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Global equities are gliding serenely into the end of 2019, even in the face of a dire economic landscape. To justify an exuberance that looks anything but rational, global activity will need to turn around dramatically.

After a brief moment back above zero, Citigroup’s global economic surprise gauge has dropped back into negative territory

Maybe that’s why markets have been so eager to celebrate data beats such as U.S. GDP and China Caixin PMIs, despite indicators remaining at anemic levels. Shockingly poor releases last week like the South Korean and Japanese industrial output, or the Chicago PMI were shrugged off as revealing nothing new. [ZH: today’s dreadful ISM however was not as easily overlooked].

While the overall tone of the data being released is far more stable, the tinge of green in the economic landscape is more redolent of a stagnant swamp than shoots ready to sprout.

Just look at 3Q U.S. GDP. The 2.1% second reading beat expectations, sure, but it isn’t anything to get hugely excited about. Economists forecast the U.S. will expand less than 2% in each of the next two years — the slowest pace since the 2009 recession.

Meanwhile, global GDP sagged dramatically last year as stocks melted down. Since then, activity has stayed depressed even as equities rebounded.  This behavior is at odds with past episodes – typically growth and stocks bounce back together after such a decline.

Hence the stubborn bid for bonds, which have been reflecting a fragile global economy all year. That’s why swaps are still pricing in rate cuts for many major central banks.

Recent equity rallies were largely driven by optimism the U.S. and China will reach a phase-one deal, so much of the trade upside has been priced in. A milquetoast accord, or more prevarication could lead to a savage reversal. Even a strong agreement would leave stocks still in need of a data rebound to justify further gains.

If economic prospects darken, central banks are just about out of ammunition. Further Fed easing from here would signal the previous insurance cuts failed to head off recession. The 2019 FOMO rally’s resilience has taken it far enough in the face of a cloudy forecast.

Any declines from here could get very steep indeed.

Via SchiffGold.com,

Have you heard? The Democrats are going to fix the student loan mess! They’ve brought up the issue in almost every  Democratic Party presidential debate. All we need is a good government program and we can easily solve this $1.64 trillion problem.

Never mind that government programs caused the problem in the first place.

The student loan bubble continues to inflate. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record. Student loan balances have grown by 5.1% year-on-year.

Over the last decade, student loan debt has grown by 120%.  Student loan balances now equal to 7.6% of GDP. That’s up from 5.1% in 2009. This despite the fact that college enrollment dropped by 7% between 2010 and 2017, with enrollment projected to remain flat.

In a nutshell, we have fewer students borrowing more money to finance their educations.

Before the government got involved, college wasn’t all that expensive. It was government policy that made it unaffordable. And not only did it manage to dramatically drive up the cost of a college education, but it also succeeded in destroying the value of that degree. Peter Schiff summed it up perfectly:

Before the government tried to solve this ‘problem,’ it really didn’t exist.”

Peter isn’t just spouting rhetoric. Actual studies have shown the influx of government-backed student loan money into the university system is directly linked to the surging cost of a college education.

Millions of Americans carrying this massive debt burden is a big enough problem in-and-of-itself. But it becomes an even more significant issue when you realize the American taxpayer is on the hook for most of this debt. Education Secretary Betsy Devos admitted that the spiraling level of student debt has “very real implications for our economy and our future.”

The student loan program is not only burying students in debt, it is also burying taxpayers and it’s stealing from future generations.”

This is yet another bubble created by government. Despite the campaign rhetoric coming out of the Democratic Party presidential primary debates, it seems highly unlikely Congress will do what is necessary to address the growing student loan bubble. And the Democrats’ solution seems to be to simply erase the debt – as if you can just make more than $1 trillion vanish without serious implications.

Like all bubbles, this one will eventually pop.

The bottom line is that the student debt bubble will ultimately impact US markets and average Americans.

*  *  *

You can learn more, and how to prepare yourself, in Peter’s white paper The Student Loan Bubble: Gambling with America’s Future. Get the free download HERE.

In her much anticipated first appearance as president of the ECB before at the European Parliament, Christine Lagarde asked EU lawmakers on Monday to give her time to “learn the ropes” of her new job and to reshape the ECB’s monetary policy in what is likely to be a lengthy policy review, and said the ECB will be “resolute” in restoring euro-zone price stability, while stressing that an upcoming strategy review will be wide-ranging, including climate change as well as inflation.

