Saturday, January 7, 2023

Weekly Commentary: Issues 2023

Bubble: A self-reinforcing, but inevitably unsustainable inflation. Bubbles are a monetary phenomenon, fueled by some underlying source of Credit expansion. If accommodated by loose monetary policy, Bubbles have a proclivity to surprise to the upside – with an escalation to “crazy” "blow-off" excess during the “Terminal Phase”.

Bubbles eventually burst. The bigger and more prolonged the Bubble, the greater the systemic monetary disorder and associated price distortions, along with deepening financial and economic structural maladjustment. Accordingly, the more ingrained Bubble excess becomes, the more central bankers will be compelled to forestall collapse. Such efforts will only extend “Terminal Phase” excesses, with systemic risk rising exponentially. Importantly, and as understood generations ago by “Austrian” economic thinkers, the pain and dislocation unleashed during the bust is proportional to the excesses of the preceding boom.

Last year marked an inflection point for myriad historic global Bubbles. Some were pierced, and a few of those suffered painful collapses (i.e. crypto). Others were pierced, but persisted. In general, the riskiest of the speculative Bubbles suffered the greatest deflation. Importantly, however, key Credit Bubbles continued to inflate.

Despite Fed tightening measures and surging market yields, extraordinary Credit growth was ongoing in the U.S. A historic lending boom (bank and non-bank), along with notable GSE expansions and deficit spending, fueled system Credit growth likely second only to 2020’s pandemic Credit melee.

In China, continued massive bank lending and fiscal stimulus secured yet another year of double-digit system Credit expansion. The gap between Credit growth and GDP widened alarmingly.

There are reasons to expect moderation this year from both major global Credit engines. Issue 2023: It’s a post-Bubble environment, with Bubble deflation proceeding in earnest, though ongoing strong Credit growth would create the appearance of relative stability. In the event of a meaningful Credit slowdown, an increasingly disorderly unwind of financial and economic excess would be expected.

The mortgage finance Bubble collapse quickly reverberated throughout the markets and economy. It’s worth recalling that the year-2000 bursting of the “tech” Bubble had more creeping economic and Credit impacts. GDP didn’t turn negative until Q1 2001 (-1.3%). More systemic Credit crisis dynamics didn’t erupt until 2002.

It is entirely possible that systemic Credit crisis can be held at bay until 2024. But deteriorating Credit performance is a key Issue 2023 – for both corporate and household sectors. The year begins with decent economic momentum – including a 3.5% unemployment rate and almost 10.5 million job vacancies. But this could prove the high-water mark for years to come.

The historic “tech” Bubble is deflating. Layoffs are accelerating, with Amazon’s 18,000 job cuts emblematic of the newfound cost-cutting focus sweeping through what is these days a major sector of U.S. and global economies.

While strong Credit growth continued throughout 2022, the year marked an abrupt end to an historic period of free “money” – along with a corresponding reversal of speculative flows. Whether it was crypto or the NDX (Nasdaq100), we witnessed a dramatic reversal of speculative finance with major ramifications. The booming venture capital industry, having luxuriated for years in the loosest monetary conditions imaginable, suddenly saw the money spigot turned down a couple notches.

Issue 2023: This could be the year of the dying startup. After years of manically financing negative cash-flow and uneconomic enterprises, the reversal of speculative finance has created a major predicament for both companies and their financiers. Scores of startups will hit the wall, unable to obtain the financial resources necessary for survival. And while the likes of Microsoft, Google/Alphabet, Amazon and NVIDIA have ample cash reserves, so many of their customers do not.

It has been a most protracted and far-reaching “arms race.” “TMT” – technology, media and telecoms – the cloud, crypto, 5G, blockchain, smart devices/Internet of things… Professional sports franchises, along with incredible media contracts and college athletics spending booms. More recent investment Bubbles include EV and autonomous vehicles, renewable energy, biotech, robotics, artificial intelligence/machine learning, genomics, virtual/augmented reality, healthcare technologies…

And let’s not forget the so-called “FinTech revolution,” with scores of enterprising financial services companies that have yet to experience market, economic or Credit downturns. No matter the amount of technology and sophistication, subprime is subprime, and speculation is speculation.

I expect 2023 fallout from “private Credit,” “private assets,” and private equity – important segments of contemporary finance that made it through most of 2022 largely unscathed. Enormous amounts of finance flowed freely into these structures during the manic pandemic stimulus years through the end of 2022. Outflows won’t be accommodated as easily in 2023. The downside of “phony happiness.”

January 2 – Financial Times (Daniel Rasmussen): “After about a decade of significant outperformance culminating in a Covid boom, technology investors faced a sharp reversal this year. By the end of June, Nasdaq was down 29.5% and the Goldman Sachs Unprofitable Tech index was down 52%. Yet one corner of the tech market was strangely unaffected. The US Venture Capital index compiled by Cambridge Associates was down only 12.5% through the end of June (the last available data)… This gap between private markets and public markets is the largest since the bursting of the dotcom bubble more than two decades ago. Few would argue that these venture capital marks are accurate in aggregate in any meaningful way… Institutions have fallen in love with private markets, lured by promises of higher returns and lower volatility. Allocations to VC have soared along with allocations to private equity, private real estate and private credit. But perhaps these investors have been lulled into complacency, paying an illiquidity premium for the ‘phony happiness’ of private marks. By doing so — instead of receiving a premium as economic theory suggests — there is bound to be a drag on returns.”

My analytical framework points to extraordinary down-cycle pain and dislocation. “It happened gradually and then suddenly.” Ongoing strong Credit growth and significant (pandemic QE-related) financial reserves can continue to somewhat postpone the day of reckoning. But these same forces should also be expected to sustain powerful inflationary biases throughout the economy.

Issue 2023: Little relief for the Fed. While inflation will surely track lower than June’s 9.1% (y-o-y), strong wage growth seems to preclude a return to the Fed’s 2% inflation goal anytime soon. Our central bank will weigh conflicting evidence of recession, economic resilience, disinflation and increasingly entrenched inflationary pressures. Attempts to gauge the status of market financial conditions will be obscured by ongoing market instability.

Issue 2023: Market Structure remains a huge issue. Over the years, I've focused on the systemic risks associated with derivatives, risk shifting, and “dynamic hedging.” The market can’t hedge itself. If a significant segment of the marketplace moves to hedge risk, there’s no one with the wherewithal to absorb potential losses.

“Portfolio insurance” was instrumental during the 1987 stock market crash. The scope of market risk hedging has grown exponentially over the years. The sellers of derivative protection have operated under the assumption of liquid and continuous markets. They sell protection, and then hedge exposures as necessary, by selling underlying instruments into declining markets (i.e. stocks, bonds, currencies…) – so-called “dynamic hedging.” And the presumption of liquidity - and the entire derivatives hedging market structure – has been possible only because of the evolving central bank liquidity backstop (i.e. Fed put).

The necessary ingredients for a historic market crash are out there for all to see. The central bank liquidity backstop was reconfirmed for global markets last September (by the Bank of England). So, the perilous game of offloading massive market risk onto derivative hedging markets presses on. Rather than fearing meltdown risk, deeply complacent markets have been conditioned to view market stress and big hedging episodes as opportunities for short squeezes and the forced unwind of hedges.

As witnessed in 2022, this market structure (major market directional derivatives hedging and attendant “dynamic hedging”) promotes instability and market volatility. Short squeezes were commonplace throughout markets, with notable squeezes in U.S. stocks in late March, July/August and October/November. One of these days, markets will stumble to the edge of the precipice – and not recoil.

