Saturday, September 30, 2017

Saturday's News Links

[Bloomberg] Trump Ramps Up Fed Chair Search With Decision Due Within Weeks

[Bloomberg] U.S. Government Talks Directly With North Korea, Tillerson Says

[CNBC] Spanish police move in to stop banned Catalan independence referendum

[Bloomberg] China's Central Bank Unveils Targeted Lending Plan to Aid Growth

[Bloomberg] China Signals Robust Growth as Factory Gauge Hits Five-Year High

[Reuters] China central bank says will maintain prudent, neutral monetary policy

[Reuters] Turkey's Erdogan says Iraqi Kurdish authorities "will pay price" for vote

Weekly Commentary: Just the Facts - September 29, 2017

My apologies.  Unexpected demands on my time today.

For the Week:

The S&P500 increased 0.7% (up 12.5% y-t-d), and the Dow added 0.2% (up 13.4%). The Utilities slipped 0.2% (up 8.7%). The Banks jumped another 2.3% (up 8.1%), and the Broker/Dealers rose 3.2% (up 17.6%). The Transports gained 2.2% (up 9.6%). The S&P 400 Midcaps rose 1.5% (up 8.2%), and the small cap Russell 2000 jumped 2.8% (up 9.9%). The Nasdaq100 advanced 0.8% (up 22.9%). The Semiconductors rose 1.9% (up 29.3%). The Biotechs gained 0.9% (up 36.7%). With bullion down $17, the HUI gold index fell 1.5% (up 7.8%).

Three-month Treasury bill rates ended the week at 102 bps. Two-year government yields rose five bps to 1.49% (up 30bps y-t-d). Five-year T-note yields gained seven bps to 1.94% (up 1bp). Ten-year Treasury yields jumped eight bps to 2.33% (down 11bps). Long bond yields rose eight bps to 2.86% (down 21bps).

Greek 10-year yields jumped 10 bps to 5.60% (down 142bps y-t-d). Ten-year Portuguese yields dropped 15 bps to 2.29% (down 146bps). Italian 10-year yields were unchanged at 2.11% (up 30bps). Spain's 10-year yields slipped two bps to 1.60% (up 22bps). German bund yields gained two bps to 0.46% (up 26bps). French yields added a basis point to 0.74% (up 6bps). The French to German 10-year bond spread widened one to 28 bps. U.K. 10-year gilt yields increased one basis point to 1.37% (up 13bps). U.K.'s FTSE equities index gained 0.8% (up 3.2%).

Japan's Nikkei 225 equities index added 0.3% (up 6.5% y-t-d). Japanese 10-year "JGB" yields gained three bps to 0.07% (up 3bps). France's CAC40 increased 0.9% (up 9.6%). The German DAX equities index jumped 1.9% (up 11.7%). Spain's IBEX 35 equities index added 0.7% (up 11%). Italy's FTSE MIB index gained 0.7% (up 18%). EM equities were mixed. Brazil's Bovespa index fell 1.5% (up 23.4%), while Mexico's Bolsa was little changed (up 10.3%). South Korea's Kospi added 0.2% (up 18.2%). India’s Sensex equities index dropped 2.0% (up 17.5%). China’s Shanghai Exchange was about unchanged (up 7.9%). Turkey's Borsa Istanbul National 100 index declined 1.2% (up 31.7%). Russia's MICEX equities index gained 1.2% (down 7%).

Junk bond mutual funds saw inflows of $433 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates were unchanged at 3.83% (up 41bps y-o-y). Fifteen-year rates were unchanged at 3.13% (up 41bps). The five-year hybrid ARM rate increased three bps to 3.20% (up 39bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up six bps to 4.15% (up 61bps).

Federal Reserve Credit last week slipped $1.0bn to $4.424 TN. Over the past year, Fed Credit was little changed. Fed Credit inflated $1.613 TN, or 57%, over the past 255 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $4.5bn last week to $3.372 TN. "Custody holdings" were up $228bn y-o-y, or 7.3%.

M2 (narrow) "money" supply last week declined $13.8bn to $13.681 TN. "Narrow money" expanded $663bn, or 5.1%, over the past year. For the week, Currency increased $3.4bn. Total Checkable Deposits dropped $39.7bn, while Savings Deposits expanded $19.1bn. Small Time Deposits were little changed. Retail Money Funds added $1.4bn.

Total money market fund assets rose $16.1bn to $2.740 TN. Money Funds increased $11bn y-o-y, or 2.2%.

Total Commercial Paper jumped $15.3bn to a new one-year high $1.059 TN. CP gained $113bn y-o-y, or 11.9%.

Currency Watch:

The U.S. dollar index rallied 1.0% to 93.076 (down 9.1% y-t-d). For the week on the downside, the Mexican peso declined 2.8%, the South African rand 2.3%, the Norwegian krone 2.0%, the Swedish krona 2.0%, the New Zealand dollar 1.7%, the Australian dollar 1.6%, the Brazilian real 1.2%, the euro 1.2%, the Canadian dollar 1.1%, the Singapore dollar 0.9%, the British pound 0.8%, the South Korean won 0.8%, and the Japanese yen 0.5%. The Chinese renminbi dropped 0.94% versus the dollar this week (up 4.39% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index increased 0.3% (up 0.2% y-t-d). Spot Gold declined 1.3% to $1,280 (up 11.1%). Silver fell 1.8% to $16.676 (up 4.4%). Crude jumped $1.01 to $51.67 (down 4%). Gasoline sank 4.6% (down 5%), while Natural Gas gained 1.6% (down 20%). Copper added 0.4% (up 18%). Wheat slipped 0.3% (up 10%). Corn increased 0.5% (up 1%).

Trump Administration Watch:

September 27 – Reuters (Steve Holland and Idrees Ali): “President Donald Trump warned North Korea… that any U.S. military option would be ‘devastating’ for Pyongyang, but said the use of force was not Washington’s first option to deal with the country’s ballistic and nuclear weapons program. ‘We are totally prepared for the second option, not a preferred option,’ Trump said… ‘But if we take that option, it will be devastating, I can tell you that, devastating for North Korea. That’s called the military option. If we have to take it, we will.’”

September 24 – Reuters (Michelle Nichols, Yara Bayoumy and Phil Stewart): “North Korea said… targeting the U.S. mainland with its rockets was inevitable after ‘Mr. Evil President’ Donald Trump called Pyongyang’s leader ‘rocket man’, further escalating rhetoric over the North’s nuclear weapons and missile programs. North Korean Foreign Minister Ri Yong Ho’s remarks to the United Nations General Assembly came hours after U.S. Air Force B-1B Lancer bombers escorted by fighters flew in international airspace over waters east of North Korea in a show of force the Pentagon said showed the range of military options available to Trump.”

September 27 – Reuters (David Morgan and Richard Cowen): “President Donald Trump proposed… the biggest U.S. tax overhaul in three decades, calling for tax cuts for most Americans, but prompting criticism that the plan favors business and the rich and could add trillions of dollars to the deficit. The proposal drew a swift, skeptical response from Senator Bob Corker, a leading Republican ‘fiscal hawk,’ who vowed not to vote for any federal tax package financed with borrowed money. ‘What I can tell you is that I’m not about to vote for any bill that increases our deficit, period,’ Corker, who said… he would not seek re-election in 2018, told reporters.”

September 28 – Wall Street Journal (Richard Rubin and Siobhan Hughes): “A day after announcing their ambitious tax plan, Republicans debated scaling back one of their largest and most controversial proposals to pay for lower tax rates: repeal of the individual deduction for state and local taxes. Faced with the potential for defections by House Republicans from high-tax states such as New York and New Jersey, Republicans are exploring ways to satisfy those lawmakers… ‘The members with concerns from high-tax states have to be accommodated. This has to be dealt with,’ said Rep. Peter Roskam (R., Ill.), a senior member of the House Ways and Means Committee…”

September 28 – CNBC (Jeff Cox): “Tax cuts Republicans proposed this week will be paid for entirely through economic growth, chief White House economic advisor Gary Cohn said… Republicans issued the tax overhaul plan… that simplifies the tax code, breaking rates down into three categories and cutting corporate rates. The plan also seeks to give companies a break for profits stashed overseas while doubling the standard deduction for most filers. The tax cuts are projected to cost at least $1.5 trillion and up to $2.2 trillion, according to one analysis… Cohn said the cuts won't increase the budget deficit. ‘We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,’¬ Cohn told CNBC… ‘We think we can pay for the entire tax cut through growth over the cycle.’”

September 28 – Wall Street Journal (Kate Davidson): “Treasury Secretary Steven Mnuchin said… a sweeping GOP tax overhaul would generate more than enough economic growth to offset the cost, pressing the administration’s argument that the plan would pay for itself. ‘Not only will this tax plan pay for itself, but it will pay down debt,’ he said…in, arguing the proposal would fuel stronger growth, causing tax payments to rise and offsetting the revenue lost from lower rates. He also said lower rates would discourage corporate tax avoidance, which would help boost revenue. Analysts and economists on both sides of the aisle, however, have disagreed over how much growth tax cuts are likely to generate, and said there is no clear evidence that cuts generate enough growth to offset their costs.”