“The ECB’s accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place,” she said ahead of her first monetary policy meeting at the ECB on Dec. 12.

Similar to the Fed, the former convicted criminal and IMF chief who left Argentina near bankruptcy, has promised an overarching review of ECB business ranging from how it defines its inflation objective to whether it includes a fight against climate change among its responsibilities.

“I’m indeed trying to learn German but I’m also trying to learn central bank language,” Lagarde, a former lawyer told the European Parliament’s Committee on Economic and Monetary Affairs in a regular hearing. “So bear with me, show a little bit of patience, don’t over-interpret, if I may say,” said a seemingly nervous Lagarde, who often diverged from the text of her prepared speech and stumbled at times, leaving out phrases or repeating herself.

Lagarde said that a key focus of the review would be to determine whether its objective of keeping inflation at close to but below 2% was still valid, given changes in the global economy.

Speaking a day after it was unveiled that the Fed – which is also in the process of reviewing its policies – was considered launching a new rule that would let inflation run above its 2% target to make up for lost inflation, Lagarde also said the review would look at whether the target should by symmetric, meaning it should be used to tackle both low and high inflation and not just the latter, if the ECB should have leeway in reaching that target, or whether there should be a tolerance band around it.

Of course, just like the Fed, the issue for the ECB is two-fold:

i) ignoring soaring asset price inflation which is where central banks have blown the biggest asset bubble in history, and

ii) failing to properly measure consumer price inflation, instead applying a spate of adjustments that make it seem inflation is subdued when in reality for many prices are rising so high, the cost of living is no longer bearable.

Then there is the question of whether targeting higher prices is sensible at a time when the middle class is shrinking across the developed world. As a reminder, back in June, a Bloomberg report looked at the stark disconnect between Fed policy and well, everybody else but banks and the 1%.

While the Fed sees low inflation as “one of the major challenges of our time,” Shawn Smith, who trains some of the nation’s most vulnerable, low-income workers stated the obvious: people don’t want higher prices.  Smith is the director of workforce development at Goodwill of Central and Coastal Virginia.

In fact, he said that “even slight increases make a huge difference to someone who is living on a limited income. Whether it is a 50 cents here or 10 cents there, they are managing their dollars day to day and trying to figure out how to make it all work.’’ Indeed, as we discussed in  “How The Fed’s New Monetary Policy Will Crush America’s Poorest“, it is the low-income workers – not the “1%”ers, who are most impacted by rising prices, as such all attempts by the Fed to “help” just make life even more unaffordable for millions of Americans.

None of this was a concern to Lagarde, however, who said taht the ECB’s “strategy review will be guided by two principles: thorough analysis and an open mind,” Lagarde told lawmakers. “This will require time for reflection and for wide consultation.”

In a recent note, HSBC discussed several options in terms of changing the mandate, from small tweaks to more fundamental changes, which the ECB may pursue. The problem, however, as HSBC noted is that the success of some of these options depends on the degree of confidence in the ECB’s ability to meet it. As a result, the risk of creating a new mandate, only to fail to achieve it as soon as it is implemented, is significant, particularly with policy already so loose and little left in the tank. This was a risk already flagged by Mario Draghi at the September meeting.

These risks, alongside seemingly inevitable compromises in the Governing Council – hawks will likely be averse to any option that risks persistently elevated inflation – lead HSBC to believe that if there will be changes in the ECB mandate as a result of the strategic review, they are likely to be fairly minor. Even moving to a 2% inflation target – removing the uncertainty created by the “below, but close to” – might be too contentious for some.

None of this prevented Lagarde from thinking big. As in climate change big. Because what was more shocking for a central bank which admits it has failed dismally in hitting its price inflation, was its mission creep into seeking to “tame” climate change as well. 

Many of the questions at the parliament hearing focused on climate change, an area where the central bank has come under increasing pressure to play a bigger role. In response, Lagarde said that while inflation is the bank’s primary objective, the fight against climate change should be a central part of policy. She said that the ECB’s economic analysis should include the impact of climate change and that its bank supervision arm should also be asking lenders for transparency disclosures and climate risk assessments.

