Friday, December 18, 2020

Weekly Commentary: $10.275 TN In Nine Months

Federal Reserve Assets surged $120 billion last week to a record $7.363 TN. Fed Assets inflated $3.593 TN, or 95%, over the past 66 weeks. M2 “money” supply surged $228 billion in this week’s report to a record $19.226 TN – with a 66-week gain of $4.255 TN (28%). Overheated markets have become wholly enchanted by this frightening monetary inflation.

In early rules-based versus discretionary central banking debates, it was long ago recognized that discretion came with the risk of one misstep leading invariably to a series of only greater policy mistakes. This is the story of the contemporary Federal Reserve – from Greenspan to Bernanke to Yellen and now Jerome Powell. Policy doctrine has become progressively in the clutches of a runaway financial Bubble.

The Fed was out digging a deeper hole this week – an error compounded by Chairman Powell’s press conference dovish overkill. We’re in the throes of a period of precarious Monetary Disorder. This is apparent in Credit data and the monetary aggregates, throughout the financial markets and, increasingly, in housing markets across the country.

Financial conditions are precariously loose. Yet virtually everyone is convinced extremely loose monetary policy is appropriate considering the economic hardship being suffered across the United States. This thinking – utter reverence for monetary and asset inflation – has become only more perilous during the pandemic.

Powell responded to a question on elevated equities prices: “Asset prices is one thing that we look at… We published a report a few weeks ago on that… And I think you will find a mixed bag there… With equities, it depends on whether you’re looking at PE’s or whether you’re looking at the premium over the risk-free return. If you look at PE’s, they’re historically high. But… in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at. And that’s not at incredibly low levels, which would mean that they’re not overpriced in that sense. Admittedly, PE’s are high, but that’s maybe not as relevant in a world where we think the 10-year Treasury is going to be lower than it’s been historically, from a return perspective.

December 14 – Bloomberg (Rich Miller): “U.S. financial conditions are the easiest they’ve been in more than a quarter century as stock markets scale new heights on hopes of an end to the Covid-19 pandemic, according to an index compiled by Goldman Sachs… The index, which dates back to 1990 and also takes account of the value of the dollar and interest rates, reached its loosest level ever last week. That came as financial markets have boomed, thanks to unprecedented support for the economy from the Federal Reserve and Congress.

Evidence of egregiously loose financial conditions is everywhere. The Fed’s ballooning balance sheet. Unprecedented system “money” and Credit growth, along with the largest quarterly Current Account Deficit ($179bn) since 2008. Dollar weakness and the rapidly inflating cryptocurrencies. Record stock prices – across market indices from the S&P500 to the small caps. Massive ETF inflows. 

There are myriad indications of conspicuous speculative excess: The Nasdaq100’s 47% y-t-d return, with a P/E of about 40. Individual company valuations with no basis in reality (i.e. Tesla’s $660bn mkt cap). A booming IPO marketplace. The SPAC phenomenon. Surging retail trading volumes (“Robinhood Effect”). The booming options-trading marketplace – retail and institutional – and, more specifically, the manic popularity of call option speculation. The blowup of hedge fund short-only and long/short strategies – with the Goldman Sachs Most Short Index surging 43% since the end of October and over 200% from March lows (up 53% y-t-d). Historically narrow corporate bond spreads (and low CDS prices) – in the face of major and mounting Credit impairment throughout the economy (households, corporations, state & local govt, etc.). Record investment-grade and high-yield corporate debt issuance. Booming private-equity and M&A.

In his press conference, Powell admitted the economy has proven more resilient to Covid spikes than the Fed would have anticipated. Clearly, economic activity has been bolstered by loose financial conditions, resulting booming equities and debt markets, and unmatched fiscal stimulus. But prolonging this addictive stimulant is fraught with risk. These risks do resonate with some Fed officials, with Robert Kaplan providing a voice of reason.

December 18 – Wall Street Journal (Patricia Zengerle and Eric Beech): “Reserve Bank of Dallas President Robert Kaplan said Friday that he believes it will be time for the central bank to start pulling back on its bond-buying stimulus efforts when it is clear the economy is recovering strongly. ‘I’m going to deliberately stay away from a timetable,’ Mr. Kaplan said… However, Mr. Kaplan said that as 2021 moves forward and vaccines to treat Covid-19 roll out, if the Fed is ‘making substantial progress on our dual mandate goals, I do think it would be healthy and very appropriate to begin the process of tapering our asset purchases.’ …Mr. Kaplan said he remains concerned extended periods of bond buying could bring problems. ‘These purchases, if they go on for longer than they need to, I worry that they have some distorting impact on price discovery, that they encourage excessive risk taking, and excessive risk taking can create excesses and imbalances that can be difficult to deal with in the future.’”

Abruptly redeploying QE in September 2019 – despite an increasingly speculative backdrop pushing stock prices to record highs (and with unemployment at multi-decade lows) – was a hefty blunder. QE should be recognized as a dangerous tool to be employed only in the event of systemic illiquidity precipitated by powerfully destabilizing de-risking and deleveraging (popping of a Bubble).

A measured QE response was appropriate in March. It is categorically inappropriate today – and arguably a dereliction of the Fed’s duty to safeguard system stability. Rather than supporting an unstable system’s adjustment to a changing financial and economic backdrop (as in 2008 and March), QE today directs powerful liquidity flows to already over-liquefied and highly speculative markets. Instead of accommodating deleveraging, $120 billion monthly QE at this late-cycle phase stokes speculative leveraging and only deeper structural maladjustment.

The Fed should at this juncture be preparing to “taper” – to commence a gradual process with the goal of policy normalization. It’s certainly no time to rationalize inflated securities (and housing) markets or to downplay what is obvious financial excess. And it is precisely the wrong time to further solidify the “Fed put” while emboldening an already manic Crowd of speculators. The Powell Fed has completely capitulated – and this is anything but lost on the markets. Our central bank has signaled to a frothy marketplace that massive (at least $120bn monthly) liquidity injections will continue indefinitely. It has become paramount to Fed policy to use its balance sheet to sustain market Bubbles for the purpose of spurring economic recovery. It is nothing short of our central bank abandoning its overarching monetary stability mandate.

This deeply flawed policy doctrine has reached a critical juncture: The prospect of massive ongoing QE now stokes precarious late-cycle monetary and Bubble excess – and the longer this persists, the more problematic it will be to pull back from aggressive stimulus. The Fed is trapped, and its credibility is in further jeopardy. Euphoric market perceptions see financial conditions remaining extremely loose for years to come. The nature of current Bubble excess, however, risks an unexpected de-risking/deleveraging dynamic inciting a destabilizing tightening of financial conditions – Fed QE notwithstanding.

Meanwhile, even before inauguration, the Fed has found itself entangled in political gunk.