Issue 2023: Market structure will make the Fed’s job only more challenging. In particular, the backdrop remains conducive to recurrent short squeezes, with this year’s squeezes and the associated loosening of market financial conditions only more problematic. Weaker economic data and encouraging inflation news would likely spur disproportionate market rallies and squeezes. By loosening market financial conditions and underpinning inflationary dynamics, squeezes would pressure the Fed to pursue even higher policy rates.  Tighten until something breaks.

This is a thesis already with supporting evidence.

January 6 – Bloomberg (Edward Bolingbroke): “Treasuries aggressively bull-steepened Friday after December jobs report showed slowing wage growth, sparking sharp declines for front-end yields. Curve trend gained momentum from a series of block trades in Treasury futures consistent with new steepener positions and flattener unwinds across a range of tenors. Futures volumes were almost double average…”

Two-year Treasury yields sank 19 bps Friday, with 10-year yields down 16 bps. Benchmark MBS yields collapsed 28 bps to 4.99% (down 40bps for the week). Corporate Credit spreads narrowed to near multi-month lows. The iShares Investment-grade Corporate Bond ETF ended the first four trading sessions of 2023 with a 3.0% gain, with the iShares High-Yield Bond ETF up 2.6%. The (bond volatility) Move Index dropped six points in Friday trading to a near multi-month low of 114.

The S&P500 surged 2.3% during Friday’s session, with the Semiconductors up 4.7%, the Dow Transports 3.4%, the Nasdaq100 2.8%, the Bloomberg REIT Index 2.7%, and the KBW Bank Index 2.5%.

The Fed is aware of its dilemma.

January 4 – Bloomberg (Craig Torres): “Federal Reserve officials last month affirmed their resolve to bring down inflation and, in an unusually blunt warning to investors, cautioned against underestimating their will to keep interest rates high for some time. Going into the meeting, markets were pricing in rate cuts in the second half of 2023. The tone of the minutes of the Federal Open Market Committee’s Dec. 13-14 gathering suggested frustration that this was undermining the central bank’s efforts to bring price pressures under control. Fed officials noted that ‘an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability,’ according to the minutes…”

“Unwarranted” or otherwise, market structure ensures exaggerated market reaction and looser conditions in response to favorable inflation data points. Fed officials will be compelled to push back with hawkish commentary. Cat and mouse.

Markets are pricing in a 4.95% peak Fed funds rate at the June 14th FOMC meeting, with rates then declining to 4.48% by the final meeting of the year on December 13th. Expect stern push back against market expectations for a 2023 Fed pivot. There is strong consensus on the committee that tight conditions will be necessary, at least through the end of the year. Markets seem to have an equally strong consensus view that the Fed will be forced to jettison hawkish resolve and pivot dovish. Issue 2023: Dysfunctional market structure, while promoting volatility and looser financial conditions along the way, ensures instability, fragility and strong odds of a market accident.

Issue 2023: High probability of global market accidents.

Let’s start with Japan. Haruhiko Kuroda’s term as Bank of Japan (BOJ) governor concludes at the end of March. I expect the “Abenomics” experiment with unbridled monetary inflation (negative rates and massive QE) and market intervention (yield curve control) to be wound down soon after his departure. Disorderly adjustment in the Japanese bond market and with the yen is a distinct possibility.

We’ll never know the role played by Japanese-based liquidity throughout 2022, as the BOJ clung to aggressive monetary stimulus in the face of surging global inflation and bond yields. It certainly provided a powerful pillar of cheap finance for global “carry trades” and leveraged speculation more generally. Indeed, with the Fed shifting more hawkish early in 2022, it was a relative slam dunk trade (easy in hindsight) that the BOJ and ECB would significantly lag the Fed’s pivot. As such, the weak yen and euro (strong dollar) provided a degree of currency market predictability in a general backdrop of heightened market instability.

Issue 2023: Acute currency market uncertainty and instability. Last year’s hawkish Fed, strong dollar regime has given way to a much more ambiguous and unsettled backdrop. Both the BOJ and ECB are “behind the curve” and will play catch-up. The Dollar Index dropped 1% on Friday’s “risk on” market rally. How big are yen and euro short positions? And if dollar weakness materializes in 2023, this would provide an inflationary boost through rising energy, commodities and import prices.

Issue 2023: The year of precious metals? Precious metals were generally out of the blocks quickly to begin the new year. Metals performed relatively well last year in the face of dollar strength and rising rates. A year of currency market uncertainty, persistent inflation, and ongoing expansion of non-productive Credit would seem to support the precious metals.

After a 2022 inflection point, I would expect 2023 to provide more New Cycle momentum. There will be ebbs and flows, but the cycle of hard asset outperformance versus financial assets is in its infancy.

FT: “ECB Rate Rises Expose Fears for Italy as Eurozone’s Weakest Link.” Italian 10-year yields sank 47 bps this week (4.23%), more than reversing the 40 bps surge during 2022’s final two weeks. Italian and European periphery bonds remain acutely vulnerable to tighter ECB policy and global “risk off” dynamics. A warm start to winter has crushed European energy prices, significantly improving near-term inflation prospects. Yet energy prices and inflation remain subject to extraordinary uncertainty.

Issue 2023: A European periphery debt crisis is likely in the event of another serious global de-risking/deleveraging episode.

When it comes to acute uncertainty, China is at the top of the list for 2023. Can China sustain another year of double-digit Credit growth? Will Chinese bank assets continue to balloon at double-digit pace, stuffed with late-cycle suspect loans and state-directed financial support (i.e. developer bonds, local government financing vehicles, government bonds and such).

Issue 2023: Will confidence in China’s financial structure be sustained?

A desperate Beijing is currently in crisis management mode. There will be ongoing massive fiscal and monetary support. Chinese banks will be directed to lend aggressively. I even expect Chinese officials to play a little nicer in the sandbox, recognizing that they must try to stem the exodus of business and investment out of China. Faced with economic meltdown risk, it’s in Beijing’s self-interest to deescalate trade tensions with the U.S., Australia and others.

China is in trouble. When the Covid waves subside, there will be pent up demand. There’s huge stimulus in the pipeline. Massive Credit growth can hold economic depression at bay – for now. But there will surely be greater fallout from the 2022 bursting of the great Chinese apartment Bubble. Beijing measures will help, but I don’t expect manic enthusiasm for speculating in over-priced and poorly constructed apartment units to reemerge. Consumer and business confidence has taken such a decisive hit that it will take years to recover.

China has commenced a multiyear down-cycle. Epic structural maladjustment will be revealed as Credit growth slows. How rotten is that system?

For now, the more pressing question is how long can China’s currency hold up in the face of ongoing massive Credit expansion, especially with too much being of the non-productive ilk. There are already indications that Beijing is resorting to tactics to mask the support provided for the vulnerable renminbi.

January 5 – Financial Times (Hudson Lockett and Cheng Leng): “China is changing its tactics on the renminbi…, with a shift away from direct intervention and towards lower-profile, indirect tools to steer the market. The currency dropped almost 8% last year against the soaring dollar. But Beijing smoothed out that decline using tools such as so-called ‘invisible reserves’ held by state banks, rather than its more typical heavy-handed intervention by the People’s Bank of China. Beijing’s new approach… poses a challenge to traders seeking to anticipate the renminbi’s next move… ‘China’s overall foreign exchange management framework has changed,’ said Becky Liu, head of China macro strategy at Standard Chartered. ‘When you directly intervene, people calculate how much [reserves] you have to burn on a monthly basis and how many more months you have left. In that situation people will short the renminbi at all costs,’ Liu said. ‘This time around, they’re putting a lot of other measures in place so the amount of foreign exchange interventions needed is lower.’”

