Federal Reserve Chairman Jerome Powell recently announced that the Fed is abandoning “inflation targeting” where the Fed aims to maintain a price inflation rate of up to two percent. Instead, the Fed will allow inflation to remain above two percent to balance out periods of lower inflation. Powell’s announcement is not a radical shift in policy. It is an acknowledgment that the Fed is unlikely to reverse course and stop increasing the money supply anytime soon.
Following the 2008 market meltdown, the Fed embarked on an unprecedented money-creation binge. The result was historically low interest rates and an explosion of debt. Today total household debt and business debt are each over 16 trillion dollars. Of course, the biggest debtor is the federal government.
The explosion of debt puts pressure on the Fed to keep increasing the money supply in order to maintain low interest rates. An increase in rates to anything close to what they would be in a free market could make it impossible for consumers, businesses, and (especially) the federal government to manage their debt. This would create a major economic crisis.
The Fed has also dramatically expanded its balance sheet since 2008 via multiple rounds of “quantitative easing.” According to Bloomberg, the Fed is now the world’s largest investor and holds about one-third of all bonds backed by US home mortgages.
Congress has expanded the Fed’s portfolio by giving the central bank authority to make trillions of dollars of payments to business as well as to state and local governments in order to help the economy recover from the unnecessary and destructive lockdowns.
Contrary to what most “mainstream” economists claim, a general increase in prices is an effect — not a cause — of inflation. Inflation occurs whenever the central bank creates money. Increasing the money supply lowers interest rates, which are the price of money, distorting the market and creating a bubble (or bubbles) that provides the illusion of prosperity. The illusion lasts until the inevitable crash. Since the distortions come from money creation, the system cannot be “fixed” by just requiring the Fed to adopt a “rules-based” monetary policy.
Once the lockdowns end, the Fed’s actions may lead to a short-term boom. However, the long-term effect will be even more debt, continued erosion of the average American’s standard of living, and the collapse of the fiat money system and the welfare-warfare state. The crisis will likely be brought on by a rejection of the dollar’s reserve currency status. This will be supported both by concerns about the stability of the US economy and resentment over America’s hyper-interventionist foreign policy.
The question is not if the current system will end. The question is how it will end.
If the end comes via a meltdown, the result will likely be chaos, violence, and increased support for authoritarian movements as desperate people trade their few remaining liberties in hopes of gaining security.
However, if pro-liberty Americans are able to force Congress to begin cutting spending — starting with the money wasted on militarism — and to move toward restoring a sound and sane monetary policy that includes ending the Federal Reserve, we can minimize an economic crisis and begin restoring limited constitutional government, a free-market economy, and respect for liberty.
via ZeroHedge News https://ift.tt/327LVYI Tyler Durden
Firefighters Battle New Blaze At Debris-Strewn Beirut Port Tyler Durden
Tue, 09/08/2020 – 12:20
On Tuesday Beirut residents were alarmed when they saw a plume of smoke on the horizon centered at the destroyed Beirut Port, following the Aug.4 massive explosion of ammonium nitrate stores which leveled much of the city, killing hundreds and wounding over 6,000.
Initial reports say piles of debris and garbage caught fire at the port, which still resembles a war zone of twisted metal and towering heaps of charred pieces of destroyed buildings and vehicles.
Circulation of video showing smoke rising above the area triggered a momentary panic among already traumatized locals, according to correspondents on the ground:
Firefighters and civil defense workers rushed to the scene in what some eyewitnesses feared could be a replay of the original tragedy, also given the recent discovery of yet more ammonium nitrate and other hazardous, potentially explosive chemicals stored there.
Port authorities have since said the small blaze is under control, and it’s as yet unclear how it started.
It may be connected to efforts to reduce the rubble and waste still at the site, raising questions of the continued safety and potential volatility of the area.
There’s continued anger at how years of neglect at the port led to the tragic explosion last month.
There’s also questions about what port authorities are still allowing to be stored in the area, after the Lebanese Army last week discoveredfour more tons of the highly explosive ammonium nitrate compound nearby.
via ZeroHedge News https://ift.tt/3lWi11v Tyler Durden
Apple 5G Production Delay Leads Goldman To Question Valuations Tyler Durden
Tue, 09/08/2020 – 11:52
Apple is set to begin initial 5G iPhone production in mid-September, with mass production expected by the end of the month or early October, according to the Nikkei Asian Review (NAR), citing two sources with knowledge of the matter.