And the punchline: while the ECB’s private sector bond purchases have been market neutral, Lagarde said it was also worth discussing whether climate concerns should impact the ECB’s QE.

How would that work we wonder: “It’s hot outside, so let’s print more money?”

So far the ecofascists have not completely taken over yet, and as we reported previously, German Bundesbank President Jens Weidmann warned against heavy-handed steps such as barring the bonds of polluters from QE, as proposed recently by a group of activists and academics in an open letter to Lagarde. Lagarde said she agreed with Weidmann, but that it doesn’t stop the ECB looking into incorporating climate change into its operations, economic analysis and bank supervision.

To be sure, any mission creep in the ECB’s mandate will only serve to make future monetary easing, well, easier and what better virtue-signaling smokescreen than to use “global warming” as an excuse to print an extra trillion here and there.

Ironically, her linking of QE to climate change took place even as she acknowledged the adverse side effects of the ECB’s ultra-loose policy, and said the review will try to gain a better understanding of how longer-term trends affect what the central bank can control.

One wonders: perhaps the ECB should have conducted such reviews before it bought nearly €3 trillion in assets starting in 2015, long after the European sovereign debt crisis was over, and was merely meant to stabilize risk prices and avoid a market crash.

The take home message however was clear: it is now only a matter of time before the ECB becomes the EcoCB and is “tasked” with a loose, vague and intangible climate change mandate, one which gives the central bank a carte blanche to do virtually anything “in the name of the environment.” Sure enough, at the Parliament hearing, Lagarde said that while the ECB’s primary mandate is price stability, the secondary mandate – to support the general economic policies of the European Union – can cover climate change. European Commission President Ursula von der Leyen has pledged to turn Europe into the first climate-neutral continent in the world by 2050, and green parties made significant gains in recent parliamentary elections.

Finally, reaffirming the ECB’s most recent assessment of the economy, Lagarde added that growth looks weak but that the ECB was determined to use all it available tools to reach its mandate.  Asked to predict what the inflation rate will be in eight year’s time when her term ends, Lagarde refused.

“I don’t think that anybody in their right mind would venture to forecast any number, be it growth or inflation, eight years from today,” she said, yet clearly confident it is her job to predict how the climate will do over the same time period.

Via S&P Global Platts Insight blog,

As COP25 kicks off in Madrid, S&P Global Platts editors take a look at the CO2 impact from OPEC oil production. European gas and nuclear, and IMO 2020’s impact on commodities as diverse as fuel oil and iron ore, are also on the agenda in this week’s pick of charts.

1. OPEC oil-only CO2 output dwarfs EU total emissions

Click to enlarge

What’s happening? OPEC is meeting this week to decide on output quotas, but climate change isn’t on the agenda for the group of 15 major oil producers. OPEC’s total crude output for 2018 would have been responsible for carbon dioxide pollution equal to 5 billion mt, calculated based on average emissions figures for oil from the US Environmental Protection Agency (EPA). That exceeds Europe’s total emissions of the greenhouse gas, from all sources, last year. The cartel currently has no plan in place to mitigate the impact its oil has on global warming despite the growing pressure from consuming nations and business to cut back investment in fossil fuels.

How did we get to these numbers? A barrel of crude weighs about 300 lb, or 136 kg. The CO2 from fuel weighs more than the fuel itself because the carbon element combines with oxygen in the air to form CO2 gas. Carbon-based fuels derived from oil give off CO2 which is on average 3.15 times the weight of the fuel. A standard barrel is 159 liters, and in the US gets refined into 44.1% gasoline, 20.8% distillate fuel oil, 9.3% kerosene-type jet fuel and 5.2% residual fuel oil. So an average barrel of oil will produce at least 317 kg CO2 for just the above four fuels, making the EPA’s average figure of 430 kg seem quite sensible.

What’s next? OPEC and its allies, which pump more than 45% of the world’s crude, are scheduled to meet on December 5 and December 6 in Vienna where a decision on a possible extension to the production cut deal could be taken. The gathering coincides with the 25th Conference of the Parties, or COP, held in Madrid where 200 countries will discuss climate change action as new figures released by the World Meteorological Organization show that green house gas levels reached their highest recorded levels last year.

