7%) after the UK green-list of countries was not well received as Spain, France, and Greece have been omitted for the time being. In terms of individual movers, MAN SE (+27%) surged and hold onto gains after Traton (+2.4%) offered a 27% premium to MAN’s minority shareholders in a bid to squeeze them out. Deutsche Bank (+0.6%) shares meanwhile were dented as reports suggested the Co. and JP Morgan (Unch pre-mkt) are among those being sued by 1MDB, although the broader banking sector’s performance has cushioned losses.

Top European News

• BioNTech Rises in Premarket After China JV, EU Order
• Jailed Ex- Wirecard CEO Sues Chubb to Pick Up His Legal Bills
• SocGen to Expand Corporate Banking After Trading Losses
• Hedge Fund Star Guiding $1.3 Trillion in Norway Talks Talent

In FX, sterling is sharply outperforming in similar vain to this time last Monday when most in the UK where absent due to the early May Day Bank holiday, and several factors are aligning to propel the Pound beyond key or psychological levels against its major counterparts. Indeed, Cable has breached the 1.4000 mark that has been impervious since late February and now looks primed for a run at the next round number with the aid of ongoing Buck weakness in wake of last Friday’s US labour data disappointment, but also after Scottish election results over the weekend revealing a win for the SNP, but a single vote short of the absolute majority needed to call another independence referendum. Meanwhile, UK Health Minister Dorries has alluded to the possibility that very good data regarding vaccinations and COVID-19 developments could prompt PM Johnson to bring forward the next stage of reopening from lockdown, and Sterling is also benefiting at the expense of the Yen as the Gbp/Jpy cross rallies to a new 153.30+ y-t-d high and Usd/Jpy rebounds markedly from just under 108.50 to probe 109.00 at one stage against the backdrop of rising US Treasury yields and curve re-flattening. However, the Greenback remains depressed overall and the index has dipped below the last base ahead of 90.000 from late February (90.125), albeit marginally within a 90.097-342 band ahead of employment trends and a speech by Fed’s Evans.

• AUD/CAD/NZD – A blistering rise in iron ore prices, record increase in the case of copper and a stellar improvement in NAB business sentiment in contrast to slightly weaker than anticipated retail sales, are all helping the Aussie extend gains vs its US and NZ rivals, with Aud/Usd approaching 0.7875 and Aud/Nzd back within striking distance of 1.0800. However, the Kiwi is also holding firm against its US peer and only pips shy of 0.7300 following fairly upbeat remarks from NZ Finance Minister Robertson on the domestic recovery overnight, and the Loonie is having a close look at offers around 1.2100 with support from firm WTI after the closure of the Colonial Pipeline in the US (biggest for refined products) due to a ransomware attack.
• EUR/CHF – The cross is on a more even keel either side of 1.0950 as the Euro and Franc both take advantage of the Dollar’s demise to trade above 1.2175 and 0.9000 respectively at best, with Eur/Usd also underpinned by a significantly better than forecast Eurozone Sentix Index and Usd/Chf not that surprised to see a modest rise in weekly Swiss domestic bank sight deposits.

In commodities, WTI and Brent front-month futures are on a modestly firmer footing at the start of the week in what is seemingly a move in sympathy with RBOB gasoline in wake of the Colonial Pipeline being taken offline after a cyber-attack. The pipeline is a major artery for the delivery of refined products to the East Coast, transporting some 2.5mln BPD of products and accounting for around half of the East Coast’s consumption. Similar to the playbook during the Texas deep freeze, the bullishness of the situation will likely be determined by how prolonged the issue is – with no timeline touted thus far. Furthermore, it is worth keeping the geopolitical angle on the radar as preliminary findings indicate that the group involved in the hacking could be tied to Russia. Sticking with geopolitics, the general tone regarding the Iranian talks essentially remains that “progress is being made, but differences remain”, with little new to report on this front. WTI gapped higher above USD 65/bbl and trades around the middle of a USD 0.7/bbl range. Brent is back under USD 69/bbl having printed a USD 68.44-69.20 intraday range so far. Elsewhere, spot gold and silver are relatively uneventful and await fresh catalysts around recent ranges of USD 1830-39/oz and USD 27.40-82/oz respectively. Focus overnight and in early hours has been on the surge in base-metal prices, with LME copper hitting record highs, whilst Shanghai copper rose over 5% and Dalian iron ore futures hitting fresh all-time highs, surging some 10% – with traders and analysts citing speculative bets placed on re-inflation and the recovery.