Sign of weakness. It's difficult to believe that there is not massive amounts of finance seeking to exit China. I also suspect there is vulnerability to an unwind of a huge “carry trade” leverage in higher-yielding Chinese instruments. Beijing understands that a major drawdown of its international reserve position risks igniting a run out of the renminbi. So, it will resort to all kinds of games, including derivatives, and calling upon its banking system for currency-bolstering operations. Issue 2023: Can Beijing thwart a crisis of confidence - in Chinese policymaking, in China’s banking system and with its currency?

The September UK bond market crisis illuminated how closely correlated global markets have become, and how “risk off,” illiquidity, and a crisis of confidence in one market can be quickly transmitted across markets. Late-September was a reminder of the risk of a synchronized “seizing up” of global markets.

Issue 2023: Can the world avoid a crisis of confidence in global markets?

There are so-called “white swans,” “gray swans,” and “black swans.” I expect to see all varieties this year. It’s hard to believe we’re now in the fourth year of the pandemic. There is every reason to expect only more extreme weather events. Not to be overly pessimistic, but bursting Bubbles tend to unleash all kinds of troubling developments – market, financial, economic, social and geopolitical. There will be more FTXs and SBFs. If this week is any indication, expect only greater Washington dysfunction – a troubling prospect for a year when policymakers could be called upon for crisis management.

And I hope we can get through the year without a major geopolitical crisis. Hopefully, we are surprised by fruitful negotiation, rather than escalation in Ukraine. Can Putin contain his rage against the U.S. and the West? How would the West respond to major war escalation? Does China ratchet up support for Russia? We should assume China continues its intimidation campaign and preparation for conflict with Taiwan. And one of these days there’s going to be an accident between U.S. and Chinese aircraft (or ships) over the South China Sea or Taiwan Strait. The Korean Peninsula is an accident waiting to happen. Meanwhile, the backdrop is ripe for bouts of destabilizing social unrest around the globe. There are festering EM crises lined up like dominoes.

In the unfolding post-Bubble environment, I fear crisis of confidence contagion – monetary and fiscal policymaking, markets, currencies, financial systems and economic structures. In the near-term, market rallies would spur a bout of “the worst is behind us” optimism. Already, there’s lots of talk of Goldilocks, soft-landings, and even “immaculate disinflation”. I hope the bullish analysts are proven correct. But as an analyst of a series of historic Bubbles for going on three decades, I can’t shake the fear that things are likely worse than even I believe.


For the Week:

The S&P500 gained 1.4%, and the Dow rose 1.5%. The Utilities increased 0.7%. The Banks surged 4.4%, and the Broker/Dealers jumped 3.0%. The Transports advanced 3.6%. The S&P 400 Midcaps jumped 2.5%, and the small cap Russell 2000 gained 1.8%. The Nasdaq100 increased 0.9%. The Semiconductors surged 4.1%. The Biotechs gained 2.1%. With bullion jumping $42, the HUI gold equities index surged 9.6%.

Three-month Treasury bill rates ended the week at 4.4675%. Two-year government yields dropped 18 bps this week to 4.25% (up 339bps y-o-y). Five-year T-note yields sank 31 bps to 3.70% (up 220bps). Ten-year Treasury yields slumped 32 bps to 3.56% (up 180bps). Long bond yields dropped 28 bps to 3.69% (up 157bps). Benchmark Fannie Mae MBS yields sank 40 bps to 4.99% (up 258bps).

Greek 10-year yields fell 23 bps to 4.34% (up 282bps y-o-y). Italian yields sank 47 bps to 4.23% (up 291bps). Spain's 10-year yields dropped 25 bps to 3.27% (up 262bps). German bund yields fell 23 bps to 2.21% (up 225bps). French yields dropped 26 bps to 2.72% (up 242bps). The French to German 10-year bond spread narrowed about four to 51 bps. U.K. 10-year gilt yields fell 20 bps to 3.47% (up 229bps). U.K.'s FTSE equities index jumped 3.3% (up 2.9% y-o-y).

Japan's Nikkei Equities Index dipped 0.5% (down 8.8% y-o-y). Japanese 10-year "JGB" yields jumped eight bps to 0.51% (up 37bps y-o-y). France's CAC40 surged 6.0% (down 5.0%). The German DAX equities index jumped 4.9% (down 8.4%). Spain's IBEX 35 equities index rose 5.7% (down 0.6%). Italy's FTSE MIB index surged 6.2% (down 8.8%). EM equities were mixed. Brazil's Bovespa index slipped 0.7% (up 6.1%), while Mexico's Bolsa index surged 6.7% (down 2.8%). South Korea's Kospi index rallied 2.4% (down 22.5%). India's Sensex equities index lost 1.5% (up 0.3%). China's Shanghai Exchange Index rose 2.2% (down 11.8%). Turkey's Borsa Istanbul National 100 index fell 3.0% (up 163%). Russia's MICEX equities index was little changed (down 42.8%).

Investment-grade bond funds posted outflows of $1.693 billion, and junk bond funds reported negative flows of $2.216 billion (from Lipper).

Federal Reserve Credit declined $4.9bn last week to $8.502 TN. Fed Credit was down $399bn from the June 22nd peak. Over the past 173 weeks, Fed Credit expanded $4.775 TN, or 128%. Fed Credit inflated $5.691 Trillion, or 202%, over the past 530 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $9.4bn last week at $3.325 TN. "Custody holdings" were down $90.4bn, or 2.6%, y-o-y.

Total money market fund assets surged $78.6bn to $4.814 TN. Total money funds were up $111bn, or 2.4%, y-o-y.

Total Commercial Paper fell $17.3bn to $1.282 TN. CP was up $208bn, or 19.3%, over the past year.

Freddie Mac 30-year fixed mortgage rates added three bps to 6.44% (up 322bps y-o-y). Fifteen-year rates declined three bps to 5.77% (up 334bps). Five-year hybrid ARM rates fell nine bps to 5.53% (up 312bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 12 bps to 6.47% (up 311bps).

Currency Watch:

For the week, the U.S. Dollar Index increased 0.4% to 103.88. For the week on the upside, the Mexican peso increased 1.8%, the Brazilian real 1.1%, the Australian dollar 0.9%, the Canadian dollar 0.8%, and the British pound 0.1%. On the downside, the Norwegian krone declined 2.0%, the Swedish krona 0.9%, the Japanese yen 0.7%, the euro 0.6%, the South African rand 0.4%, the Swiss franc 0.4%, the South Korean won 0.3%, and the New Zealand dollar 0.1%. The Chinese (onshore) renminbi gained 1.03% versus the dollar.

Commodities Watch:

The Bloomberg Commodities Index dropped 4.2% (up 6.7% y-o-y). Spot Gold rose 2.3% to $1,866 (up 3.8%). Silver slipped 0.5% to $23.83 (up 6.5%). WTI crude sank $6.49 to $73.77 (down 7%). Gasoline slumped 8.7% (down 2%), and Natural Gas sank 17.1% to $3.73 (down 5%). Copper rallied 2.6% (up 3%). Wheat dropped 6.1% (down 2%), and Corn fell 3.6% (up 8%). Bitcoin rallied $400, or 2.4%, this week to $16,980 (down 59.2%).

