China Makes Move On Riyadh As Washington Considers Sanctions

China Makes Move On Riyadh As Washington Considers Sanctions

Submitted by James Durso of OilPrice,

Panda Express isn’t just a fast-food chain in Saudi Arabia. Soon it’ll be the daily Air China flight bringing Chinese businessmen and officials to the kingdom.

Saudi Arabia recently achieved the distinction of joining Turkey as an American ally subject to sanctions.

The sanctions followed the U.S. Director of National Intelligence report that an operation to “capture or kill” Saudi activist (and Qatari agent of influence) Jamal Khashoggi in October 2018 was “approved” by Saudi crown prince Mohammed bin Salman.  

U.S. Treasury Department sanctions targeted Saudi officials and the Rapid Intervention Force, the crown prince’s bodyguards. The U.S. State Department announced the “Khashoggi Ban,” a visa restriction policy targeting 76 Saudis believed to have acted against activists, dissidents, or journalists. The Biden administration announced it would consider limiting Saudi arms sales to “defensive” weapons.

The American sanctions and visa restrictions left the Crown Prince unscathed for now, but many in Washington are still angry he sidelined their candidate for the throne, former interior minister Muhammad bin Nayef, and may hope to criminalize him to scupper improved relations with Israel, and move him out of the line of succession.

Financial markets took the two-year-old news in stride, and the crown prince’s allies claimed the report was a “practical victory” as it lacked details and “used equivocal words like ‘probably.’” (The report’s phrase “capture or kill” left open the possibility things just got out of hand.) The Saudi foreign ministry declared  the government “categorically rejects the abusive and incorrect conclusions” and affirmed the “enduring partnership” between the kingdom and the U.S.

Not so the media, who feel “Biden is doing the same thing as Trump” or  Representative Adam Schiff (D-CA), who thundered, “There must be accountability, and we will continue to press for it.”

Biden’s announcement the U.S. would re-join the Iran nuclear deal, and a U.S. pause in arms sales to Saudi Arabia over the brutal campaign against Iran’s proxies in Yemen, signaled Washington’s intent to align itself with Iran. But some relief is in sight for Riyadh: the kingdom’s growing relationship with China, which is now receiving over 2 million barrels of oil per day from Saudi Arabia, its largest supplier.

Riyadh will remind Beijing it did them a solid when Mohammed bin Salman defended China’s treatment of its 10 million Muslim Uighurs. (Though, like governments everywhere do when they do something unpleasant, it was couched as “counter-terrorism and de-extremism measures.”

The relationship with China goes back to 1986, when the Saudis bought about 50?Chinese CSS-2 ballistic missiles.  Saudi Arabia was the largest relief donor following the 2008 Sichuan earthquake, and it recently offered support after the COVID-19 outbreak. Though the relationship has been described as “functional, but not strategic” and won’t replace the American relationship, better Sino-Saudi ties will give Riyadh breathing room.

Beijing will be glad to increase its influence on both shores of the Persian Gulf. It has secured a  partnership with Iran and has boosted BRI links with Saudi Arabia, but it will work to avoid getting drawn into regional conflicts to safeguard its $150 billion investment in the Gulf region.  In the kingdom, China will pursue additional sales of high-technology goods, and seek to invest in Mohammed bin Salman’s showplace, the $500 billion NEOM, the “first cognitive city.” One venue for Sino-Saudi cooperation – and a signal to the U.S. – would be adoption of the Yuan in place of the Dollar in payment for hydrocarbon sales to China.

Aside from moving closer to China politically and economically, Saudi Arabia may diversify its weapons suppliers and China is the kind of no-conditions seller every buyer wants. And the kingdom may start to “make” instead of “buy” by growing the capability of Saudi Arabian Military Industries so it is  less vulnerable to a parts cutoff by the U.S. 