US Event Calendar

• 2pm: Fed’s Evans Discusses Economic Outlook

DB’s Jim Reid concludes the overnight wrap

I took our twins to their first football practise this weekend at three and three-quarters. I haven’t seen so many headless chickens since Liverpool last played. They were a bit intimidated at the start of the session and wouldn’t stop holding each other’s hand which is not ideal in trying to play football. By the end of the session they were on opposite sides and kicking each other. Normal service had resumed.

This followed an epic battle at the end of last week in markets. I can’t remember an intellectually more fascinating data print than Friday’s payroll number. It had the market in a real spin trying to interpret it.

I lean on the side that the poor payrolls number (266k vs 1 million expected) is highly indicative of how difficult it is to hire at the moment as the economy fires back. My CoTD on Thursday (link here) showed that the small business “Jobs hard to fill” index was at record highs last month. This is a something that only happens late cycle and definitely not at the start. Some of this is in the logistics of hiring in a pandemic, and some of this is likely that the fiscal support is so generous that the incentive to rush back is low for many. There are signs this is leading to higher wages. One way to look at this is that companies need to outbid the government to get workers.

DB’s Matt Luzzetti pointed out on Friday that if we look at one area of the economy to avoid the overall jumbled picture, then we can see signs of rapid wage growth. He points out that within the leisure and hospitality sector, wage growth for production and non-supervisory workers rose a record 2.7% MoM in April. Over the past three months, wages for this set of employees have risen by more than 25% on an annualised basis even though job growth is strong here. (See here for more)

So for me the payroll report was a mix of a freak release and signs of how difficult it is to hire at the moment. This report can still be seen as inflationary. This was perhaps illustrated by the fact that 10yr breakevens rose above 2.50% on Friday (+5bps on the day) and to their highest levels since April 2013. 10yr nominal yields collapsed 8bps within seconds of the release but recovered all of it within 90 mins and rose a further 1.5bps into the close. All on what might be the biggest data miss in history relative to expectations. Yields had already fully recovered before President Biden speech where he used the report as the basis that more stimulus was needed saying its “clear the economy still has a long way to go.” The President will be touting his plans for infrastructure and social spending that could total to as much as $4 trillion over the course of the next few months, and the weaker jobs report is likely to be a big talking point.

Overnight, Asian markets have started the week on the front foot with the Nikkei (+0.55%), Shanghai Comp (+0.06%) and Kospi (+1.59%) all up. An exception to this pattern is the Hang Seng (-0.33%). Futures on the S&P 500 are also up +0.18% while yields on 10yr USTs are up +1.7bps to 1.596%. In FX, the British pound is up +0.27% after the SNP missed out by one seat on an outright majority in Scotland polls (more below). In commodities, iron ore prices are up a stunning +9.12% and are trading at new record highs while WTI oil prices are up +0.52% after a cyberattack led to the closure of the Colonial Pipeline. The operator has currently given no timeline for a restart.

Turning to the latest on the pandemic, the share of US hospital beds occupied by COVID-19 patients fell to 5.37%, the lowest since October while weekly new cases in the US dropped to the lowest level since the end of September. Elsewhere, India continues to remain the worst impacted country and continued to report over 400k daily new cases over the weekend. India also reported over 4000 fatalities now for two days in a row. See global comparisons in our tables in the main body of this report.

To the week ahead now before we recap last week in markets. Normally the week after payrolls is relatively quiet for US data but with the first Friday of the month falling quite late we are instead going into a busier week than normal with the all important CPI on Wednesday the stand-out. The headline YoY rate is likely to be around 3.6% with it being nearer 4% in May. Analysts expect that to be close to the peak but from that point on it will be fascinating to see whether it does progressively mean revert lower or remain fairly elevated. We’ll preview more later in the week. We’ll also get the numbers on US producer prices (Thursday), retail sales and industrial production (both Friday), so plenty for markets to watch out for. Chinese inflation tomorrow is also a potentially important release.

