Tag: news

The bizarre disconnect at the heart of China’s market pricing engine is getting bigger with every passing month.

Whereas in the 2009-2015 period, China’s consumer and producer (or wholesale) prices tended to track each other largely tick for tick, sometime in the beginning of 2016, roughly when global leaders decided at the Shanghai Accord to reflate the global economy by unleashing a massive Chinese credit impulse…

… China’s PPI soared higher, which in turn allowed China to rapidly export inflation across the globe, prompting central banks to confuse China’s latest credit reflation blast with a coordinated global recovery and tighten financial conditions, something which at the end of 2018 they promptly realized was a mistake after global markets tumbled, resulting in the latest global wave of coordinated central bank easing.

Well, fast forward to today when overnight China reported that with the tailwind of its latest credit boost long gone, those all important – for Chinese corporate profits and global reflation – producer prices (PPI) fell by 1.6% in October, more than the 1.5% estimate, and above September’s 1.2% decline, and the lowest number since mid-2016. Inflation in the petroleum industry slowed the most, followed by coal mining.

“Persistent deflation in the industrial sector squeezes profitability – reducing leeway for investment and hiring,” said Bloomberg economist David Qu, confirming that China’s economy is poised for a sub-6% GDP print in the coming months.

Meanwhile, in a continuation of China “facing the worst of both worlds” which we first discussed in August, China’s consumer prices (CPI) inflation picked up further to 3.8% year-on-year in October, rising to a seven year high (the most since January 2012) and breaching the official target/ceiling (3%) for the first time since November 2013. In month-on-month terms, headline CPI inflation accelerated to a stunning +9.2% SAAR in October from +5.1% in September.

The bizarre divergence between soaring CPI and tumbling PPI which first emerged two years ago, was largely predicated by the ongoing surge in food inflation, which accelerated to a jarring +15.5% Y/Y in October from +11.2% Y/Y in September, the biggest annual increase since just before the financial crisis …

… primarily on what is now rampant pork hyperinflation due to China’s neverending fight with African swine fever (i.e, “pig ebola”), as pork inflation is up a stunning 101.3% Y/Y in October from 69.3% Y/Y in September, pushing up headline CPI inflation by around 0.8pp relative to September. Meanwhile, real, unadjusted pork prices have risen even higher, as wholesale pork prices have soared by a stunning 173% YTD!

To be sure, most of the month’s inflation surge was purely due to pork prices: Non-food CPI inflation edged down to +0.9% Y/Y in October, while fuel costs dropped by -15.1% in October, down further from the -12.1% drop in September. As a result, core inflation (headline CPI excluding food and energy) was flat at 1.5% yoy in October, with an annualized sequential increase of 1.8%.

Of course, as the African Spring of 2011 showed, soaring food prices are all that’s needed for a massive popular uprising, and whereas China’s NBS is merrily adjusting its various other price inputs, the fact that China’s pork prices are now openly hyperinflating making the country’s favorite food increasingly more unaffordable, the risk is that the local population snaps and finally revolts against a government that is failing in its most basic function: keeping 1.5 billion Chinese well-fed.

Making matters worse, China’s runaway food prices have a long way to go: as Goldman notes, “headline CPI inflation is likely to rise further in the coming months.”

High frequency data suggest year-on-year inflation in pork prices has continued to accelerate notably in early November. Prices in fresh vegetables have also started to pick up in early November in year-on-year terms, although inflation in fresh fruits has moderated further. Elevated inflation could be one factor that may limit the room for front-end rates to decline in coming months. And inflation expectation would also be important to watch, as PBOC officials suggested recently, to assess the impact of inflation on rates policy (whether to raise repo rates). According to the PBOC survey, the inflation expectation index (a diffusion index) ticked up in Q3, but was still relatively modest.

Further commenting on the latest numbers, Macquarie Securities economist Larry Hu said that “the surging CPI inflation is due to supply (mostly pork price) and the worsening PPI deflation is due to demand,” adding that “ideally monetary policy should respond to demand instead of supply. In reality, the PBOC is likely to strike a balance between PPI and pork price.”