Qatar, Bahrain, and the United Arab Emirates voiced their support for Saudi Arabia as Washington’s actions probably reminded them how quickly the U.S. abandoned longtime ally Hosni Mubarak for the Muslim Brotherhood. As Cairo, Jerusalem, and Abu Dhabi ponder Iran’s next steps and the shape of their mutual support, the potential for a U.S. reversal will be baked in. Accordingly, they may explore broader relations with Beijing.

Two days after announcing sanctions, the White House undermined itself when it justified the absence of action against the crown prince by explaining “The United States has not historically sanctioned the leaders of countries where we have diplomatic relations or even some where we don’t have diplomatic relations,” which is surely news to Syrian President Bashar al-Assad. It’s a far cry from Candidate Biden’s boast he would “make them [Saudi Arabia] in fact the pariah that they are.”

To be sure nothing was lost in translation, the State Department then said “We are very focused on future conduct,” and so grandfathered Khashoggi’s killing.  

So, the U.S. “circled back” to business as usual over a few days, but it was few very illuminating days for America’s friends and enemies.

Saudi Arabia faces a rough patch, but the U.S. faces a dilemma: It pined for a youthful modernizer  who would liberalize the economy and put the kingdom on a “new religious trajectory.” Now that it has him, what does it do if he commissions a murder and doesn’t seem worried he was found out?

Tyler Durden
Thu, 03/04/2021 – 21:00

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A Preview Of What’s Coming: Vaccinated Americans’ Spending On Air Travel Soars

A Preview Of What’s Coming: Vaccinated Americans’ Spending On Air Travel Soars

In the week following the unprecedented Texas cold blast which literally froze spending both the plains states and, to a lesser extent, across the US…

…  the latest BofA aggregated credit and debit card data showed that, as expected, total card spending rebounded to 3.5% yoy for the 7 days ending February 27th as the deep freeze lifted.

Some observations from the bank’s economists:

Winter blizzard recovery: Combined total card spending in TX, LA, OK, MS, AR, and TN jumped to +6.5% yoy for this 7-day period from -25% yoy the prior week (Exhibit 13).

Low income slowdown: Total card spending for the low income cohort has slowed, owing to a delay in tax refunds. As shown in the chart below, tax refunds are running about 2 weeks behind last year.

Naturally, this impairs the yoy growth rate in spending, particularly for the lower income population. However, BofA expects spending to be boosted in mid-March when tax refunds accelerate, especially if it overlaps with the next fiscal stimulus, at which point we may see a supernova in spending.

But perhaps the most interesting data point in the latest weekly spending report from BofA was the bank’s focus on spending trends amongst older Americans, or as BofA calls them “traditionalists” which are aged 73 –92, who are most likely to have received the COVID vaccine.

In particular, spending on airfare surged for traditionalists as compared to other generations – this can be seen in the chart below which shows the indexed level of average spending by cohort to June 2020; traditionalists – i.e., vaccinated Americans’ – spending is now 4X the level in June.

As an aside, BofA did not see the same spending surge for lodging which may suggest that traditionalists are traveling to see family rather than take vacations.

Finally, spending at restaurants and bars increased modestly for this cohort recently relative to other age cohorts but there was little difference in brick & mortar retail spend.

Tyler Durden
Thu, 03/04/2021 – 20:40

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To Defend Conservative Media, GOP Must Defend The Constitution

To Defend Conservative Media, GOP Must Defend The Constitution

Authored by Rick Santorum via RealClear Politics (emphasis ours),

Republicans have long understood that the modern Democratic Party has little patience for free expression. Leftist speech police shut down debate on college campuses; biased media outlets like MSNBC lambasted President Trump’s language instead of discussing his policies; and now congressional Democrats are looking to cancel conservative media outlets like Fox News and Newsmax.

It is critical that conservatives don’t allow the left to ignore the First Amendment or make it irrelevant. Free speech is a core value that has made America the best country in human history. That’s why last summer I asked conservative consumers to press social media to allow more conservative content. Unfortunately, some conservatives have made the mistake of thinking the government can force platforms to host content in violation of their policies.  As our wise Founding Fathers knew, the government is not the savior or protector of our rights, it is the biggest threat to them.