The problem developing, according to the sources, is that Apple is behind “usual schedule over the past few years, when mass production began in August for lineups released in September, but it was a large improvement compared with the situation a few months ago.”
Factoring in the lost time, Apple could fall short of its iPhone production target this year. It ordered smartphone components for at least 80 million 5G iPhones, but sources said production levels could be around 73 to 74 million, with the rest of the units deferred into early 2021.
Sources said Apple would focus on the manufacturing of the cheaper 5G iPhone (6.1-inch OLED, two rear cameras), which accounts for 40% of total orders. The most expensive 5G handset is the 6.7-inch, triple-camera 5G iPhone.
NAR’s report offers new insight into how Apple’s growth prospects for the coming “5G supercycle” could underwhelm initial estimates.
Goldman Sachs analyst Rod Hall wrote the “iPhone is a very tough act to follow, with Services and Wearables not likely to be large enough to return the company to growth,” which doesn’t justify current valuations.
“In this report, we highlight both Microsoft and Amazon as examples of companies that are delivering the numbers and yet are valued at about the same multiple as Apple. We want to emphasize that we are not permanent bears on Apple. However, we also believe investors should follow the numbers, and, in our opinion, these aren’t consistent with the narrative that had driven the stock to its highest premium vs. the S&P 500 since 2011, when iPhone penetration was accelerating,” Hall wrote.
Hall pointed out Apple is trading at the largest premium to the S&P500 on a next twelve months basis despite known production woes this fall.
He said the latest rally in Apple shares (pre-selloff) is mainly due to “increased retail participation.”
Hall noted, “… yet Apple is valued like a growth company:”
“We show Apple’s P/E compared to the other FAAMG stocks. Here we see that Apple at 31x trades on a forward P/E similar to that of Microsoft (31x), Google (28x) and Facebook (28x) despite having much slower forecast growth. Note that our own sales growth expectations for Apple (+2% CY19-22 CAGR) are even lower than the consensus forecasts (+7%) shown in Exhibit 15.”
Hall wrote, “another way to look at this discrepancy is to compare PEG ratios for these same stocks. Here we see that Apple is trading on a premium to all other FAAMG stocks. If we were to use our own EPS forecasts, Apple’s PEG would be a much higher 6x while the other companies’ PEGS would remain similar.”
Hall said the “ongoing confirmation from suppliers that Apple’s build is delayed and that the new iPhone launch is likely to be staggered” doesn’t support current valuations, leading to a revision of the company’s revenue forecast for the fourth quarter of 2020.
“We decrease our FQ4’20 (Sep’20 QTR) revenue estimate by 7% to $63.7bn but increase our FQ1’21 and FQ2’21 revenues by 2% and 1%, respectively, as we push out ~4m iPhone units from FQ4’20 to FQ1/FQ2’21 given ongoing confirmation from suppliers that Apple’s build is delayed and that the new iPhone launch is likely to be staggered. We also reduce our FQ4’20 iPhone ASP forecast to better reflect lower-priced products in the mix, given the popularity of the SE. Overall, our EPS forecasts decrease by 2% in FY’20 but increase by 2% in FY’21 due to the shift of units into the early part of that year,” Hall wrote.
And with Softbank’s Masayoshi Son‘s option purchases, sending FAAMG skyhigh – it appears a dose of reality is hitting Apple as it’s 5G supercycle might not be as robust as previously thought.
Dotcom bubble 2.0?
via ZeroHedge News https://ift.tt/328f5H2 Tyler Durden
JPMorgan Probing Employees’ Role In PPP Program Abuse, “Illegal” Incidents Tyler Durden
Tue, 09/08/2020 – 11:45
Last week we discussed the corruption and abuse inherent in the rollout of the Trump administration’s $659 billion taxpayer-funded PPP program, where according to a report authored by House Democrats, more than $1 billion of the money went to applicants that triggered red flags. These included receiving multiple loans – in violation of the program’s rules – or receiving loans despite having been disciplined for a given transgression. $3 billion went to businesses that had been flagged as potentially problematic by the government.
Yet while it was easy to blame the administration for rushing to handout hundreds of billions (without which the US economy would still be in a depression), a key question is how and why did the private banks that were gatekeepers for all this capital, allow such abuse to take place.
It’s apparently a question Jamie Dimon wants answered too because according to Bloomberg, JPMorgan has identified “instances in which Covid-relief funds were misused by customers and is probing employees’ involvement in the potentially illegal activities.”