China Bubble Watch:

September 26 – CNBC (Evelyn Cheng): “The China-driven surge in commodity prices could soon come to an end, according to a private survey of Chinese businesses. Contrary to ‘markets’ unremitting faith in the Chinese government campaign to combat" oversupply in metals, ‘firms are saying quite the opposite. For the sixth quarter in a row, coal, aluminum, steel, and copper each saw capacity rise on net,’ according to the China Beige Book's early brief of third-quarter data… In its third-quarter survey of 3,300 firms and 160 bankers across 34 industries, the China Beige Book also found that companies borrowed at the second-highest rate in four years, contrary to widespread beliefs that China is reducing its use of credit to fuel growth. ‘Most of the year when the Chinese government has been talking about deleveraging that has not been evidenced in China Beige Book data… At least part of the time corporations have had even easier access to capital and even when conditions have been tightening it has not contributed to deleveraging or slower deleveraging.’”

September 25 – New York Times (Keith Bradsher and Ailin Tang): “Over the past eight years, to the world’s growing alarm, China’s big state-owned companies and powerful local governments have borrowed trillions of dollars to get what they want. Now, it’s Li Jing’s turn. Ms. Li, a 33-year-old car saleswoman here in the middle of China’s declining industrial zone, is one of the growing millions of Chinese using mortgages and credit cards to finance a middle-class lifestyle. Over the past two years, she and her husband have bought and remodeled a $120,000 apartment and purchased two new cars for $30,000 apiece. To help pay for it all, they took out a 10-year mortgage that absorbs nearly a third of their monthly income — once considered an unusual amount of debt in a country that used to depend almost solely on cash. ‘I view the mortgage as a form of savings,’ Ms. Li said, ‘because in 10 years, I’ll own the whole apartment.’”

September 26 – Financial Times (Henny Sender): “When a mix of Chinese privately owned and state-owned companies came together in August to buy shares in China Unicom’s $11.7bn offering, Beijing heralded it as another milestone for reform of country’s state-owned enterprises. It certainly marks another step in the blurring of the line between private enterprises in China and SOEs. Sadly, the blurring is in the wrong direction. Rather than freeing up state enterprises to act more efficiently, the latest move by Beijing is all about asking private companies to subsidise them. ‘Mixed ownership will do little to change Unicom’s behaviour,’ analysts at TS Lombard noted of China’s second-largest telecom wireless company. ‘On the contrary, it is the latest sign of the Chinese Communist party extending its influence over China’s private sector. SOE reforms suck resources from the private sector.’ Moreover, the heavy hand of Beijing — and its obsession with control — is undermining solid economic performance as well as threatening financial stability.”

September 27 – Reuters (Yawen Chen and Elias Glenn): “China will boost imports to make its trade structure more balanced, a spokesman for the Ministry of Commerce said… China runs a massive trade surplus and has been accused by other countries of restricting access to its markets in order to protect domestic industry.”

September 25 – Wall Street Journal (Yifan Xie): “The manager of the world’s largest money-market fund said it would take steps to reduce risk in its investments and lower the lofty yields that have helped draw a flood of cash into the fund over the past year. Tianhong Asset Management Co., a Beijing-based company that manages a money-market fund with more than $200 billion in assets, is making changes to comply with liquidity rules imposed recently by Chinese regulators, according to Wang Dengfeng, general manager of Tianhong’s fixed-income department. ‘We will step up efforts to adhere to the original function of money-market funds as a cash management tool that carries low risk, low yield and high liquidity,’ Mr. Wang said…”

September 25 – Bloomberg: “The world’s most extreme stock rally is getting a reality check. After share price gains at Chinese property developers accelerated at a breathtaking pace in the past month, led by an 87% surge in Sunac China Holdings Ltd., the momentum has started to turn as authorities have taken a harder line on reining in financial risks. Six of the 10 best performers on the MSCI All-Country World Index in the one month through Sept. 21 were Chinese real estate firms. Chinese developers had their biggest slump in six years on Monday and slipped again on Tuesday.”

Global Bubble Watch:

September 28 – Bloomberg (Suzanne Woolley): “The rich are, predictably, getting richer. Both the number of people with investable assets of at least $1 million in U.S. dollars and the total wealth that represents are expanding around the globe, according to World Wealth Report 2017 from Capgemini. By 2025, the consulting and technology services company predicts, assets held by high-net-worth investors will exceed $100 trillion, up from $63.5 trillion in 2016. Sadly, even the very wealthy suffer from income inequality. While the ranks of the millionaire next door, with $1 million to $5 million in investable assets, increased by 7.4%, the number of people in the top 1% of the high-net-worth world—those with at least $30 million in investable assets—grew by 8.3%.”

September 28 – Financial Times (Javier Espinoza, Robert Smith and Arash Massoudi): “Private equity transactions have hit a post-financial crisis high this year as cheap debt and record sums of ready cash lifted the value of deals to $212bn. Buyout values surged nearly 25% in the first nine months of the year, representing just under one-tenth of total M&A dealmaking…, with activity in the US and Europe at its strongest since 2007… Worldwide M&A activity totalled $2.4tn during the year-to-date 2017, up 2% compared with the same period last year.”

September 24 – Wall Street Journal (Paul J. Davies): “One common sign of trouble ahead is people borrowing heavily to buy equities. Investors should be worried then that stocks are being supported by record amounts of margin debt, according to… the Bank for International Settlements… These kinds of loans secured against stocks have often proved dangerous in a downturn because when share prices fall borrowers are forced to sell. In the U.S., margin debt is more than three-times the level ahead of the 2008 crisis and is greater even than its peak in 2000 before the dot-com crash, according to the B.I.S.”

September 28 – CNBC (Diana Olick): “Home prices are rising in most major cities around the world, but in some they are rising too far, too fast. When prices reach the so-called bubble territory, that is, overvalued in relation to fundamentals like income and employment, they are at a far greater risk of correction… In the last five years, bubble risk has grown significantly in several cities, according to a new report from UBS. Toronto, Stockholm, Munich, Vancouver, British Columbia, Sydney, London, Hong Kong and Amsterdam are at "bubble risk," according to its Global Real Estate Bubble Index.”

Fixed-Income Bubble Watch:

September 24 – Wall Street Journal (Christopher Whittall): “Lending to the most highly indebted companies in the U.S. and Europe is surging, a development that investors worry could pressure financial markets if the global economic expansion starts to fade. Volume for these leveraged loans is up 53% this year in the U.S., putting it on pace to surpass the 2007 record of $534 billion, according to S&P Global Market Intelligence’s LCD unit. In Europe, recent loans offer fewer investor safeguards than in the past. This year, 70% of the region’s new leveraged loans are known as covenant-lite, …more than triple the number four years ago. Covenants are the terms in a loan’s contract that offer investor protections, such as provisions on borrowers’ ability to take on more debt or invest in projects. Toys ‘R’ Us offered a reminder of the risks of piling on debt when the company filed for bankruptcy protection…”

Federal Reserve Watch:

September 23 – New York Times (Kate Kelly and Binyamin Appelbaum): “The White House has created a list of about a half-dozen candidates to be the next leader of the Federal Reserve, including its current chairwoman, Janet L. Yellen, and the president’s chief economic adviser, Gary D. Cohn… The list also includes Jerome H. Powell, a member of the Fed’s board of governors; Kevin Warsh, a former Fed governor; and the Stanford University economist John B. Taylor, the officials said. Preliminary interviews with some candidates have already begun with an eye toward presenting finalists to President Trump later this year.”

September 28 – Reuters (David Milliken): “U.S. Federal Reserve Vice-Chairman Stanley Fischer said it was important for the central bank to reverse its massive bond buying program, given that it had previously said they were a temporary measure. ‘The importance of the shift that is now underway, of reducing the size of the Fed’s balance sheet (is that) I think it’s very important that we said these are temporary measures, that they be temporary measures,’ he told a conference on central bank independence hosted by the Bank of England.”

September 25 – Bloomberg (Jeanna Smialek and Matthew Boesler): “Two Federal Reserve officials offered different views on the inflation outlook on Monday, as the central bank begins to debate whether to raise interest rates again this year or wait for price pressures to pick up. Laying out the case for sticking with the Fed’s strategy of gradual monetary policy tightening, New York Fed President William Dudley that with firmer import prices and the ‘fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the FOMC’s 2% objective.’ That echoed remarks last week by Chair Janet Yellen after officials voted to gradually start shrinking the Fed’s balance sheet in October.”

September 28 – Bloomberg (Jeanna Smialek): “Federal Reserve Bank of Boston President Eric Rosengren said the central bank should raise rates in a ‘regular and gradual’ way despite low inflation, because weak price pressures appear temporary and a tight labor market risks overheating the economy. ‘Appropriate risk mitigation would argue for continued gradual removal of monetary accommodation, even though we are currently below the inflation target,’ Rosengren said… ‘I believe policy makers should not overreact to low current inflation readings that are widely expected to be temporary.’”

September 26 – Bloomberg (Steve Matthews): “Federal Reserve Bank of Atlanta President Raphael Bostic said an interest rate increase may be appropriate in December given clear signs of growing inflation pressures. ‘I am at this point feeling pretty comfortable about the idea that we will be looking to move rates come December,’ Bostic told reporters… If the U.S. economy continues ‘to see strong signs of economic growth with a pickup in inflation,’ then he would support a hike.”