Market Instability Watch:

January 6 – Bloomberg (Yueqi Yang and Hannah Levitt): “When US banks fell like dominoes during the Great Depression, the cause was often a classic run: Depositors withdrew cash en masse amid fears that lenders were amassing huge losses on bad loans and investments. The cryptocurrency era just put a new twist on that — with the depositors running into trouble first. Silvergate Capital Corp., a California lender that offers digital-asset ventures a place to park their cash, jolted shareholders… with the revelation that it had recently survived an $8.1 billion drawdown on deposits. That’s roughly 70%, even more severe than runs seen in the Depression… ‘This is unprecedented, it’s very unusual,’ said Karen Petrou, a managing partner at Federal Financial Analytics… ‘Because they were so dependent on crypto funding, they were vulnerable for a run. Given the crypto market has been unstable, they got it.’”

January 5 – Bloomberg (Mike Dorning): “The turmoil that has for three days stalled the start of the new Republican House majority offers a warning that disarray in Washington risks igniting a US debt crisis capable of roiling financial markets later this year. The deadlock between establishment Republicans and dissident conservatives over choosing a House speaker laid bare the depth of division within the party, and the powerlessness of GOP leaders to force a compromise on recalcitrant members.”

January 6 – Bloomberg (Masaki Kondo and Matthew Burgess): “Japan’s new benchmark 10-year government note has brought a fresh headache for the nation’s central bank in its battle against bond bears. The yield on the December 2032 note traded at 0.5% — the BOJ’s new ceiling for 10-year debt — on Friday compared with just under 0.42% for the previous benchmark. The pressure on yields saw the central bank defend its 0.5% cap with an increase in bond purchases. A sustained rise above that level risks leading to runaway speculation that the BOJ will raise its yield ceiling further or abandon its policy of negative short-term interest rates.”

Crypto Bubble Collapse Watch:

January 5 – Bloomberg (Yueqi Yang): “Silvergate Capital Corp. made one of the US banking world’s biggest bets on crypto. Now it’s reeling from a run on deposits and a massive loss, intensifying fears the collapse of crypto exchange FTX may seep elsewhere into the financial system. ‘The worst-case scenario seems to have come to pass’ for Silvergate, Jared Shaw, an analyst at Wells Fargo & Co., said… after the company’s announcement. Silvergate shares cratered a record 49%.”

January 5 – Reuters (Manya Saini, Niket Nishant and Hannah Lang): “Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday as investors spooked by the collapse of FTX pulled out more than $8 billion in deposits, sending shares down more than 46%. The crypto-focused bank also said it would cut its workforce by 40%, or about 200 employees, as it tries to rein in costs amid a deepening industry downturn.”

January 2 – Reuters (Mrinmay Dey): “Cameron Winklevoss, who founded crypto exchange Gemini Trust Co with his twin brother, on Monday accused Digital Currency Group (DCG) CEO Barry Silbert of ‘bad faith stall tactics’ and asked him to commit to resolving $900 million worth of disputed customer assets by Jan. 8. Gemini has a crypto lending product called Earn in partnership with DCG's crypto firm Genesis. Genesis halted customer withdrawals in November… Winklevoss said Genesis owed more than $900 million to some 340,000 Earn investors, and that he had been trying to reach a ‘consensual resolution’ with Silbert for the past six weeks.”

Bursting Bubble and Mania Watch:

December 19 – Bloomberg (Ezra Fieser): “The deluge of venture capital that poured into late-stage Latin American tech companies in recent years has dried up, forcing some of the region’s most promising startups to fire staff, rethink growth plans and turn to bank loans for funding. After a series of record years in which investors minted more than two dozen companies valued at $1 billion or more, venture capital has all-but vanished for more-established startups. Late-stage funding plummeted 92% in the third quarter compared to the same period a year ago, according to the Association for Private Capital Investment in Latin America…”

January 5 – Bloomberg (Hema Parmar, Linly Lin and Noah Buhayar): “The pain — and then the questions — kept coming last year as prominent hedge funds took turns marking down the value of their stakes in private companies. Every time they wrote down holdings by millions, or even billions, of dollars, investors questioned whether they had gone far enough. An exclusive Bloomberg News analysis offers a partial glimpse into one of the most opaque corners of the investing world, and the findings aren’t reassuring. In many cases, hedge funds and other money managers disagree over how to value private companies… One takeaway is that even after a year of writedowns across the investment industry, more may be in store. By the end of 2022, high-flying ventures known as unicorns lost more than 40% of their value from the year’s peak… The disagreements over what companies are now worth have profound implications for the ultimate investors – from wealthy individuals to pension plans.”

January 6 – Reuters (Krystal Hu): “Funding for U.S. startups fell by one-third from their peak in 2021, according to PitchBook data released on Friday, despite record amounts of capital raised by new and existing venture funds. Private venture-backed companies raised a total of $238.3 billion last year, 31% lower than the record of $344.7 billion in 2021… Despite being a challenging year for emerging fund managers, 2022 saw $162.6 billion closed across 769 funds, setting an annual record for capital raised and marking venture capital's rise as an asset class for money managers.”

January 5 – Bloomberg (Silas Brown and Lisa Lee): “Buyout firms that contact private credit funds to gauge their interest in backing multibillion-dollar acquisitions are finding that only specific types of borrowers are guaranteed a call back these days. Lenders in the $1.4 trillion private credit market are favoring industries such as technology and health care that should hold up relatively well should the economy shrink… ‘Lenders and private equity are currently looking for industries where you can invest capital while feeling comfortable despite a challenging macro-economic outlook,’ said Mike Patterson, a governing partner at HPS Investment Partners… Private credit managers are increasingly being asked to finance big deals as investment banks pull back from lending as the market for high-yield bonds and leveraged loans remains challenging.”

January 5 – Reuters (Jeffrey Dastin and Uday Sampath Kumar): “Amazon.com Inc's layoffs will now increase to more than 18,000 roles as part of a workforce reduction it previously disclosed, Chief Executive Andy Jassy said… The layoff decisions… will largely impact the company's e-commerce and human resources organizations, he said. The cuts amount to 6% of Amazon's roughly 300,000-person corporate workforce and represent a swift turn for a retailer that recently doubled its base pay ceiling to compete more aggressively for talent.”

January 5 – Reuters (Michael S. Derby): “American technology firms dominated the number of announced job cuts in December, as some employers downsized workforces to brace for the prospect of difficult economic times looming ahead. According to the latest job cuts report from… Challenger, Gray & Christmas…, U.S.-based employers said they were cutting 43,651 jobs in the final month of 2022, down 43% from the number of cuts announced in November.”

January 5 – Bloomberg (Lindsey Rupp): “Layoffs that began in 2022 are accelerating across some technology companies. The tech industry is slashing jobs at a pace nearing the early days of the Covid-19 pandemic. In November, the most recent month for which data is available, the sector announced 52,771 cuts, for a total of 80,978 this year, according to… Challenger, Gray & Christmas Inc. It was the highest monthly total for the industry since the firm started keeping data in 2000.”