Some conservatives are asking the government to use antitrust law and changes to Section 230 to pressure social media to host more conservative speech. These requests for government intervention are likely to blow up in our face — and will prevent us from being able to take a principled stand against the left using government to attack our free speech rights.

Democrats just held a hearing where House members laid into right-leaning television channels for spreading disinformation about COVID and last year’s presidential election. And House Democrats issued a letter to cable companies and streaming providers demanding to know why they are carrying programming from Fox News, Newsmax, and One America News.

Here we see Democrats using government power to do precisely what our founders prohibited in the First Amendment when they wrote, “Congress shall make no law … abridging the freedom of speech.”  Now that Democrats are in control of the federal government, they want to kick the First Amendment aside and intimidate broadcasters and social media into removing conservative content they don’t like.

Republicans are rightfully irate at this authoritarian power play, but I have been warning them for months that threatening Big Tech with government action for barring content would open the door for government to bar content! When are conservatives going to figure out that joining hands with the left to call for government sanctions against companies exercising their legal rights never ends well for us or the country.  

Unfortunately, some conservative are still pushing the government to get involved in speech issues.  In a dozen Republican-led states, we see legislation designed to punish social media for their content moderation policies by denying tax exemptions and empowering private lawsuits. These state laws surely will not survive First Amendment court challenges, which will only embolden social media to use more political bias in content moderation. And through unconstitutional attempts to make social media sites carry our content, conservatives give up the constitutional high ground we need when criticizing Democrats for undermining the First Amendment.

If conservatives are to protect free speech, we must show America that Democrats’ attempt to cancel Fox News is unconstitutional. We must show how, once again, the American left is willing to sacrifice our core national ideals to silence their political opponents. But conservatives can’t do this if we too are willing to use the heavy hand of government to enforce our own speech codes. Instead, we should ensure Section 230 remains intact so competitors to Big Tech social media outlet, like Gab, Rumble, and Parler, can continue to thrive. And we should avoid politicizing antitrust law to allow leftist bureaucrats to go after any American company that’s not living up to the left’s social justice agenda.

As I wrote last September, “Liberal Bias and All, Social Media Is Still Conservatives’ Best Electoral Tool. We shouldn’t help progressives destroy it.”  Now we see what’s happened once Republicans opened the door for government to circumvent the First Amendment — Democrats are ripping that door off its hinges.  If we want to protect the American right to free speech, we must not hand the left the tools they need to silence us once and for all.

Tyler Durden
Thu, 03/04/2021 – 20:20

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Stunning Views Of Freight Train Derailment In California Desert

Stunning Views Of Freight Train Derailment In California Desert

On Wednesday evening, a freight train derailment in the Southern California desert sent more than 40 railcars careening off the tracks into a mangled mess of metal. 

San Bernardino County Fire (SBCF) tweeted pictures and a drone video of the train derailment. They said the incident occurred on the Burlington Northern Santa Fe Railway Company (BNSF Railway) rail network east of Ludlow, on Old National Trails Highway, or about 150 miles northeast of Los Angeles. 

SBCF said, “BNSF cargo railcars, no injuries, no fire, Haz-Mat on scene. No impact to I-40.” Judging by the pictures released by the local police agency, a variety of cars were involved in the incident, including tanker cars, boxcars, and hoppers. 

Mixed Freight Derailment 

Tanker Cars And Other Cars Derailed 

More Scenes Of The Incident

A drone video shows first responders in hazmat suits inspecting a tanker car. 

The police drone captured stunning views of the mangled railcars.  

“Initial reports indicate 44 cars derailed, and one car carrying ethanol alcohol is leaking,” BNSF spokeswoman Lena Kent told NBC Los Angeles

Investigators are still working the incident area to figure out how the derailment occurred. 