U.S. Bubble Watch:

September 28 – CNBC (Stephanie Landsman): “The stock market looks expensive and it may not be equipped to handle rising interest rates, according to Yale University fellow Stephen Roach. The former chairman of Morgan Stanley Asia suggests Wall Street has a case of amnesia, and the prognosis is poor for the 8½-year-old rally. ‘Inflation has all but vanished from the scene. Policymakers as well as investment managers, to say nothing of the investors that they represent, don't remember what inflation is like and what monetary tightening might be in that environment,’ Roach warned… Roach has been critical of the world's central banks — particularly the Federal Reserve. ‘The point on policy is: Just because inflation is surprising in terms of coming in below what we think doesn't mean we should not restore our policy to a more normal approach,’ he said.”

September 27 – Reuters (Robert Frank): “America's top 1% now control 38.6% of the nation's wealth, a historic high… The Federal Reserve's Surveys of Consumer Finance shows that Americans throughout the income and wealth ladder posted gains between 2013 and 2016. But the wealthy gained the most, driven largely by gains in the stock market and asset values. The top 1% saw their share of wealth rise to 38.6% in 2016 from 36.3% in 2013. The next highest nine percent of families fell slightly, and the share of wealth held by the bottom 90% of Americans has been falling steadily for 25 years, hitting 22.8% in 2016 from 33.2% in 1989. The top income earners also saw the biggest gains. The top 1% saw their share of income rise to a new high of 23.8% from 20.3% in 2013. The income shares of the bottom 90% fell to 49.7% in 2016.”

September 28 – Bloomberg (Patricia Laya): “U.S. second-quarter growth was revised up slightly without altering the bigger picture of a consumer- driven economy that also got a healthy contribution from business spending during the period… Gross domestic product rose at a 3.1% annualized rate from prior quarter (est. 3%); revised upward from second estimate of 3%.”

September 26 – Bloomberg (Patricia Laya): “Home prices in 20 U.S. cities climbed more than forecast in July, reflecting solid demand against a backdrop of modest listings of properties, figures from S&P CoreLogic Case-Shiller showed… 20-city property values index rose 5.8% y/y (est. 5.7%). National price gauge increased 5.9% y/y.”

September 26 – CNBC (Diana Olick): “From a broad view, the U.S. housing market looks very healthy. Demand is high, employment and wages are growing, and mortgage rates are low. But the nation's housing market is assuredly unhealthy; in fact, it is increasingly mismatched with today's buyers. While the big numbers don't lie, they don't tell the real truth about the affordability and availability of U.S. housing for the bulk of would-be buyers. First, several reports out this week point to both continued heat in home values as well as pushback from homebuyers. Prices remain nearly 6% higher than they were a year ago, nationally, with some local markets seeing double-digit annual price gains. Those prices are being driven by a severe lack of supply at the low end of the market, which is where the most demand exists. That means lower-priced homes are seeing bigger price gains than higher-priced homes because of the competition. At the same time, sales are falling, again, because there are too few homes on the low end, and the homes that are available are very expensive.”

September 26 – Bloomberg (Sridhar Natarajan, Dakin Campbell, and Alastair Marsh): “Jia Chen was in London again this summer -- just one of the many trips she’s recently made across the Atlantic -- to peddle a product left for dead in the ruins of the financial crisis. The 35-year-old Citigroup Inc. director has spent the past two years meeting clients, speaking at industry panels and becoming the face of a resurgent market for synthetic CDOs -- complex derivatives that let buyers make big, leveraged bets on the health of corporate America. Along the way, she’s helped establish Citigroup as its dominant player. It’s an astonishing comeback for the roughly $70 billion market for synthetic CDOs, which rose to infamy during the crisis and then faded into obscurity after nearly destroying the financial system. But perhaps the most surprising twist is Citigroup itself. Less than a decade ago, the bank was forced into a taxpayer bailout after suffering huge losses on similar types of securities tied to mortgages.”

September 28 – Bloomberg (William Selway): “Few places were as financially ill-equipped to deal with a catastrophe as Puerto Rico. After years of losing residents as the economy staggered, the U.S. territory of 3.4 million residents collapsed into a record-setting bankruptcy in May and has stopped making payments on much of its more than $70 billion of debt. Then came Hurricane Maria on Sept. 20, which wiped out the already dilapidated electricity system, flooded cities and ruined crops.”

September 26 – CNBC (Steve Liesman): “Prices for already beleaguered Puerto Rican debt fell to record lows on Tuesday as investors realized that the devastation from Hurricane Maria made it likely they would receive even less principal than previously thought. Puerto Rico's 8% general obligation bond due in 2035, a benchmark for the island's debt, plunged an additional 1.25 cents, or 2.36%, to 51.75 cents on the dollar… ‘I think that it's a realization on the part of a lot of people that the damage is a lot worse than anticipated,’ said one muni trading executive.”

Europe Watch:

September 27 – Reuters (Thomas Escritt): “Germany took a first decisive step… toward forming a new government when its veteran finance minister, conservative Wolfgang Schaeuble, agreed to become president of the parliament, clearing the way for another party to take his job. Chancellor Angela Merkel will hope that Schaeuble, deeply respected in Germany for helping to steer the euro zone through its debt crisis, can stamp his authority on a fractious Bundestag lower house that will include two more parties after Sunday’s federal election. Merkel must assemble Germany’s first three-way coalition since the 1950s after her conservatives lost support and a far-right party, the anti-immigrant Alternative for Germany (AfD), entered parliament for the first time in half a century.”

September 25 – Bloomberg (Arne Delfs, Rainer Buergin, and Patrick Donahue): “Angela Merkel’s political bloc is starting to draw lessons from its electoral losses to the Alternative for Germany party as pressure mounts for the chancellor to win back voters lost to the populist right. Merkel’s Christian Democratic Union-led bloc met in Berlin on Monday in the wake of its defeat of the Social Democratic Party while falling to the worst result since 1949. ‘The chancellor’s nightmare victory’ was the verdict of Germany’s best-selling Bild newspaper.”

September 27 – Financial Times (Michael Stothard): “Antoni Castellà grew up near Barcelona’s Modelo prison in the 1970s and says he can still remember hearing the cries of Catalan nationalists held as political prisoners by the regime of Francisco Franco, the dictator who suppressed Catalan language, autonomy and culture. For Mr Castellà, now a member of the Catalonian regional parliament for the Demòcrates party, the independence referendum on October 1 is a chance for the Catalan people to finally break free from the Spanish state after decades of what he sees as mistreatment going back to the 18th century. On Sunday… Catalans are set to be asked if they want to be independent. If more than 50% of voters say Yes, the parliament says it will declare independence within 48 hours — regardless of the turnout.”

Japan Watch:

September 28 – Wall Street Journal (Peter Landers): “Prime Minister Shinzo Abe faced one of the biggest threats to his solid hold on power after the leading opposition force agreed to line up behind a new party led by popular Tokyo Gov. Yuriko Koike. Parliament’s lower house was dissolved on Thursday, and the government formally set a general election for Oct. 22… Analysts initially expected Mr. Abe’s ruling Liberal Democratic Party and a smaller coalition ally to have little trouble retaining a solid majority in the election, which would clear the way for Mr. Abe to continue in the office he has held since December 2012. They said Mr. Abe called the Oct. 22 election, more than a year ahead of the end of the lower house’s term, in anticipation that opposition parties would split the support of anti-Abe voters.”

Leveraged Speculator Watch:

September 26 – CNBC (Evelyn Cheng): “Investing giant Mike Novogratz may soon join the rush of new digital asset funds as the largest of them all. The head of Galaxy Investment Partners and former macro hedge fund manager at Fortress Investment is launching a $500 million fund to invest in digital assets like bitcoin… When it launches, Novogratz's fund will be by far the largest in a growing world of funds investing in digital products like bitcoin, ethereum and initial coin offerings. Financial research firm Autonomous Next estimated this summer that about 70 such ‘crytpo-funds’ now exist. ‘The pace is frantic right now,’ said Brian Kelly, a CNBC contributor and head of BKCM, which officially launched a digital assets strategy in July. ‘This is a brand new asset class for investors and this is just beginning.’”

Geopolitical Watch:

September 27 – Reuters (Christine Kim): “South Korea expects more provocative acts by North Korea next month, to coincide with the anniversary of the founding of the North Korean communist party and China’s all-important Communist Party Congress. During a meeting with President Moon Jae-in on Thursday, national security adviser Chung Eui-yong said he expected Pyongyang to act around Oct. 10 and 18, but gave no details.”

September 26 – Reuters (Ahmed Rasheed and Raya Jalabi): “Baghdad heaped pressure on Iraq’s Kurds on Wednesday, demanding they cancel their overwhelming vote for independence while parliament urged the Iraqi central government to send troops to take control of vital oil fields held by Kurdish forces. Stepping up efforts to isolate autonomous Kurdish-held northern Iraq, whose people endorsed secession in a referendum on Monday that angered neighboring countries, Baghdad demanded that foreign governments close their diplomatic missions in the Kurdish capital Erbil. Final results… showed nearly 93% in favor of independence, and 7.3% against.”

September 25 – Bloomberg (Onur Ant and Khalid Al Ansary): “Turkey can choose to ‘close the valves’ on oil exports from Iraq’s Kurdish region through the Turkish port of Ceyhan, President Recep Tayyip Erdogan warned as Kurds voted in a referendum on independence from Iraq. The landlocked Kurdish enclave in northern Iraq can ship as much as 700,000 barrels a day through the pipeline to Ceyhan on the Mediterranean. The Turkish president’s comments served as a reminder that Iraq’s semi-autonomous Kurdistan Regional Government depends on good relations with neighboring Turkey for most of its oil sales. Turkey, which has its own restive Kurdish minority, opposes the Kurdish independence referendum.”

