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Friday, February 10, 2023

Weekly Commentary: Monetary Inflation Run Amok

There was further evidence this week that loose financial conditions are working their magic. University of Michigan Consumer Sentiment added a stronger-than-expected 1.5 points to January’s strong gain to reach 66.4, the highest reading since January 2022. Current Conditions popped four points higher to a 14-month high 72.6.

The Consumer Expectations component was down slightly to 62.3. The dispersion of expectations between the political parties is noteworthy. The UofM reading of Consumer Expectations rose to 76.3 for Democrats, 48.5 for Republicans and 61.7 for Independents. Interestingly, the survey of One-Year Price Inflation Expectations increased three-tenths to 4.2%.

February 7 – Reuters (Lindsay Dunsmuir and Howard Schneider): “Friday's blockbuster jobs report showed why the battle against inflation will ‘take quite a bit of time,’ Federal Reserve Chair Jerome Powell said…, acknowledging that interest rates may need to move higher than expected if that sort of economic strength threatens the Fed's progress in lowering inflation. In a question-and-answer session before the Economic Club of Washington, Powell declined several times to say explicitly that the surprising addition of 517,000 new jobs in January would necessarily force the Fed's benchmark interest rate higher than the 5% to 5.25% range currently anticipated…”

It was an interesting interview, though David Rubenstein missed the opportunity to have Powell clarify how he and his committee define financial conditions. Bond yields moved little on Powell’s Tuesday appearance at the Economics Club of Washington, D.C. Yields surged Monday ahead of Powell, as markets prepared for Fed pushback. Atlanta Fed president Raphael Bostic got things started. “If a stronger-than-expected economy persists, ‘It’ll probably mean we have to do a little more work,’ Bostic told Bloomberg… ‘And I would expect that that would translate into us raising interest rates more than I have projected right now.” Yet the bond retreat preceded Bostic, with rising yields from Asia to Europe.

Ten-year Treasury yields jumped 21 bps this week to 3.73%. Following the blockbuster jobs report, markets are not as dismissive of Fed hawkishness. By the end of the trading week, analysts pointed to the closer alignment of market and Federal Reserve rate expectations. Rate markets now have peak Fed funds at 5.19% for the July 26th FOMC meeting, compared to the previous week’s 5.03% at the June 14th meeting.

The big cross asset squeeze (that pushed stock and bond prices higher) explains part of the recent divergence between Fed and market expectations. It was interesting to see benchmark MBS yields surge 42 bps this week, reversing notable early-2023 MBS outperformance (yields having dropped 50 bps over the previous five weeks). Short squeeze dynamics and the unwind of hedges tend to have exaggerated impact on mortgage securities. And after yields were squeezed 62 bps lower over five weeks, UK gilt yields abruptly reversed 34 bps higher this week. The equities short squeeze, as they tend to do, also reversed sharply this week. The Goldman Sachs Short Index sank 9.7%, reducing y-t-d gains to 15%.

For now, Fed and market expectations for peak Fed funds are in closer alignment. The same cannot be said for the anticipated timing of the pivot back to rate cuts. Markets may now be buying the “higher,” but they continue to push back against the Fed’s “for longer.” Market pricing has Fed funds declining 26 bps between July’s peak and the December 13th meeting – with expectations for almost two cuts (46bps) between July and the January 31st 2024 FOMC meeting.

Analysts early in the new year asserted that recession expectations were behind the market’s 2023 pivot expectations. In his post-meeting press conference, Powell claimed markets were discounting a more rapid drop in inflation, which would have the Fed reversing course. With the markets now more aligned with the Fed on peak rates, pivot analysis becomes only more intriguing.

The case that rate markets are discounting the probability of an “accident” seems only more compelling. Evidence of impending recession is today weaker than at the start of the year. At this point, the flurry of tech layoffs is handily absorbed by the incredible 11 million job openings. Weakness in manufacturing is offset by resilience in services. And while there are early indications of consumer debt issues and tightened lending standards, lending has likely only somewhat moderated from last year’s exceptional level. Importantly, market financial conditions have loosened meaningfully. Surging markets have spurred debt issuance, as well as general confidence.

But the big short squeeze, unwind of hedges, and the reemergence of bullish optimism raise the odds of trouble later in the year. The risk of upside surprises for economic growth and inflation is higher today. And I would argue that risks associated with a problematic de-risking/deleveraging episode grow by the week. For one, the Fed continues to shrink its balance sheet, a pullback in liquidity these days easily offset by squeeze-related buying and speculative leveraging. Moreover, strong flows into the risk markets, on the belief that the storm has passed, only add to the scope of potential outflows poised to overwhelm the marketplace in the event of acute instability and crisis dynamics. In the recent whirlpool of abundance, illiquidity festers.

But for “accident watch,” the radar is set internationally.

February 10 – UK Telegraph (Joe Barnes): “Russia on Friday launched its heaviest bombardment on southern Ukraine since the start of the war, as officials warned Moscow's major offensive had ‘definitely’ started. Ukraine’s Air Force said Russian forces had fired multiple missiles from TU-95 strategic bombers and Iranian-built kamikaze drones at multiple targets across the country. Moscow also launched 35 S-300 missiles, usually used for air defence, at ground targets… The missile attack on Ukraine was the fourteenth mass strike, which has mainly been focused on the country’s energy network, since October.”