In a memo sent to staff from the bank’s senior leaders Tuesday, the largest US commercial bank said it has found that improper conduct includes “instances of customers misusing Paycheck Protection Program Loans, unemployment benefits and other government programs” and that some “employees have fallen short, too.” The firm said the incidents don’t meet its principles “and may even be illegal.”
“We are doing all we can to identify those instances and cooperating with law enforcement where appropriate,” the memo also said according to Bloomberg. The bank asked workers to report any conduct that violates its policies. JPMorgan spokeswoman Trish Wexler declined to comment.
According to SBA data, JPMorgan issued about 280,000 loans totaling more than $29 billion, making it the top PPP lender in the country. JPMorgan has fallen in the government’s cross sights as the DOJ has been pursuing cases of potential fraud in the emergency program. A congressional subcommittee found earlier this month that more than $1 billion in federal coronavirus relief went to U.S. small businesses that received multiple loans, according to a report that also raised red flags for potential fraud with thousands of other companies.
via ZeroHedge News https://ift.tt/3m201Th Tyler Durden
Pretense and PR are not reality, and believing the Old Normal will magically be restored with sacrifice-free Federal Reserve printing is not an actual strategy.
Quick history quiz: who was the second-to-the-last Emperor of the Western Roman Empire? How about the third-to-the-last? Answers: Glycerius, 473-74 A.D. and Julius Nepos, 474-475 A.D. The last emperor was the grandly titled Romulus Augustus, who reigned less than a year until the whole shebang disintegrated in 476 A.D.
You get the point: when the momentum of collapse crosses the Event Horizon, it no longer matters who claims the title of Head Snake; the collapse is beyond the control of any individual or agency.
So when I hear the most important election in history, last chance for democracy, etc. I hear blah-blah-blah because we’re following the footsteps of Rome’s collapse to a T. As I explained in How Nations Collapse: Disunity (8/20/20), profound disunity between classes and within power elites is the key driver of collapse, as all the energy required to make the perilous, radical changes needed to save the system are squandered on in-fighting and jockeying for control of the dwindling centralized power.
The final generation of Romans also preferred pretense to reality. The last Roman elites found solace in Rome’s past glories, as if it was inevitable that something or other would magically restore Rome’s power and stability without any sacrifices being made by the elites or the public.
Today we hear the shrill, keening cries for the pretense of unity: since actual unity has been lost, then public-relations pretense is the best the elites can manage.
just as in the waning days of the Western Roman Empire, the elites got overly greedy and complacent–a fatal combination. America’s billionaire class and the New Nobility just below the billionaires have scooped most of the economy’s gains since 2008, and paid either zero or low taxes. (Just ask Mr. Gates how to make your fortune tax-free via philanthro-capitalist foundations that are simply other avenues for achieving the same dominance.)
Once you have a Big Tech monopoly, the political influence to protect your monopoly, and the Federal Reserve juicing stocks, junk bonds, etc., then your greed has no limit. Just as in Rome’s waning days, the super-wealthy evade taxes and indeed, any sacrifice. Whatever wealth remains is sluiced into the coffers of the super-wealthy while the citizenry pay the price via the destruction of social mobility, higher taxes and a fast-decaying real economy.
The power elites are complacent, as they believe manipulating top-heavy bureaucracies and captured central bankers is the only skillset needed. Creating value or real-world goods and services? Why bother when the real money is made in corruption, fraud and legalized looting?
America squandered its last chance to make the necessary sacrifices and radical systemic changes in the 2008 Global Financial Meltdown. The power elites bailed themselves out at the cost of systemic stability, and now the dominoes are finally falling.
Human Wetware 1.0 hasn’t changed since 473 A.D. and so our elites are filled with the same complacent hubris as the last batch of greedy, entitled, overly impressed with their wealth and power elites of Rome.
The Fed will continue to bail out all those whose self-serving greed undermined the republic, and print trillions to distribute bread and circuses to placate the milling mob, thereby destroying the value of the bread and the last pretenses of a “market economy.”
Rather than face the need for a radical from-the-ground-up reformation of the political-economic system, our elites have focused on increasing their already destabilizing wealth and power and taking down their elite rivals.
As a result, there is no way to stop the dominoes from falling. Pretense and PR are not reality, and believing the Old Normal will magically be restored with sacrifice-free Federal Reserve printing is not an actual strategy.