Tyler Durden
Thu, 03/04/2021 – 20:00

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10Y Treasury Hits A Stunning -4.25% In Repo As Yields Blow Out

10Y Treasury Hits A Stunning -4.25% In Repo As Yields Blow Out

Last night we first pointed out something shocking: as a result of a massive wave of shorting in Treasurys in the past three days, the 10Y hit a record -4% in repo, an extremely rare event and one which occurs only when there is a dramatic shortage of collateral as a result of overshorting (think of it as very hard to borrow condition for stocks). What was even more amazing is that the repo rate was below the fails charge, which at least in theory is the absolute minimum that a 10Y rate can hit in repo. Effectively, it meant that an investor in the repo market lending money so others could short the 10Y ends up paying rather than getting paid. Needless to say, this is a clear breach of one of the most fundamental relationships in the repo market, where lenders of cash always get paid – however little – in order to make a more liquid and efficient market.

This stunning issue quickly escalated and this morning Bloomberg followed up on this critical topic:

And with everyone suddenly obsessing with both the SLR and repo malfunction, that’s why we said that during today’s WSJ video conference event, Jerome Powell has to address i) the ongoing crunch in the repo market and ii) the fate of the SLR extension, as the two are closely tied – after all if the bond market is confident that there is capacity to soak up the trillions in reserves being released by the Fed as the Treasury drains the $1.5 trillion in cash held in the TGA account, many of the acute issues in the extremely illiquid Treasury market would go away.

Alas, for some bizarre reason Powell never got that question today… or perhaps he simply did not want to answer it and made it clear in advance. In any case, with everyone in the market expecting Powell to discuss the fate of the SLR, his failure to do so was one of the reasons why bond yields erupted shortly after 12pm, as uncertainty over the fate of the SLR – and by extension bank balance sheet capacity – has now grown exponentially (for those confused by all the SLR hoopla, please read this).

It’s also why during the disappointing Powell address we said that we should brace for an even more dramatic move in repo:

Ok, fine, we were just a bit hyperbolic, but in retrospect we may not have been too far off. Here’s why.

In his latest repo market commentary by Curvature’s Scott Skyrm published after the Powell conference, the repo guru asked – rhetorically – “how low can Repo rates go in the 10 Year Note? Or, in the past, how low have 10 Year Repo rates gone? Extremely low 10 Year Note rates only occur during single-issues.”  That, Skyrm explained, is the period of time between when a new 10 Year Note was issued and its first reopening a month later. Which is true… however usually the single-issue repo crunch pushes the 10Y to -1%, at most -2% in repo. What we saw yesterday was unprecedented. Or rather, there was just one precedent… and it was during a market crash.

Skyrm said that from his own experience, what we call “extremely low” Repo rates is anything that’s below -3.00% – which is below the Fail Charge right now. Since the beginning of 2018, the 10 Year Note traded below -3.00% only two other times: a more “solid” -3.50% from 6/10/20 to 6/12/20, and the only time there was an even lower, record low repo print of -5.75% was during the peak of the covid crash, on 3/13/20.

What is striking is that March 3, 2021 was not a crisis. Neither was March 4. And yet, as Skyrm says after hitting -4.00% on Wednesday, the 10Y dipped even further to -4.25% today.

The good news is that after hitting a near record low in repo today, the 10Y stabilized modestly, rising to a still abnormal -1.00%, which may have been the result of today’s announcement that the Treasury’s 10Y reopening next week will be $38BN, which should relieve some of the single-issue pressure (it was below . But if there is more to the repo squeeze than just single-issue funding pressure, the 10Y will remain very special in repo for a long, long time.

Meanwhile, the shorting in the 10Y has now resumed, and after blowing out to 1.55% during Powell’s catastrophic speech, the benchmark treasury was last seen trading north of 1.57%, and fast approaching last week’s blowout level of 1.61%.