December 17 – Reuters (David Lawder): “A new potential roadblock to a $900 billion coronavirus economic relief bill emerged in the U.S. Congress on Thursday as some Senate Republicans insisted on language ensuring that expiring Federal Reserve lending programs cannot be revived. One Democratic aide criticized the move by Senator Pat Toomey…, saying it would limit President-elect Joe Biden’s ability to respond to the heavy economic toll of the pandemic… But Toomey wants to ensure that the Fed and Treasury are stripped of the authority to restore pandemic lending facilities that Treasury Secretary Steven Mnuchin will allow to expire on Dec. 31, including the Main Street program for mid-size businesses and facilities for municipal bond issuers and corporate credit and asset backed securities.”

Historic Monetary Inflation is anything but limited to the U.S. After in October posting the weakest Credit growth since February ($217bn), China’s Aggregate Financing bounced back for a $326 billion expansion during November – just above estimates. This pushed y-t-d growth in Aggregate Financing to $5.079 TN – 43% ahead of comparable 2019 and 61% above comparable 2018 Credit growth.

China’s Bank Loans expanded $220 billion, double October’s depressed level, but below forecasts and only 3% ahead of November 2019. At $2.303 TN, the y-t-d Bank Loan expansion was 20.8% ahead of comparable 2019 and 24% above comparable 2018. Outstanding Bank Loans were up 12.8% over the past year; 26.8% over two years; and 84% in five years.

Consumer Loans bounced back for an $115 billion expansion in November, 10% above November 2019 growth. At $1.120 TN, y-t-d Consumer Loans growth was 8% ahead of comparable 2019. Consumer Loans expanded 14.6% over the past year; 32% over two years; 56% over three; and 135% in five years. Corporate Loans expanded $120 billion during November (15% ahead of Nov. ’19). At $1.773 TN, y-t-d growth was 28% ahead of comparable 2019 growth (48% greater than comparable ’18).

Corporate Bond Issuance plummeted during November, confirmation that a flurry of defaults has led to a meaningful tightening of Credit conditions. The $13 billion increase in Corporate Bonds was down from October’s $39 billion and the weakest net issuance since September 2018. Issuance peaked during March and April, with a two-month surge of $294 billion. At $679 billion, y-t-d issuance was 49% ahead of 2019.

Government Bond Issuance slowed somewhat to $61 billion. Yet year-to-date issuance of $1.167 TN was 75% and 69% ahead of comparable 2019 and 2018. At $6.945 TN, outstanding Government Bonds were up 21% over the past year; 39% over two; and 63% in three years.

For the first nine months of the year, China Aggregate Financing expanded an unprecedented $4.535 TN ($504bn monthly). This was 45% higher than comparable 2019 growth, and 67% ahead of 2018. Meanwhile, the Fed’s Z.1 data inform us that U.S. Non-Financial Debt (NFD) surged $5.740 TN during the first three quarters of the year, an increase of 188% from comparable 2019 and 163% from comparable 2018. Combining growth in Aggregate Financing with NFD, China/U.S. Credit expanded an astounding $10.275 TN During 2020’s First Nine Months, double comparable 2019 and 110% greater than comparable 2018 – in one of history’s spectacular Credit inflations.

Money supply data are similarly breathtaking. Through the end of November, China’s M2 “money” supply surged $4.487 TN, up from comparable 2019’s $1.333 TN. Similarly historic, U.S. M2 grew $3.779 TN y-t-d through November. This was up from $900 billion for comparable 2019 (and 2018’s $393bn). Respective China and U.S. “M2” monetary aggregates combined for 11-month growth of $8.266 TN – up 270% from comparable 2019’s $2.233 TN.

Chinese policymakers appear more cognizant of risks associated with ongoing extreme stimulus measures. System Credit growth has slowed from the frenetic $500 billion monthly pace for much of 2020. Regulators have moved to rein in a bubbling corporate bond market, while Beijing and local officials have tightened mortgage finance. Of course, Beijing will move gingerly, mindful of the risk of punctured Bubbles. But I believe there are today much greater risks from Chinese “tightening” than perceived by complacent global markets.

Whether it’s the U.S., China or elsewhere, Bubbles reach a point where risk becomes impossible to control. Excesses, distortions, imbalances and deep structural impairment lead inevitably to financial and economic pain. Looser financial conditions and additional monetary inflation only further destabilize finance and economies – delaying the pain but worsening the outcome.

For the Week:

The S&P500 gained 1.3% (up 14.8% y-t-d), and the Dow added 0.4% (up 5.7%). The Utilities increased 0.3% (down 2.0%). The Banks declined 0.7% (down 17.5%), while the Broker/Dealers rallied 2.7% (up 27.5%). The Transports fell 0.8% (up 15.3%). The S&P 400 Midcaps advanced 2.1% (up 10.9%), and the small cap Russell 2000 jumped 3.0% (up 18.1%). The Nasdaq100 rallied 2.9% (up 45.9%). The Semiconductors rose 2.2% (up 49.5%). The Biotechs surged 6.8% (up 16.8%). With bullion jumping $42, the HUI gold index recovered 4.0% (up 25.4%).

Three-month Treasury bill rates ended the week at 0.08%. Two-year government yields were unchanged at 0.12% (down 145bps y-t-d). Five-year T-note yields added two bps to 0.38% (down 131bps). Ten-year Treasury yields rose five bps to 0.95% (down 97bps). Long bond yields gained six bps to 1.69% (down 70bps). Benchmark Fannie Mae MBS yields increased four bps to 1.39% (down 132bps).

Greek 10-year yields rose five bps to 0.64% (down 79bps y-t-d). Ten-year Portuguese yields jumped seven bps to 0.04% (down 4bps). Italian 10-year yields added a basis point to 0.57% (down 88bps). Spain's 10-year yields rose four bps to 0.05% (down 42bps). German bund yields jumped seven bps to negative 0.57% (down 39bps). French yields gained five bps to negative 0.33% (down 45bps). The French to German 10-year bond spread narrowed two to 24 bps. U.K. 10-year gilt yields jumped eight bps to 0.25% (down 57bps). U.K.'s FTSE equities index slipped 0.3% (down 13.4%).

Japan's Nikkei Equities Index added 0.4% (up 13.1% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.01% (up 2bps y-t-d). France's CAC40 increased 0.4% (down 7.5%). The German DAX equities index surged 3.9% (up 2.9%). Spain's IBEX 35 equities index slipped 0.3% (down 15.8%). Italy's FTSE MIB index rose 1.3% (down 6.5%). EM equities were mixed. Brazil's Bovespa index jumped 2.5% (up 2.1%), and Mexico's Bolsa increased 0.6% (up 0.7%). South Korea's Kospi index was little changed (up 26.1%). India's Sensex equities index rose 1.9% (up 13.8%). China's Shanghai Exchange rallied 1.4% (up 11.3%). Turkey's Borsa Istanbul National 100 index jumped 2.7% (up 23.1%). Russia's MICEX equities index was little changed (up 7.5%).