January 5 – Wall Street Journal (Jack Pitcher): “U.S. stocks have been on sale of late, but corporate insiders aren’t finding many bargains. Insider sentiment, measured by the trailing three-month average ratio of companies whose executives or directors have been buying stock versus selling, has dropped for six consecutive months, according to… InsiderSentiment.com. That is the longest such decline in almost two years… ‘The thing that stands out right now is the lack of buying even though prices have come down so much,’ said Nejat Seyhun, a finance professor at the University of Michigan who studies corporate-insider activity. ‘That’s kind of a warning.’”

January 1 – Reuters (Marc Jones): “Heavy falls in stock and bond markets over the last year have cut the combined value of the world's sovereign wealth and public pension funds for the first time ever - and to the tune of $2.2 trillion… The report on state-owned investment vehicles by industry specialist Global SWF found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion, while those of public pension funds dropped to $20.8 trillion from $22.1 trillion. Global SWF's Diego L√≥pez said the main driver had been the ‘simultaneous and significant’ 10%-plus corrections suffered by major bond and stock markets, a combination that had not happened in 50 years.”

January 4 – Bloomberg (Garfield Reynolds): “The world’s pile of negative-yielding debt has vanished, as Japanese bonds finally joined global peers in offering zero or positive income. The global stock of bonds where investors received sub-zero yields peaked at $18.4 trillion in late 2020, according to Bloomberg’s Global Aggregate Index of the debt, when central banks worldwide were keeping rates at or below zero and buying bonds to ensure yields were repressed.”

Ukraine War Watch:

January 3 – Reuters (Pavel Polityuk): “Russian nationalists and some lawmakers have demanded punishment for commanders they accused of ignoring dangers as anger grew over the killing of dozens of Russian soldiers in one of the deadliest strikes of the Ukraine conflict. In a rare disclosure, Russia said 63 soldiers were killed in the Ukrainian strike on New Year's Eve that destroyed a temporary barracks in a vocational college in Makiivka, twin city of the Russian-occupied regional capital of Donetsk in eastern Ukraine.”

U.S./Russia/China/Europe Watch:

January 5 – Reuters (Idrees Ali, Yimou Lee and Liz Lee): “A U.S. warship sailed through the sensitive Taiwan Strait on Thursday, part of what the U.S. military calls routine activity but which has riled China. In recent years, U.S. warships, and on occasion those from allied nations such as Britain and Canada, have sailed through the strait, drawing the ire of China…”

De-globalization and Iron Curtain Watch:

January 5 – CNBC (Lori Ann LaRocco): “The surge in Covid-19 cases in China is impacting the completion of manufacturing orders, according to CNBC Supply Chain Heat Map data. Logistics managers are warning clients that because of the spike in infections, factories are unable to complete orders — even with U.S. manufacturing orders from China already down 40%... Orders for ocean bookings continue to be softer according to SONAR Data. ‘With 1/2 or even 3/4 [of the] labor force being infected and not able to work, many China manufacturers can not operate properly but produce less than their optimal outputs,’ Asia-based shipping firm HLS wrote... ‘The container pickup, loading, and drayage (trucking) are also affected as all businesses are facing the impacts of COVID. We expect a very soft volume after the Lunar New Year because a lot of factories have slowed production due to the increasing infection, and have to cancel or delay the bookings for the 2nd half of January and also early February.’”

January 1 – Financial Times (John Thornhill): “2022 was the year when the world’s politicians fully woke up to the computer chip industry’s critical importance to the global economy. They also realised how worryingly dependent the major powers have become on the semiconductor hotspot and geopolitical flashpoint that is Taiwan. Governments are now pumping huge sums of money into the industry to reshore chip production and restore ‘technological sovereignty’. To that end, China, the US, the EU, Japan and India have collectively promised $190bn in subsidies over a decade, according to New Street Research.”

January 4 – Bloomberg (George Lei, Ye Xie and Sydney Maki): “China’s latest efforts to broaden interest in its onshore currency market show a firm commitment to bolstering the yuan’s global appeal as Beijing works on its approach to chip away at the US dollar’s hegemony. Officials this week extended trading hours for the onshore yuan as part of its attempt to increase international use of the currency.”

Inflation Watch:

January 2 – Wall Street Journal (Gabriel T. Rubin and Sarah Chaney Cambo): “Workers who stay put in their jobs are getting their heftiest pay raises in decades, a factor putting pressure on inflation. Wages for workers who stayed at their jobs were up 5.5% in November from a year earlier, averaged over 12 months, according to the Federal Reserve Bank of Atlanta. That was up from 3.7% annual growth in January 2022 and the highest increase in 25 years of record-keeping.”

Federal Reserve Watch:

January 4 – Financial Times (Colby Smith): “Federal Reserve officials warned they would need to see ‘substantially more evidence’ of easing inflation before they are convinced that price pressures are under control as they backed fresh rate rises this year, according to an account of their most recent meeting. Minutes from the December gathering… showed the Fed intends to continue squeezing the economy to try to tackle price pressures, which they warned could ‘prove to be more persistent than anticipated’… ‘Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time,’ the minutes… said…”

January 5 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of St. Louis President James Bullard said interest rates are getting closer to a high enough level to bring down inflation, suggesting he’s comfortable with policymakers’ projections of how much further they will hike this year… ‘The policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getting closer,’ Bullard said in the slide deck. A chart in his presentation suggested that Fed officials’ median projection for where rates will end this year, at 5.1%, is in the territory of being restrictive enough to rein in inflation.”

January 4 – Yahoo Finance (Jennifer Schonberger): “Minneapolis Federal Reserve President Neel Kashkari said… he was wrong in thinking inflation would prove ‘transitory’ last year, and said more rate hikes will be appropriate this year to continue bringing down price pressures. ‘While I believe it is too soon to definitively declare that inflation has peaked, we are seeing increasing evidence that it may have,’ Kashkari wrote… ‘In my view, however, it will be appropriate to continue to raise rates at least at the next few meetings until we are confident inflation has peaked’… Kashkari sees the Fed raising rates a full percentage point from the current level of 4.25%-4.5% to a level of 5.4% and then hitting the pause button.”

January 5 – Bloomberg (Matthew Boesler and Steve Matthews): “Federal Reserve officials started the new year reiterating their concerns about US inflation being too hot, with one regional president saying interest rates should remain high well into 2024 to cool price growth. ‘I have raised my forecast over 5%,’ Federal Reserve Bank of Kansas City President Esther George said…, referring to her projection for the federal funds rate. ‘I see staying there for some time, again, until we get the signals that inflation is really convincingly starting to fall back toward our 2% goal.’”

U.S. Bubble Watch:

January 6 – Associated Press (Christopher Rugaber): “America’s employers added a solid 223,000 jobs in December… With companies continuing to add jobs across the economy, the unemployment rate fell from 3.6% to 3.5%, matching a 53-year low… Average hourly pay growth eased in December to its slowest pace in 16 months. That slowdown could reduce pressure on employers to raise prices to offset their higher labor costs. Average hourly wage growth was up 4.6% in December from 12 months earlier, compared with a 4.8% year-over-year increase in November and a recent peak of 5.6% in March.”

January 5 – CNBC (Jeff Cox): “The jobs market closed out 2022 on a high note, with companies adding far more positions than expected in December, payroll processing firm ADP reported… Private payrolls rose by 235,000 for the month, well ahead of the 153,000 Dow Jones estimate and the 127,000 initially reported for November. While the goods-producing sector increased by a relatively meager 22,000, service providers added 213,000, led by leisure and hospitality, which added 123,000 positions. Professional and business services grew by 52,000, while education and health services added 42,000.”