Which brings us to the biggest issue facing the PBOC: how to trigger an economic boost without sending near record food prices even higher. To be sure, last week the PBOC modestly cut one of the central bank’s main lending rates (the MLF) by a tiny 5bps…

… analysts are concerned that the PBOC will likely refrain from aggressive intervention in the market until food inflation is under control, amid fears of growing social discontent over pork hyperinflation. As Bloomberg also notes, “while further monetary stimulus would help companies struggling with weakening demand, deflation and higher tariffs, even faster inflation would hurt households more.”

Which is why Beijing’s hands remain tied from injecting another debt bomb into the economy in hopes of sending yet another global reflationary burst.

And while the biggest domestic risk to China is getting soaring pork inflation under control, the biggest threat to the rest of of the world is the continued deflation in PPI. As Bloomberg separately writes, “in a fresh challenge to the ability of global central banks to revive inflation, China’s slowest growth in almost three decades and cheaper energy costs have left manufacturing prices declining since July.  While cheaper goods may be a boon to foreign consumers as Christmas nears, the overall effect is a potential spiral of falling prices worldwide as companies everywhere are forced to compete with Chinese rivals to protect profits. That would add further tension to the U.S.-China trade war.“

“Inflation is increasingly driven by global factors, and in particular, by waves of disinflation emanating from China,” said Stephen Jen at Eurizon SLJ Capital. “This is related to China exporting its overhang of capacity” which has been exposed by weak domestic demand, trade tensions with the U.S., and lack of economic stimulus. 

They expect the recent worsening of the producer price index to weigh on inflation rates in the U.S. and Europe, similar to what happened in 2014-16. Producer prices in Germany, Japan, South Korea and the U.S. are already negative.

Translation: China is about to begin dumping its excess goods in the global market in earnest, leading to a new round of trade anger, as global markets are flooded with Chinese products, crippling local producers, crushing purchasing power and wages, and resulting in fury at China’s trade practices.

We only bring this up because in an amusing twist recently, global capital markets have convinced themselves that the US-China trade war is somehow about to find a happy ending. Spoiler alert: it won’t.

Authored by EconomicPrism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

Beta-driven Fantasy

The decade long bull market run, aside from making everyone ridiculously rich, has opened up a new array of competencies. The proliferation of ETFs, for instance, has precipitated a heyday for the ETF Analyst. So, too, blind faith in data has prompted the rise of Psychic Quants… who see the future by modeling the past.

Gandalf, quant of Middle-Earth, dispensing sage advice. [PT]

For the big financial outfits, optimizing systematic – preprogrammed – delta hedges is an essential aptitude of the 21st century. Our guess is that many of today’s high-fliers will crash and burn during the next bear market. But what do we know?

As far as we can tell, the stock market, circa November 2019, is an absolute fantasy. The Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq have little connection to the underlying economy. Rain or shine, they go up.

Market watchers, eager to explain the fantasy, employ creative nomenclature as they attempt to classify the state of the stock market with discerning acumen. Is it a bubble? Is it a melt up? If it is a melt up, what type and gradation is it?

For example, Brian Sozzi, with Yahoo Finance, says the stock market is not in a bubble; we are merely experiencing a mini market melt up ahead of the holidays.  Savita Subramanian, chief equity strategist with Bank of America, has a slightly different take. She thinks we are facing a beta-driven melt up to close out the year.

The mother of all bubbles, monthly. [PT]

Do you know the difference between a mini market melt up and a beta-driven melt up?  Neither do we…

Thus, for fun and for free, we will attempt to deduce and classify the state of the stock market – both type and gradation – on your behalf.  We want to know precisely where things stand.

New Records

On Thursday the DJIA and S&P 500 both closed at all-time highs.  President Trump, an ardent market hobbyist, was quick to celebrate the new records, tweeting:

“Stock Market up big today. A New Record. Enjoy!”

Many good Americans celebrated too.  Take Barry McCockiner.  He was so grateful to Trump for this milestone he went to Apple Bee’s with his wife’s boyfriend and celebrated by pounding down a few beers.

However, those who bothered to ponder the delusion of all time stock market highs without an equally booming economy were less sanguine. Obviously, something has gone seriously awry.

Currently, the Buffett Indicator, which is the ratio of the total market capitalization over gross domestic product, is over 145 percent. A fairly valued market is a ratio somewhere between 75 and 90 percent. Anything above 115 percent is considered significantly over valued.