Investment-grade bond funds saw inflows of $1.731 billion, while junk bond funds posted outflows of $1.003 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates dropped four bps to a record low 2.67% (down 106bps y-o-y). Fifteen-year rates fell five bps to an all-time low 2.21% (down 98bps). Five-year hybrid ARM rates were unchanged at 2.79% (down 58bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down two bps to 2.89% (down 104bps).

Federal Reserve Credit last week surged $60.1bn to a record $7.252 TN. Over the past year, Fed Credit expanded $3.165 TN, or 77%. Fed Credit inflated $4.441 Trillion, or 158%, over the past 423 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week jumped $17.8bn to a record high $3.502 TN. "Custody holdings" were up $96.1bn, or 2.8%, y-o-y.

M2 (narrow) "money" supply surged $228bn last week to a record $19.226 TN, with an unprecedented 41-week gain of $3.718 TN. "Narrow money" surged $3.880 TN, or 25.3%, over the past year. For the week, Currency increased $5.0bn. Total Checkable Deposits rose $36.6bn, and Savings Deposits surged $199bn. Small Time deposits fell $7.4bn. Retail Money Funds declined $5.4bn.

Total money market fund assets dropped $54.4bn to $4.289 TN. Total money funds surged $689bn y-o-y, or 19.1%.

Total Commercial Paper gained $7.2bn to $997.3bn. CP was down $132bn, or 11.6% year-over-year.

Currency Watch:

December 12 – Bloomberg: “The unrelenting pace of inflows heading for China’s bonds and stocks has one yuan bull predicting the currency could strengthen to a level not seen in nearly three decades. A ‘flood’ of foreign cash will chase yuan-denominated assets in 2021 because they’ll offer far better yield than the rest of the world, according to Liu Li-gang, chief China economist at Citigroup Inc. He predicts the currency could rally 10% to 6 per dollar -- or even more -- by the end of next year. The yuan hasn’t been that strong since late 1993…”

For the week, the U.S. dollar index declined 1.1% to 90.016 (down 6.7% y-t-d). For the week on the upside, the South African rand increased 4.1%, the Norwegian krone 2.7%, the Swedish krona 2.5%, the British pound 2.3%, the euro 1.3%, the Australian dollar 1.2%, the Mexican peso 0.9%, the Swiss franc 0.7%, the New Zealand dollar 0.7%, the Japanese yen 0.7%, and the Singapore dollar 0.7%. For the week on the downside, the South Korean won declined 0.9%, the Brazilian real 0.5% and the Canadian dollar 0.2%. The Chinese renminbi increased 0.09% versus the dollar this week (up 6.47% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index jumped 3.3% (down 17.4% y-t-d). Spot Gold rose 2.3% to $1,881 (up 23.9%). Silver surged 8.1% to $26.033 (up 45.3%). WTI crude advanced $2.53 to $49.10 (down 20%). Gasoline spiked 6.7% higher (down 17%), and Natural Gas rose 4.2% (up 23%). Copper jumped 3.0% (up 30%). Wheat declined 1.0% (up 9%). Corn gained 3.3% (up 13%).

Coronavirus Watch:

December 12 – Reuters (Lisa Baertlein): “Cargo planes and trucks with the first U.S. shipments of coronavirus vaccine fanned out from FedEx and UPS hubs in Tennessee and Kentucky on Sunday en route to distribution points around the country, launching an immunization project of unprecedented scope and complexity.”

December 16 – Washington Post (Reis Thebault): “California — the country's largest and richest state — is the new epicenter of America's coronavirus crisis, with unprecedented surges of seriously infected patients threatening to overwhelm hospitals and overflow morgues. The state is reporting unnerving numbers: California has set nationwide records for new cases again and again in the past week — most recently on Wednesday, when it posted more than 50,000 infections. If California were a country, it would be among the world leaders in new coronavirus cases... The number of available beds in intensive care units is plummeting. In the San Joaquin Valley, hospitals ran out over the weekend… And in Southern California… ICU capacity dipped to just 0.5% Wednesday. ‘I want to be very clear: Our hospitals are under siege, and our model shows no end in sight,’ Christina Ghaly, director of L.A. County's Department of Health Services, said…”

December 14 – Bloomberg (Shelly Banjo and Keshia Clukey): “New York is headed toward a second full shutdown if Covid-19 cases and hospitalizations continue at their current pace, Governor Andrew Cuomo said. ‘If we do not change the trajectory, we could very well be headed to shut down’ all non-essential businesses, Cuomo said… The state reported 5,712 hospitalizations, an increase of more than 1,000 in the past week. If that pace continues, it will be at 11,000 in a month, and some regions may be overwhelmed… The increase is of particular concern in dense regions like New York City, the governor said. Cuomo shut down the city’s indoor dining on Monday…”

December 14 – Financial Times (Clive Cookson, Sarah Neville and Jasmine Cameron-Chileshe): “A new variant of coronavirus has been identified in the UK that could be contributing to a rapid rise in infections in some parts of the country. Researchers were urgently investigating whether the new strain was more transmissible than previous coronavirus variants, UK health secretary Matt Hancock told the House of Commons…, even as he sought to reassure members of parliament over the risks posed by the mutation.”

December 16 – Reuters (Elizabeth Pineau and Michel Rose): “President Emmanuel Macron tested positive for coronavirus on Thursday, his office said, prompting a track and trace effort across Europe following meetings between the French leader and EU heads of government in recent days.”

Market Instability Watch:

December 14 – Bloomberg (Elena Popina): “Few corners of the market are having a rally quite like the cohort of stocks that have roused the most investor skepticism. A group of the most shorted firms in the Russell 3000 Index has notched 17 records so far this quarter, more than small caps, tech or the S&P 500. Put differently, the gauge has made a new high about once every three days on its way to a 34% advance in that time.”

December 14 – Bloomberg (Paula Seligson): “Seizing a risk-on tone, nine junk-rated U.S. companies joined Monday’s rush to borrow at record low rates before credit markets close for the holidays. If everything prices as expected, the issuance onslaught will add more than $5 billion to this month’s volume, making it the busiest December since 2012…”

December 13 – Bloomberg (Katherine Greifeld): “The arms race between mutual funds and their exchange-traded brethren turned into a beat-down in 2020. Roughly $427 billion has poured into U.S. exchange-traded funds this year, divided almost evenly between equity and fixed-income funds… Meanwhile, mutual funds have bled roughly $469 billion of assets in 2020, on track for the worst year on record in Investment Company Institute data going back to 1990.”

December 15 – Bloomberg (Annie Massa and Claire Ballentine): “A Vanguard Group equity fund has become the first of its kind to eclipse $1 trillion of assets, a testament to the rise of index-based investing over the past three decades. Vanguard Total Stock Market Index Fund… had $1.04 trillion of assets as of Nov. 30… ‘Given that Vanguard birthed index investing, it seems only fitting that one of their flagship funds would be the first to reach this historic mark,’ said Nate Geraci, president of the ETF Store, an investment advisory firm.”