Friday, September 29, 2017

Friday Evening Links

[Bloomberg] U.S. Stocks Hit Records, Bonds Fall on Fed Chair: Markets Wrap

[CNBC] Bond yields jump on report former Fed official Kevin Warsh met with President Trump

[Bloomberg] Trump and Mnuchin Met With Warsh to Discuss Fed Chair

[Bloomberg] Cohn Says Ending State, Local Tax Break Up for Negotiation

[Bloomberg] Credit Investors Start to Say ‘Enough.’ At Least Sometimes.

Friday's News Links

[Bloomberg] Dollar Pressured After Strong Week; Bonds Advance: Markets Wrap

[Bloomberg] Oil's September Surge Propels Bull Market Run on Demand Optimism

[Bloomberg] U.S. Consumer Spending Cools on Drop in Vehicle Purchases

[Bloomberg] The Fate of Trump’s Tax Cut Rests With These Six Senators

[Bloomberg] Cryptocurrencies Drop as South Korea Bans ICOs, Margin Trading

[Bloomberg] Crisis in Catalonia: What You Need to Know

[Bloomberg] Here’s how bad economically a Spain-Catalonia split could really be

[Reuters] UK on track for rate hike in 'relatively near term' - Carney

[Bloomberg] Chinese Money Is Still Leaking Into the World's Housing Markets

[Bloomberg] Default Fears Make Some China Local Bonds Lemons of the Market

[Bloomberg] Deutsche Bank Rating Cut by Fitch as Cryan Turnaround Stalls

[WSJ] Treasury Secretary Steven Mnuchin: GOP Tax Plan Would More Than Offset Its Cost

[WSJ] Republican Tax Plan Quickly Hits First Hurdle

[WSJ] How Does the Trump Tax Plan Affect You? WSJ Answers Your Questions

[FT] China’s party congress will show Xi’s supremacy

[FT] China’s central bank guides renminbi to 5-week low

Thursday, September 28, 2017

Thursday Evening Links

[Bloomberg] Asian Stocks Round Out Strong Quarter With Caution: Markets Wrap

[Bloomberg] Stocks Mixed as Bonds, Dollar Slump on Tax Plan: Markets Wrap

[Reuters] Fed's Fischer says important that QE reversed

[Bloomberg] Puerto Rico Bondholders Face Bigger Loss as Hurricane Toll Grows

[CNBC] Toronto, London and these other major housing markets are in a risky bubble, UBS says

[Bloomberg] Cohn Says Trump Is Committed to Ending Carried Interest ‘Loophole’

[Bloomberg] Carney's BOE Celebration Reopens Crisis Wounds Among Key Figures

[Reuters] Iran will drop nuclear deal if U.S. withdraws, foreign minister tells al Jazeera

Thursday's News Links

[Bloomberg] Bond Rout Persists on Tax Plan, Rates; Euro Gains: Markets Wrap

[Bloomberg] U.S. Second-Quarter Growth Revised Upward to 3.1% Annual Pace

[CNBC] Trump advisor Gary Cohn says we can pay for the entire tax cut through economic growth

[AP] $5 trillion question for Trump tax plan: How to pay for it?

[CNBC] 'Frothy' markets remind me of 2007, and rising rates could kill the rally, Stephen Roach warns

[Bloomberg] Japan PM Abe Dissolves Lower House, Calls Snap Election

[Bloomberg] Fed's Rosengren Says `Regular and Gradual' Tightening Warranted

[Bloomberg] What Catalan’s Secession Vote Means to Investors

[Bloomberg] Here’s Where the Most Millionaires Are Being Minted

[Reuters] China will boost imports to make trade structure more balanced: commerce ministry

[Reuters] South Korea expects more North Korea provocations mid-October

[Bloomberg] Bannon’s Back and Targeting China

[NYT] Wealth Grew Broadly Over 3 Years, but Inequality Widened

[WSJ] Winners and Losers Under the Trump Tax Plan

[WSJ] What Awaits Wall Street in Trump Tax Plan

[WSJ] Abe Foes Unite, Threatening His Rule in Japan

[WSJ] Chinese Yuan Continues Its Drop Against the Dollar

[FT] Value of private equity dealmaking at highest level since 2007

Wednesday, September 27, 2017

Wednesday Evening Links

[Bloomberg] Bonds Slide as Dollar Climbs on Tax Plan, Economy: Markets Wrap

[Bloomberg] U.S. Stocks Surge, Dollar Rises on Trump Tax Plan: Markets Wrap

[Reuters] Trump proposal slashes taxes on businesses, the rich; fuels deficit worries

[Reuters] U.S. tax plan puts reflation trade back on investors' radar

[Bloomberg] Long After Deal, Debt Limit Disruption Lives on in Repo Market

[CNBC] The top 1% of Americans now control 38% of the wealth

[WSJ] GOP Tax Overhaul Aims for Corporate Cuts, Simpler Code

[FT] Spanish unity faces stern test with Catalonian poll

Wednesday's News Links

[Bloomberg] Stocks, Dollar Rise on Fed, Tax Plans; Bonds Fall: Markets Wrap

[Bloomberg] Oil in Bull Market Nears $52 on Signs U.S. Stockpiles Declined

[Bloomberg] Trump's Tax Overhaul Will Slash Rates for Companies, Individuals

[Reuters] Trump's tax plan to propose deep U.S. rate cuts, lacks revenue details

[Bloomberg] What Puerto Rico’s Catastrophe Means for Bondholders

[BBC] Boeing UK contracts 'jeopardised' over Bombardier row

[Bloomberg] Early China Data Hint at Slowing Momentum Amid Factory Clampdown

[Bloomberg] Chinese Economy Has 'Darker Story' Ahead, China Beige Book Says

[Reuters] Trump: military option for North Korea not preferred, but would be 'devastating'

[Bloomberg] There’s One North Korea Taboo China’s Leaders Won’t Talk About

[Bloomberg] Schaeuble Is Ready to Leave Finance Ministry to Lead Bundestag

[Reuters] German FDP demands policy change as price for coalition with Merkel

[Reuters] Iraqi Kurdish leader says 'yes' vote won independence referendum

Tuesday, September 26, 2017

Tuesday Evening Links

[Bloomberg] Yen Weakness to Support Japan Stocks After Yellen: Markets Wrap

[Bloomberg] Yellen Says Imprudent to Stay On Hold Until Inflation at 2%

[Bloomberg] Yellen Gradualism Doesn't Mean Policy Halt as Fed Presses Ahead

[CNBC] GOP tax plan could trash the value of two popular tax breaks

[Reuters] U.S. consumer confidence slips; new home sales hit eight-month low

[Bloomberg] Fed's Bostic Says He's Comfortable With a December Rate Increase

[CNBC] Stop sugarcoating the housing market: Economist warns that buyers face increasing troubles

[CNBC] China still stocking up on metals and credit, private survey says

[CNBC] Meet the hottest thing in hedge funds right now: the 'crypto-fund'

[CNBC] Puerto Rico bonds plunge again as investors face lower recovery than expected

[FT] Yellen warns against moving ‘too gradually’ to tighten policy

[FT] Trump says US willing to use military option against North Korea

Tuesday's News Links

[Bloomberg] Euro Slide Deepens as Stocks Drift; Gold Retreats: Markets Wrap

[Reuters] Oil near 26-month high as Turkey threatens to choke Kurdish exports

[Reuters] Republican tax plan expected to include new 'pass-through' business rate

[Bloomberg] Trump Says Puerto Rico in 'Deep Trouble' as Storm Adds to Debts

[Bloomberg] ‘This Is Chaos’: Sweltering Puerto Rico on Day 6 Without Power

[Bloomberg] Home Prices in 20 U.S. Cities Increase More Than Forecast

[CNBC] Case-Shiller home price index rose 5.9% in July

[Bloomberg] Citi Is Bringing Back One of the Most Infamous Bets of the Credit Crisis

[Bloomberg] Singapore Cryptocurrency Firms Facing Bank Account Closures

[Reuters] North Korea bolsters defenses after flight by U.S. bombers as rhetoric escalates

[Reuters] U.S. Commerce Secretary Ross tells China to guarantee fair treatment for U.S. firms

[Reuters] Turkey threatens retaliation after Iraqi Kurdish independence vote

[WSJ] The GOP Tax Plan: Tough Choices With Limited Room to Maneuver

[WSJ] Steven Mnuchin, a Newcomer, Tilts at Washington’s Hardest Target: The Tax Code

[FT] Bond markets need to wake up to global upswing

[FT] China’s state-owned business reform a step in the wrong direction

Monday, September 25, 2017

Monday Evening Links

[Bloomberg] Havens Climb on North Korea as Stocks Point Lower: Markets Wrap

[CNBC] Sen. Susan Collins says she will vote 'no' on Obamacare repeal bill, likely dooming it

[CNBC] Economists at the Fed are worried about its ability to respond to future crises

[Bloomberg] China's Curbs, Debt Woes Bring Developers Crashing Back to Earth

[Bloomberg] Global Markets on Edge After Politics Back in Spotlight

[Reuters] Fed policymakers clash on outlook for inflation

[Bloomberg] Dudley Says Fed to Maintain Gradual Tightening; Evans Is Wary

[Reuters] Turnout high as Iraqi Kurds defy threats to hold independence vote

[Bloomberg] Turkey Warns Iraq Kurds It Can ‘Close the Valves’ on Oil Exports

Monday's News Links

[Bloomberg] U.S. Stocks Sink as North Korea Escalates War Talk: Markets Wrap

[Bloomberg] North Korea's Foreign Minister Says Trump Comments Amount to Declaration of War