The market cap-to-GDP ratio, a.k.a. the “Buffett indicator” has risen into the blue yonder. This may explain why Berkshire Hathaway is sitting on more than $100 billion in cash. [PT]

The Buffett Indicator has only been higher two times: in September of last year, when it hit 146 just prior to the S&P 500’s 20 percent purge; and in March 2000, when it hit 148 just before the S&P 500 collapsed 49 percent. For perspective, the Buffett Indicator only registered 110 in September 2007, in advance of the S&P 500 crashing 56 percent

For now, though, stocks are going up. At the same time, the economy is slowing.  The Chicago Purchasing Management Index (PMI) fell to 43.2 – nearly a four year low – in October.  Any reading below 50 indicates deteriorating conditions.

Chicago PMI – this doesn’t look very encouraging… [PT]

Gross Domestic Product (GDP) has also stalled out. The Atlanta Fed has lowered its Q4 growth estimate to 1 percent. Year-over-year GDP growth is just 2 percent.

What is going on?

Atlanta Fed, GDP Now estimate. Needless to say, 1% is not the kind of growth anyone is likely to write home about. [PT]

Riding the Type 3 Mega Market Melt Up Train

If you follow the money back from the booming stock market to its genesis you end up at the steps of central banks, including the Federal Reserve.  For the third time in 20 years, the Fed has put the investment wealth – including 401ks and IRAs – of millions of Americans at extreme risk.  Naturally, this always happens at the worst possible time.

Monetary policy – via insurance rate cuts – is being executed to stimulate demand in the economy.  By brainlessly pursuing the illusive nirvana of 3 percent GDP growth and a 2 percent inflation target, the Fed is provoking a market melt up.  And American investors are, once again, being setup to get their kneecaps broken off.

To the disgrace of central bankers the world over, further monetary stimulus will not stimulate the economy.  That is the experience of the last two decades.  Despite massive monetary insanity the economy has slacked and slumped, while financial markets have melted up and then melted down.

Assets held by the Fed vs. the federal funds rate – the planners are pumping all-out again. [PT]

So while additional monetary stimulus won’t stimulate the economy, it will stimulate additional stock price distortions and asset price bubbles.  Given the massive amounts of monetary intervention being undertaken we fear you ain’t seen nothing yet…

In fact, we may be in for the train ride of a life time:  DOW 30,000?  DOW 40,000?  DOW 100,000? Why not?

The holy mountain quant agrees completely. [PT]

With Fed Chair Powell as conductor, and the third wild ride in the last 20 years underway, this melt up will be mega. Hence, we are classifying the melt up as: Type 3 Mega.

Quite frankly, the ride to DOW 30,000 – or higher – is not something to cheer and celebrate.  For it is not a reflection of a booming, healthy economy.  Rather, it is an expression of the pure madness and insanity of the world’s central bankers.

If you have your wits about you, we suggest making a quick exit at the next station.

Rep. Devin Nunes (R-CA) made a formal request that House Intelligence Committee Chairman Adam Schiff (D-CA) testify in a closed-door session as part of the impeachment inquiry against President Trump.

“Prior to the start of your public show trial next week, at least one additional closed-door deposition must take place,” reads a Friday letter from Nunes to Schiff.

“As the American public is now aware, in August 2019 you and/or your staff met with or talked to the whistleblower who raised an issue with President Trump’s phone call with Ukrainian President Zelensky. Although you publicly claim nothing inappropriate was discussed, the three committees deserve to hear directly from you the substance and circumstances surrounding any discussions conducted with the whistleblower, and any instructions you issued regarding those discussions.“

“Given that you have reneged on your public commitment to let the committees interview the whistleblower directly, you are the only individual who can provide clarity as to these conversations,” the letter reads.

Schiff lied about his office’s contacts with the whistleblower – initially claiming “We have not spoken directly with the whistleblower,” when in fact the whistleblower, now known as CIA officer Eric Ciaramella, reached out to a committee aide who directed him to Democratic attorney Mark Zaid (who proudly obtained government security clearances for pedophiles and enjoys walking around children’s theme parks alone).

That said, Schiff maintains he hasn’t personally spoken with Ciaramella, and that his committee was only given vague information as to the nature of the complaint.