December 12 – Bloomberg (Sarah Ponczek and Lu Wang): “An interesting thing keeps happening in the American stock market. Lately, when ownership of young companies passes from the institutions who nurtured them into the much broader arms of the investing public, their valuations double. It happens fast. After its price was set with professional fund managers the night before, food-delivery service DoorDash Inc. surged 86% in its public debut Wednesday. Software firm Inc. jumped 120%. Airbnb Inc. more than doubled a day later… The 2020 return in an index of IPO stocks? 111%. While initial offerings are often occasions for appreciation, this year has been different, with first-day rallies almost three times bigger than the average of the last 40 years.”

Global Bubble Watch:

December 13 – Bloomberg (Niall Ferguson): “After the disease, the debt. After the plague, the pile of IOUs. It is a veritable mountain — a reminder that the original public debt in medieval Venice went by the name monte. According to the International Monetary Fund’s October Fiscal Monitor, the Covid-19 pandemic and associated lockdowns have prompted a plethora of fiscal measures amounting to $11.7 trillion, around 12% of global GDP — and that number has probably risen since it was calculated on Sept. 11. ‘In 2020,’ according to the Fund, ‘government deficits are set to surge by an average of 9% of GDP, and global public debt is projected to approach 100% of GDP, a record high.’ In advanced economies, public debt relative to output has increased as much since the late 1970s as it did between 1914 and 1945. Together, the global financial crisis and the pandemic have had roughly the same doubling effect as World War II. While Covid-19 will not kill as many people globally as history’s biggest war, the ultimate U.S. death toll is very likely to be higher. The pandemic’s financial cost also looks similar to that of a world war.”

December 15 – Financial Times (Javier Espinoza): “The EU has raised the stakes in its efforts to curb Big Tech by threatening to break up companies that repeatedly engage in anti-competitive behaviour in the first overhaul of the bloc’s rules for internet businesses for two decades. A draft of the new Digital Markets Act warned technology companies that break competition rules will face fines of up to 10% of their global revenues. Brussels also warned the EU would move to break up any technology company that is fined three times within five years. Margrethe Vestager, the commissioner in charge of competition and digital policy, said the EU would not hesitate to ‘impose structural remedies, divestitures, that sort of thing’.”

December 16 – Wall Street Journal (Sam Schechner): “European officials want new powers to oversee internal workings at large technology companies such as Facebook Inc., backed by threats of multibillion-dollar fines, as they seek to expand their role as global tech enforcers. The European Union’s executive arm proposed two bills Tuesday—one focused on illegal content, the other on anticompetitive behavior—that would empower regulators in some cases to levy fines of up to 6% or 10% of annual world-wide revenue, or break up big tech companies to stop certain competitive abuses.”

December 15 – Reuters (Scott Murdoch): “Massive gains posted by companies at their trading debut in regional stock markets in Asia this year are raising the spectre of a bubble, bankers and brokers said. A record number of companies in Asia are seeing their valuations double after initial public offerings (IPO) this year… The huge price pops have taken place across regional stock markets, including in Hong Kong, China, and India, prompting concerns that a ‘bubble’ could be emerging. ‘There is too much money in the world competing for the few new stocks that there are,’ said Francis Lun, chief executive of Hong Kong retail broker GEO Securities. ‘There is a bubble and it will burst … but it probably won’t be yet.’”

December 16 – Financial Times (Tommy Stubbington in London and Colby Smith): “Bond investors are braced for the risk that 2021 could herald the return of a long-dormant foe: inflation. The price of government bonds has rocketed this year, largely because of the huge bond-buying programmes… Investors are assuming this support continues, even as economies pull out of their 2020 slump. A rebound in inflation, which has been elusive since the 2008 financial crisis, could disrupt these widely held expectations by making the debt market look less attractive. Bonds typically provide investors with a fixed stream of interest payments, which become less valuable as the overall cost of goods and services accelerates.”

December 14 – Bloomberg (Michael Hirtzer and Tatiana Freitas): “The meat industry is starting to get squeezed from both sides. China is rebuilding its hog herd faster than expected, boosting demand and prices for soybeans and corn used to feed animals. And with its herds growing quickly, China -- the world’s biggest consumer -- may soon need to import less meat. That twin dynamic -- elevated feed costs and likelihood of smaller meat shipments to China in 2021 -- threaten to shrink profits for livestock and poultry farmers in the U.S, Brazil and elsewhere, as well as the companies that process the animals into meat.”

December 11 – Bloomberg (Anna Shiryaevskaya and Laura Millan Lombrana): “Thinning ice in the Arctic Ocean made this year’s navigation season for natural gas tankers the longest on record, the latest sign that the pace of climate change is accelerating in the Earth’s northernmost latitudes. The Northern Sea Route, stretching more than 3,000 nautical miles between the Barents Sea west of Russia and the Bering Strait in the country’s east, traditionally opens from June through October… This year, voyages started a month early and will continue until at least the end of December. Record warmth meant slower freezing during the autumn.”

Trump Administration Watch:

December 18 – Bloomberg (Erik Wasson, Billy House and Laura Litvan): “President Donald Trump has signed a stopgap spending measure to keep the U.S. government operating while congressional leaders attempt to complete an agreement on a roughly $900 billion pandemic relief package. The White House made the announcement late Friday night. The legislation, which provides funding until midnight Sunday, was approved by the House and Senate earlier to avert a shutdown of the government, which had been operating on temporary funding that expires at the end of the day on Friday.”

December 18 – Bloomberg: “The U.S. Commerce Department announced it’s blacklisting Semiconductor Manufacturing International Corp. and more than 60 other Chinese companies ‘to protect U.S. national security.’ ‘This action stems from China’s military-civil fusion doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex,’ the Commerce Department said…”

December 18 – Reuters (Patricia Zengerle and Eric Beech): “President Donald Trump on Friday signed legislation that would kick Chinese companies off U.S. stock exchanges unless they adhere to American auditing standards, the White House said, giving the Republican one more tool to threaten Beijing with before leaving office next month.”

December 15 – Bloomberg (Joe Light): “Fannie Mae and Freddie Mac plunged Tuesday after Treasury Secretary Steven Mnuchin said he’s all but ruled out letting them exit U.S. control before he steps down, leaving it to the Biden administration to decide the fates of the mortgage giants. …Mnuchin said he’s not going to pursue any actions that put taxpayers at risk or limit consumers’ access to home loans. His decision prevents a major policy change in the last days of the Trump administration that risked disrupting the $10 trillion mortgage market.”

December 13 – Yahoo Finance (Aarthi Swaminathan): “A volatile President Trump era and fallout from the recent presidential election has pushed Americans toward disillusionment with the U.S. political system, according to political scientist Ian Bremmer. ‘When I think about the future of my country and what that country means, the average American no longer believes that the institutions actually work for them,’ Bremmer, a geopolitical expert and founder of the Eurasia Group, said... ‘So you get massive anti-establishment sentiment. … You get people that increasingly believe that their own institutions don't work.’”