February 10 – Bloomberg (Toru Fujioka): “Kazuo Ueda, the surprise pick to become the Bank of Japan’s next governor, will be tasked with keeping confidence in the BOJ’s policy path without jarring global markets and heaping strain on the finances of a government that just can’t stop spending. Given the tricky mission ahead, Prime Minister Fumio Kishida was widely expected to opt for the safest pair of hands he could find: Masayoshi Amamiya… But instead Ueda, a university professor and MIT PhD, is now set for the top slot… ‘The Bank of Japan’s current policy is appropriate and monetary easing needs to be continued at this point,’ he told reporters Friday… There will be precious little patience awaiting Ueda when he takes the helm in April as market players wait for another opportunity to bombard the central bank’s stimulus program with the kind of attacks that toppled a similar yield-based framework in Australia. ‘It’s hard to overstate the challenge,’ said Takahiro Sekido, chief Japan strategist at MUFG Bank Ltd. in Tokyo and a former BOJ official. ‘Saying it’s a rough ride isn’t even close. The BOJ has done so much in the past decade and the policy got so complicated — so many markets will be affected by even a slight policy change’… ‘It is absolutely inevitable that the BOJ will have to dismantle its quantitative easing fairly quickly,’ says Amir Anvarzadeh, a strategist at Asymmetric Advisors…, who has tracked Japanese markets for three decades. ‘It’s coming’… In an illustration of just how costly the battle is proving, the BOJ shelled out in January more than three times the amount the government earmarked for additional defense spending in the coming fiscal year. With inflation at a four-decade high, a bond market showing signs of dysfunction and indications that wages are finally going up, the BOJ is running out of reasons to keep adding to a mountain of bond purchases that already outsizes the world’s third-largest economy.”

Markets Friday didn’t quite know how to react to the stunning news. Masayoshi Amamiya, governor Kuroda’s right-hand man and heir apparent, is said to have turned down the job. Can you blame him? Professor Kazuo Ueda, a BOJ board member back some 17 years ago, will be the first academic to lead the Bank of Japan. I understand the circumstances that led to Bernanke’s rise from star academic theorist to head of the world’s most powerful central bank: he had crafted sophisticated inflationist theories appealing in an environment of bursting Bubble anxiety. I find it ironic that an academic will now be responsible for trying to rescue Japan (and the world?) from crazy inflationist ideology that ran completely amok.

I’ve read nothing that suggests Ueda is a monetary fanatic. In contrast with Kuroda, he is not a crazy inflationist trapped in a policy quagmire of his own making. I’ll assume come April he will begin a cautious path toward some degree of normalization. I expect markets to pounce, perhaps even before Professor Ueda finishes grading that stack of term papers on his desk.

Speaking of Monetary Inflation Run Amok…

February 10 – Bloomberg (Chester Yung): “China’s cash squeeze eased, with a gauge of overnight funding costs dropping the most in a week, after the central bank injected some $150 billion into the financial system over three sessions. The overnight repurchase rate, an indicator of short-term borrowing costs in the interbank market, slumped more than 40 bps to 1.86%.”

Aggregate Financing (China’s key metric of system Credit growth) surged $878 billion during January to a record $51.52 TN, a traditionally huge month for Chinese lending. Growth was almost 11% ahead of estimates, and only 3% below (all-time record) January 2022. This placed 12-month growth at $4.670 TN, or 9.7%. For perspective, one-year growth as of January 2020 was $2.922 TN. In the three years since the pandemic's onset, Aggregate Financing has expanded a staggering $13.888 TN, or 36.9%. Aggregate Financing surged 68% in five years.

Loan growth during January was nothing short of spectacular. At $846 billion, the growth in total Financial Institutions Loans was 46% higher than January 2022 and well ahead of expectations (Bank loans up $720bn). This pushed one-year growth to $3.391 TN, or 11.7%. This was the strongest one-year growth rate since October 2021. Total Loans expanded 24.6% ($6.376 TN) over two years, 40.5% ($9.294 TN) since the start of the pandemic (3 years), and 78.6% ($14.200 TN) in five years. While Q4 data is not yet available, it’s worth noting that Chinese Bank Assets expanded $4.276 TN through three quarters, a 10.9% growth rate.

Corporate Bank Loans expanded a blistering $687 billion during January, surpassing the previous record (Jan. 2022) by 40%. This pushed one-year growth to $2.703 TN, or 14.9%, the highest one-year growth rate in over a decade. For perspective, one-year growth was 44% higher than comparable 2022 growth and 90% above comparable pre-Covid 2020. Outstanding Corporate Loans have surged 28% over two years, 43% since the start of the pandemic (3 years), and 77% over five years.

From a financial stability perspective, the last thing you want is runaway late-cycle loan growth. As part of a desperate Beijing’s efforts to thwart a downward economic spiral, the banking system is being called upon to provide a lifeline to China’s troubled developer sector, while pushing corporate and household loan growth to bolster the general economy. And while the corporate sector borrows aggressively, the household sector is remaining much more cautious.

Consumer (chiefly mortgage) Loans expanded only $38 billion during January, down 69% from January 2022 growth. This lowered one-year growth to $477 billion, or 4.5%, by far the lowest growth rate in data back to 2008. Consumer Loans were expanding at 16% plus to begin 2021. Three-month growth of $101 billion is down 64% and 73% from comparable 2022 ($286bn) and 2021 ($379bn).