Republicans, meanwhile, are gearing up for the public hearings by assembling a list of proposed witnesses – although Democrats have the final say over who can appear.

Nunes’ and Republicans’ effort to devise a strategy going forward comes after the House approved rules for the impeachment inquiry process last week. While Republicans opposed the resolution and complained the rules were unfair, Democrats still gave GOP lawmakers the ability to subpoena witnesses with the concurrence of Democratic committee chairs. If the chair does not consent, the minority can appeal to the full committee.

This process still gives Democrats final say over witnesses. A GOP source told Fox News this week that it’s unlikely Democrats would go along with the efforts to call Schiff — who is essentially leading the impeachment probe. –Fox News

On Saturday, Nunes wrote another letter to Schiff with a list of witnesses the GOP would like to call, including Joe Biden’s son Hunter and Ciaramella.

“Americans see through this sham impeachment process, despite the Democrats’ efforts to retroactively legitimize it last week,” wrote Nunes. “To provide transparency to your otherwise opaque and unfair process, and after consultation with [House Oversight Committee] Ranking Member Jim Jordan and [House Foreign Affairs Committee] Ranking Member Michael McCaul, the American people deserve to hear from the following witnesses in an open setting.”

While requesting testimony from the whistleblower, Nunes wrote that “Trump should be afforded an opportunity to confront his accusers,” particularly over what he claims are “discrepancies” between the whistleblower’s complaint and witnesses’ closed-door testimony.

“It is imperative that the American people hear definitively how the whistleblower developed his or her information, and who else the whistleblower may have fed the information he or she gathered and how that treatment of classified information may have led to the false narrative being perpetrated by the Democrats during this process,” Nunes wrote.

In addition to the anonymous whistleblower, whose complaint about Trump’s July 25 call with Ukraine is at the center of the impeachment inquiry, Republicans also plan to call Hunter Biden’s former business partner, Devon Archer.

Hunter Biden worked on the board of a natural gas company owned by a Ukrainian oligarch while his father served as vice president. Joe Biden pushed in 2016 for the dismissal of a Ukrainian prosecutor who had been accused of overlooking corruption in his own office, threatening to withhold money if the prosecutor was not fired. –The Hill

Last Sunday on CBS‘ “Face the Nation,” House GOP leader Kevin McCarthy (R-CA) said that Schiff is the “fist person” who should be brought in, along with his staff.

“Come to the Judiciary Committee” said Collins, following the passage of Democrats’ impeachment guidelines. “Be the first witness and take every question asked of you. Starting with your own involvement [with] the whistleblower.”

Authored by Eoin Higgins via CommonDreams.org,

A record number of CEOs left their positions in October, a corporate outplacement firm reported Wednesday, the most in one month since the 2008 recession.

The news from Challenger, Gray & Christmas raised eyebrows—and concerns over a possible incoming recession—Wednesday evening at progressive news co-op The District Sentinel‘s radio show. 

“Maybe this means nothing, maybe this is a coincidence,” said show co-host Sam Sacks.

“Or maybe rich people can see the writing on the wall and are cashing out right now.”

Sacks and co-host Sam Knight weren’t the only ones who saw the news as possibly indicative of economic upheaval on the horizon.

“Sign of a recession?” wondered Globe and Mail reporter Paul Waldie.

According to Challenger, Gray & Christmas’ report, 1,332 CEOs have already left their companies, far outstripping the total 1,257 departures by this time in 2008. A total 1,484 CEOs left their positions by the end of 2008.

In a press release, Challenger, Gray & Christmas explained some of the turnover as the result of executive misconduct, succession plans, and normal changes in personnel. But even by those standards, 2019 stands out.

As The Chicago Tribune reported, October was a high water mark for the year: 

In October, 172 chief executives left their posts, compared with 151 CEOs in September and 149 in October 2018, according to outplacement firm Challenger, Gray, & Christmas. That brings the 10-month tally to 1,332 CEOs who are out—the highest number since 2002, when the firm began tracking CEO departures at companies that have been in business at least two years and have at least 10 employees.

“Succession plans and misconduct aside, 172 in one month?” market researcher Danielle DiMartino Booth tweeted incredulously.

October’s numbers beat the previous record, set in August.