[Bloomberg] Fed's Dudley Says He Sees Inflation Restraints Proving Temporary

[Bloomberg] GOP Revises Obamacare Repeal Bill Likely Headed for Defeat

[Bloomberg] Merkel’s Bloc Regroups After ‘Nightmare Victory’ in Germany

[Bloomberg] China Developers Plunge as Government Expands Tightening

[Reuters] ECB becoming more confident about inflation rebound: Draghi

[Reuters] Merkel hangs on to power but bleeds support to surging far right

[Bloomberg] Abe’s Future Hinges on Margin of Victory in Snap Election

[Bloomberg] Crypto-Mania Grips Hong Kong as City Looks for Life Beyond Banks

[Reuters] Turkey's Erdogan threatens to cut off oil flow from Iraq's Kurdish area over referendum

[NYT] As China Piles on Debt, Consumers Seek a Piece of the Action

[WSJ] Ignore the Fed’s Yield Sign at Your Peril

[WSJ] German Results Reflect European Unease Over Identity, Economy

[FT] Merkel faces complex coalition talks as grip on power weakens

[WSJ] World’s Largest Money-Market Fund Will Lower Its Returns, Shed Risk

Saturday, September 23, 2017

Saturday's News Links

[Reuters] Merkel, Schulz urge undecided Germans to vote with far right gaining

[Bloomberg] China Cities Tighten Home-Sale Rules to Tame Property Market

[Reuters] U.S. bombers, fighters, stage show of force off North Korean coast

[Reuters] Iran successfully tested new ballistic missile, state media reports

Weekly Commentary: Q2 2017 Z.1 Report

I found the Fed’s latest (Q2) Z.1 report particularly interesting. It brought back memories. In general, debt growth was steady and rather uninteresting. As such, it would be reasonable to equate the seemingly placid Credit backdrop with an extraordinarily long period of low securities market volatility. Yet there’s another dynamic to contemplate (and carefully monitor). Below the surface the financial sector is turning increasingly unstable. Latent financial instability has begun to surface. And, sure enough, acute monetary disorder ensured that securities markets succumbed to speculative blow-off dynamics.

Q2 2017 Non-Financial Debt (NFD) expanded at a 3.8% rate, up from Q1’s 1.7% and Q4’s 3.1%. Household Debt growth increased from a 3.4% rate to 3.7%. Home Mortgage Debt expanded at a 2.8% rate, down from Q1’s 3.4%. Consumer Credit slowed to 4.6% from 5.2%. Total Business Debt growth slowed to 5.3% from Q1’s 6.1%. After contracting at a 2.6% rate during Q1, Q2 saw Federal borrowings increase at a 3.6% rate.

With system debt having inflated for decades now, today’s percentage changes don’t do justice. Plus, with interest rates so low, interest compounds much less than in the past – thus working to restrain overall debt expansion. But let’s examine nominal data. On a seasonally-adjusted and annualized (SAAR) basis, Non-Financial Debt expanded at a $1.813 TN pace during Q2 (up from Q1’s $794bn). This compares to annual growth of $2.095 TN in 2016, $1.958 TN in 2015, $1.792 TN in 2014 and $1.547 TN in 2013.

Total Household borrowings increased SAAR $542 billion during Q2. For comparison, Household borrowings expanded $510 billion in 2016, $403 billion in ‘15, $400 billion in ‘14, $241 billion in ’13 and $265 billion in ‘12. Household borrowings contracted in 2011 ($51bn) and 2010 ($60bn).

Total Business borrowings slowed to SAAR $724 billion, down from Q1’s $817 billion. Borrowings nonetheless remain robust, tracking above 2016 annual borrowings of $711 billion and not far below 2015’s $820 billion (strongest since 2007).

On a year-on-year basis, Federal government borrowings have shown the largest slowdown. This won’t last. Federal Government Liabilities ended Q2 at a record $18.651 TN, up from $8.056 TN to end 2007. Over this period as a percentage of GDP, Federal Liabilities have increased from 55% to 97%. Outstanding Treasury securities ended Q2 at $15.798 TN, up 160% from 2007's $6.051 TN. Somehow there is still talk of “deleveraging” in the face of one of the great bouts of government indebtedness.

Meanwhile, outstanding Agency- and GSE-Backed Securities ended Q2 at a record $8.667 TN. One of these decades there may even be GSE “reform.” GSE Securities increased $95 billion during the quarter, $343 billion over the past year and $888 billion over three years. Amazingly, with Fannie and Freddie remitting (accounting) profits back to the Treasury, the government sponsored enterprises these days have no meaningful capital base (Z.1 has GSE assets less liabilities at a paltry $6.0bn).

Complacency may come easy to those viewing relatively modest annual percentage growth in household, corporate and federal debt. Indeed, most at this point completely dismiss the Credit Bubble hypothesis. Yet there is plenty of support for The Bubble Thesis buried throughout the Fed’s Z.1 report.

Let’s start with the Fed’s “Financial Sector” category. Total Financial Assets expanded nominal $1.411 TN during the quarter to $93.61 TN, this following Q1’s gain of $1.997 TN (strongest since Q1 2012). Financial Sector growth is on pace for the largest gain since 2007. Notable expansions included the SAAR $797 billion gain in “Federal Funds and Security Repos,” SAAR $899 billion rise in “Loans”, and SAAR $1.573 TN jump in Financial Sector “Miscellaneous Assets.”

The Security Broker/Dealers expanded Financial Assets SAAR $567 billion during Q1. The quarter saw the strongest growth since Q1 2010. “Security Repurchase Agreements” jumped SAAR $263 billion, with Debt Securities up SAAR $154 billion. On the Liability side, Security Repurchase Agreements surged SAAR $329 billion and Corporate Debt Securities rose SAAR $144 billion.

The explosive growth of the ETF complex runs unabated, as detailed in Fed data. ETF assets surged a nominal $170 billion during the quarter (24% annualized) to a record $2.944 TN. Total assets were up $715 billion y-o-y, or 32%. Interestingly, when ranked by “investment objective,” World Equities led the way during Q2. World Equities assets expanded $77 billion (53% annualized) during Q2 and were up $195 billion, or 42%, y-o-y. U.S. Equities gained $55.6 billion during Q2 and were up $429 billion, or 33% y-o-y. Taxable Bond funds attracted $34 billion during the quarter, with assets up $95 billion y-o-y.

Further indications of “Hot Money” On the Move: Bank “Holding Companies” saw Financial Assets jump SAAR $903 billion during the quarter. Financial Assets of “Funding Corporations” dropped SAAR $492 billion during Q2. Net Interbank Assets dropped SAAR $663 billion during Q2, after surging SAAR $1.582 TN during Q1 and declining SAAR $649 billion in Q4 2016. While Financial Sector Debt Securities holdings were relatively flat (up SAAR $31bn), a “risk on” dynamic was apparent with a SAAR $403 billion decline in Treasuries largely offset by a SAAR $308 billion increase in Corporate & Foreign Bonds. On the Liability side, “Federal Funds & Repo” jumped SAAR $698 billion and “Miscellaneous Liabilities” rose SAAR $662 billion.

Speaking of “hot money”… Rest of World (ROW) saw “Net Acquisition of (U.S.) Financial Assets” surge SAAR $1.916 TN, this following Q1’s gain of SAAR $1.515 TN. In nominal dollars, ROW holdings of U.S. Financial Assets surged $1.336 TN during the first-half to a record $25.559 TN. At this pace, the growth in ROW holdings will easily surpass 2006’s record $2.143 TN. By category during Q2, ROW Debt Securities holdings jumped SAAR $1.214 TN, with U.S. Corporate bonds up SAAR $584 billion. Foreign Direct Investment increased SAAR $299 billion, a significant slowdown from the 2015/2016 pace.

September 17 – Reuters (Saikat Chatterjee): “Global debt may be under-reported by around $13 trillion because traditional accounting practices exclude foreign exchange derivatives used to hedge international trade and foreign currency bonds, the BIS said… Bank for International Settlements researchers said it was hard to assess the risk this ‘missing’ debt poses, but that the main worry was a liquidity crunch like the one that seized FX swap and forwards markets during the financial crisis. The $13 trillion unaccounted-for exposure exceeds the on-balance-sheet debt of $10.7 trillion that data shows was owed by firms and governments outside the United States at end-March. The fact these FX derivatives do not appear on financial and non-financial institutions’ balance sheets under current accounting rules means little is known about where the debt lies. ‘The debt remains obscured from view,’ Claudio Borio, head of the BIS’s monetary and economic department…”

I hold the view that nontransparent derivative trading and associated leverage have been integral to the global government finance Bubble. QE and currency devaluation strategies created extraordinary opportunities for “carry trade” leveraged speculation. I believe enormous amounts of finance have been created in the process of shorting select currencies, most notably near-zero rate euro and yen securities. A large chunk of “money” flowed to “king dollar” U.S. securities markets, easily offsetting the (late-2014) termination of Federal Reserve QE. It is likely that huge flows are not being captured in Fed data – the Rest of World Z.1 data in particular. It was helpful to see the BIS put a $13 TN estimate on debt/leverage associated with unaccounted for foreign-exchange derivatives.