December 15 – Bloomberg (Amanda Albright): “Cities across the U.S. are having to step in to keep civic projects from defaulting on bonds after months without events or public gatherings, dealing governments a fresh financial hit from the pandemic. In Maryland Heights, Missouri…, officials replenished the depleted reserves of an ice-skating and concert venue. San Antonio, Texas, used its hotel-tax revenue to help a Hyatt-run hotel make debt-service payments in July and plans to do so again in 2021. Akron, Ohio, in November honored its pledge to cover the debts of a nearly century-old downtown theater. Such rescues are among the first of what may be many in the municipal-bond market, reflecting governments’ decisions to guarantee bonds sold for stadiums, convention centers and other projects that promised to revitalize cities.”

December 13 – NBC (Dennis Romero and Suzanne Ciechalski): “One person was shot Saturday in Olympia, Washington, and four people were stabbed in Washington, D.C., as demonstrators clashed with counterprotesters over the presidential election, racial injustice and pandemic restrictions. All the victims in the Washington, D.C., stabbings were believed to have sustained critical injuries Saturday night…”

Biden Administration Watch:

December 17 – Bloomberg (Karen Leigh, Peter Martin and Adrian Leung): “Perhaps nowhere do the U.S. and Chinese militaries come closer to each other than in the South China Sea. And the brinkmanship in the waters could soon rise under President-elect Joe Biden. As the world’s biggest economies spar on everything from trade to the coronavirus, fears have grown that a miscalculation between warships could spark a wider military confrontation… President Donald Trump’s administration has increased the number of ‘freedom of navigation operations’—known as FONOPs—in the South China Sea to challenge China’s sovereignty claims… Biden looks set to maintain or even expand the number of FONOPs. Jake Sullivan, his pick for national security adviser, last year lamented the U.S.’s inability to stop China from militarizing artificial land features in the South China Sea, and called for the U.S. to focus more on freedom of navigation. ‘We should be devoting more assets and resources to ensuring and reinforcing, and holding up alongside our partners, the freedom of navigation in the South China Sea,’ Sullivan told ChinaTalk… ‘That puts the shoe on the other foot. China then has to stop us, which they will not do.’”

Federal Reserve Watch:

December 18 – Bloomberg (Catarina Saraiva and Laura Davison): “A bid by Republicans to constrain the Federal Reserve’s crisis lending programs is threatening to derail negotiations on a pandemic relief plan and has drawn the incoming administration of President-elect Joe Biden into the 11th hour fight. Senator Pat Toomey, a Republican from Pennsylvania, wants a provision in the relief bill that would bar the Fed from restarting five programs that expire at the end of the year, or create similar ones going forward. The roughly $900 billion proposal being debated by Congress, would, among other things, extend support to out-of-work Americans and thousands of small businesses.”

December 16 – Financial Times (James Politi and Colby Smith): “The Federal Reserve has said it will keep buying at least $120bn of debt per month until ‘substantial further progress has been made’ in the recovery, strengthening its support for the US economy amid a surging coronavirus outbreak. The guidance from the Federal Open Market Committee came at the end of a two-day meeting during which Fed officials upgraded their economic projections but maintained predictions that they would keep interest rates close to zero until at least the end of 2023. The language on debt purchases mirrors the Fed’s pledge to keep interest rates close to zero until the economy reaches full employment and inflation is on track to exceed its 2% target for some time.”

December 16 – Bloomberg (Sarah Ponczek and Lu Wang): “To defend soaring equity markets against claims of overinflation, economists often cite a valuation methodology that adjusts stock prices for interest rates. The latest to do it is Jerome Powell. In his press conference…, the Federal Reserve chairman said that relative to risk-free rates of return, a reference to Treasury yields, shares probably aren’t as overpriced as they appear at first blush. It makes sense Powell would cite the comparison -- it’s a version of something that over the years has come to be known as the Fed model. ‘If you look at P/Es they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at,’ Powell said.”

December 16 – Bloomberg (Rich Miller and Steve Matthews): “Federal Reserve Chairman Jerome Powell sounded the most optimistic he’s been since the coronavirus crisis began in March, while pledging that the central bank will keep providing the economy with plenty of support well into the future. …Powell said he expects the economy to perform ‘strongly’ in the second half of 2021 as more and more Americans are vaccinated against the virus -- though he cautioned that the next few months would be ‘challenging’ until that occurs. ‘We can kind of see the light at the end of the tunnel,’ Powell said. ‘We’re thinking that this could be another long expansion.’”

December 15 – Financial Times (Martin Arnold): “The US Federal Reserve has joined a consortium of central bankers supporting the Paris climate goals as it becomes more outspoken on the risk climate change poses to the global economy. The move came as the Network for Greening the Financial System (NGFS), which includes 75 central banks, published a survey of its members’ plans for grappling with climate change. The Fed is one of eight new members to join the group this month and follows a pledge by US President-elect Joe Biden to rejoin the Paris climate accord, which is a requirement.”

U.S. Bubble Watch:

December 18 – Reuters (Lucia Mutikani): “The U.S. current account deficit surged to its highest level in more than 12 years in the third quarter as a record rebound in consumer spending pulled in imports, outpacing a recovery in exports. The… current account deficit, which measures the flow of goods, services and investments into and out of the country, widened 10.6% to $178.5 billion last quarter. That was the highest since the second quarter of 2008.”

December 17 – Associated Press (Paul Wiseman): “The number of Americans applying for unemployment benefits rose again last week to 885,000, the highest weekly total since September, as a resurgence of coronavirus cases threatens the economy’s recovery from its springtime collapse… All told, 20.6 million people are now receiving some type of unemployment benefits.”

December 14 – New York Times (Ana Swanson): “American imports from China are surging as the year draws to a close, fueled by stay-at-home shoppers who are snapping up Chinese-made furniture and appliances, along with Barbie Dream Houses and bicycles for the holidays. The surge in imports is another byproduct of the coronavirus, with Americans channeling money they might have spent on vacations, movies and restaurant dining to household items… That has been a boon for China, the world’s largest manufacturer of many of those goods. In November, China reported a record trade surplus of $75.43 billion, propelled by an unexpected 21.1% surge in exports compared with the same month last year. Leading the jump were exports to the United States, which climbed 46.1% to $51.98 billion, also a record.”