Back to the US, this week will also see President Biden hold a bipartisan meeting with House and Senate leadership, where the administration’s economic proposals are expected to be on the agenda.

The week is a quieter one from central banks, with all the major ones having made their latest monetary policy decisions for the time being. However, we’ll still hear from a number of Fed speakers over the coming days, with eight FOMC voters including NY President Williams (Tuesday), Governor Brainard (Tuesday) and Vice Chair Clarida (Wednesday). It was remarkable how choreographed the Fed speakers were last week. Is that good (shows unity) or bad (hints at reduced levels of debate)?

In the U.K. the Scottish question will remain in focus with the SNP just failing to win a majority but still seeing a strong set of results. With the Scottish Green Party they do have a pro-Independence majority. Staying on UK politics, this week will also see the Queen’s Speech take place tomorrow, which is where the government outlines its legislative agenda for the coming session of Parliament. We could see some interesting policy desires from a government emboldened by very good election results on Thursday.

Earnings season is winding down now, with more than 430 of the S&P 500 companies having reported. Nevertheless, we will get a few more releases this week, including 16 from the S&P 500 and a further 74 from the STOXX 600. Among the highlights include Marriott today, before Nissan and SoftBank report tomorrow. Then on Wednesday we’ll hear from Allianz, Deutsche Telekom, Iberdrola, Bayer, Commerzbank, Merck and Toyota. Thursday sees reports from Disney, Airbnb and Alibaba, and Friday includes Honda and Toshiba.

To recap last week, risk markets continued to reach new highs as cyclicals led the way. The poor US jobs number on Friday sparked a rally as it was interpreted that the Fed would remain accommodative for longer. This came after the Federal Reserve warned earlier in the week that markets were vulnerable to “significant declines” if risk appetite falters, but little seems to be affecting investors’ confidence for now. The S&P 500 rose +1.23% (+0.74% Friday) on the week to finish at a new record high, with the index having now risen 8 of the last 10 weeks. Cyclical sectors drove the majority of gains as banks (+4.43%), transports (+3.89%) and energy (+8.58%) stocks outperformed growth stocks on the week.

The NASDAQ fell back -1.51% (+0.88% Friday), while the mega-cap NYFANG index saw greater losses of -2.87%, which is third straight weekly loss for the heavily concentrated tech index. The VIX volatility index fell -1.7pts to 16.7, which is the second lowest weekly close in the implied volatility index since the start of the pandemic. European banks (+2.22%) rose to their highest levels post-pandemic as cyclicals also drove gains on this side of the Atlantic. European stocks overall reached their own record highs as the STOXX 600 gained +1.72% (+0.89% Friday) over the week, with the FTSE 100 (+2.29%) and IBEX (+2.77%) outperforming other bourses.

Commodity prices rose to their highest price levels since September 2011. Inflation worries and supply bottlenecks has seen the Bloomberg Commodity Index – comprised of 23 raw materials including oil, metals and agriculture products – rise +3.73% last week to its highest levels in nearly a decade, and +81% since the March 2020 lows. Copper futures gained +6.41% to reach its record high of its own, while Brent (+1.40%) and WTI (+2.08%) crude rose to their highest levels since early March. Prices on agriculture products have also risen sharply over the last few months with corn this week rising +4.43% and now up over +150% since August.

In a week where most asset prices rose, government bonds were no different. US 10yr yields finished the week -4.9bps lower (+0.8bps Friday) at 1.577% – the fourth weekly drop in yields over the last five weeks. The global benchmark is now -16.3bps lower than the March 31 closing highs of 1.74% although we did rise 9.5bps off the immediate post payroll lows into the close. The week’s move was driven by the drop in real rates (-14.8bps) which overcame the smaller, but substantial, rise in inflation expectations (+9.9bps). As discussed earlier, 10yr breakevens are now above 2.50% for the first time since April 2013. European rates also fell back last week with 10yr bund yields falling -1.3bps and UK gilt yields declining -6.7bps. In FX, the dollar index fell back -1.15% – the 4th weekly loss out of the last 5 and it now sits at its lowest levels since late February.