[Editor’s note: This letter was written by our Sovereign Woman—Viktorija.]
Just like Simon, I’m probably one of the world’s worst tourists.
When I travel somewhere, I prefer to experience real life in the country or city that I’m visiting.
So my schedule is usually full of meetings and networking with local entrepreneurs, attorneys, bankers, and foreign expats, trying to get a feel for the place.
And after a great trip to Dubai last month, I’m now doing the same thing in Lisbon, Portugal– a beautiful European city that I typically visit every summer.
Portugal is becoming incredibly popular with expats, no doubt due to its cheap cost of living, extremely high quality lifestyle, and plethora of legal residency options.
I had a great meeting with one of the attorneys we work here in Lisbon with to discuss their residency programs, and to see how the current situation has impacted them.
Unsurprisingly our attorney in Lisbon told me that they’ve seen a surge in residency applications from US citizens over the past few months.
And even though Americans are not formally allowed to travel to the EU right now, you can start the residency process right from your home country by going through the nearest Portuguese consulate.
If you have sufficient savings and are interested in purchasing a property, Portugal’s ‘Golden Visa’ program offers legal residency to foreigners who acquire qualifying real estate.
But more interestingly, there are plenty of ways to obtain residency here for people who are no high income earners, or who aren’t interested in buying property.
Just today I met a couple of architects from Lebanon and Italy living and doing business in Portugal, an Australian who left his corporate job in London and moved to Lisbon to open up a coffee shop.
I met a foreign entrepreneur who obtained bank financing here– he borrowed €50,000 from the bank for his startup, at a “ridiculously low” interest rate.
I also met with his banker who confirmed that, yes, they do make loans to startups. The interest rate is ‘euribor’ (which is currently NEGATIVE 0.5%) plus a margin of between 2% to 3.75%.
And on top of that, the banker told me that entrepreneurs can receive an extra €50,000 in business funding from the Portuguese government as part of their economic stimulus.
I also met an expat from the United States who recently moved here after becoming completely fed up with life back in Los Angeles. And as she watches the lockdowns and insanity on TV, she knows she made the right decision and doesn’t see herself going back.
She doesn’t have a ton of money and would by no means describe herself as wealthy. But she’s doing very well here in Lisbon as a yoga teacher.
And I think she is a great example of how anyone can do it.
Portugal is a wonderful place, but it’s just one tiny drop out of an ocean of options.
Whether it’s Portugal, Panama, Puerto Rico, or anywhere else in the world, there is absolutely a place (and probably several places) where you will thrive… where you will feel energized and happy.
And again– anyone can do it.
In the past, a lot of people had significant constraints. Work. The kids’ school. Karate class.
All of those constraints have melted away. A lot of jobs are online. A lot of schools are now online. And, yes, they have Karate class overseas too.
Given everything that’s happening right now, it’s worth at least considering the possibility that you can live the life you’ve always dreamed about, but never had the freedom to pursue.
To get started, you just need the right information… and the willingness to make it happen.
Boeing Shares Slide On Reports Of Dreamliner Delivery Slowdown Over Design Flaws Tyler Durden
Tue, 09/08/2020 – 11:29
Boeing shares are down 4.5% on Tuesday morning following a new report via WSJ, published a day earlier during the Monday Labor Day holiday, detailing new troubles that have emerged for the Boeing 787 Dreamliner.
Now, Boeing has confirmed the 787 Dreamliner has specific components within its fuselage that do not meet design standards. The company said the 787’s horizontal stabilizers have quality issues that are resulting in more plane inspections, thus slowing down deliveries.
“We are taking time to thoroughly inspect completed 787s to ensure that they are free of the issues and meet all engineering specifications prior to delivery,” Boeing said in a statement Tuesday.
“We expect these inspections to affect the timing of 787 deliveries in the near-term.”
Compound these developing 787 Dreamliner issues with the two fatal accidents of its narrow-body 737 MAX, and Boeing is experiencing widespread manufacturing quality-control lapses.
On top of 787 Dreamliner and 737 Max design woes, Boeing has seen six straight months (as of August) of airlines canceling narrow and wide-body plane orders as the virus-induced downturn in air travel has doomed the industry for the next several years.