Government bonds expanded $60 billion during January, with one-year growth of $1.017 TN, or 12.9%. Government bonds have expanded 30.9% over two years, 57.4% since the start of the pandemic (3 years), and 83% over five years. Government bonds have increased to $8.9 TN from January 2017’s $3.3 TN.

Chinese money supply growth has accelerated markedly. At $1.083 TN, China’s M2 aggregate expanded in January a third more than the previous record from last June ($799bn). This pushed one-year growth to $4.508 TN, or 12.6%, the strongest growth rate since 2016. Three-month M2 growth of $1.838 TN significantly exceeded comparable $1.393 TN from 2022 and $1.137 TN from comparable 2020. China’s M2 has now inflated $10.5 TN, or 35.3%, in three years, and has doubled since November 2015, in one of history’s spectacular inflations of money and Credit.

Plenty to monitor. Tuesday’s U.S. January CPI report will be interesting. I’ll assume meaningful amounts of hedging going into the release. A stronger-than-expected inflation reading could spur a decent pop in yields. But a weak inflation report would see an unwind of hedges and a resurgent squeeze dynamic. Place your bets. It’s all one gigantic speculation.


For the Week:

The S&P500 retreated 1.1% (up 6.5% y-t-d), while the Dow slipped 0.2% (up 2.2%). The Utilities declined 0.4% (down 4.8%). The Banks fell 1.8% (up 11.5%), while the Broker/Dealers added 0.2% (up 10.6%). The Transports fell 3.1% (up 12.3%). The S&P 400 Midcaps dropped 2.5% (up 8.6%), and the small cap Russell 2000 lost 3.4% (up 8.9%). The Nasdaq100 fell 2.1% (up 12.5%). The Semiconductors dropped 2.3% (up 18.9%). The Biotechs lost 2.6% (up 3.3%). While bullion was little changed, the HUI gold equities index dropped 3.4% (up 2.5%).

Three-month Treasury bill rates ended the week at 4.6175%. Two-year government yields jumped 23 bps this week to a 12-week high 4.52% (up 9bps y-t-d). Five-year T-note yields surged 26bps to 3.92% (down 8bps). Ten-year Treasury yields rose 21 bps to 3.73% (down 15bps). Long bond yields jumped 20 bps to 3.82% (down 15bps). Benchmark Fannie Mae MBS yields surged 42 bps to 5.31% (down 8bps).

Greek 10-year yields rose 19 bps to 4.19% (down 38bps y-o-y). Italian yields gained 18 bps to 4.21% (down 49bps). Spain's 10-year yields jumped 20 bps to 3.31% (down 20bps). German bund yields gained 17 bps to 2.36% (down 8bps). French yields jumped 19 bps to 2.83% (down 15bps). The French to German 10-year bond spread widened two to 47 bps. U.K. 10-year gilt yields surged 34 bps to 3.40% (down 28bps). U.K.'s FTSE equities index slipped 0.2% (up 5.8% y-t-d).

Japan's Nikkei Equities Index increased 0.6% (up 6.0% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.50% (up 8bps y-t-d). France's CAC40 fell 1.4% (up 10.1%). The German DAX equities index declined 1.1% (up 9.9%). Spain's IBEX 35 equities index fell 1.2% (up 10.8%). Italy's FTSE MIB index rose 1.2% (up 15.0%). EM equities were mostly lower. Brazil's Bovespa index declined 0.5% (down 1.5%), and Mexico's Bolsa index dropped 2.9% (up 8.3%). South Korea's Kospi index slipped 0.4% (up 10.4%). India's Sensex equities index dipped 0.3% (down 0.3%). China's Shanghai Exchange Index was little changed (up 5.5%). Turkey's Borsa Istanbul National 100 index sank 16.2% (down 24.0%). Russia's MICEX equities index added 0.6% (up 5.0%).

Investment-grade bond funds posted inflows of $2.842 billion, and junk bond funds reported positive flows of $871 million (from Lipper).

Federal Reserve Credit declined $25.9bn last week to $8.398 TN. Fed Credit was down $503bn from the June 22nd peak. Over the past 178 weeks, Fed Credit expanded $4.671 TN, or 125%. Fed Credit inflated $5.587 Trillion, or 199%, over the past 535 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week rose $7.0bn to $3.332 TN. "Custody holdings" were down $134bn, or 3.9%, y-o-y.

Total money market fund assets declined $16.4bn to $4.805 TN. Total money funds were up $212bn, or 4.6%, y-o-y.

Total Commercial Paper dropped $29.5bn to $1.261 TN. CP was up $242bn, or 23.7%, over the past year.

Freddie Mac 30-year fixed mortgage rates jumped 17 bps to a four-week high 6.16% (up 247bps y-o-y). Fifteen-year rates surged 23 bps to 5.41% (up 248bps). Five-year hybrid ARM rates increased five bps to 5.47% (up 267bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up 27 bps to a six-week high 6.59% (up 260bps).

Currency Watch:

For the week, the U.S. Dollar Index increased 0.7% to 103.63 (up 0.1% y-t-d). For the week on the upside, the Mexican peso increased 1.6%, the Swedish krona 0.7%, the Norwegian krone 0.7%, the Canadian dollar 0.4%, the Swiss franc 0.3%, and the British pound 0.1%. On the downside, the South Korean won declined 2.8%, the South African rand 2.1%, the Brazilian real 1.6%, the euro 1.1%, the Singapore dollar 0.5%, the New Zealand dollar 0.4%, the Japanese yen 0.1% and the Australian dollar 0.1%. The Chinese (onshore) renminbi declined 0.24% versus the dollar (up 1.23% y-t-d).