“U.S. based companies announced 159 CEO changes in August, 28% higher than the 124 CEO exits in July and the most ever in a month, according to business and executive coaching firm Challenger, Gray & Christmas.”

(via @mkmfitzgerald)https://t.co/RjlTJA5mqe pic.twitter.com/50JAwAp3ra

— Carl Quintanilla (@carlquintanilla) September 25, 2019

Challenger, Gray & Christmas’ vice president Andrew Challenger acknowledged to NBC News that the numbers were more akin to times of economic downturn than to the current era of relative stability.

“You expect a high turnover during a recession period,” said Challenger.

“To see more turnover during a period where companies are doing very well is surprising.”

In a statement announcing the departure numbers, Challenger downplayed the possibility of economic disaster and framed the personnel changes as part of the normal course of business.

“We’ve seen the majority of CEOs leaving amid normal succession plans,” said Challenger. “Meanwhile, after a decade of expansion, companies that started ten years ago are finding themselves in a phase where new leadership is needed. Other companies are adapting to changing technologies or finding new leadership based on current economic conditions and forecasts for the coming year.”

But, as Common Dreams reported last month, there are other signs of possible economic trouble ahead. A number of late October moves by the Federal Reserve to pump cash into the economy set off alarm bells on Wall Street, prompting Northman Trader’s Sven Heinreich to wonder, “What is the Fed not telling us?”

The inverted yield curve—a sign of coming recession—that surfaced in October further suggested to The District Sentinel‘s Sacks that the CEO exodus could be a sign of imminent economic disaster.

“Maybe these CEOs are seeing that inverted yield and are just like, ‘yeah, let’s just take our golden parachutes and get the fuck out of here,'” said Sacks. 

“That’s probably correct,” said Knight.

Perhaps anticipating the moment Iran has to inform European supporters of the 2015 nuclear deal ‘don’t say we didn’t warn you,’ a senior Iranian official has warned “a crisis” is now unfolding and that Tehran’s incremental breaches of the JCPOA should serve as a “wake-up call” for European signatories of the deal.

FT reports Iran is prepared to amp up its nuclear activity every two months, following last week’s announced doubling of advanced centrifuges, blowing past prior commitments under the deal which the US unilaterally withdrew from in May 2018. Per the FT report: 

Hamid Baeidinejad, Iran’s ambassador to the UK, said Tehran’s move this week to inject uranium gas into centrifuges at its Fordow plant — a significant escalation of the Islamic republic’s nuclear activity — was “adopted as a warning to the other sides and the international community that we are at a crisis”.

“We hope this warning would encourage all other parties to implement their commitments,” Baeidinejad continued. “Now it depends on the other side — if they don’t take this warning seriously . . . we will be in a very difficult situation.” 

Of course there’s nothing new to this new ‘crisis’, given European signatories Germany, France, and the UK have for over a year limped along under White House threats, while still trying to assure and appease Iranian leaders that they are “doing something,” which has included setting up a ‘SWIFT alternative’ payment channel for humanitarian related purchases, and Macron’s more recent $15bn credit line proposal. 

Baeidinejad again echoed that Europe’s efforts remain too-little-too-late and that a final breaking point is coming: “They have taken commitments that are defined in very clear terms and they should be able to implement those commitments,” he said.

Though Iran claims its still operating within the framework of the JCPOA, a major final breaking point is expressed in the FT report as follows:

While previous moves were more focused on research and development, western diplomats in Tehran fear the injection of gas into the centrifuges, which had previously spun empty, marked a more decisive escalation.

Though Iran and Washington threats have been largely out of the news compared with the constant Persian Gulf driven global headlines of this past summer and the tit-for-tat ‘tanker wars’, the threat a US-Iran military encounter remains a constant possibility. 

Authored by Paul Joseph Watson via Summit News,

The Swedish government will hand out the equivalent of $175,000 dollars from the inheritance money of dead Swedes without heirs to fund drag queen shows for children.

You just can’t stop progress!

The Public Inheritance Fund, a state body that manages the money, will give the cash to ‘Kulturföreningen Mums’ in Stockholm, which will use it to organize transvestite and transgender events where fairytales are read to children.

“The project will, together with children, young people and adults with disabilities, develop available normative creative fairy tales in the form of drag shows. Together with the target group and several organizations, the established business Among dragons and drag queens will create new fairy tales that reflect the target group,” writes the General Heritage Foundation.