It’s just the latest in a series of setbacks for the American aerospace giant.
via ZeroHedge News https://ift.tt/3m3Hfec Tyler Durden
Trump Weighs $100MN Personal Campaign Contribution As GOP Donors Bolt, Biden Fundraising Surges Tyler Durden
Tue, 09/08/2020 – 11:10
If there’s one skill the mainstream media has mastered in the “Age of Trump”, it’s pushing a coordinated narrative. To mark the passing of the Labor Day holiday and the arrival of presidential campaign mania, the mainstream press is trying to paint a picture of a Trump re-election campaign in disarry. Late last week, and over the long weekend, the dominant story was a set of polls that were overwhelmingly spun as a positive for Biden, though Trump saw gains in Texas and several swing states.
Last night, the NYT published a length piece reporting on the Trump campaign’s lavish spending, which has coincided with a massive surge in late-stage fundraising for Joe Biden. The former Veep raised a record $364.5 million in August. While Trump beat out Biden as recently as July, most believe Trump’s numbers likely won’t top Biden’s for August.
To be sure, Trump is also seeing a slowdown in cash flow as donors like Sheldon Adelson, upset over Trump’s aggressive China policy, which he says has cost him millions, decide to sit out the rest of the race, Trump is reportedly contemplating something he probably once hoped he wouldn’t need to even consider: Injecting another massive slug of his personal fortune into the race.
Team Trump has reportedly already spent $800 million including on Superbowl ads demanded by Trump. That’s more than 2/3rd of the $1.1 billion raised so far. Given the stakes for Trump, not just politically but personally and financially, the fact that he’s reportedly considering injecting another $100 million of his own money (he spent $66 million in 2016), as Bloomberg claimed Tuesday morning, isn’t exactly a surprise.
The campaign has officially refused to comment on the possibility of such a large personal contribution from a sitting president, which Bloomberg claims would be “unprecedented” in modern American political history.
President Donald Trump has discussed spending as much as $100 million of his own money on his re-election campaign, if necessary, to beat Democratic nominee Joe Biden, according to people familiar with the matter.
The billionaire president has talked about the idea with multiple people, though he hasn’t yet committed to any self-funding, according to people briefed on internal deliberations. Though Trump personally contributed $66 million to his 2016 campaign, it would be unprecedented for an incumbent president to put his own money toward winning a second term.
Trump has sought advice about whether he should self-fund as he scrutinizes heavy spending by his team earlier this year that failed to push him ahead of the former vice president in the polls. In addition, Biden’s campaign and associated Democratic entities have recently raised more than Trump and his allies.
Tim Murtaugh, a Trump campaign spokesman, declined to say whether there’s been any consideration of using the president’s personal fortune to help fund his re-election effort.
“President Trump’s fundraising is breaking records and we are paying close attention to the budget, allowing us to invest twice as much from now until Election Day than we did in 2016,” Murtaugh said in an email. “President Trump has also built the world’s greatest digital fundraising operation, a dominant ground game, and a third advantage Joe Biden can never match — enthusiasm.”
Of course, if President Trump has shown us anything so far, it’s that dollars don’t always equal votes. The strength of a candidate’s messaging and reputation are also important.
Hillary Clinton outspent Donald Trump by nearly two to one (1.18 billion U.S. dollars to 616.5 million) but lost in the Electoral College.
Total spending on the 2016 presidential race was a staggering 2.4 billion dollars, according to the campaign finance watchdog Open Secrets. That sum would cover the average salaries (~65k) of over 30,000 nurses for a year in the United States.Nicholas Everhart, a Republican strategist who owns a firm specializing in placing political ads, said the $800 million spent so far shows the “peril of starting a re-election campaign just weeks after winning.”
“A presidential campaign costs a lot of money to run,” Mr. Everhart said. “In essence, the campaign has been spending nonstop for almost four years straight.”
Of course, as the NYT points out in the closing paragraphs of its lengthy expose about the Trump campaign’s money problems, the campaign has been saddled with “unusual” costs, like tens of millions of dollars in legal bills fending off myriad investigations spawned from “Operation Crossfire Hurricane”.
Republicans, for instance, have been saddled with extra legal costs, more than $21 million since 2019, resulting from investigations into Mr. Trump and, eventually, his impeachment trial. The R.N.C. also paid a large legal bill of $666,666.67 to Reuters News & Media at the end of June. Both Reuters and the R.N.C. declined to discuss the payment. It was labeled “legal proceedings — IP resolution,” suggesting it was related to a potential litigation over intellectual property. The NYT also blamed President Trump’s “mercurial” personality for the $325k deposit paid to a Jacksonville convention center during the uproar over the RNC, when Trump demanded a change in venue.