Commodities Watch:

February 9 – Reuters (Liz Hampton): “A 46% drop in natural gas prices this year is rippling across the U.S. shale patch, threatening to slow drilling and chill deal-making in a move unthinkable six months ago as global demand soared. Analysts are chopping their outlook for gas prices this year, and for production and earnings. The drop has also put a cloud over merger and acquisition activity, analysts said.”

February 6 – CNBC (Lee Ying Shan): “A copper deficit is set to inundate global markets throughout 2023 — and one analyst predicts the shortfall could potentially extend throughout the rest of the decade. The world is currently facing a global copper shortage, fueled by increasingly challenging supply streams in South America and higher demand pressures. Copper is a leading pulse check for economic health due to its incorporation in various uses such as electrical equipment and industrial machinery. A copper squeeze could be an indicator that global inflationary pressures will worsen…”

February 7 – Financial Times (Joe Parkin Daniels and Harry Dempsey): “Widespread anti-government protests are disrupting copper output in Peru, the world’s second-biggest producer, triggering predictions of a further surge in prices for the metal which has already rocketed in recent months as China’s resource-hungry economy reopens. Demonstrators demanding early elections and the resignation of President Dina Boluarte have thrown up roadblocks across the country and attacked mines, causing production slowdowns and closures in the Latin American nation’s copper operations, which account for about 10% of global supply.”

February 7 – Bloomberg (Sheela Tobben): “North Dakota’s Bakken shale field — once the largest and busiest American shale patch — is showing signs of age, threatening to hold back US oil production as the world thirsts for more crude. Mature wells that are producing more gas than expected are hurting crude output from the Bakken, the Energy Information Administration said... The deteriorating performance was a main reason the agency cut its estimate for 2024 US oil output to 12.65 million barrels a day from an earlier projection of 12.8 million… Even at the lowered estimate for next year, US output would still set a record, surpassing the 12.3 million barrels a day produced in 2019.”

February 9 – Financial Times (Harry Dempsey and David Sheppard): “Trafigura has alleged it has been the victim of a ‘systematic fraud’ and faces a writedown in excess of half a billion dollars after discovering shipments of nickel that it purchased failed to contain the metal. The commodity trader said… it had recently discovered the alleged fraud and had begun legal action against a group of companies ‘connected to and apparently controlled’ by Dubai-based metals trader Prateek Gupta, including TMT Metals and companies owned by UD Trading Group. It added that a small proportion of containers purchased from these companies had been inspected since December and that they did not contain nickel.”

The Bloomberg Commodities Index rallied 1.5% (down 3.7% y-t-d). Spot Gold was about unchanged at $1,866 (up 2.3%). Silver declined 1.6% to $22.00 (down 8.1%). WTI crude recovered $6.33, or 8.6%, to $79.72 (down 1%). Gasoline surged 7.9% (up 2%), and Natural Gas rallied 4.3% to $2.51 (down 44%). Copper fell 1.0% (up 5%). Wheat jumped 3.9% (down 1%), and Corn increased 0.4% (unchanged). Bitcoin dropped $1,670, or 7.2%, this week to $21,670 (up 31%).

Market Instability Watch:

February 8 – Financial Times (Kate Duguid and Nicholas Megaw): “Raising money on Wall Street has become cheaper and easier despite the Federal Reserve lifting interest rates to the highest level in 15 years, suggesting an ongoing and deep disconnect between investors and central bank officials. Measures of financial conditions — the ease with which companies can access funding — have tumbled in recent months, with one closely watched index returning to the level it was at shortly after the Fed started raising rates last March. The divergence has led some investors to caution that the Fed faces a serious communications challenge that could threaten its efforts to keep inflation under control. ‘The Fed just doesn’t care anymore,’ said Greg Whiteley, a portfolio manager at DoubleLine Capital. ‘[They believe] they have the tools to bring inflation back to 2% without having the co-operation of the market.’ The Goldman Sachs US Financial Conditions index touched its lowest level since August after the Fed raised rates last week, while a weekly measure compiled by the Fed’s Chicago branch hit its lowest level since April.”

February 6 – Bloomberg (Lu Wang and Justina Lee): “Big-money speculators are shunning the new-year equity rally, unconvinced by the buying frenzy that has swept across the retail crowd as well as corporate America… The reduction in both long and short positions — a phenomenon known on Wall Street as de-grossing — led to the largest overall retreat since January 2021, when day traders infamously banded together on Reddit to take on professional short sellers. Further evidence of professional investor caution was evident in data compiled by JPMorgan..., showing Thursday marked the 10th-biggest de-grossing session since the start of 2018.”

February 7 – Bloomberg (Denitsa Tsekova and Justina Lee): “The triumphant comeback of quant-investing strategies on Wall Street is suddenly on shaky ground as virtually all of 2022’s hottest market trends get derailed in the new year. Investors have been rushing to price an end to monetary tightening and a potential soft landing for the US economy, defying hawkish messages from the Federal Reserve. All that has revived megacap tech stocks and curbed broad-based gains in equity benchmarks. That’s exactly the type of environment that works against many systematic strategies…”

February 9 – Reuters (Noele Illien and Oliver Hirt): “Credit Suisse Group has reported its biggest annual loss since the 2008 global financial crisis after rattled clients pulled billions from the bank, and it warned that a further ‘substantial’ loss would come this year. Battered by one scandal after another, the bank saw a sharp acceleration in withdrawals in the fourth quarter, with outflows of more than 110 billion Swiss francs ($120 bn), although it said the picture has been improving.”