To finally complete the payroll picture we saw a very weak 266k print (vs 1.0mn expected). Additionally, March’s number was revised down to 770k (vs 916k previously). This would seem to take discussion of tapering off the table for the June Fed meeting and could raise questions on what constitutes a “string” of good data, which Fed Chair Powell said was among the parameters needed to begin talking about slowing bond purchases. The unemployment rate rose slightly to 6.1% (5.8% expected) from 6.0% the month prior.

Has Jeff Bezos overpowered the Pentagon with legal firepower?

Amazon’s legal battle with the Pentagon over its decision to grant its $10 billion JEDI cloud-computing contract to rival Microsoft may finally succeed in scuppering the program altogether.

WSJ reports that Pentagon officials are considering scuttling the program, possibly in favor of a different model that will involve parceling out pieces of the contract to various companies, something that would lower the legal risks associated with the project.

JEDI, or the ‘Joint Enterprise Defense Infrastructure’ contract, was awarded to Microsoft in 2019 over Amazon, which has contested the award in court ever since, claiming that then-President Donald Trump interfered to sway the award to Microsoft over Amazon over Jeff Bezos’ ownership of the Washington Post.

The Pentagon first suggested that it might cancel the program after a federal judge refused to dismiss Amazon’s challenge.

In order to avoid any future legal challenges, WSJ says the Pentagon would likely scrap JEDI and instead adopt an increasingly popular approach to consolidate its current patchwork of data systems via a contract that spreads the work across Microsoft, Amazon and the other major American firms who competed for the original JEDI contract.

Of course, according to the Pentagon, the US is falling further behind its adversaries every year that JEDI is delayed. The new IT framework is seen as essential for developed advanced AI technologies.

Republican Rep. Steve Womack called on the Pentagon last week to scrap JEDI and start fresh with a new contract-bidding process that would “enable best-in-class capability by prioritizing the ongoing competition that a cloud environment can promote.”

While Amazon declined to comment to WSJ for its report, Microsoft said that it’s ready to continue work on JEDI, though it understands the Pentagon’s legal predicament. “We agree with the U.S. [government] that prolonged litigation is harmful and has delayed getting this technology to our military service members who need it,” the company said. “We stand ready to support the Defense Department to deliver on JEDI and other mission critical DoD projects.”

While Microsoft investors probably wouldn’t welcome news of the company losing a $10 billion contract in favor of a more “collaborative” approach” envisioned by the Pentagon’s critics, at least the company has already secured its next major Pentagon contract – worth some $22 billion over a period of more than a decade  – to build AR headsets based on its much-malilgned “HoloLens”.

Malaysia’s quest to recover the billions of dollars looted from 1MDB, the sovereign wealth fund that was coopted as a political slush fund then ransacked by an enterprising young banker-turned-mogul-turned-fugitive named Jho Low, appears to be ensnaring more American banks.

Months after Goldman Sachs finally admitted to its role in enabling Low to steal government assets by raising money in a series of bond offerings for 1MDB, ignoring the red flags raised by its own compliance department about the risk of fraud and corruption, local Malaysian newspaper the Edge – which led much of the original reporting on the 1MDB fraud – has reported that the Malaysian government has filed lawsuits against JP Morgan and Deutsche Bank.

The Malaysian Finance Ministery, according to a Bloomberg report, has confirmed that 1MDB has filed six lawsuits alleging a range of wrongdoing including fraud and conspiracy to defraud the fund against nine unnamed entities, including two foreign financial institutions, and 25 individuals. Bloomberg’s sources have confirmed that the two foreign financial firms were JP Morgan and Deutsche Bank. The Edge also confirmed that both banks had been targeted with lawsuits. However, JPM declined to comment, while Deutsche Bank said it hadn’t been served any papers on 1MDB.

According to Bloomberg, Malaysia and the fund are looking to recover some $23 billion in assets.

The lawsuits mark the beginning of a new chapter in the ongoing fallout to the 1MDB fraud, which spawned investigations in Asia, Europe and the US. A sweeping probe by the DoJ ensnared Goldman and also led to seizures of movie rights, a megayacht, luxury apartments, jewelry and other goods allegedly purchased with ill-gotten gains by Low, who is believed to be hiding in China. The fraud in all of its complexity was described in the book “Billion Dollar Whale” by WSJ reporters Tom Wright and Bradley Hope.