Team Trump and its affiliate organizations like the RNC haven’t released August fundraising number yet. Expect another round of gloating, unless the campaign truly does knock it out of the park. The violent protests that have swept the country could be one inspiration. In the polls, Biden’s lead nationally looks comfortable, but when i comes to swing states, it’s within the margin of error.
via ZeroHedge News https://ift.tt/2Zgnczs Tyler Durden
We have been watching, with disbelief and bemusement, how the “recovery-narrative” has been touted in the financial media and among some economists and analysts.
Categorically, an economic recovery is a period of expansion, where we eventually exceed the previous peak in employment and output. There’s no such thing coming (anytime soon).
It is very human to avoid acknowledging disturbing possibilities, such as the looming economic abyss the world economy is about to sink into, but now we absolutely need to perceive coldly the economic realities as they are. Otherwise, the effects of the approaching turmoil will be unbearable.
To help people and firms to think their way through the crisis, we summarize here the convincing counterarguments against this over-optimistic—and, in some cases even deceitful—recovery-narrative.
The diffusion index fallacy
Probably the biggest misunderstanding in the recovery-narrative is the misinterpretation concerning diffusion indexes like the purchasing managers indexes, or PMIs.
“For each variable, the index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘no change’ responses. The PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).”
All figures above 50 signal overall increase compared to previous month, while figures below 50 signal a decrease.
Now, during the lockdowns, PMIs crashed to range of 20 to 40, signalling a massive decrease in expectations and production. Now, the PMIs are mostly in a range from 50 to 60. What does all this imply?
The easiest way is to consider PMIs in terms of percentage changes. So, when index dives to 30, it signals a decrease of (roughly) 40 percent. How long does it take for the underlying series (production, sales, new orders, etc.) to recover to the level it was at before the decline?
All percent changes are relative. Let’s assume that there’s a decline of 40% in some monthly index from a level of 100 (to 60). With a monthly growth rate of 10 percent, it takes 6 months for the index to regain the 100 level. With a growth rate of five percent, it takes 11 months. With a growth rate of three percent, it takes 18 months. With a growth rate of two percent, it takes 26 months.
Stalling high-frequency data
Moreover, in the case of the PMIs (manufacturing and/or services) that are increasing, these are implying growth rates of 3 to 10 percent. So, even in the best-case we would be around six months away from an actual recovery, and serious doubts can be cast on the assumption that this growth rate can be sustained.
The so-called high-frequency indicators, which measure economic activity on a weekly basis, indicate that we have reached only around 60% to 80% of pre-Covid economic activity. Moreover, they have stabilized or even turned back down recently. This indicates that PMIs are likely to first stabilize around 50, and then turn back below 50 in the coming months.
If we look at the key economic indicators in the most important regions of the world, they also signal non-recovery in major economies.
The non-recovery of the US
The consumer is the most important driver of the U.S. economy (private consumption accounts for close to 70% of U.S. GDP), and the biggest contributor to that is employment. Private employment crashed during the spring and it has since recovered only marginally. Its growth rate has stalled (see Figure 1).
Figure 1. Private nonfarm monthly payrolls in the US from January 2010 to August 2020. Source: GnS Economics, ADP
While the pace of corporate bankruptcies have somewhat slowed, the large corporate bankruptcies still saw their biggest-ever increase in August. This makes any further notable improvements in employment unlikely.
The non-recovery of China and the Eurozone
Industrial production is still the backbone of the Chinese economy, although the role of the consumer has grown.
Industrial production in China quite expectedly crashed in January and February of this year, and we have not observed any bounce powerful enough to return it to pre-Corona levels quickly (see Figure 2). With the current growth rate of 4-5%, it would take until around Christmas for the industrial production to reach the level where it was before the pandemic (in December 2019). And there are also serious doubts as to whether China can keep such a rapid growth pace up.
Retail sales have not recovered as expected, and in fact they actually declined (YoY) in July. Serious questions can also be entertained about a continuation of the Chinese recovery due to escalating problems in its over-levered banking sector.
Figure 2. The percentual monthly change in the industrial production of China. Source: GnS Economics, Trading Economics
The Eurozone is the true ‘problem-child’ in the global recovery-narrative. It already succumbed to recession in Q4 2019 (see our recession warning from March). There are also very few signs of an actual recovery in the currency bloc, reflected, for example, in collapsed industrial sentiment, which has not recovered (see Figure 3). This does not bode well for the fragile European banking sector.