February 10 – Wall Street Journal (Andrew Duehren): “An era of ultracheap debt is over in Washington as higher borrowing costs widen the U.S. deficit and fuel a partisan clash over raising the debt ceiling and how much borrowing could be too much. The Treasury’s spending on interest on the debt was $261 billion in the first four months of this fiscal year, a 33% increase from $196 billion spent in the same period last year… Paying more for interest on the debt has been among the government’s largest spending increases so far this year, contributing to a deficit that has widened to $460 billion, up 78% from $259 billion in the same four months of last fiscal year.”

February 9 – Bloomberg (Elizabeth Stanton): “The US 2-year yield exceeded the 10-year yield by the widest margin since the early 1980s on Thursday, surpassing its December 2022 extremes. The yield on the shorter-dated Treasury was as high as 4.446% during the session and at one point exceeded the longer-dated note’s by as much as 85.7 basis points. The 2-year yield was last below the 10-year in July.”

February 6 – Wall Street Journal (Jack Pitcher): “Pandemic-era darlings like Carvana Co., Coinbase Global Inc. and Peloton Interactive Inc. are back on top of the stock market’s leaderboard, all more than doubling to start the year. After a punishing 2022 when investors dumped shares of those companies and other speculative stocks, traders are piling back into some of the riskiest corners of the market. They are betting the Federal Reserve’s work to cool inflation is nearly done and the central bank will pivot to cutting interest rates as soon as later this year.”

February 7 – Bloomberg (Garfield Reynolds): “The Bank of Japan Governor Haruhiko Kuroda is in the twilight of his 10-year tenure. His successor inherits a bond market that is larger than ever, but riddled with wild distortions. The lingering question for Japan is how the central bank can normalize policy. The BOJ’s balance sheet was once about the same size relative to the economy as for the Federal Reserve and the European Central Bank. Now, its assets are worth substantially more than 100% of Japan’s gross domestic product. Japan’s more than 1,000 trillion yen ($7.6 trillion) of bonds represent the largest developed debt market in the world outside of US Treasuries. The BOJ’s holdings of long-term government securities (excluding T-bills) soared to 535.6 trillion yen at the end of the third quarter…”

Bursting Bubble and Mania Watch:

February 8 – Financial Times (Ortenca Aliaj and Eric Platt): “Seth Klarman has told investors in his hedge fund that the Federal Reserve’s response to the 2008 financial crisis and the ensuing decade-plus of low interest rates had helped ‘erect a financial fantasyland’. ‘A consequence-free era of virtually unlimited low-cost capital had come to an end,’ Klarman, the head of Baupost Group and a prominent figure in investing, declared in a year-end letter to clients... ‘A boom based on easy-money policies will inevitably contain the seeds of its own destruction.’ Klarman likened the sharp rise in interest rates last year to kryptonite, saying it had finally helped deflate the ‘everything bubble’, including the unravelling of investments in unprofitable so-called growth companies that had soared during the pandemic boom but had little inherent value. ‘These included scores of profitless early-stage companies that could have come public only in a bubble, a staggering volume of bonds that sported cartoonishly low yields, most of the absurd ‘meme stocks’, and stocks such as Tesla — intensely hyped, egregiously overvalued, and priced only for the smoothest of rides — whose shares dropped by nearly two-thirds,’ he wrote.”

February 8 – Bloomberg (Ryan Vlastelica): “This year’s surge in technology stocks has been especially pronounced in the riskiest corners of the market, suggesting to some skeptics the potential for a swift reversal… Unprofitable software developers, crypto firms, meme stocks, electric-vehicle makers and anything even tangentially related to artificial intelligence — they’ve all been on fire as the Nasdaq 100 Index has jumped 16%... A Goldman Sachs Group Inc. basket of unprofitable tech stocks is up 28%. EV maker Lucid Group Inc. is leading among Nasdaq 100 components with a surge of 69%.”

February 9 – Wall Street Journal (Nicole Friedman): “Big West Coast housing markets are posting some of the largest price declines in the U.S., a sign that as the slump in home sales nationwide shows evidence of bottoming these once-booming coastal markets may continue to slide. Falling home prices were especially prominent in California in the fourth quarter, where home values had been among the highest before last year’s slowdown. San Francisco was the hardest hit, posting a 6.1% median single-family existing-home sales price decline compared to a year earlier… San Jose median prices fell 5.8%, and Los Angeles and Sacramento also posted year-over-year price declines in the quarter.”