January 4 – Bloomberg (Reade Pickert): “US job openings remained elevated in November, highlighting how a resilient labor market is likely to keep the Federal Reserve tilted toward more restrictive policy in the months ahead. The number of available positions ticked down to 10.46 million from 10.51 million a month earlier, the… Job Openings and Labor Turnover Survey, or JOLTS, showed... The figure was higher than all estimates… The figures point to a still-tight jobs market where employers’ demand for workers far outstrips supply. Hiring, while moderating, remains solid and layoffs low. The persistent imbalance continues to put upward pressure on wages and has been highlighted by Fed Chair Jerome Powell as key to the path of inflation.”

January 5 – Reuters (Nivedita Balu): “The massive job cuts by Amazon.com Inc, one of the biggest private employers in the United States, show the wave of layoff sweeping through the tech sector could stretch into 2023 as companies rush to cut costs, analysts said… As a demand boom during the pandemic rapidly turns into bust, tech companies shed more than 150,000 workers in 2022, according to tracking site Layoffs.fyi, a number that is growing as growth in the world's biggest economies start to slow.”

January 6 – Bloomberg (Vince Golle): “A US services gauge unexpectedly shrank at the end of 2022, with steep declines in measures of business activity and orders that, if sustained, risk heightening concerns about the demand outlook. The Institute for Supply Management’s index of services dropped to 49.6 last month, the lowest since May 2020, from 56.5 in November… The figure was below all projections… The nearly 7-point decline from the prior month was the largest since the immediate aftermath of the pandemic. It may have been impacted by severe winter weather that threw holiday travel into chaos and caused widespread power outages.”

January 4 – Wall Street Journal (Justin Lahart): “A lot of businesses are feeling morose about where the economy is heading. And yet they still are looking to hire more workers… There were a seasonally adjusted 1.4 million layoffs and discharges in November. That was about even with October and up just a bit from November 2021’s 1.3 million. In the year before the pandemic, when the job market was plenty strong, there was an average of about 1.8 million layoffs a month.”

January 5 – Reuters (Aatrayee Chatterjee and Granth Vanaik): “U.S. online spending during the 2022 holiday season rose by a better-than-expected 3.5%, a report by Adobe Analytics showed, as retailers used hefty discounts to lure inflation-weary consumers into spending… Shoppers spent a record $211.7 billion online over the holiday season, which typically starts in November and ends in December, compared with an earlier forecast of $209.7 billion…”

January 4 – Bloomberg (Reade Pickert): “US manufacturing activity contracted for a second month in December, capping the steepest annual slide in the key factory gauge since 2008 and helping to further tame price pressures. The Institute for Supply Management’s gauge of factory activity fell to 48.4 last month, the lowest level since May 2020 and down from 49 in November…”

January 4 – Wall Street Journal (Sean McLain): “The U.S. auto industry posted its worst sales year in more than a decade in 2022 as supply-chain snarls and poorly stocked dealerships dented results... With few exceptions, auto makers… reported sales declines for the year. General Motors Co. was one of the few to report an increase, after recovering from factory shutdowns that were caused by parts shortages. The Detroit auto maker retook its U.S. sales crown from Toyota Motor Corp. after losing the top spot in 2021 for the first time in decades…”

January 5 – Bloomberg (Paige Smith): “The percentage of US consumers paying at least $1,000 a month for their cars soared to a record, adding to concerns that borrowers may be getting in over their heads. Almost 16% of consumers who financed a new car in the fourth quarter have monthly payments reaching that level, up from 10.5% a year earlier, according to… Edmunds.com... The share of auto owners paying that much was just 6.7% in the fourth quarter of 2020.”

January 1 – Wall Street Journal (Nora Eckert): “The U.S. auto industry is entering one of its biggest factory-building booms in years, a surge of spending largely driven by the shift to electric vehicles and new federal subsidies aimed at boosting U.S. battery manufacturing. Through November, about $33 billion in new auto-factory investment has been pledged in the U.S., including money for the construction of new assembly plants and battery-making facilities… The 11-month total adds to the $37 billion in new auto-factory spending committed in 2021… The annual figure is up from $9 billion in 2017 and a more than eightfold increase from two decades ago, the center found.”

January 1 – New York Times (Don Clark and Ana Swanson): “In September, the chip giant Intel gathered officials at a patch of land near Columbus, Ohio, where it pledged to invest at least $20 billion in two new factories to make semiconductors. A month later, Micron Technology celebrated a new manufacturing site near Syracuse, N.Y., where the chip company expected to spend $20 billion by the end of the decade and eventually perhaps five times that. And in December, Taiwan Semiconductor Manufacturing Company hosted a shindig in Phoenix, where it plans to triple its investment to $40 billion and build a second new factory to create advanced chips. The pledges are part of an enormous ramp-up in U.S. chip-making plans over the past 18 months, the scale of which has been likened to Cold War-era investments in the space race.”

January 4 – CNBC (Diana Olick): “After a brief reprieve in the first half of December, mortgage interest rates shot up again to end the year, weighing on mortgage demand… Mortgage applications to purchase a home dove 12.2% from two weeks earlier and were down 42% year over year. They ended the year at the lowest level since 1996.”

Fixed-Income Watch:

January 2 – Financial Times (Harriet Clarfelt): “The biggest buyers of US junk loans are expected to shrink their exposure to the $1.4tn market in 2023, as the Federal Reserve’s campaign of interest rate rises sparks rating downgrades and defaults. Collateralised loan obligation vehicles own roughly two-thirds of America’s low-grade corporate loans — but may be forced to reduce their exposure because of credit downgrades, which could unsettle the markets… CLOs, which package up such loans into various risk categories before selling the slices on to investors, have performed well during tough economic times, but analysts say mechanisms designed to protect investors holding higher-quality tranches could reduce the vehicles’ appetite for loans to risky, highly-indebted borrowers… US CLO issuance ballooned during the depths of the pandemic, reaching an unprecedented $183bn in 2021… Even as the Fed tightened monetary policy last year to tackle inflation and other parts of the global fixed-income market stuttered, CLOs raised a further $126bn — the third-largest annual figure on record…”

China Watch:

December 31 – Financial Times (Edward White): “As an unparalleled coronavirus outbreak swept through China in December, President Xi Jinping remained mostly silent on the health crisis in the world’s most populous country. But during an annual pre-recorded New Year’s Eve address…, China’s most powerful leader since Mao Zedong finally made a call for unity while defending his handling of the pandemic… The ruling Chinese Communist party’s attempts to downplay and distract from the worsening health crisis that has followed Xi’s decision to drop almost all Covid restrictions reflect the damage wrought on his credibility at home and abroad…, experts said. ‘We can see very clearly that Xi Jinping is badly wounded in the sense that his prestige and authority have suffered tremendously,’ said Willy Lam, an expert in Chinese politics at the Chinese University of Hong Kong. ‘His claim that the Chinese system is the best in the world is now subject to serious questioning.’”

January 1 – Bloomberg: “President Xi Jinping said tough challenges remain in China’s fight against Covid-19 and acknowledged divisions in society that led to rare spontaneous protests, after weeks of silence on a virus policy pivot that’s infected hundreds of millions and delivered a severe blow to economic activity… ‘Since Covid-19 struck, we have put the people first and put life first all along,’ Xi said. ‘With extraordinary efforts, we have prevailed over unprecedented difficulties and challenges, and it has not been an easy journey for anyone. We have now entered a new phase of Covid response where tough challenges remain.’”