Recall that 10-year Treasury yields traded as low as 1.36% in July 2016, only to reverse sharply to as high as 2.60% near year-end. I believe fear of a disorderly unwind of leveraged holdings was behind the Fed’s decision to back away from rate “normalization.” When the Fed then signaled that rate hikes had largely run their course, the veritable speculation floodgates were pushed wide open.

The value of U.S. Equities jumped a nominal $1.50 TN during Q2 to a record $42.23 TN. Over the past four quarters U.S. Equities have jumped $6.182 TN, or 17.1%. For perspective, Equities rose about $3.9 TN in 1999 and $3.5 TN in 2006. The Q2 value of Equities was 67% higher than at the close of 2007. Equities ended Q2 2017 at a record 219% of GDP. Equities had cycle peaks of 181% of GDP during Q3 2007 and 202% to end Q1 2000. Equities were at 50% of GDP in 1975 and ended the eighties at 67%.

Total Debt Securities ended Q2 at a record $41.502 TN, up $85 billion for the quarter and $977 billion y-o-y. Debt Securities-to-GDP slipped a basis point to 216% (began the ‘90s at 130% and ended the decade at 157%). This puts Total (Debt & Equities) Securities at $83.733 TN, or a record 435% of GDP. Previous cycle peaks were 379% in Q3 2007 and 359% during Q1 2000.

Policy-induced asset inflation has profoundly impacted Household Net Worth – or what I would refer to as “perceived wealth.” Indeed, the bloated Household balance sheet remains a primary Bubble manifestation. Household (& Nonprofits) assets ended Q2 at a record $111.4 TN, up $1.844 TN for the quarter and $8.660 TN (8.4%) over four quarters. Liabilities increased $146 billion during the quarter and $467 billion y-o-y – to $15.219 TN. Fundamental to the ongoing Bubble, Household Net Worth (assets less liabilities) jumped $1.698 TN during Q2 to a record $96.196 TN. Net Worth surged a staggering $8.193 TN over the past year (now 42% higher than the 2007 peak). For perspective, Net Worth jumped $4.894 TN during 1999 and dropped $10.240 TN during 2008. As a percentage of GDP, Household Net Worth reached 500% for the first time during Q2, up from cycle peaks of 473% in 2007 and 435% in 1999.

I’ll have more comments about the Fed meeting next week. It was interesting to see chair Yellen refer to an inflation “mystery.” There was nothing too surprising with the Fed’s plan to reduce its balance sheet holdings. For good reason, the markets assume the Federal Reserve won’t get too far into balance sheet “normalization” before it suffers a change of heart. Recall that our central bank more than doubled holdings after scrapping its 2011 “exit strategy” before it even got started.

I would add that bull markets create their own liquidity. And so long as “risk on” is fueled by self-reinforcing speculative leveraging, the marketplace would easily accommodate small portfolio sales from the Federal Reserve. It’s an altogether different story, however, when “Risk Off” materializes. De-risking/de-leveraging dynamics would rather abruptly emerge from hiding. That’s when the markets will sorely miss – and beckon for more - QE.


For the Week:

The S&P500 was little changed (up 11.8% y-t-d), while the Dow added 0.4% (up 13.1%). The Utilities dropped 2.7% (up 9.0%). The Banks jumped 3.4% (up 5.7%), and the Broker/Dealers rose 3.0% (up 14%). The Transports gained 1.7% (up 7.3%). The S&P 400 Midcaps rose 0.8% (up 6.5%), and the small cap Russell 2000 increased 1.3% (up 6.9%). The Nasdaq100 declined 0.9% (up 22%).The Semiconductors added 0.3% (up 26.8%). The Biotechs slipped 0.3% (up 35.5%). With bullion down $23, the HUI gold index fell 3.6% (up 9.4%).

Three-month Treasury bill rates ended the week at 100 bps. Two-year government yields jumped five bps to a nine-year high 1.43% (up 24bps y-t-d). Five-year T-note yields rose five bps to 1.86% (down 7bps). Ten-year Treasury yields gained five bps to 2.25% (down 19bps). Long bond yields added a basis point to 2.78% (down 29bps).

Greek 10-year yields rose 10 bps to 5.50% (down 152bps y-t-d). Ten-year Portuguese yields sank 37 bps to 2.44% (down 131bps). Italian 10-year yields increased three bps to 2.11% (up 30bps). Spain's 10-year yields increased two bps to 1.63% (up 25bps). German bund yields added a basis point to 0.45% (up 24bps). French yields gained two bps to 0.73% (up 5bps). The French to German 10-year bond spread widened one to 28 bps. U.K. 10-year gilt yields rose five bps to 1.36% (up 12bps). U.K.'s FTSE equities index rallied 1.3% (up 2.3%).

Japan's Nikkei 225 equities index jumped 1.9% (up 6.2% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.03% (down 1bp). France's CAC40 gained 1.3% (up 8.6%). The German DAX equities index added 0.6% (up 9.7%). Spain's IBEX 35 equities index was little changed (up 10.2%). Italy's FTSE MIB index jumped 1.4% (up 17.1%). EM equities were mixed. Brazil's Bovespa index declined 0.5% (up 25.2%), while Mexico's Bolsa gained 0.8% (up 10.2%). South Korea's Kospi was about unchanged (up 17.9%). India’s Sensex equities index fell 1.1% (up 19.9%). China’s Shanghai Exchange was unchanged (up 8.0%). Turkey's Borsa Istanbul National 100 index dropped 3.4% (up 33.3%). Russia's MICEX equities index was little changed (down 8.1%).

Junk bond mutual funds saw inflows of $866 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose five bps to 3.83% (up 35bps y-o-y). Fifteen-year rates gained five bps to 3.13% (up 37bps). The five-year hybrid ARM rate added four bps to 3.17% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up nine bps to 4.09% (up 46bps).

Federal Reserve Credit last week expanded $7.5bn to $4.425 TN. Over the past year, Fed Credit declined $1.3bn. Fed Credit inflated $1.614 TN, or 57%, over the past 254 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $4.0bn last week to $3.376 TN (near 2015 high). "Custody holdings" were up $226bn y-o-y, or 7.2%.

M2 (narrow) "money" supply last week jumped $25.5bn to a record $13.694 TN. "Narrow money" expanded $682bn, or 5.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits gained $8.9bn, and Savings Deposits expanded $10.9bn. Small Time Deposits rose $2.9bn. Retail Money Funds slipped $1.5bn.

Total money market fund assets declined $14.6bn to $2.724 TN. Money Funds increased $54bn y-o-y, or 2.0%.

Total Commercial Paper jumped $20.3bn to a one-year high $1.044 TN. CP gained $101bn y-o-y, or 10.7%.

Currency Watch:

The U.S. dollar index gained 0.3% to 92.171 (down 10.0% y-t-d). For the week on the upside, the Norwegian krone increased 0.7%, the New Zealand dollar 0.4% and the euro 0.1%. On the downside, the Canadian dollar declined 1.1%, the Japanese yen 1.0%, the Swiss franc 0.9%, the South African rand 0.7%, the British pound 0.7%, the Australian dollar 0.5%, the Mexican peso 0.5%, the Brazilian real 0.4%, the South Korean won 0.4%, the Swedish krona 0.2% and the Singapore dollar 0.1%. The Chinese renminbi declined 0.57% versus the dollar this week (up 5.39% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index added 0.5% (down 0.1% y-t-d). Spot Gold declined 1.7% to $1,297 (up 12.6%). Silver sank 4.1% to $16.984 (up 6.3%). Crude gained 77 cents to $50.66 (down 6%). Gasoline increased 0.4% (unchanged), while Natural Gas dropped 2.1% (down 21%). Copper slipped 0.2% (up 17%). Wheat was little changed (up 10%). Corn declined 0.4% (unchanged).

Trump Administration Watch:

September 18 – Reuters (Steve Holland and Jeff Mason): “U.S. President Donald Trump escalated his standoff with North Korea over its nuclear challenge…, threatening to ‘totally destroy’ the country of 26 million people and mocking its leader, Kim Jong Un, as a ‘rocket man.’ In a hard-edged speech to the United Nations General Assembly, Trump offered a grim portrait of a world in peril, adopted a more confrontational approach to solving global challenges from Iran to Venezuela, and gave an unabashed defense of U.S. sovereignty. ‘The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea,’ Trump told the 193-member world body… As loud, startled murmurs filled the hall, Trump described Kim in an acid tone, saying, ‘Rocket man is on a suicide mission for himself and his regime.’”

September 22 – CNN (Joshua Berlinger and Zahra Ullah): “North Korea could test a powerful nuclear weapon over the Pacific Ocean in response to US President Donald Trump's threats of military action, the country's foreign minister has warned. Ri Yong Ho spoke to reporters in New York shortly after North Korean leader Kim Jong Un made an unprecedented televised statement, accusing Trump of being ‘mentally deranged.’”

September 17 – Axios (Jonathan Swan): “Forget DACA or tax reform. One topic consumes the vast majority of President Trump's inner circle: North Korea. Contrary to the president's breezy tweet this morning, in which he refers to Kim Jong-un as ‘Rocket Man,’ top administration officials have a dark view of how this plays out. They believe the confrontation with Pyongyang's portly dictator will define Trump's first term in office. The consensus view among Trump, Mattis and McMaster, according to several officials…, is that this conflict is heading towards two options, both with high risks: escalated confrontation with China and the military option.”