2. European gas spot prices have risen but December turns bearish

What’s happening? Europe’s benchmark prompt gas contract, the Dutch TTF Day-ahead, crept to a seven-month high last week despite healthy supply. Lower temperatures, reduced storage withdrawals and continued buying combined to tighten the market. The contract has risen Eur6/MWh since October 31, when it dipped below Eur10/MWh. Utility traders are holding onto stocks in anticipation of a greater premium in Q1 2020.

What’s next? While Q1 2020 TTF gas remains over Eur16/MWh, front month December is coming under pressure as Europe’s gas glut looks set to continue. A deluge of LNG is expected to complement already comfortable Russian and Norwegian supply, while gas is seen by market participants as detaching from carbon, and temperatures forecasts have ticked up. Q1 2020 has been more resistant to bearish sentiment because of the risk that transit talks will fail between Russia and Ukraine.

3. French nuclear at record-low lifts December power prices

What’s happening? French nuclear generation is set for a record-low fourth quarter due to maintenance delays and safety inspections at the Cruas nuclear plant following an earthquake. November output averaged 40 GW, down 11% on year, the third month in a row with a double-digit on year decline.

What’s next?  17 of France’s 58 reactors won’t be available at the start of December. French spot power prices are set to hit their highest so far this winter this week despite a generally bearish market, characterized by cheap gas and growing wind output. Colder weather is set to boost demand above 80 GW on Tuesday for the first time this winter with a strike looming as well on Thursday. French gas and coal plants are poised to fill the nuclear shortfall, while stronger hydro and reduced exports should act to ease French price.

4. IMO 2020 sends high sulfur fuel oil cracks tumbling…

What’s happening? Global cracks for high sulfur fuel oil have weakened sharply over the past two months after a year of abnormal strength, reflecting the drastic change in oil products demand due to the International Maritime Organization‘s impending sulfur limit on marine fuels. This month regional prices for HSFO in Asia, Europe, Africa, and the Americas have all reached record discounts to crude as demand falls in the run-up to the IMO 2020 rule limiting sulfur content to 0.5% from January 1, although in some regions they have rebounded somewhat in the past two weeks.

What’s next? Most market watchers believe HSFO prices have now largely bottomed out and are set for a recovery next year. Uncertainty persists, however, over the extent of recovery as pricing economics and uptake of exhaust gas scrubbers – which allow ships to continue burning HSFO – will play a key role in determining HSFO demand.  Looking ahead to 2020, the HSFO crack forward curve in Europe is in contango, suggesting regional prices are already set for a recovery.

5. …and complicates shipping costs for iron ore buyers

What’s happening? Iron ore contract buyers this year may be paying as much as $10/dmt more for FOB cargos using industry freight formulas, rather than pricing off spot freight rates. Freight rates are used for invoicing FOB iron ore prices based on benchmark China CFR indices such as Platts IODEX 62% Fe, and Platts 65% Fe fines index. Greater comparative volatility has emerged between spot and long-term industry freight formulas, for Brazil-China Capesize dry bulk rates used to reference contract FOB iron ore prices. Agreeing formulas rather than spot rates may be becoming more complex as bunker oil, a key component in determining long term freight rates under formulas, switches to use lower sulfur marine fuel under IMO 2020 fuel regulations.

What’s next? The extent to which IMO 2020 affects bunker fuel prices and demand for grades consumed, and continued use of industry longer-term freight formulas, remains to be seen. The changes in fuel oil and shipping rates may be discussed by iron ore buyers as they move into new iron ore pricing contracts for 2020 calendar year and fiscal 2020-2021 terms. Some suppliers are already moving contract pricing terms away from formulas to reference spot freight rates, to simplify pricing comparisons with iron ore delivered to markets in China and the rest of the world.

6. Corn prices shoot up in Brazil’s Mato Grosso

 

What’s happening? Corn prices in Mato Grosso, Brazil’s largest producer, are surging as supplies dwindle and domestic consumption rises, according to Mato Grosso Institute of Agricultural Economics. The state accounts for over 42% of second corn crop, or safrinha, produced in the country. Last week, corn prices in the state hit Reais 29.51 per 60 kg ($116.39/mt), up 53% from the same period a year ago. Strong domestic demand is mainly coming from the ethanol and animal protein industries.