And while we wait for tomorrow’s repo market data to see just how massive the latest shorting burst has been, one thing that is certain is that with Powell neither doing nor saying anything today because as the Fed Chair said there was nothing “abnormal” about the market, the same market will now quickly push the 10Y to a level Powell does find “abnormal” and forces him to launch YCC far sooner than if Powell had simply said something about the SLR today and eased some of the soaring market panic.

Tyler Durden
Thu, 03/04/2021 – 19:40

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How Much Money Will Biden’s New Stimulus Inject Into The Market

How Much Money Will Biden’s New Stimulus Inject Into The Market

Looking at market action over the past few weeks, it is clear that markets are finally fretting about yields and inflation. As DB’s Jim Reid puts it, “there is no doubt the forces working in financial markets in 2021 will be fairly extreme – reopenings, massive pent-up demand, the strongest US growth since the early 1980s, huge central bank liquidity and a likely enormous Biden fiscal package.”

And yet, as everyone knows by now, a substantial portion of the coming Biden stimulus will quickly be redirected into stocks. But how much?

That’s the question Jim Reid asked in his recent daily note, writing that whilst rising yields are a threat to all risk assets, “it’s worth highlighting that a large amount of the upcoming US stimulus checks will probably find their way into equities.” He then refer to a survey conducted last week by DB’s chief equity strategist Binky Chadha polling online brokerage account users which suggested they would invest around 37% of future stimulus checks in the stock market. This is a material force because as Reid notes, “behind the recent surge in retail investing is a younger, often new-to-investing and aggressive cohort not afraid to employ leverage.”

This makes sense, although someone should probably tell those respondents with an income level over $100,000 (who plan on investing 43% of their stimulus into the market) that they aren’t getting a stimulus…

So here is Reid’s math: “Given stimulus checks are currently penciled in at c.$405bn in Biden’s plan, that gives us a maximum of around $150bn that could go into US equities based on our survey. Obviously only a proportion of recipients have trading accounts, though. If we estimate this at around 20% (based on some historical assumptions), that would still provide around c.$30bn of firepower – and that’s before we talk about any possible boosts to 401k plans outside of trading accounts.”

For some context, the DB credit strategist notes that over the last five years mutual funds and ETFs have seen monthly outflows of -$9.1bn from US equities. The marginal buyer has been companies themselves conducting buybacks. However, over the last four months following Biden’s victory, this number has increased to over $15bn per month (a near record).

His conclusion: “stimulus checks could accelerate the large inflows into US equities seen in recent months after many years of weak flow data. Will this be enough to offset any impact of higher yields? Expect this push/pull to continue for some time.”

 

 

 

Tyler Durden
Thu, 03/04/2021 – 19:20

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Newsom Urges Double-Masking For All Californians, Will Not Make “Terrible Mistake” Like Texas

Newsom Urges Double-Masking For All Californians, Will Not Make “Terrible Mistake” Like Texas

Having immediately decried the actions of Texas and Mississippi – in giving their citizens back some freedom and the ability to think for themselves – as “absolutely reckless,” California Governor Gavin Newsom has doubled-down (literally) on the virtue-signaling.

“We will be doubling down on mask wearing,” said California Governor Gavin Newsom on Thursday, “not arguing to follow the example of Texas and other states that I think are making a terrible mistake.”

The Sacramento Bee is reporting tonight that new state health guidelines announced by Gov. Gavin Newsom on Thursday recommend that Californians wear two cloth masks or one filtered mask when going out in public to prevent the spread of COVID-19.

We are encouraging people basically to double down on mask wearing, particularly in light of all what I would argue is bad information coming from at least four states in this country. We will not be walking down their path, we’re mindful of your health and our future,” Newsom said.

To Newsom’s point about doubling down, California updated its recommendations for mask wearing on Thursday with the following:

“‘Double masking’ is an effective way to improve fit and filtration. A close-fitting cloth mask can be worn on top of a surgical/disposable mask to improve the seal of the mask to the face.”

Interestingly, Newsom also announced Thursday that counties across the state could be cleared to open more businesses and lift other restrictions sooner than anticipated under an update that loosens some requirements in his Blueprint for a Safer Economy.