September 18 – Bloomberg (Ben Steverman and Suzanne Woolley): “Here’s what we know about the details of the tax reform plan: almost nothing. Powerful lawmakers are promising at least a framework for the overhaul by the end of the month. The broad goals are lower rates for corporations and individuals, a simpler tax code with fewer brackets, and the elimination of the estate tax and the alternative-minimum tax. Sound good? Beware. If you save for retirement or itemize your tax deductions, you could end up paying thousands of dollars more after tax reform than you do now. To help pay for promised cuts, President Donald Trump and Republicans in Congress are trying to raise revenue elsewhere. And the best place to get this money may be the millions of Americans who use deductions and other such strategies to lower their tax bills. Upper-middle-class taxpayers in particular could face a triple whammy. On the table are limits on—or even the elimination of—three of their favorite tax perks: deductions for mortgage interest and for state and local taxes and the ability to make pre-tax 401(k) retirement contributions.”

September 19 – Reuters (David Morgan): “U.S. Senate Republicans have reached a tentative budget deal that could allow tax reform legislation to eliminate as much as $1.5 trillion in revenues over 10 years through tax cuts, raising the odds that their planned tax overhaul would expand the federal deficit. Two members of the Senate Budget Committee, Republicans Pat Toomey and Bob Corker, announced the formal agreement late on Tuesday, but their joint news release did not provide dollar figures for revenue reduction or tax cuts. The prospective tax cuts are part of closed-door talks among 12 Senate Budget Committee Republicans who are drafting a fiscal 2018 budget measure needed to help the 100-member Senate pass a tax overhaul with as few as 51 Republicans votes and prevent Democrats from blocking the legislation.”

September 19 – Politico (Adam Cancyrn): “Republicans hoping to jam a last-minute Obamacare repeal plan through the Senate are confronting a rising tide of opposition as health care groups, patient advocates and even some red-state governors join forces against a bill they worry would upend the nation’s health care system. The wide-ranging backlash threw the GOP’s repeal push into fresh doubt on Tuesday, even as White House officials and Senate Republican leaders insist they are on the verge of winning the 50 votes needed to dismantle Obamacare under a reconciliation bill that expires in two weeks.”

September 21 – Reuters (Bozorgmehr Sharafedin): “Iran will strengthen its missile capabilities and will not seek any country’s permission, President Hassan Rouhani said… in a snub to demands from U.S. President Donald Trump. Rouhani was speaking at a military parade where an Iranian news agency said one of the weapons on display was a new ballistic missile with range of 2,000 km (1,200 miles), capable of carrying several warheads.”

China Bubble Watch:

September 17 – Bloomberg (Ben Steverman and Suzanne Woolley): “Home prices rose in fewer Chinese cities last month and declined in some of the nation’s hottest markets... New-home prices… gained in 46 of 70 cities tracked by the government in August, compared with 56 in July, the National Bureau of Statistics said… That was the smallest number of increases since January. Prices fell in 18 cities from the previous month and were unchanged in six. Developers’ stocks rose on the prospect that Chinese leaders would feel less pressure to roll out additional property restrictions…”

September 19 – Bloomberg: “Chinese property developers face a wall of local bonds that investors can force them to pay off next year ahead of schedule, just as rising interest rates raise the risk that more note holders may opt to do so. Investors have an option to offload 250 billion yuan ($38bn) of such notes in 2018… As China’s government pushes companies to trim excessive borrowing, financing costs in the nation’s credit markets have jumped this year. That’s left about 72% of the 137 local real estate bonds with put options that can be exercised next year in the money, meaning their current secondary-market yields are higher than coupon rates…”

September 19 – Bloomberg: “China’s most indebted developer is the latest firm to feel the heat amid a drive by regulators to rein in risks in the financial system. China Huarong Asset Management Co., a state-owned entity…, asked units to temporarily suspend new project financing to Sunac China Holdings… While Huarong says it’s not acting on instructions from regulators, the email noted authorities are paying more attention to Sunac’s high debt load and aggressive acquisition strategy. Sunac shares closed 2.8% lower… The shares have advanced 467% this year to rank among the world’s top performing stocks.”

September 21 – Bloomberg (Enda Curran and Alfred Liu): “Foreigners predicting doom for China’s banks have got it all wrong, according to James Stent, who spent more than a decade serving on the boards of two Chinese lenders. Instead of falling into a debt-fueled crisis, China’s banks are able to stave off trouble because of the willingness of the government to throw money at problems in order to ensure financial stability, Stent argues. ‘As one Chinese banker who works for an American bank said to me: ‘In the West, money flees problems; in China, money flows to problems to solve them,’ said Stent…”

Central Bank Watch:

September 19 – Bloomberg (Fergal O'Brien): “Brexit, which prompted Mark Carney to cut U.K. interest rates for the first time in seven years in 2016, is now pushing in the other direction. In a speech in Washington…, the Bank of England governor said while the decision to leave the European Union has slowed growth, it’s also cut the economy’s potential. That reduced ‘speed limit’ -- as he has described it -- increases the chance of overheating and partly explains why the Monetary Policy Committee now says it may need to raise rates soon.”

Global Bubble Watch:

September 17 – Reuters (Marc Jones): “The conundrum of stubbornly low inflation despite a pick-up in global growth and continued monetary stimulus is a ‘trillion dollar’ question, the umbrella body for the world’s leading central banks said… The Bank for International Settlements (BIS) said in its latest quarterly report that cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies are driving financial markets higher, with signs of ‘exuberance’ starting to re-emerge. U.S. corporate debt is much higher than before the financial crisis and a drop in the premiums investors demand for riskier lending has boosted sales of so-called covenant-lite bonds offering high yields. The BIS said this raises a question over the potential for another crisis if there is a significant rise in interest rates.”

September 21 – Financial Times (Jennifer Hughes): “Mention the creation of the eurodollar market these days and be prepared to feel like a financial fossil. International markets as we know them are so established that referring to their development from dollars held overseas in the 1960s feels quaint. But the reason to bring up such a piece of ancient history is to ask whether Asia-Pacific is having an equivalent ‘Asiadollar’ moment. Sales of dollar bonds in the region have rocketed this year, with $359bn issued so far, according to Dealogic, already surpassing 2016’s full-year record. Sales are also more than double their levels in 2010, which was arguably the last time when Asia’s largely emerging market bonds were an international investor darling.”

September 19 – Bloomberg (Mikael Holter and Sveinung Sleire): “Norway’s sovereign wealth fund hit $1 trillion for the first time…, driven higher by climbing stock markets and a weaker U.S. dollar… ‘I don’t think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996,’ Yngve Slyngstad, chief executive officer of the fund, said… ‘Reaching $1 trillion is a milestone, and the growth in the fund’s market value has been stunning.’”

Fixed-Income Bubble Watch:

September 19 – Bloomberg (Sid Verma): “Beneath the tranquil surface of U.S. credit markets, bearish winds are blowing. Issuer and sector-specific risks are increasing while the pile of debt trading at distressed levels is rising -- evidence the post-crisis debt bull-run is peaking. That’s the alarm sounded by Wall Street arch-bears Morgan Stanley after a deep dive into the shifting credit landscape in recent months… One warning sign: The face-value of high-yield debt trading at distressed levels has risen by about $30 billion from March to mid-September… Another: The dispersion between credit spreads -- the degree to which bonds are priced according to issuer and sector-specific risks -- is slowly rising. That underscores increasing credit concerns that are masked at the index level…”

September 18 – Bloomberg (Tracy Alloway): “What’s in a word? A lot when it comes to the term ‘liquidity.’ For years, academics, investors and regulators have sparred over the meaning of liquidity, and the degree to which it’s said to have deteriorated in the marketplace. For many, it’s simply the ability to sell an asset without significantly affecting its price. To others it’s the hallmark of a healthy market, or the symptom of a disease brought on by ‘easy money’ provided by central banks… To Aleksander Kocic, derivatives strategist at Deutsche Bank AG, it’s something that has turned the world of fixed income on its head -- transmuting an age-old principle of debt and converting the world’s biggest market into something theoretically far more risky. ‘Liquidity transforms the risk of default (the ability that the debtor may not be able to pay back his debt) into the risk that the securities representing the debt find no purchasers,’ he wrote… ‘It replaces responsibility with salability.’”

Federal Reserve Watch:

September 19 – CNBC (Jeff Cox): “The Federal Reserve is on the cusp of reversing the most ambitious monetary stimulus program in world history amid questions over how much impact it really delivered. There's little question that the program, known as quantitative easing or ‘money printing,’ boosted the stock market. The three iterations of QE between November 2008 and October 2014 each saw big boosts to the market, with a cumulative S&P 500 gain from beginning to end, including the various down periods between each leg, of about 140%. The economic impacts, though, are less clear… In fact, one of the Fed's own economists recently penned a report indicating that QE has come up short of its goals. ‘Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy,’ St. Louis Fed economist Stephen D. Williamson wrote. ‘With respect to QE, there are good reasons to be skeptical that it works as advertised, and some economists have made a good case that QE is actually detrimental.’”

September 21 – CNBC (Patti Domm): “Kevin Warsh, a former Fed governor, is increasingly seen as the replacement for Fed Chair Janet Yellen, who has not been shy about putting herself at odds with President Donald Trump's views on banking deregulation. ‘It makes sense … [Warsh] has some ties to the Trump people,’ said Horizon Investment's chief global strategist Greg Valliere. ‘I would say that Yellen's chances have faded because of that speech at Jackson Hole. I think Trump wants somebody that's anti-regulation, and she's clearly not.’ … Warsh, long seen as a candidate for Fed chair, has been gaining momentum in the betting markets, and in the minds of Fed watchers, after White House top economist Gary Cohn fell out of the top slot.”