“The Government’s recovery efforts are now focused on pursuing other wrongdoers who have caused losses to 1MDB and or SRC during the execution of their duties, as parties directly or indirectly involved in 1MDB and or SRC’s various operations and transactions,” Finance Minister Tengku Zafrul Abdul Aziz said in a statement.

Many other smaller financial institutions have also been penalized for their role in the 1MDB scandal. Ultimately, Singaporean regulators seized the license of a subsidiary of Falcon Bank, a Swiss bank operating in Singapore, and Ambank, a Malaysia-based bank, has paid out hundreds of millions of dollars in fines. Both banks offered banking services to 1MDB and Low.

Meanwhile, Malaysian courts are currently hearing an appeal from the legal tea of former Malaysian PM Najib Razak, who empowered the fraud’s masterminds – particularly Low – to loot the fund so long as it continued to finance the UMNO political machine with off-the-books spending to “motivate” Malaysian voters to turn out and support the party, which long held sway over Malaysian politics.

Shares of both JPM and Deutsche Bank moved lower on the news in premarket trading on Monday.

Authored by Michael Snyder via The Economic Collapse blog,

Did you know that the price of corn has risen 142 percent in the last 12 months?  Of course corn is used in hundreds of different products we buy at the grocery store, and so everyone is going to feel the pain of this price increase.  But it isn’t just the price of corn that is going crazy.  We are seeing food prices shoot up dramatically all across the industry, and experts are warning that this is just the very beginning.  So if you think that food prices are bad now, just wait, because they are going to get a whole lot worse.

Typically, Americans spend approximately 10 percent of their disposable personal incomes on food.  The following comes directly from the USDA website…

In 2019, Americans spent an average of 9.5 percent of their disposable personal incomes on food—divided between food at home (4.9 percent) and food away from home (4.6 percent). Between 1960 and 1998, the average share of disposable personal income spent on total food by Americans, on average, fell from 17.0 to 10.1 percent, driven by a declining share of income spent on food at home.

Needless to say, the poorest Americans spend more of their incomes on food than the richest Americans.

According to the USDA, the poorest households spent an average of 36 percent of their disposable personal incomes on food in 2019…

As their incomes rise, households spend more money on food, but it represents a smaller overall budget share. In 2019, households in the lowest income quintile spent an average of $4,400 on food (representing 36.0 percent of income), while households in the highest income quintile spent an average of $13,987 on food (representing 8.0 percent of income).

Needless to say, the final numbers for 2020 will be quite a bit higher, and many believe that eventually the percentage of disposable personal income that the average U.S. household spends on food will reach 40 percent.

That would mean that many poor households would end up spending well over 50 percent of their personal disposable incomes just on food.

At one time that would have been unimaginable, but now everything is changing.  As I noted above, the price of corn his increased 142 percent since this time last year…

Corn prices have jumped roughly 142% over the past year to $7.56 per bushel, the highest price seen in eight years for the crop.

A drought in Brazil and increased demand in China have put pressure on global suppliers.

In other areas we are seeing more moderate inflation, but overall we just witnessed the largest increase in food inflation “in almost nine years”…

The average prices in March of 2021 for pork chops and chicken breasts are both up more than 10% compared to March of 2020. Eggs and cheddar cheese are both up 6%.

Looking at all consumer goods as a whole, the latest inflation data in the Consumer Price Index from the U.S. Bureau of Labor Statistics shows the largest month-to-month increase in almost nine years.

Meanwhile, the price of lumber just continues to shoot even higher.

In New Jersey, one man says that the total cost of lumber used in building his new home will reach $70,000…

Tom McCarthy can’t finish building a home in Bergen County, New Jersey because of the lumber shortage.

“There are pieces of wood that we can’t find,” said McCarthy, a real estate broker with the Chen Agency who also builds homes with his father on the side.

McCarthy estimates the cost of lumber for the home will hit $70,000, nearly double the cost of building the exact same home in a nearby town just eight months ago.

Isn’t that nuts?

Instead of building a new home, you could try buying an existing one instead, but real estate prices in many areas have gotten completely insane.

In northern California, one house recently sold for more than a million dollars over listing price…

When a house in Berkeley sold for more than $1 million over its list price in late March 2021, it was covered in media outlets across the Bay Area, including this one.