So he is easing restrictions (cough recall pandering cough), like Texas; and at the same time urging ‘double masking’?

Of course, he will claim he is ‘just following the science’ but as AIER’s Paul Alexander detailed at length, why the CDC’s mask-mandate study is fault-ridden:

Based on our assessment of this CDC mask mandate report, we find ourselves troubled by the study methods themselves and by extension, the conclusions drawn. The real-world evidence exists and indicates that in various countries and US states, when mask mandates were followed consistently, there was an inexorable increase in case counts. We have seen that in states and countries that already have a high frequency of mask wearing that adding mandates had little effect. There was no (zero) benefit of adding a mask mandate in Austria, Germany, France, Spain, UK, Belgium, Ireland, Portugal, and Italy, and states like California, Hawaii, and Texas. Importantly, we do not ascribe a cause-effect relationship between the implementation of mask mandates and the rise in case rates, but we also demand the same approach when it comes to claiming some sort of causal relationship between the introduction of mask mandates and likely claims by the CDC that their findings could support their implementation countrywide. 

We think that inclusion of such evidence on the failures of masks mandates globally and states within the US would have made for more balanced, comprehensive, and fully-informed reporting.

Trusting the science means relying on the scientific process and method and not merely ‘following the leader.’ It is not the same as trusting, without verification, the conclusory statements of human beings simply because they have scientific training or credentials.

Read more here…

History does not bode well for times that politics meddles with science. Martin Kulldorff, a professor at Harvard Medical School and a leader in disease surveillance methods and infectious disease outbreaks, describes the current COVID scientific environment this way: “After 300 years, the Age of Enlightenment has ended.

We wonder how a citizenry that is already demanding his recall will react to this latest escalation in restrictions.

Tyler Durden
Thu, 03/04/2021 – 19:00

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Honda Is Now Selling Japan’s First Level 3 Autonomous Car

Honda Is Now Selling Japan’s First Level 3 Autonomous Car

Honda is taking the lead in autonomous driving sales in Japan. 

The auto manufacturer has announced that sales of its Legend sedans in Japan will be equipped with a “Traffic Jam Pilot” feature that allows the car to drive itself on crowded highways. 

Honda says it is going to make 100 of the limited edition sedans, according to Bloomberg on Thursday. The company was one of the first to be granted a Level 3 self-driving designation in Japan. Hitoshi Aoki, who was in charge of the project for Honda, said: “Long-distance driving will be very comfortable and drivers will have less stress”.


The 2021 Honda Legend

Level 3 means that certain features are autonomous, but the driver still must be able to take over. 

The end game for many vehicle manufacturers is seen as Level 5 autonomy, where a car doesn’t need any human input to navigate roadways. 

Autonomy has been brought up time after time as a bull case in the Tesla world. For example, Cathie Wood used it as the centerpiece of her Tesla bull case on Benzinga’s podcast earlier this week. “Our conviction on its autonomous strategy has increased over last few months,” she said, apparently unaware that Tesla has logged just 12.2 autonomous testing miles in California. 

Gene Munster also threw around the world “autonomy” during a CNBC debate with Gordon Johnson earlier in the week.

Elon Musk has claimed that Tesla will have Level 5 autonomy by the end of 2021. C|NET has called Tesla’s current level of autonomy not “even reliably Level 3 autonomous”. 

And so, once again, the legacy auto manufacturers – which are already vying to pass Tesla in battery, design, quality, hardware and service –  now appear to be passing Musk in sales of bona-fide Level 3 vehicles. 

Tyler Durden
Thu, 03/04/2021 – 18:40

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The Fed Will Need More Than Words To Keep The Bubble Inflated

The Fed Will Need More Than Words To Keep The Bubble Inflated

Authored by Michael Maharrey via SchiffGold.com,

Bond yields spiked. The stock market threw a tantrum. Reuters analyst Dhara Ranasinghe called it “a tussle over borrowing costs.”