September 18 – Financial Times (Sam Fleming): “Ron Paul, at least, has no regrets. The former Texas Congressman is one of the most prominent voices among those Americans who have long been deeply suspicious of the US central bank and its power to print money. When he ran for president in 2012, he assailed then Federal Reserve chairman Ben Bernanke for debasing the currency and risking an inflationary upsurge by pumping trillions of dollars into the financial system. ‘We don’t have prices in the consumer market going up like in the 1970s but we should not be surprised if that happens,’ says Mr Paul… Elsewhere, certainty is harder to come by. As the Fed meets in Washington tomorrow, US central bankers, and their counterparts across the world, are genuinely flummoxed by recent low inflation readings. Despite a recovery that is now the third-longest on record, America is trapped not in a 1970s-style, double-digit inflationary upsurge, but a slow-inflation quandary… The uncertain outlook has confounded Fed policymakers just as the central bank prepares for a leadership overhaul in the new year.”

U.S. Bubble Watch:

September 19 – Reuters (Lucia Mutikani): “The U.S. current account deficit jumped to its highest level since 2008 in the second quarter amid a decline in both secondary and primary income. …The current account deficit, which measures the flow of goods, services and investments into and out of the country, increased to $123.1 billion from a downwardly revised $113.5 billion in the first quarter. That was the highest level since the fourth quarter of 2008. Economists… had forecast the current account deficit slipping to $115.1 billion from a previously reported $116.8 billion shortfall.”

September 21 – Reuters (Barbara Kollmeyer): “Now that the Fed has finally started to peel off the quantitative-tightening Band-Aid, things should start getting back to normal. That's a good one, given no one really knows what normal is these days… We’re diving right into our call of the day, which comes from Jim Rogers. In a sweeping interview with RealVision TV, the veteran investor warns another bear market is coming, and that it will be ‘horrendous, the worst.’ It’s the level of debt across global economies that will be to blame, he says. And retail investors who have been piling into exchange-traded funds will be particularly vulnerable to that next big mauling. For those ETF owners — who are all in on easy S&P plays right now — here’s his message: ‘When we have the bear market, a lot of people are going to find that, ‘Oh my God, I own an ETF, and they collapsed. It went down more than anything else.’ And the reason it will go down more than anything else is because that’s what everybody owns,’ he says.”

September 18 – Bloomberg (Daniel Taub): “The typical student debt load for millennials in the U.S. is $41,200, surpassing their median annual income of $38,800. One impact of that burden: first-time home purchases are being delayed by seven years. That’s according to survey results released… by the National Association of Realtors and the nonprofit group American Student Assistance. Only a fifth of millennial respondents own a home, with 83% of non-owners citing student debt as the reason they aren’t buying.”

September 20 – Wall Street Journal (Heather Gillers): “When Aurora, Ill., closed its books in December, about $150 million disappeared from the city’s bottom line. The Chicago suburb of 200,000 people hadn’t become poorer. Instead, for the first time it recorded on its balance sheet the full cost of health care promised to public employees once they retire. States and cities around the country will soon book similar losses because of new, widely followed accounting guidelines that apply to most governments starting in fiscal 2018. The adjustments will show that U.S. states as a group have promised hundreds of billions more in retiree health benefits than they have saved up. The shortfall amounts to $645 billion, according to… The Pew Charitable Trusts based on 2015 data. That is in addition to the $1.1 trillion states need to pay for future pension benefits…”

September 19 – Reuters (Lucia Mutikani): “U.S. import prices recorded their biggest increase in seven months in August as the cost of petroleum surged and there were also signs of a pickup in underlying imported inflation. The Labor Department said… that import prices jumped 0.6% last month, the biggest gain since January, after a downwardly revised 0.1% dip in July.”

September 18 – Wall Street Journal (AnnaMaria Andriotis, Michael Rapoport and Robert McMillan): “On March 8, researchers at Cisco Systems Inc. reported an online security flaw that allowed hackers to break into servers around the internet. Cisco urged users to upgrade their systems immediately with a newly issued fix. Equifax Inc. was among the companies using the flawed software. On Friday, it said its technology experts at the time worked to identify and patch vulnerable systems… From about mid-May to July 30, hackers ransacked vast troves of information at the credit-reporting company. The breach potentially exposed about 143 million Americans’ personal information…”

Europe Watch:

September 22 – Reuters (Jonathan Cable): “Euro zone private businesses ended the third quarter with much stronger growth than predicted, bolstered by manufacturers, who had their best month since early 2011… IHS Markit’s euro zone Flash Composite Purchasing Managers’ Index for September, seen as a good guide to economic growth, bounced to 56.7 from August’s 55.7, comfortably above the 50 level that separates growth from contraction. September’s reading was above all expectations…”

September 20 – Reuters (Raquel Castillo and Sam Edwards): “Spanish police raided Catalan government offices and arrested officials… to halt a banned referendum on independence, an action the regional president said meant Madrid had effectively taken over his administration. Hundreds of protesters gathered outside the regional government offices in the center of Barcelona’s tourist district, waving the red-and-yellow Catalan flag and chanting ‘Occupying forces out’ and ‘Where is Europe?’. ‘The Spanish state has by all rights intervened in Catalonia’s government and has established emergency rule,’ Catalan President Carles Puigdemont said in a televised address.”

September 21 – Reuters (Julien Toyer and Sam Edwards): “The Catalan regional leader… said he would press on with an Oct. 1 referendum on a split from Spain, flouting a court ban, as tens of thousands gathered for a second day on the streets of Barcelona demanding the right to vote. Catalan leader Carles Puigdemont said he had contingency plans in place to ensure the vote would go ahead, directly defying Madrid and pushing the country closer to political crisis. Spain’s Constitutional Court banned the vote earlier this month after Prime Minister Mariano Rajoy said it violated Spain’s 1978 constitution…”

September 16 – Reuters (Karolina Tagaris): “Greece should not put off agreed bailout reforms or it could ‘complicate’ an upcoming bailout review by its foreign creditors, a European Central Bank official said… Greece’s third bailout review is expected to begin in October with bad loans, the 2018 budget, the energy market and privatizations among the main issues, the ECB’s mission chief in Greece, Francesco Drudi, told Greek newspaper Proto Thema. ‘If any major backtracking or delays occur in the implementation of the key deliverables due so far, this could complicate the completion of the review,’ Drudi said. ‘Unfortunately, a number of parliamentary bills adopted after the conclusion of the second review may not be in line with program commitments and will have to be assessed by our teams,’ he said.”

Brexit Watch:

September 19 – Bloomberg (Cat Rutter Pooley and Jill Ward): “Bank of England Governor Mark Carney has 200 billion reasons to keep an eye on consumer borrowing and he’s about to find out just how concerned he should be. With household credit rising five times faster than earnings, alarm bells are ringing and regulators have fast-tracked part of their annual stress tests to get an insight into the resilience of banks to a sharp jump in defaults. Carney and his Financial Policy Committee will have that crucial information when they gather for their quarterly meetings this week. Unsecured debt totaled 202 billion pounds ($274bn) in July, the highest since 2008, having risen by almost 10% over the past year.”

Japan Watch:

September 19 – Bloomberg (Chikako Mogi and Saburo Funabiki): “After spending a year trying to prevent benchmark yields from rising above zero percent, the Bank of Japan now faces the challenge of stopping them from falling too low. Japan’s 10-year yield has gone from a one-year high in February to slipping below the BOJ’s targeted zero percent level earlier this month amid a bout of global risk aversion stemming from North Korea tensions. While the central bank has cut back on its debt purchases three times since mid-August, strategists question if that will be enough should global bonds keep rallying. ‘I am worried about yields falling too low, which would be risky,’ said Yusuke Ikawa, Japan strategist at BNP Paribas… ‘The more the BOJ owns bonds, the more downward pressure it puts on yields. The bank will likely continue gradually scaling back purchases, but it can’t reduce outstanding debt holdings under its monetary base expansion policy.’”

September 19 – Bloomberg (Connor Cislo): “Japanese exports and imports surged in August, with both beating expectations as a recovery in trade appeared to gain momentum. Exports rose 18.1% from a year earlier (forecast +14.3%), the biggest increase since November 2013.”

EM Bubble Watch:

September 20 – Bloomberg (Ksenia Galouchko): “Investors sold the foreign debt of Russia’s private banks on Wednesday as the prospect of the second bailout of a major lender in less than a month fanned concern that cracks in the industry are spreading. The yield on Credit Bank of Moscow’s October 2027 Eurobond jumped 57 bps to 8.93%, the most since the debt was sold in March… The rescue appeal to regulators by B&N Bank, owned by billionaire Mikhail Gutseriev and his nephew, comes on the heels of Otkritie Bank’s bailout, where officials have warned that subordinated debt may be written off.”

Geopolitical Watch:

September 19 – Reuters (Ben Blanchard): “Stability is an absolute principle that needs to be dealt with using ‘strong hands’, Chinese President Xi Jinping has told security officials ahead of next month’s key Congress of the ruling Communist Party. The stability-obsessed party brooks no challenge to its rule and always steps up security ahead of important meetings. Those working in the public security sector should improve their political awareness and maintain the authority and unified leadership of the party, Xi said…”