The funds will be used to promote projects “based on the needs and wishes of the target group” which includes “drag show workshops” based around drag queens reading books to children in libraries.

Other large chunks of money from the inheritance pot are being handed out to left-wing groups, including one that promotes “a higher climate commitment” for young people.

Despite Sweden being a progressive utopia which punishes its own citizens who question pretty much anything like this, respondents on Twitter weren’t so enthusiastic.

One of them described the situation as “economic-necrophilia,” while another said, “Note to fucking self: Don’t let your children near these people.”

*  *  *

My voice is being silenced by free speech-hating Silicon Valley behemoths who want me disappeared forever. It is CRUCIAL that you support me. Please sign up for the free newsletter here. Donate to me on SubscribeStar here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown.

French President Emmanuel Macron’s now viral Economist interview published Thursday wherein he described NATO as suffering “brain death” amid a general lack of coordination among allies, especially given the alliance’s second largest military’s isolation (Turkey), received immediate push back from German Chancellor Angela Merkel, who said he was overreacting. 

“The French president has found rather drastic words to express his views. This is not how I see the state of cooperation at NATO,” she said alongside NATO Secretary-General Jens Stoltenberg at a press briefing in Berlin. 

Macron had told the British weekly magazine, “What we are currently experiencing is the brain death of NATO,” and even questioned the Article Five collective defense guarantee when pressed on the issue: “I don’t know,” he answered. 

In her immediate reaction to Macron’s dour assessment, Merkel perhaps was anticipating Kremlin officials grabbing the popcorn to kickback and enjoy the declaration of NATO’s strategic “death”. 

Early on Friday the independent publication The Moscow Times quickly picked up on the predictably positive public reaction and ran the headline, “Russia Lauds Macron’s ‘Golden Words’ About ‘Brain Dead’ NATO”. The report observed: 

In Russia, Macron’s comments were hailed by some as an accurate depiction of NATO’s state.

“Golden words … an exact definition of the current state of NATO,” Maria Zakharova, the spokeswoman of Russia’s Ministry of Foreign Affairs, wrote on her Facebook page.

And Russian presidential spokesman Dmitry Peskov took the opportunity to be a bit gleeful and snarky in telling reporters Friday:

“Whether NATO is alive or dead, and which of this alliance’s body parts are in a coma, are not for us to decide. We are not pathologists.”

“Therefore, we have never been inclined to exaggerate the role of this alliance in ensuring global and European security and stability, because it is an instrument of confrontation, confrontation and even aggression,” Peskov added.

Bill Blain of Shard Capital had some thoughts on the inter-NATO kerfuffle Friday morning:

Even though her Government is teetering on the edge of a coalition meltdown, Angela Merkel has hit back at Emanuele Macron’s recent sideswipes at NATO. 

Macron clearly thinks a distracted Germany means Europe is a ripe fruit to be picked as he prepares to assume undisputed leadership.  He attacked the lack of support Trump is giving NATO, warning the American’s have “turned their backs on Europe”, and the Treaty Organisation “can only work if the guarantor of lost resort functions as such”. Clearly, M. Macron is setting up France, in the absence of the US and soon the UK, as the new military leader of Europe.  It will soon be the only nuclear power in the EU. What Napoleon never achieved, maybe the Force de Frappe can?

This would be the same France that flounced out of its NATO responsibilities in the 1950s and 60s?  De Gaulle took umbrage because Les Anglos weren’t giving France an equal place at the top table and were suggesting the rearmament of Germany. In 1966 De Gaulle ordered all non-French NATO troops out – to which the Americans pointedly asked: “Does that include the bodies of American soldiers in French cemeteries?”

France stayed out till 2009.  Nobody noticed.

Meanwhile, Russian Foreign Minister Sergey Lavrov also took the opportunity to get sarcastic: “I wouldn’t want to drag myself into a discussion about the medical side of this issue,” he told reporters while attending an arms control event in Moscow on Friday.

He then added: “If Macron had felt that the diagnosis he made [of NATO] was so evident – he had all the right to state it. He knows NATO better than me, since he represents a nation which is a member of the alliance.”

“So, once NATO ‘recovers’, we’ll be right there,” he concluded.