December 17 – Bloomberg (Olivia Rockeman): “U.S. new home construction rose more than forecast to a nine-month high in November, highlighting the strength of a residential housing market that’s been supported by strong demand amid low interest rates. Residential starts rose 1.2% to a 1.547 million annualized rate from a downwardly revised 1.528 million a month earlier… Single-family starts rose for a seventh month to a 1.186 million annualized rate that was the highest since 2007…”

December 16 – Bloomberg (Henry Ren): “U.S. homebuilder confidence eased slightly in December to the second-best level on record following the prior month’s peak, signaling that low mortgage rates are still giving the industry a major boost. A gauge of builder sentiment slipped to 86 from November’s reading of 90 that was the highest in records back to 1985…”

December 15 – Bloomberg (Christopher Maloney): “A growing percentage of U.S. homeowners are looking to delay making mortgage payments, the latest sign that the economic recovery is hitting a snag. In the first week of December, the proportion of mortgage borrowers that started seeking forbearance relief rose to its highest level since August, according to the Mortgage Bankers Association. And call volume at the companies that collect payments rose to the highest level since April, a sign of growing distress among homeowners…”

December 15 – Reuters (David Lawder): “Most small business owners in the United States believe the worst of the coronavirus pandemic is still ahead of them, with half saying their operations would permanently close within a year unless the business environment improves, the U.S. Chamber of Commerce said… A new U.S. Chamber-MetLife poll of small businesses taken from Oct. 30-Nov. 10 showed that 74% of the owners said they need further government assistance to weather the pandemic. That percentage rises to 81% for minority-owned businesses.”

December 14 – CNBC (Hugh Son): “Goldman Sachs CEO David Solomon told CNBC… that small businesses it surveyed are in dire need of another round of emergency Paycheck Protection Program funding. ‘They really have needs; 90% of them have exhausted their PPP funding at this point,’ Solomon told Becky Quick… ‘More than half of them have had to lay off employees and really constrain their businesses.’ Goldman has recently surveyed participants of its 10,000 Small Businesses program, a decade-long effort that gives entrepreneurs access to training and capital, Solomon said.”

December 13 – Wall Street Journal (Stephanie Armour and Scott Calvert): “State leaders say they are short billions of dollars in funding needed to successfully provide Covid-19 vaccinations to all Americans who want to be inoculated by health officials’ June goal. The federal government is providing the vaccine, along with syringes, needles, face masks and shields. But state leaders say they must hire medical workers, provide community outreach and education, set up vaccination clinics and ensure storage capacity for vaccines. Some states are also concerned about having enough supplies, such as gloves and gowns, to protect health-care workers as well as people getting vaccinated.”

December 16 – Bloomberg (Lisa Lee and Tom Contiliano): “They were once America’s corporate titans. Beloved household names. Case studies in success. But now, they’re increasingly looking like something else - zombies. And their numbers are swelling. From Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc., many of the nation’s most iconic companies aren’t earning enough to cover their interest expenses (a key criterion, as most market experts define it, for zombie status). More than 200 corporations have joined the ranks of so- called zombie firms since the onset of the pandemic… In fact, zombies now account for nearly a quarter of those firms. Even more stark, they’ve added almost $1 trillion of debt to their balance sheets in the span, bringing total obligations to $1.98 trillion. That’s more than the roughly $1.58 trillion zombie companies owed at the peak of the financial crisis.”

December 16 – New York Times (David McCabe and Daisuke Wakabayashi): “Ten state attorneys general… accused Google of illegally abusing its monopoly over the technology that delivers ads online, adding to the company’s legal troubles with a case that strikes at the heart of its business.”

December 14 – Bloomberg (Misyrlena Egkolfopoulou): “Elon Musk is doing it. Carl Icahn has already done it, so has Joe Rogan. And many who float in Manhattan’s upper echelons want to do it. They’re being drawn to Texas and Florida, where lower taxes and other financial perks wait to welcome them from California and New York. But what about the Americans who aren’t managing billions of dollars, sending astronauts to space in their rockets, or interviewing Kanye West on their podcast? Some of them are relocating across state lines too, hunting cheaper living costs, a bigger home, or a new adventure.”

December 11 – CNBC (Kevin Stankiewicz): “Texas Gov. Greg Abbott told CNBC… the number of companies deciding to move their headquarters to the Lone Star State has accelerated due in part to the coronavirus pandemic. The Republican governor’s comments came shortly after it was reported that software giant Oracle is moving its corporate center from… Silicon Valley to Austin, Texas. Hewlett Packard Enterprise also said earlier this month it is moving its headquarters to Houston from San Jose… Earlier this fall, real estate giant CBRE officially shifted its HQ from Los Angeles to Dallas. ‘I have been on the phone on a weekly basis with CEOs across the country, and it’s not just California,’ Abbott said…”

December 15 – Reuters (Jonnelle Marte): “Millions of people have moved out of New York City during the pandemic, but at the same time, millions of others with lower incomes have taken their place, according to a study… All told, a net 70,000 people left the metropolitan region this year, resulting in roughly $34 billion in lost income, according to estimates from Unacast… About 3.57 million people left New York City this year between Jan. 1 and Dec. 7, according to Unacast…”

December 15 – Bloomberg (Shruti Date Singh): “Illinois must freeze hiring, reduce grant funding and potentially furlough state workers to cut its fiscal 2021 budget by $711 million, Governor J.B. Pritzker announced… The cuts come as Covid-19 has hit businesses from restaurants to conventions and will cost the state more than $4 billion in revenue over two fiscal years… That means services will be slower and potentially lower at a time when health and economic assistance needs are greater amid the pandemic-spurred recession. ‘This is going to be tough,’ Pritzker said… ‘It pains me to pursue these actions.’”

Fixed Income Watch:

December 15 – Reuters (Gertrude Chavez-Dreyfuss): “China and Japan, the two largest non-U.S. holders of Treasuries, reduced their holdings in October…, continuing a trend of the last few months. China’s holdings of Treasuries fell to $1.054 trillion, the lowest since January 2017, cutting its load of U.S. government debt for five straight months. Japan, the world’s largest holder of Treasuries at $1.269 trillion, also pared back its holdings for a third straight month.”

December 13 – Bloomberg (Joanna Ossinger): “Blank-check companies looking for deals could lead to $300 billion in mergers and acquisitions over the next two years, according to Goldman Sachs… Special-purpose acquisition companies, or SPACs, have raised $70 billion in 2020 -- a fivefold increase from last year, according to… David Kostin. Driving the deal boom is a hunt for yield, a shift in SPAC focus to growth stocks from value and retail investors looking for nontraditional and early-stage businesses… Some 205 SPACs have raised $61 billion in equity IPO proceeds and are searching for acquisition targets, according to Goldman. ‘If this year’s 5x ratio of SPAC equity capital to target M&A enterprise value persists, the aggregate enterprise value of these future takeover targets would be $300 billion,’ they said. The ‘year of the SPAC,’ as Goldman put it…”

December 14 – Bloomberg (John Gittelsohn): “An estimated $126 billion in commercial real estate will be forced to sell at distressed prices through 2022, more than the first two years after the global financial crisis, according to CoStar Group Inc. Distressed hotel, retail, office and other properties will continue to flow to the market over the coming five years, potentially reaching $321 billion in sales by 2025, the real estate analytics company said. The total may swell to $659 billion in a worst-case scenario…”

China Watch:

December 15 – Bloomberg: “China’s leaders are likely to convene this week to lay out their economic priorities for 2021, with analysts expecting a renewed focus on slowing the pace of debt growth and insulating the economy from tensions with the U.S. The annual Central Economic Work Conference follows a year in which China loosened fiscal and monetary policy in response to the coronavirus pandemic… With Beijing satisfied that its control of the pandemic has ensured economic expansion this year, the meeting will provide clues on how rapidly the leadership will tighten policy against the backdrop of a sharp acceleration in debt and a string of company defaults. Financial markets have already been spooked by the policy shift, and any signal of an early move could weigh on market sentiment further.”