January 2 – New York Times (Keith Bradsher): “Three weeks after Xi Jinping, China’s top leader, tried to reinvigorate China’s stalled economy by abruptly abandoning his stringent pandemic restrictions, he struck an upbeat note in his annual New Year’s Eve address. ‘China’s economy has strong resilience, great potential and vitality,’ he said. But that optimism is hard to find in downtown Guangzhou, the commercial hub of southern China. Nearly three years of ‘zero Covid’ measures have crushed businesses. Streets are lined with shuttered stores and workshops. Walls are plastered not with ‘help wanted’ signs, but with notices from entrepreneurs putting their businesses up for sale. Roads and alleys once packed with migrant workers are now mostly empty. China’s reversal of its Covid restrictions in early December was meant to help places like Guangzhou. But the chaotic approach has contributed to a tsunami of infections that has swept across the nation…”

January 5 – Bloomberg (Tom Hancock and Spe Chen): “US and European investment into mainland China has largely been channeled through offshore vehicles set up by Chinese companies in tax havens, according to newly-published research, suggesting that foreign exposure to Chinese assets is much larger than recorded by official statistics. US and European investors’ holdings of equities and bonds issued by offshore vehicles controlled by Chinese companies… reached $1.4 trillion at the end of 2020, according to new estimates from the Global Capital Allocation Project based at Columbia and Stanford universities.”

January 2 – Bloomberg: “China’s manufacturing, services and property sectors all weakened sharply in the fourth quarter due to Covid disruptions, resulting in a potential contraction in the economy in the final months of the year, a private survey shows. Indexes measuring profits, sales and employment at manufacturing and services companies slumped in the last three months of 2022 from the previous quarter and a year ago, China Beige Book International said... The results are based on a survey of 4,354 businesses conducted last quarter. Metrics for the property sector, including transactions and prices, plunged close to all-time lows, CBBI said. The figures imply that China’s gross domestic product likely contracted in the fourth quarter from a year ago in real terms and grew only 2% for the whole year of 2022, CBBI… said…”

January 3 – Financial Times (Kai Waluszewski and Thomas Hale): “China’s factory activity contracted in December…, highlighting the economic costs of the country’s abrupt abandonment of its strict zero-Covid regime as it battled a nationwide wave of infections... China’s official PMI data… showed a steeper decline in economic activity. Its manufacturing and services gauges came in at 47 and 41.6, respectively, both falling to their lowest levels since early 2020 at the beginning of the Covid-19 pandemic.”

January 2 – Reuters (Ellen Zhang and Ryan Woo): “China's factory activity shrank at a sharper pace in December as surging COVID-19 infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs, a private sector survey showed… The Caixin/Markit manufacturing purchasing managers' index (PMI) fell to 49.0 in December from 49.4 in November… ‘Supply contracted, total demand remained weak, overseas demand shrank, employment deteriorated, logistics was sluggish, manufacturers faced growing pressure on their profitability, and the quantity of purchases as well as inventories stayed low,’ said Wang Zhe, senior economist at Caixin Insight Group.”

January 4 – Bloomberg: “China is pausing massive investments aimed at building a chip industry to compete with the US, as a nationwide Covid resurgence strains the world’s No. 2 economy and Beijing’s finances. Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said. While some continue to push for incentives of as much as 1 trillion yuan ($145bn), other policymakers have lost their taste for an investment-led approach that’s not yielded the results anticipated…”

January 4 – Bloomberg: “China’s central bank reiterated it will implement monetary policy that’s targeted and ‘forceful’ this year to help support the economy, while the State Council warned of price risks in coming weeks. The People’s Bank of China said it will ‘comprehensively use multiple monetary policy tools, and keep liquidity reasonably ample,’ according to a statement…”

January 6 – Bloomberg: “China is planning to relax restrictions on developer borrowing, dialing back the stringent ‘three red lines’ policy that exacerbated one of the biggest real estate meltdowns in the country’s history. Beijing may allow some property firms to add more leverage by easing borrowing caps, and push back the grace period for meeting debt targets set by the policy… The easing could mark the most dramatic shift in China’s real estate policy, adding to a clutch of measures issued since November to bolster the battered sector that accounts for about a quarter of the nation’s economy.”

January 5 – Bloomberg: “China extends easing of first-home mortgage rates in some cities into 2023, according to a statement from the central bank and banking regulator. China will allow cities where house prices have declined for three consecutive months to maintain, lower or remove minimum interest rates on loans for primary-home purchases…”

January 4 – Associated Press (Andy Wong and Ken Moritsugu): “Mostly older men and women wearing masks rested on cots in hallways, while others slept upright in crowded waiting rooms with numbered chairs. Many received fluids intravenously, while others were given oxygen. The sound of people coughing — and of new patients arriving on gurneys — was steady. At the Chuiyangliu hospital in the east of Beijing on Thursday, signs of the COVID-19 outbreak stretching public health facilities in the world’s most populous nation were on full display. Beds ran out by midmorning at the packed hospital, even as ambulances brought more people in. Hard-pressed nurses and doctors rushed to take information and triage the most urgent cases.”

January 1 – Financial Times (Chan Ho-him): “Hong Kong home sales have fallen 40% year-on-year to their lowest level since the 2008 global financial crisis…The slump in one of the world’s priciest real estate markets is expected to only bottom out by mid-2023 and home prices could fall by up to another 10% this year, analysts said. Last year ‘was the worst year since 2008 for Hong Kong residential’, said Praveen Choudhary, an equity analyst at Morgan Stanley…”

Central Banker Watch:

December 30 – Bloomberg (Zoe Schneeweiss): “European Central Bank President Christine Lagarde indicated borrowing costs will increase again, saying this is required to temper soaring consumer-price growth. ‘At the moment, ECB policy rates must be higher to curb inflation and bring it down to our target of 2%,’ Lagarde told Croatian newspaper Jutarnji list. ‘That process is essential because it would be even worse if we allowed inflation to become entrenched in the economy.’”

January 2 – Bloomberg (Alexander Weber): “European Central Bank Governing Council member Joachim Nagel said additional measures are needed to curb rising expectations of future prices and return inflation to the 2% goal. ‘Our monthly surveys of firms and households are showing a significant increase in long-term inflation expectations,’ Nagel said… ‘I firmly believe that we need to take further monetary policy action to halt and reverse this trend.’”

Global Bubble Watch:

January 2 – CNN (Diksha Madhok): “This year is going to be tougher on the global economy than the one we have left behind, the International Monetary Fund’s (IMF) chief Kristalina Georgieva has warned. ‘Why? Because the three big economies, US, EU, China, are all slowing down simultaneously,’ she said… ‘We expect one third of the world economy to be in recession,’ she said, adding that even for countries that are not in recession: ‘It would feel like recession for hundreds of millions of people.’”

January 6 – Bloomberg (Randy Thanthong-Knight): “Canadian employment grew for a fourth straight month, and the robust gains bolster the case for the Bank of Canada to deliver another rate hike later this month. The economy added 104,000 jobs in December, while the unemployment rate fell to near a record low of 5%, as youth and private-sector employment grew, Statistics Canada reported Friday in Ottawa. The gains beat expectations for a small increase of 5,000 positions and a jobless rate of 5.2%...”