February 7 – Reuters (Lewis Krauskopf): “Companies have announced $173.5 billion worth of planned buybacks so far this year, just over double last year's pace, according to… EPFR TrimTabs... In 2022, buyback announcements reached a record $1.22 trillion… However, fewer companies have announced buybacks so far this year. So far in 2023, 78 companies have announced buybacks compared with 125 companies as of this time last year…”

February 9 – Bloomberg (Kim Bhasin): “Investors put up $206 million for the Carolina Panthers when the National Football League added the expansion team in 1993. Five years ago, billionaire hedge fund manager David Tepper bought the franchise for almost $2.3 billion. Back in 1984, the Denver Broncos were sold for a then-record $70 million. A group led by Walmart Inc. heir Rob Walton paid more than $4.6 billion for the team last year. Now… industry executives are keeping an eye on who might pay billions more for the Washington Commanders, which hired a bank to explore sale options… Names including Amazon.com Inc.’s Jeff Bezos and Philadelphia 76ers owner Josh Harris have been floated as potential buyers. NFL team valuations have skyrocketed to record highs in recent years, boosted by red-hot demand for broadcast rights for live sports…”

Crypto Bubble Collapse Watch:

February 10 – Yahoo Finance (Jennifer Schonberger): “Federal Reserve Governor Christopher Waller said… he views crypto as a speculative asset that's worth whatever the next person is willing to pay for it and says he, personally, wouldn't hold it. ‘To me, a crypto-asset is nothing more than a speculative asset, like a baseball card,’ Waller said… ‘If people want to hold such an asset, then go for it,’ Waller said. ‘I wouldn't do it, but I don't collect baseball cards, either. However, if you buy crypto-assets and the price goes to zero at some point, please don’t be surprised and don’t expect taxpayers to socialize your losses.’”

Ukraine War Watch:

February 6 – AFP (Amélie Bottollier-Depois): “UN chief Antonio Guterres warned nations… that he fears the likelihood of further escalation in the Russia-Ukraine conflict means the world is heading towards a ‘wider war.’ The secretary-general laid out his priorities for the year in a gloomy speech to the United Nations General Assembly that focused on Russia's invasion, the climate crisis and extreme poverty. We have started 2023 staring down the barrel of a confluence of challenges unlike any in our lifetimes,’ he told diplomats... Guterres noted that top scientists and security experts had moved the ‘Doomsday Clock’ to just 90 seconds to midnight last month, the closest it has ever been to signaling the annihilation of humanity… ‘We need to wake up -- and get to work,’ he implored, as he listed his urgent issues.”

February 7 – Bloomberg: “The US plans to sell Poland about $10 billion in weapons including 18 Himars rocket launchers and ammunition for the highly accurate mobile platform, the Pentagon announced…, shoring up a crucial NATO ally as Russia presses its war in neighboring Ukraine. The package will also include the ATACMS long-range missile system and the Guided Multiple Launch Rocket System…”

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

February 5 – Associated Press (David McHugh): “Europe imposed a ban Sunday on Russian diesel fuel and other refined oil products, slashing energy dependency on Moscow and seeking to further crimp the Kremlin’s fossil fuel earnings... The ban comes along with a price cap agreed by the Group of Seven allied democracies. The goal is allowing Russian diesel to keep flowing to countries like China and India and avoiding a sudden price rise that would hurt consumers worldwide, while reducing the profits funding Moscow’s budget and war.”

February 7 – Associated Press (Matthew Lee): “Monday was supposed to be a day of modest hope in the U.S.-China relationship. Secretary of State Antony Blinken was going to be in Beijing, meeting with President Xi Jinping in a high-stakes bid to ease ever-rising tensions… Instead, Blinken was spending the day in Washington after abruptly cancelling his visit late last week as the U.S. and China exchanged angry words about a suspected Chinese spy balloon the U.S. shot down. As fraught as the US-China relationship had been ahead of Blinken’s planned trip, it’s even worse now and there’s little hope for it improving anytime soon. Even as both sides maintain they will manage the situation in a calm manner, the mutual recriminations, particularly since the shoot-down of the balloon… do not bode well for rapprochement.”

February 6 – Bloomberg: “The US is watching closely to make sure that China’s political and economic support for Russia doesn’t cross the line into support for Putin’s military in Ukraine, State Department spokesman Ned Price said. The message to China ‘has been very simple: We’re watching very closely,’ Price said. ‘There would be costs and consequences if we were to see a systematic effort to help Russia bypass the sanctions.’”

February 4 – Wall Street Journal (Ian Talley and Anthony DeBarros): “China is providing technology that Moscow’s military needs to prosecute the Kremlin’s war in Ukraine despite an international cordon of sanctions and export controls, according to… Russian customs data. The customs records show Chinese state-owned defense companies shipping navigation equipment, jamming technology and jet-fighter parts to sanctioned Russian government-owned defense companies. Those are but a handful of tens of thousands of shipments of dual-use goods—products that have both commercial and military applications—that Russia imported following its invasion last year… Most of the dual-use shipments were from China…”

February 8 – Bloomberg (Jenny Leonard): “US President Joe Biden taunted Xi Jinping in his State of the Union address, saying autocracies had grown weaker around the world and no one would want the Chinese leader’s job. ‘Name me a world leader who’d change places with Xi Jinping,’ Biden shouted, departing from his prepared text… as he waved a finger. ‘Name me one, name me one… I am committed to work with China where it can advance American interests and benefit the world… But make no mistake: As we made clear last week, if China threatens our sovereignty, we will act to protect our country. And we did.’”

February 9 – Associated Press (Tara Copp and Lolita C. Baldor): “The Chinese balloon shot down off the South Carolina coast was part of a large surveillance program that China has been conducting for ‘several years,’ the Pentagon said… When similar balloons passed over U.S. territory on four occasions during the Trump and Biden administrations, the U.S. did not immediately identify them as Chinese surveillance balloons, said Brig. Gen. Pat Ryder… But he said ‘subsequent intelligence analysis’ allowed the U.S. to confirm they were part of a Chinese spying effort and learn ‘a lot more’ about the program.”