December 14 – Bloomberg: “China injected cash into the financial system by offering medium-term loans, in the government’s latest effort to ensure the country’s banks have sufficient liquidity. The People’s Bank of China added 950 billion yuan ($145bn) of one-year cash via the medium-term lending facility on Tuesday, more than offsetting the 600 billion yuan that matures in December. That’s the fifth straight month of net injections using the tool. It kept interest rates on the loans unchanged at 2.95%. The need to buoy the amount of liquidity in the financial system has becoming more pressing after a spate of corporate defaults squeezed lending in China’s interbank market.”

December 17 – Bloomberg: “The unexpected default by a coal miner in November has prompted a dearth of corporate bond sales in China’s Henan province, as the latest wave of state-sector debt failures continues to hit regions with weaker borrowers. Non-financial firms from the central province known for its agriculture and energy sectors have been unable to arrange and sell any new bonds since Yongcheng Coal & Electricity Holding Group Co. failed to repay a 1 billion yuan ($153bn) note due Nov. 10. That’s the longest stretch of inactivity from such borrowers in six years and stands in contrast to a monthly average of more than 20 corporate bond sales from Henan between January and October.”

December 15 – Financial Times (Hudson Lockett, Thomas Hale and Sun Yu): “China has suspended one of its top credit rating agencies after a former executive was accused of taking ‘massive’ bribes, as a growing pile of defaults rattle the country’s $4tn corporate debt market. The China Securities Regulatory Commission announced… it was temporarily freezing the licence of Golden Credit Rating and had forbidden the agency from taking on new business for three months. The move came as Shandong Ruyi, China’s largest textile manufacturer, looked set to default on a second bond in as many days.”

December 15 – Bloomberg: “A troubled Chinese clothing firm has defaulted on two domestic bonds in 24 hours, in the latest sign of financial stress among the country’s weaker private companies. Shandong Ruyi Technology Group Co. hasn’t wired funds for coupon payment on a 1 billion yuan ($153 million) bond due Tuesday… The company cited tight liquidity for missing the payment… Concern about the company’s finances has grown this year after a local government financing vehicle withdrew from a pact to become its second-largest shareholder.”

December 13 – Reuters (Lusha Zhang, Liangping Gao and Ryan Woo): “China’s new home prices grew in November at their slowest monthly pace since March…, as policymakers wary of financial risk in the highly leveraged sector continued to pursue market-cooling measures… The average new home price across 70 major cities rose 0.1% in November from the previous month… That compared with 0.2% on-month growth in October. Prices rose 4.0% in November from the same month a year earlier, the weakest rate since February 2016.”

December 14 – Reuters: “China’s November property investment grew at a slower pace, as regulators stepped up scrutiny on the most leveraged and largest developers in the sector. Real estate investment in November rose 10.9% from a year earlier, easing from 12.7% growth seen in October but still at an elevated pace… The property market… quickly regained strength after coronavirus restrictions were lifted, with home prices and investment growing at a robust pace in recent months.”

December 14 – Reuters (Kevin Yao, Gabriel Crossley, and Colin Qian): “China’s factory output grew at the fastest pace in 20 months in November, as revived consumer spending and a gradual easing of COVID-19 restrictions in major trading partners lifted demand for the country’s manufactured goods.”

December 14 – Bloomberg: “China’s China’s weakest stocks faced another blow after exchange regulators issued tougher rules to weed them out of the market. More than a dozen firms under so-called special treatment status saw shares fall their 5% limit in Shanghai and Shenzhen after draft revisions were issued… seeking to shorten the delisting process and toughen financial, trading and violation criteria. Companies under special treatment have received delisting warnings for reasons ranging from accounting issues to business failure, and they’re subject to trading restrictions.”

December 13 – Financial Times (Tom Mitchell): “It is shaping up to be a good month for the Chinese Communist party and President Xi Jinping. If all goes to plan and a Chinese spacecraft safely delivers its 2kg cargo of moon rocks to Earth in about two weeks, some of the precious payload will be proudly displayed in the home province of Mao Zedong, the country’s revolutionary founder. The ambition to display a small piece of the moon in Hunan… was highlighted in 2019 as Chinese engineers outlined the mission to retrieve lunar rocks — a feat that has not been accomplished since the former Soviet Union did so in 1976. ‘Chairman Mao said we must reach for the moon,’ Wu Weiren, a senior Chinese space engineer, told reporters at the time. ‘We will achieve this and comfort him.’”

Central Bank Watch:

December 12 – Bloomberg (Carolynn Look, Alexander Weber and William Horobin): “The European Central Bank’s recent decision to boost its emergency bond-buying program risks weakening market discipline, Governing Council member Jens Weidmann said. The Bundesbank president… said that there was a clear need for the central bank to act in response to the weakening outlook brought about by the pandemic. However, it’s ‘crucial’ that the amount of government bonds held by the ECB doesn’t become too large. ‘Otherwise we run the risk of gaining dominant market influence and leveling out the differences in the risk premiums of government bonds. This further weakens market discipline,’ he said… ‘This problem has been exacerbated in particular by the recent increase in the Pandemic Emergency Purchase Program.’ He added that ‘even -- and especially -- in times of crisis, three things are important in monetary policy: the right amount, the choice of the right instruments, and a smart design of the programs.’”

December 15 – Bloomberg (Mario Sergio Lima): “Brazil’s rising inflation expectations are jeopardizing the central bank’s pledge to keep its benchmark interest rate at a record low amid an uneven economic recovery. Consumer price forecasts have been increasing since the bank implemented its guidance on borrowing costs, policy makers wrote in the minutes to their Dec. 8-9 meeting…”

EM Watch:

December 16 – Bloomberg (Andrew Rosati): “Brazil must cut spending and mandatory obligations to avoid a ‘recession like in the lost decade of the 1980s,’ according to… the Organization for Economic Co-operation and Development. With debt levels soaring following the government’s pandemic-aid package, sustained growth hinges on fiscal adjustments and compliance with public expenditure rules, the OECD warned in an economic survey of Brazil… ‘Without strong action, financing costs could rise substantially, jeopardizing fiscal sustainability and depressing investment,’ the… organization said, forecasting that Brazil’s primary budget deficit, excluding interest payments, will increase to 10.7% of gross domestic product this year.”