While the Berkeley sale was particularly sensational — it sold for double its list price and received 29 offers — these individual stories are becoming more common in today’s real estate market, according to recent data and anecdotes from real estate professionals.

I never imagined that I would see such a thing happen.

But one real estate agent says that such wild bidding wars are becoming increasingly common…

And that’s especially true in the East Bay. “People are not surprised when a home goes $1 million over,” said Josh Dickinson, the founder of real estate agency Zip Code East Bay. “When my clients see a house for $1.9 million they’re almost conditioned to think it’ll go over $3 million in Piedmont or North Berkeley.”

This is what the beginning stages of hyperinflation look like, but Federal Reserve officials insist that we have nothing to be concerned about.

In fact, Eric Rosengren just told the press that the crazy inflation we are seeing now “is likely to prove temporary”…

Boston Federal Reserve President Eric Rosengren in an interview with MarketWatch on Wednesday dismissed talk of scaling back asset purchases as premature, and said temporary factors pushing up inflation this spring won’t last.

“My view is that this acceleration in the rate of price increases is likely to prove temporary,” Rosengren said Wednesday.

Do you believe him?

I don’t.

As Simon Black has pointed out, the federal government is just going to continue to borrow and spend trillions upon trillions of dollars…

This is the big one. The US federal government is hoping to spend a whopping $11 TRILLION this year, between the regular budget, COVID stimulus already passed, and all the new legislation they’re proposing.

And it’s only May.

Obviously Uncle Sam doesn’t have the money. So they have to borrow it.

Almost everybody loved it when the federal government started sending out big, fat stimulus checks.

But you aren’t going to love it when a cart of food costs you $400 at the grocery store.

Whenever the government hands out “free money”, someone has got to pay for it, and one way we are paying for it is through higher prices.

If you do not believe that this is a major national crisis yet, you will soon, because it won’t be too long before most of the country is loudly complaining about how nightmarish inflation has become.

*  *  *

Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.

The ongoing semi chip crisis is starting to force the auto industry to strip some high tech features out of vehicles.

Automakers like Nissan are leaving navigation systems out of “thousands of vehicles” that would typically have them due to the shortage, according to a new report from Bloomberg. Dodge’s Ram no longer offers its 1500 pickups with an “intelligent” rearview mirror. 

Similarly, Renault has stopped offering an oversized digital screen behind the steering wheel of its Arkana SUV. 

Peugeot is reverting back to analog speedometers for its 308 hatchbacks and General Motors said it was building Silverado pickups without a fuel-economy module that would necessitate chips. 

A Stellantis spokeswoman told Bloomberg: “Given the fluid nature of this complex issue, Stellantis employees across the enterprise are finding creative solutions every day to minimize the impact to our vehicles so we can build the most in-demand products as possible.”

Analysts seem to be in agreement that the shortage isn’t going to let up anytime soon. Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein, told Bloomberg: “This probably gets worse before it gets better. It just takes a long time to bring this capacity online.”

“Millions” of vehicle sales will be lost this year as a result of the disruption, the report notes. 

The shift to EVs has also helped keep the pressure on demand for the chips, NXP Semiconductor NV Chief Executive Officer Kurt Sievers said. NXP is planning to ship 20% more auto chips by revenue in 1H 2021 compared to 1H 2019 – despite the fact that car production has dropped about 10% over the same period. 

Just yesterday we pointed out “thousands” of Ford trucks sitting along the highway in Kentucky, awaiting semi chips for completion of assembly. 

Recall, days ago, we noted that Stellantis said there would be “no end in sight” to the shortage and that the company was making changes to its lineup, including changing the dashboard of the Peugeot 308, to try and adapt to the crisis. 

Intel’s CEO, speaking on 60 Minutes last Sunday night, said: “We have a couple of years until we catch up to this surging demand across every aspect of the business.” Days prior, we wrote that Morgan Stanley had also suggested the shortage could continue “well into 2022”. 

Two weeks ago, Ford was the latest auto manufacturer to slash its expectations for full year production as a result of the shortage.