De-globalization and Iron Curtain Watch:

February 10 – Financial Times (David Sheppard and Anastasia Stognei): “Russia will cut oil production from next month in response to a price cap imposed by western nations, the country’s top energy official has said, in the first sign Moscow is seeking to weaponise oil supplies after slashing natural gas exports to Europe last year. The cut of 500,000 barrels a day, the equivalent of almost 5% of Russia’s production, or 0.5% of world supply, was a response to the ‘destructive energy policy of the countries of the collective west’, Alexander Novak said…”

February 4 – Reuters (Tim Kelly): “Japan's government will begin restricting exports of advanced semiconductor manufacturing equipment to China in Spring after it amends a foreign exchange law to allow the change… The new regulation will not mention China specifically in a bid to reduce the risk of retaliation by Beijing… Japan and the Netherlands have agreed to join the United States in halting shipments of semiconductor manufacturing equipment…”

February 7 – Reuters (Liangping Gao and Kevin Yao): “China's central bank has signed a memorandum of understanding on setting up yuan clearing arrangements in Brazil, it said…, in a move to help boost the currency's global clout. The establishment of such arrangements for the renminbi (RMB), or the yuan, would be beneficial to cross-border transactions, and further promote bilateral trade and investment facilitation, the People's Bank of China said…”

Inflation Watch:

February 9 – Yahoo Finance (Kerry Hannon): “Americans haven’t felt this lousy about their finances since the Great Recession. When asked about their financial circumstances, half of Americans said they were worse off now than they were a year ago, according to a new Gallup poll… of 1,011 adults... The only other instances that half or more felt this way was in 2008 and 2009, according to the pollster, which has asked this question since 1976. The pessimism largely came from those in the lowest-earning and highest-earning tiers, according to the poll, the groups most likely to feel the effects of runaway inflation and the swooning stock market, respectively.”

February 8 – Bloomberg (David Welch): “A surprise jump in used-vehicle prices last month is adding to US car buyers’ frustration and has the potential to dent hopes inflation is headed lower even as the Federal Reserve hikes interest rates. The 2.5% rise in average used-vehicle prices in January from December retraced some of last year’s 15% decline, according to data from Manheim… While Manheim’s used-vehicle value index was down 12.8% in January from a year ago, it’s now crept back up on a sequential basis each of the last two months.”

Biden Administration Watch:

February 6 – Reuters (David Morgan): “Republican U.S. House Speaker Kevin McCarthy called on Democratic President Joe Biden to agree to compromises and spending cuts, as the two remain deadlocked over raising the nation's $31.4 trillion debt ceiling. McCarthy spoke on Monday before Biden is set to give the annual State of the Union address… ‘Mr. President, it's time to get to work,’ said McCarthy… ‘We must commit to finding common ground on a responsible debt limit increase. Finding compromise is exactly how governing in America is supposed to work, and exactly what the American people voted for just three months ago,’ McCarthy said. ‘Defaulting on our debt is not an option, but neither is a future of higher taxes, higher interest rates and an economy that doesn't work.’”

February 9 – Bloomberg: “Beijing lashed out at President Joe Biden for saying Chinese leader Xi Jinping faces ‘enormous problems,’ underscoring the renewed tensions between the two nations since the US downing of a balloon in its airspace. ‘The US remarks are highly irresponsible and violate basic diplomatic protocols,’ Chinese Foreign Ministry spokeswoman Mao Ning said... ‘We are firmly opposed to that and condemn that,’ Mao said… China’s Ministry of Defense said separately… it declined to engage in talks with the US over the balloon because ‘the use of force violates international practice and sets a bad precedent,’ according to a statement from spokesman Tan Kefei. ‘The US hasn’t created a proper atmosphere for dialogue,’ he added, calling the downing of what China considers a civilian balloon ‘irresponsible.’”

Federal Reserve Watch:

February 7 – Associated Press (Christopher Rugaber): “Federal Reserve Chair Jerome Powell said… that if the U.S. job market further strengthens in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects… ‘The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more’ than is now expected…’”

February 7 – CNBC (Jeff Cox): “Minneapolis Federal Reserve President Neel Kashkari said… explosive jobs growth in January is evidence that the central bank has more work to do when it comes to taming inflation. That means continuing to hike interest rates, as he sees a likelihood that the Fed’s benchmark borrowing rate should rise to 5.4% from its current target range of 4.5%-4.75%. ‘We have a job to do. We know that raising rates can put a lid on inflation,’ Kashkari told CNBC… ‘We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy.’”

February 8 – Bloomberg (Jennifer Schonberger): “A handful of Fed officials Wednesday pointed to continued strength in the job market as evidence inflation pressures remain persistent, likely requiring the Fed to continue raising interest rates and keep them elevated for a longer period. ‘There’s not much evidence in my view that the rate hikes we’ve done so far are having much of an effect on the job market,’ Minneapolis Fed President Neel Kashkari said… ‘So that means we need to do more. How much more, I’m not sure.’”

February 6 – Bloomberg (Steve Matthews): “Federal Reserve Bank of Atlanta President Raphael Bostic said January’s strong jobs report raises the possibility that the central bank will need to increase interest rates to a higher peak than policymakers had previously expected. If a stronger-than-expected economy persists, ‘It’ll probably mean we have to do a little more work,’ Bostic told Bloomberg... ‘And I would expect that that would translate into us raising interest rates more than I have projected right now.’”