The Fed won round 1, thanks to a little help from the Aussies.

But even the mainstream seems to have noticed that this wrestling match isn’t over and the Fed may be forced to take real action soon.

As Ranasinghe put it, “Round Two, and perhaps even Round Three, are inevitable, and they may require policy action rather than just words.”

By policy action, they mean upping quantitative easing – exactly as Peter Schiff has predicted.

The bond market got clobbered on Friday. As prices fell, the yield on the 10-year Treasury pushed as high as 1.61% and the 30-year hit 2.4%. These rates aren’t high by historical standards, but Peter said it was one of the biggest interday moves in the bond market that he’s ever seen. Up to that point, stock markets hadn’t reacted much to rising interests rate, but on Friday, they sat up, took notice, and threw a tantrum. The Dow dropped some 480 points.

The bond market bloodbath on Friday is part of a larger trend. Yields have been pushing upward for weeks. Conventional wisdom tells us that this is due to a quicker than expected economic recovery and this may force the Fed to tighten monetary policy sooner than expected. This is precisely why we’ve seen the big selloff in gold. A lot of people actually believe the Fed is going to reverse course on its monetary policy.

But Fed officials have been working diligently to jawbone this notion away. Jerome Powell testified on Capitol Hill last week saying he doesn’t expect inflation to reach the 2% target for at least three years.

But Peter says there is a reality out there that nobody wants to acknowledge. Bond yields are not spiking because the economy is strong. They are spiking because of inflation – Powell’s assurances notwithstanding.

Bond yields are going up because there is a massive supply of bonds because we have massive deficits. And even though the Fed is buying a lot of bonds, they ain’t buying enough. So, those extra bonds, there’s no buyer, and so the price keeps falling.”

The reality is that talk isn’t going to be enough to keep a lid on rising interest rates. And this Reuters article reveals that at least some people out there in the mainstream get it too.

Reiterating such messages [that inflation isn’t a problem and loose monetary policy will remain in place for years], alongside interventions by smaller central banks such as Australia and South Korea, calmed bond markets. Bets on early-2023 Fed rate hikes have ebbed.”

Reuters mentioned Australia. The fact of the matter is the Reserve Bank of Australia stepped in and did the Fed’s dirty work this time. On Monday, the Aussie central bank announced plans to double its quantitative easing program.

After the big selloff Friday, stock markets rallied on Monday, with the Dow up better than 600 points. As Peter noted, very few people in the US mainstream financial media connected the rally with the RBA’s policy move.

Nobody was really talking about the fact that our rally was made in Australia. But it was. And the significance, I think, of what the Australian central bank did, is I think it created an implied put here in the US market. Because I think when traders looked at what the Reserve Bank of Australia did, they assumed that the Federal Reserve would ultimately do the same thing, which is exactly what I’ve been saying the entire time.”

The Reuters analyst seems to get this. Ranasinghe identifies the stock market bubble blown up by the Fed.

Central bank stimulus that crushed borrowing costs to below inflation has fed an equity bull run that has added $64 trillion to the value of global stocks since 2008. Higher yields would put that entire edifice at risk.”

Then Ranasinghe accurately observes that the Fed has consistently played the role of white knight, riding in to rescue the market when necessary.

The shifting power balance [between the markets and the Fed] became evident in 2013 when a market tantrum forced the Fed to backtrack on plans to start withdrawing stimulus. Another market revolt erupted in late 2018, egged on by then President Donald Trump. The Fed soon pivoted from raising rates to cutting them. So markets have seen this movie before.”

And Ranasighe understands that the Fed really can’t let interest rates rise when the entire economy is predicated on cheap money.

What happens in sovereign bond markets matters because higher yields here raise borrowing costs for companies and households. As capital flow slows, so does economic growth. And higher yields are harder to stomach in a world that has racked up an additional $70 trillion rise in debt since 2013.”

Given the realities, it’s not hard to predict what the Fed will do. The central bank will do exactly what Peter Schiff has been saying it will do. It will boost QE.