Prior to Ford’s report, we wrote about how the chip shortage was becoming a self-fulfilling prophecy, due to a shortage of chipmaking equipment. In the days leading up to that report, we wrote that Taiwan Semiconductor was also warning that the global chip shortage may extend into next year.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Despite their hollow bleatings about ‘doing all we can to achieve full employment’, the Fed’s policies has been Kryptonite to employment, labor and the bottom 90% – and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

As wealth and income inequality soar to new heights thanks to the Federal Reserve’s policies of zero interest rates, money-printing and financial stimulus, the Fed says its goal is to create more jobs. Really? OK, let’s look at how the Fed’s doing with that.

I’ve assembled a chart deck to display the consequences of Fed policies on debt, wealth inequality and employment. Recall what Fed policies actually do:

1. Zero interest rate policy (ZIRP) destroyed the low-risk return on savings and money market funds, stripping everyone not in the Fed-privileged rentier-speculator-financier class of safe, real returns on capital.

2. Zero interest rate policy (ZIRP) lowered the cost of speculation by financiers and corporations but left the interest rates paid by the working poor for credit cards, auto loans and student loans at extortionate rates.

3. QE–quantitative easing–creates trillions of dollars out of thin air to buy U.S. Treasury bonds, enabling no skin in the game federal spending and funneling trillions of dollars of nearly free money into the soft greedy hands of the rentier-speculator-financier class, not into the real economy.

4. Both ZIRP and QE incentivized borrowing low-cost billions to speculate in assets, inflating unprecedented debt-leverage-driven assets bubbles which have now infected every asset class: The Everything Bubble.

Here is the Fed policy in a nutshell: working, saving and prudent investing–you get nothing. You’re already rich, borrow huge sums and leverage up speculative bets–you win big. Recall that the rentier-speculator-financier class has no skin in the game because the Fed and other agencies rush in to bail out all their losing bets, while the bottom 99.9% are left to twist in the wind should they foolishly follow the billionaires into risky bets.

In the world the Fed has created, work is for chumps, the way to get rich is borrow, leverage and speculate.

Note that this chart deck is from the Federal Reserve database except for one chart from the Washington Post.

So what are the consequences of Fed policies on debt, wealth inequality and employment? Let’s have a look.

The Fed balance sheet, i.e. money it creates out of thin air: a near-vertical line up.

Federal debt, i.e. money borrowed by selling Treasury bonds: a near-vertical line up.

Total debt, i.e. what the Fed encourages everyone to do–borrow more!: a near-vertical line up.

Net worth of the top 1% and top 90% to 99%: massive increases since 2009 and more recently, a moonshot higher. The bottom 50%, meanwhile, is flatlined near zero.

Thanks to the Fed, the top 0.1% own more wealth than the bottom 80%. Thanks to the Fed. the rentier-speculator-financier class has done very well, the top 90-99% have ridden the Fed’s coattails nicely, but the bottom 80% have been left in the dust. Good job, Fed!

While the Fed printed and distributed trillions to the rentier-speculator-financier class, labor’s share of the economy has been in a free-fall. Working is for chumps, gambling with Fed money is for winners. And if you lose, the Fed bails you out. The Fed casino is the place to be for guaranteed winnings–if you’re already rich, of course.

The Fed’s policies are all based on the trickle-down theory that when billionaires get richer, some magic pixie-dust miraculously drifts down to the bottom 50%. Oops. The bottom 50% lost ground while the billionaires reaped billions. Gosh, I wonder why the financial media bows down and worships the Fed as living gods.

Since the Fed is doing all this wealth creation in the top 0.1% to create jobs, let’s look at the labor participation rate, the percentage of the labor force which is employed in some fashion. Hmm, that topped out in 1999 and has been in a freel-fall since.

The percentage of the population that’s employed has a very similar pattern, topping out in 1999 and then dropping to new lows every time the Fed’s speculative bubbles pop.

Despite their hollow bleatings about doing all we can to achieve full employment, the Fed’s policies has been Kryptonite to employment, labor and the bottom 90%–and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

So Fed governors, lackeys and apologists, please explain again how making billionaires richer creates jobs, fosters employment and benefits the bottom 90%. If the Fed was actually attempting to bolster the income and wealth of the laboring class, it has failed miserably by every meaningful metric. If, on the other hand, Fed policy was always aimed at further enriching the top 0.1%, top 1% and corporations, then the Fed has reached the pinnacle of success.

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