Figure 3. The change in the industrial output of the Eurozone (percent) from January 2010 till August 2020. Source: GnS Economics, Trading Economics
Failure of (yet more) stimulus
The third issue overlooked in the recovery-narrative is that whatever lacklustre recovery there is has only been achieved by truly colossal levels of fiscal and monetary stimulus.
The U.S. government has flooded over $2 trillion into the economy and the budget deficit is expected to top $3.3 trillion in 2020, the largest deficit as a percentage of GDP since 1945. The balance sheet of the Federal Reserve has also exploded from little over $4 trillion to over $7 trillion in just a few months (see Figure 4). There is just one word for such unprecedented actions: desperation.
Figure 4. Total assets (less eliminations) of the Federal Reserve system. Source: GnS Economics, St. Louis Fed
Stimulus in China has also broken records. By the end of July,’ the aggregate financing to the real economy’ had reached an astonishing $3.3 trillion, easily topping the previous record of $2 trillion set in 2019. In an economy that is already extremely indebted, this is, naturally, completely unsustainable.
There is, quite simply, no real economic recovery coming. On the contrary, we are heading deeper into the crisis.
We are bound to collapse
The lacklustre recovery from the massive economic impact of the coronavirus pandemic has been achieved with excessive fiscal and monetary stimulus in the most manipulated business cycle in modern history.
Moreover, the global business cycle was already very extended (record-breaking in the U.S.) and was in the process of rolling over. Central bankers and political leaders are effectively patching holes in a ship with whose decks are awash.
Business cycles are called cycles obviously because any economy proceeds through periods of both expansion and contraction. We have known this since Ancient Rome. Economic expansions always, always end.
However, the history of economic crises has also taught us that if a business cycle is artificially extended through monetary stimulation leading to excessive financial speculation, exactly as we are now experiencing, the risk of a catastrophic economic collapse is greatly increased. Alas, due to the ill-advised policies of central banks and political leaders, we are now bound to witness just such an event.
And it may turn out to be the worst economic crisis anyone has ever seen.
via ZeroHedge News https://ift.tt/3i9MOFP Tyler Durden
Nomura Warns The “Negative Gamma Tremor” Is Here Tyler Durden
Tue, 09/08/2020 – 10:35
Well, that escalated quickly… All of a sudden, out of nowhere, the Nasdaq, and most especially its high-flying mega-tech members, are collapsing faster than an Adam Schiff narrative. No news, no earnings, no headlines… just the fact that a massively over-levered Japanese ‘hedge fund’ is no longer buying massive exposure in call options and sparking the virtuous opening bid to ignite momentum and set the Robinhood traders up for the day.
Simply put, as Nomura’s Charlie McElligott has been detailing over the past few weeks, today’s early trade action sees an extension of last week’s “dealer (negative) gamma tremor”-induced price-pain in trend/consensus equities positioning, and the “net-down” exposure trimming off the back of the dealer hedging looks to be metasasizing.
This is best exemplified this morning by the uber-crowded US Equities “long” in secular-growth Nasdaq futs -290bps vs everybody’s cyclical / economically-sensitive “short” in the Russell 2k “just” -30bps, while USTs are bull-flattening once again in sympathy with the optical “risk off.”
Nasdaq net $delta is still holding positive as well, but reduced massively from the prior “extreme long” (+$1.3B, 47th %ile from last week’s +$16.2B, 100th%ile rank, as that delta is now “gone”), while the now “short $gamma” position corroborates the market price-action in NQ / QQQ, pre-open trading well below the gamma-neutral “flip” level (287.39 flip vs current 273.70 spot) as QQQ Delta too has “flipped short” below 282.27.
Interestingly, McElligott also notes that a fresh idiosyncratic pain-point within the Nasdaq / momentum tech trade is TSLA’s surprising non-inclusion into the S&P late Friday, with the stock down over 15%.
This matters, warns the strategist, from a “knock-on” sentiment perspective with regard to the “trade from home” speculative frenzy, because TSLA is the “retail gamma proxy” with its multi-month furious scramble higher thanks to almost self-fulfilling short-dated (1 wk) OTM upside buying from the Robinhood set, creating these hyper-convex “crash up, crash down” moves.
Summing everything up – there’s a supply issue now that Softbank is out…
Dealers are sitting on hundreds of billions in delta hedged tech stocks they don’t need now that @masason has unwound his derivative trades