January 2 – Bloomberg (Swati Pandey): “Australia’s housing market suffered its biggest annual decline since 2008 last year as sharp interest rate hikes sapped buying power and put off investors. The national Home Value Index fell 5.3% in 2022, the first decline since 2018, CoreLogic Inc. said... Annual falls were the biggest in the bellwether market of Sydney, which slid 12.1%, followed by an 8.1% drop in Melbourne. National values declined 1.1% in December…”

January 3 – Bloomberg (Swati Pandey): “Australia expects a ‘substantial impact’ on global supply chains from surging Covid cases in China and is monitoring the situation ‘very closely’, Treasurer Jim Chalmers said. ‘We do expect there to be big pressure on the Chinese workforce, big pressure on supply chains,’ Chalmers told the Australian Broadcasting Corp… ‘As a consequence, that will flow through to the global economy and we won’t be immune from that either.’”

Europe Watch:

January 2 – Financial Times (Martin Arnold and Alexander Vladkov): “Italy is the eurozone country most susceptible to a debt crisis as the European Central Bank raises interest rates and buys fewer bonds in the coming months, economists say. Nine out of 10 economists in a Financial Times poll identified Italy as the eurozone country ‘most at risk of an uncorrelated sell-off in its government bond markets’. Italy’s rightwing coalition government, which took power in October under prime minister Giorgia Meloni, is attempting to follow a path of fiscal rectitude. It has budgeted for the country’s fiscal deficit to fall from 5.6% of GDP in 2022 to 4.5% in 2023 and 3% the following year.”

January 6 – Bloomberg (Alexander Weber): “Euro-area inflation returned to single digits for the first time since August, fueling hopes that the bloc’s worst-ever spike in consumer prices has peaked. December’s reading came in at 9.2%..., with slower growth in energy costs the only reason for the moderation. The figure reflects slowdowns in Germany, France, Italy and Spain and was less than the 9.5% that economists… had expected. Highlighting how inflation continues to menace Europe’s economy, however, a measure of underlying price pressures that strips out energy and food edged up to a record 5.2%.”

January 2 – Financial Times (Valentina Romei): “The number of German jobs reached a post-reunification high in 2022, with the strength of the labour market in the eurozone’s largest economy expected to increase the likelihood of interest rate rises despite the risk of recession. About 45.6mn people were employed in Germany in 2022, up 589,000 from the previous year and more than at any time since German reunification in 1990… The jobs market across the eurozone has remained tight despite weaker growth during the autumn and the prospect of a winter recession, with unemployment hitting a fresh low of 6.5% in October — the most recent month for which data is available.”

January 2 – Reuters (Miranda Murray): “Fading supply chain problems helped ease the downturn in Germany's manufacturing sector in December, although weaker demand continues to weigh on sentiment, a survey showed… S&P Global's final Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of Germany's economy, rose to 47.1 from November's 46.2.”

EM Crisis Watch:

January 5 – Bloomberg (Netty Ismail): “A plunge in the Egyptian pound signaled a fresh bout of volatility for the currency, with analysts expecting further depreciation ahead. Following a slide of more than 6% on Wednesday, the pound fluctuated between gains and losses. It fell as much as 2.3% to a new low of 27.0481 per dollar… Thursday.”

December 31 – Financial Times (Heba Saleh): “With foreign currency in short supply in Egypt, Rafik Clovis spent December anxiously waiting to find out whether his bank would be able to provide the $67,000 he needed to fund the import of a consignment of car parts from Europe. But by the end of the year, the dollars were still not available; as a result, his imports in 2022 were just a tenth of a normal year’s amount. ‘Conditions are catastrophic,’ Clovis said. ‘There are no dollars and I have no idea how it will be resolved. I have five employees, and now we are surviving off what we made in previous years.’ The importer’s predicament is shared by many businesses as Egypt struggles with a foreign currency crunch. The first three weeks of Russia’s full-scale invasion of Ukraine… led to $20bn of outflows from the Arab world’s most populous country as foreign portfolio investors rushed to safe havens.”

January 1 – Reuters (Anthony Boadle and Gabriel Stargardter): “Luiz Inacio Lula da Silva was sworn in as Brazil's president…, delivering a searing indictment of far-right former leader Jair Bolsonaro and vowing a drastic change of course to rescue a nation plagued by hunger, poverty and racism. In a speech to Congress after officially taking the reins of Latin America's biggest country, the leftist said democracy was the true winner of the October presidential vote, when he ousted Bolsonaro in the most fraught election for a generation.”

January 3 – Bloomberg (Beril Akman): “Turkish inflation decelerated at its steepest pace in more than a quarter century, a slowdown that may be at risk from a public spending splurge planned ahead of elections. Consumer prices rose an annual 64.3% in December, down from 84.4% the previous month…”

Japan Watch:

January 4 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is putting more emphasis on an inflation gauge that excludes fuel costs, and will likely raise its projections for the index's growth in quarterly forecasts due this month, said three sources... The upgrade would underscore the central bank's growing conviction that robust domestic demand will allow firms to raise prices, and keep inflation sustainably around its 2% target in coming years.”

Social, Political, Environmental, Cybersecurity Instability Watch:

January 1 – CNBC (Spencer Kimball): “The Covid omicron XBB.1.5 variant is rapidly becoming dominant in the U.S. because it is highly immune evasive and appears more effective at binding to cells than related subvariants, scientists say. XBB.1.5 now represents about 41% of new cases nationwide in the U.S., nearly doubling in prevalence over the past week… The subvariant more than doubled as a share of cases every week through Dec. 24. In the past week, it nearly doubled from 21.7% prevalence.”

January 3 – Bloomberg (Josh Saul and Naureen S. Malik): “The unprecedented strain on the electrical grid during December’s frigid storm was threatening to trigger cascading blackouts across the Eastern US when Duke Energy Corp. called for rolling outages in North Carolina to stabilize the system, company officials said… Duke cut power to about 500,000 homes and businesses the day before Christmas as frigid weather sent demand surging as much as 10% above forecast while instruments froze at coal and natural gas-fired plants, forcing them to cut output. The strain in North Carolina threatened to throw the flow of power off balance on the entire Eastern Interconnection grid, stretching from Maine to Oklahoma…”

Leveraged Speculation Watch:

January 5 – Bloomberg (Katherine Doherty and Katherine Burton): “Citadel Securities raked in a record $7.5 billion in 2022, capitalizing on last year’s volatility and raising its presence as one of the largest trading units in the US. Revenue for the market-making arm of billionaire Ken Griffin’s Citadel empire jumped 7.1% from the previous year’s $7 billion… Griffin’s flagship hedge fund — operated separately by Citadel’s investment management business — also posted big gains last year, jumping 38% thanks to strong performance in everything from equities to commodities…”

Geopolitical Watch:

January 4 – Bloomberg (Kari Lindberg): “The number of incursions China’s warplanes made into a sensitive area around Taiwan nearly doubled in 2022 compared to a year earlier… The Chinese military sent more than 1,700 planes into Taiwan’s air-defense identification zone last year… That compares with 960 in 2021 and 380 the previous year.”

January 1 – Associated Press (Hyung-Jin Kim): “North Korean leader Kim Jong Un ordered the ‘exponential’ expansion of his country’s nuclear arsenal and the development of a more powerful intercontinental ballistic missile…, after he entered 2023 with another weapons launch following a record number of testing activities last year. Kim’s moves are in line with the broad direction of his nuclear program. He has repeatedly vowed to boost both the quality and quantity of his arsenal to cope with what he calls U.S. hostility.”