What’s next? As Brazil is the world’s second-largest corn exporter, markets will be closely watching the price movements, as higher corn prices may encourage farmers to expand the crop area for second corn. The second corn planting in the state begins in February. Any increase in domestic consumption is also expected to reduce the supply for exports. The state exported 18.8 million mt of corn in January-October, 54% of Brazil’s total exports of the crop, up from 17.7 million mt in the full calendar year of 2018.

Joe Biden is reinventing himself as he embarks on an eight-day bus tour of Iowa, a key state which he’s largely failed to impress – unlike many of his Democratic competitors angling for the White House in 2020.

Fired up and ready to go for the #NoMalarkey barnstorm! pic.twitter.com/4lpU7waqzh

— Joe Biden (@JoeBiden) November 30, 2019

The “No Malarkey!” tour got off to an awkward start on Saturday, when Joe bit former Second Lady Jill Biden on the finger as she introduced him at a Council Bluffs kickoff event.

One almost has to feel sorry for Jill. After going out on a high note in 2016, she watched the establishment reanimate her senile husband – only to have clips of him creeping on women and children flood the internet. Then there was Hunter Biden’s rental car crackpipe adventures, Burisma, and now an out-of-wedlock grandchild with an Arkansas stripper. And then Joe bites her finger as they announce the stupidest campaign slogan ever.

“We’re going to go to 18 counties, on a 660-mile trip across the state, and we’re going to touch on what we think is a forgotten part of most campaigns — the rural part of your state, rural America,” said Biden, speaking at the Saturday event.

For months, Biden’s campaign has been dogged by criticism among supporters and critics alike that his Iowa operation was slow to get off the ground. Given the nature of the caucuses, where voters choose the nominee by gathering in public spaces like school gymnasiums, churches and community centers for one night in February, a robust organization that encourages people to participate is critical to success. –Bloomberg

Aside from the eight scheduled stops, Biden will take two side-trips; one in Chicago to raise money – returning to Iowa on Tuesday for a single organizing event in Mason City, and then a jaunt to New York that evening to attend more fundraisers before returning on Wednesday afternoon for more Iowa action.

“I’m running to win. I’m not running to lose. I’m not running to come in third or fourth or fifth or anything like that. So I feel good about it,” said Biden.

No Malarkey?

Seeking to turn Biden into an affable elder statesman after a series of ‘Mr. Magoo’ gaffes, the Biden camp decided to go hard at the depression-era demographic with the slogan “No Malarkey!” – something his grandfather used to say.

As Bloomberg describes it, “The “No Malarkey” theme — emblazoned on the side of Biden’s tour bus — nods at both the candidate’s reputation for truth-telling and Trump’s supposed aversion to it.”

“The other guy’s all lies, so we want to make sure there’s a contrast,” said Biden at one stop.

Of course, things may get awkward when someone asks Joe about ‘if you like your health care plan, you can keep it,” or discussing Hunter’s business dealings with his stimulant-addicted son.

Is Biden campaigning for Trump? “Look at the promises made. Look what’s happening now, Iowa is growing, Iowa is moving” pic.twitter.com/wigJJEgkOH

— Benny (@bennyjohnson) December 2, 2019

Biden will be traveling with former Iowa governor Tom Vilsack, who served as Obama’s agriculture secretary. Also joining the tour will be Vilsack’s wife, Christie.

As he stops in small towns, he’s sure to allude to rural values and rural needs and to mention that he’s secured the support of Vilsack, the popular two-term governor, who urged Hillary Clinton’s 2016 campaign to spend more time in rural areas.

“With all due respect to folks who talk about bold, new ideas, the reality is, you’re going to have an incredibly difficult time until the country comes together,” Vilsack told Bloomberg news in an interview in November. –Bloomberg

That said, Vilsack thinks Biden – the current Democratic frontrunner, is best positioned to enact progressive change because he appeals to a much broader audience than other candidates – particularly in swing states. 

“The vice president is speaking to a much broader audience than some of the other candidates. I think he’s speaking to the audience that any Democrat is going to have to speak to consistently through this campaign in order to have the people who will decide this election in Pennsylvania and Michigan and Iowa and Wisconsin basically saying, ‘Yeah this guy has been consistent throughout,’” said Vilsack.

If Biden’s attempt to reinvent himself in Iowa doesn’t work as planned, what does it mean for the rest of the 2020 campaign?