If the Australian central bank has already panicked and is increasing the size of its QE program, not to help the economy but to stop interest rates from rising, why wouldn’t the Federal Reserve do the same thing? After all, all of these central bankers are using the same playbook. So, I think what happened is now the markets are starting to realize that they don’t have to worry about a big increase in interest rates because if there is more significant upward pressure, if the bonds really start to fall, then the US Federal Reserve is going to do exactly what the Australian Reserve Bank did, and it is going to increase the size of its asset purchase program – QE – and is going to start buying more bonds to prevent bond prices from falling and to prevent interest rates from rising.”

The Fed could be put to the test sooner rather than later. Next week, the Fed will auction 3-year and 10-year bonds. The last debt sale saw lackluster demand and there’s no reason to think investors are going to suddenly be starving for US bonds. That could mean another bad day for the bond market and another spike in yields.

According to Reuters, ING Bank predicts the US Treasury will issue another $4 trillion in debt this year. That compares with $3.6 trillion in 2020. The Fed’s monthly purchases currently total $120 billion.

The math doesn’t add up, as a John Hancock analyst told Reuters.

As we do more stimulus, we will issue more US Treasuries, so if the Fed doesn’t increase quantitative easing they are in essence tapering.”

The Fed can’t taper. It can’t let interest rates spike. And words won’t be enough to hold interest rates down. The Fed is going to have to take action and that means more bond-buying.

Tyler Durden
Thu, 03/04/2021 – 18:20

via ZeroHedge News https://ift.tt/3rl7xuJ Tyler Durden

“Full Throttle Correction” – Tumbling Nickel Prices Lead Sudden Industrial Metals Slump

“Full Throttle Correction” – Tumbling Nickel Prices Lead Sudden Industrial Metals Slump

Industrial metal prices have soared over the last year to highs not seen in over a decade as bets on economic recovery from the pandemic push up the prospects for “pent-up demand” due to a cleaner and greener future. Though industrial metal prices are stumbling in the last five sessions, that has set off alarm bells with some commodity analysts. 

S&P GSCI Industrial Metals index tagged a near-decade high last week after an 11-month rip roar rally of 75% from pandemic lows. Base metals are essential inputs for batteries and home electronics as post-crisis consumption and supply chain disruptions have led to price increases. The prospects of a greener future with government and companies globally announcing net-zero emissions have unleashed momentum and speculative traders into these metals. 

But over the last five sessions, something spooked the industrial metals market. On Thursday, nickel prices plunged more than 4%, dragging down copper by almost 5% at one point. 

Saxo Bank commodity analyst Ole Hansen told Reuters that the massive influx of speculative money flowing into industrial metals over the last year was bound to burst. He said, “It’s been a long time coming.” 

Hansen said the latest plunge in nickel prices was the “trigger” and “now we see correction at full throttle.”

Commodity analysts at Citi told clients that more supply from Tsingshan Holding Group Co., the world’s top stainless steel producer, in China, and Tesla’s efforts to reduce the nickel in its batteries threatens the industrial metal price outlook. 

“We are very concerned the impact this will have on speculative positioning at a time the market also goes into a large physical surplus,” Citi analysts wrote.

A little more than two months ago, we told our Premium subs that Chinese credit impulse “just peaked” – and since it impacts virtually every aspect of the global economy – it is a proxy of global economic growth. 

JPMorgan’s Mislav Matejka explained last month China’s credit impulse is in the process of “peaking.” The change in the growth rate of aggregate credit as a percentage of gross domestic product in the country has a tremendous impact on the global economy’s future. Saxo Bank once said the credit impulse leads the global economy by 9 to 12 months.

Putting this all together – could a downturn in industrial metals as China’s credit impulse tops, suggest global economic growth is set to stumble later this year?

Tyler Durden
Thu, 03/04/2021 – 18:00

via ZeroHedge News https://ift.tt/3ebR74i Tyler Durden