Europe Watch:

December 16 – Bloomberg (Ian Wishart): “European Commission President Ursula von der Leyen said fishing rights are now the last major hurdle to a post-Brexit trade deal, as Prime Minister Boris Johnson warned the U.K. has a ‘natural right’ to control its own waters. With negotiations continuing in Brussels, von der Leyen told the European Parliament that a deal is possible, but difficult. ‘As things stand, I can’t tell you if there will be a deal or not,’ she said. Johnson’s press secretary… told reporters no deal remains the most likely outcome.”

December 17 – Bloomberg (Brian Parkin and James Hirai): “Germany will sell a record amount of federal debt in 2021 to help prop up the economy in the second year of the coronavirus crisis. Europe’s benchmark issuer plans to sell as much as 471 billion euros ($576bn) in bonds and bills, easily exceeding a previous high of 407 billion euros sold this year…”

December 14 – Financial Times (Martin Arnold and Victor Mallet): “Germany is heading for a double-dip recession this winter after Berlin imposed a hard lockdown, economists have predicted… Chancellor Angela Merkel’s government announced at the weekend that schools and most shops would be closed from Wednesday until January 10 in an effort to contain a surge in coronavirus infections. ‘Germany must brace itself for a second recession,’ said Jörg Krämer, chief economist at Commerzbank. ‘The additional closures affect, among other things, all stores except those for daily needs . . . hairdressers and largely schools and day care centres for children.’”

December 16 – Reuters (Jonathan Cable): “Euro zone economic performance far exceeded expectations this month - although it still contracted slightly - as a second wave of coronavirus infections and renewed lockdowns had less of an impact than earlier in the year… IHS Markit’s flash composite PMI, seen as a good guide to economic health, soared to 49.8 in December from November’s 45.3, just shy of the 50 mark separating growth from contraction.”

Japan Watch:

December 18 – Reuters (Kaori Kaneko and Leika Kihara): “Japan’s core consumer prices dropped in November at their fastest pace in a decade as the coronavirus pandemic hit demand, stoking fears of a return to deflation and wiping out the benefits former premier Shinzo Abe’s stimulus policies.”

December 16 – Reuters (Chang-Ran Kim and Kiyoshi Takenaka): “The Japanese capital Tokyo, faced with acute strains on its medical system from the COVID-19 pandemic, raised its alert level to the highest of four stages on Thursday as the number of new cases spiked to a record daily high of 822.”

Leveraged Speculation Watch:

December 11 – Wall Street Journal (Heather Somerville): “The venture-capital offices around Silicon Valley remain largely empty, but their coffers will soon be brimming after what has shaped up to be a surprisingly resilient year for technology startups. The initial public offerings this week of DoorDash Inc. and Airbnb Inc. cap a string of listings that have helped make this the most lucrative year on record for IPOs in terms of money raised. More than $157 billion has been raised as of Thursday, according to… Dealogic—over a third of that in the past 11 weeks—and the number of listings is the largest since the final hurrah of the dot-com boom in 2000. The soaring public offerings are showering returns on some of the biggest names in tech investing…”

Geopolitical Watch:

December 17 – NPR (Bill Chappell): “The U.S. Cybersecurity and Infrastructure Security Agency… delivered an ominous warning about a major computer intrusion, saying it ‘poses a grave risk’ to federal, state and local governments as well as private companies and organizations. The Trump administration has said relatively little since the hack on government computers at multiple agencies was first announced last weekend. But the CISA, which is part of the Department of Homeland Security, offered a broad overview in its latest comments. The agency noted the attack began around March and is still ongoing — meaning the malware that’s been placed on computers may still be capturing valuable information. In addition, CISA said that removing the malware will be ‘highly complex and challenging for organizations.’”

December 17 – Bloomberg (William Turton, Michael Riley and Jennifer Jacobs): “The U.S. nuclear weapons agency and at least three states were hacked as part of a suspected Russian cyber-attack that struck a number of federal government agencies…, indicating widening reach of one of the biggest cybersecurity breaches in recent memory. Microsoft Corp. said that its systems were also exposed as part of the attack.”

December 15 – Associated Press (Ben Fox and Frank Bajak): “U.S. government agencies and private companies rushed Monday to secure their computer networks following the disclosure of a sophisticated and long-running cyber-espionage intrusion suspected of being carried out by Russian hackers. The full extent of the damage is not yet clear. But the potential threat was significant enough that the Department of Homeland Security’s cybersecurity unit directed all federal agencies to remove compromised network management software and thousands of companies were expected to do the same.”'

December 14 – Associated Press (Matt O’Brien and Frank Bajak): “Governments and major corporations worldwide are scrambling to see if they, too, were victims of a global cyberespionage campaign that penetrated multiple U.S. government agencies and involved a common software product used by thousands of organizations. Russia, the prime suspect, denies involvement. Cybersecurity investigators said the hack’s impact extends far beyond the affected U.S. agencies, which include the Treasury and Commerce departments… The hack began as early as March when malicious code was snuck into updates to popular software that monitors computer networks of businesses and governments. The malware… gave elite hackers remote access into an organization’s networks so they could steal information. It wasn’t discovered until the prominent cybersecurity company FireEye determined it had been hacked.”

December 14 – Reuters (Humeyra Pamuk and Arshad Mohammed): “The U.S. State Department said… it hoped it will be possible to find a resolution to NATO ally Turkey’s decision to buy the S-400 air defense system from Russia, which led the United States to impose sanctions on Turkey. ‘This decision left us no alternative,’ Christopher Ford, Assistant Secretary of State for International Security and Nonproliferation told reporters…”

December 16 – Bloomberg (Jason Scott and Sybilla Gross): “Australia will challenge China at the World Trade Organization over Beijing’s decision to impose hefty tariffs on its barley exports, a further sign of deteriorating relations between the two key trading partners. Trade Minister Simon Birmingham said… the government had advised counterparts in Beijing of its intention ‘to request formal consultations with China.’ The dispute process could take years to be resolved, but the organization should recognize that the tariffs are ‘not underpinned by facts and evidence,’ he said.”

Friday Evening Links

[Yahoo/Bloomberg] U.S. Stocks Fall With Lawmaker at Odds on Aid Bill: Markets Wrap

[CNBC] Fed allows banks to resume share buybacks, JPMorgan stock jumps 5%

[Reuters] U.S. Congress seeks stopgap funding bill to avoid gov't shutdown amid coronavirus talks

[Yahoo/Bloomberg] Republicans Bind Virus Aid to Limit on Fed Lending, Risking Bill

[Reuters] Trump signs bill that could kick Chinese firms off U.S. stock exchanges

[Reuters] Fed’s Kaplan says will be time to pull back on bond buying when economic recovery is clear: WSJ

[Yahoo/Bloomberg] Yellen Sets Out to Build Treasury Team With Obama Alumni

[WSJ] Fed’s Kaplan Says It Will Be Time to Taper Bond Buying When Economy Is Clearly Recovering