U.S. Bubble Watch:

February 8 – Bloomberg (Christopher Anstey): “The federal budget deficit is widening rapidly, according to the latest estimates by the Congressional Budget Office, raising the risk of the Treasury running out of cash earlier than expected amid a debt-ceiling standoff. The excess of spending over receipts totaled $459 billion for the first four months of the fiscal year, which started Oct. 1, according to CBO estimates... That’s a $200 billion increase over the same period a year earlier… The CBO said that if it hadn’t been for calendar-driven shifts in certain payments, the federal deficit would have been $522 billion for the October-January period — double the year-earlier shortfall.”

February 7 – Bloomberg (Karl W. Smith): “With $31 trillion of debt, the US government has reached its borrowing capacity. President Joe Biden and Republican Speaker of the House Kevin McCarthy have started talks on ways to raise the so-called federal debt ceiling. If they don’t come to an agreement, the US could default on its debt and send the economy and financial markets into a catastrophic tailspin. While $31 trillion is concerning, the number that both sides should really be focusing on is 4.3%. That’s the average budget deficit as a percent of gross domestic product that the bipartisan Congressional Budget Office projects from now until 2027. Before getting into why, it’s important to put the current level of debt into perspective. It’s currently at 102% of GDP, rising from just under 80% before the pandemic…”

February 9 – Wall Street Journal (Sarah Chaney Cambon and Ray A. Smith): “Interest rates are rising, inflation is elevated and recession fears linger. Despite all that, employers keep hiring. The U.S. added 1.1 million jobs over the past three months and ramped up hiring in January… Driving the jobs boom are large but often overlooked sectors of the economy. Restaurants, hospitals, nursing homes and child-care centers are finally staffing up as they enter the last stage of the pandemic recovery. Those new jobs are more than offsetting cuts announced by huge employers such as Amazon.com Inc. and Microsoft Corp. Employers in healthcare, education, leisure and hospitality and other services such as dry cleaning and automotive repair account for about 36% of all private-sector payrolls. Together, those service industries added 1.19 million jobs over the past six months, accounting for 63% of all private-sector job gains during that time…”

February 9 – Associated Press (Matt Ott): “More Americans filed for jobless benefits last week, but layoffs remain historically low despite attempts by the Federal Reserve to cool the economy, and hiring, to bring down inflation. Applications for jobless aid in the U.S. for the week ending Feb. 4 rose by 13,000 last week to 196,000, from 183,000 the previous week… It’s the fourth straight week claims were under 200,000.”

February 7 – New York Times (Ana Swanson): “The overall U.S. trade deficit rose 12.2% last year, nearing $1 trillion as Americans purchased large volumes of foreign machinery, medicines, industrial supplies and car parts… The goods and services deficit reached $948.1 billion, its largest total on record, after rising $103 billion from the previous year… Rapid inflation and higher energy prices were responsible for some of the growth, because the trade data is not adjusted for inflation.”

February 8 – CNBC (Diana Olick): “Mortgage rates continued to fall last week, and both current homeowners and potential homebuyers reacted swiftly. Total mortgage application volume… jumped 7.4% last week compared with the previous week… With rates at the lowest level since early September, refinance demand surged 18% week to week but was still 75% lower than the same week one year ago… Mortgage applications to purchase a home rose 3% for the week and were 37% lower than the same week one year ago.”

February 6 – Reuters (Michael S. Derby): “Lending officers at major banks told the Federal Reserve that in the final three months of last year they tightened standards and saw reduced demand across a wide array of business and consumer credit fronts. The Fed reported… in its January Senior Loan Officer Opinion Survey that the threshold to get credit rose for commercial and industrial firms, as well as commercial real estate borrowers. At the same time, these prospective borrowers reduced their demand for loans. On the consumer front, survey respondents said that real estate and related lending standards got tighter amid declining demand for the same period. The same dynamic played out for auto, credit card and other types of consumer lending.”

February 7 – Bloomberg (Eric Martin and Ana Monteiro): “Trade in goods between the US and China climbed to a record in 2022, a reminder that consumers and companies in the world’s two biggest economies remain deeply connected while their governments diverge on a range of economic and political issues. Total merchandise trade between the two countries rose to $690.6 billion last year, exceeding the record set in 2018… The annual goods-trade deficit with China widened 8% to $382.9 billion, the biggest on record after the $419.4 billion shortfall in 2018.”

February 6 – Wall Street Journal (Joe Pinsker): “The cushion of savings many built up during the pandemic is thinning out. In some households, it is already gone. Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January, according to an estimate from Goldman Sachs. By the end of the year, the company forecasts that they will have exhausted roughly 65% of that money. In 2020 and into 2021, a combination of government pandemic stimulus and reduced spending, for example on restaurants and travel, fattened Americans’ wallets. Households amassed $2.7 trillion in extra savings by the end of 2021, according to Moody’s Analytics.”

February 5 – Wall Street Journal (David Harrison): “State governments are entering 2023 with record-high reserves, which could help the overall economy weather a recession this year. The rapid economic recovery from the pandemic combined with an influx of federal stimulus money has filled public coffers, allowing governments to squirrel funds away for emergencies. States will hold an estimated $136.8 billion in rainy-day funds this fiscal year…, up from $134.5 billion a year earlier, when they represented 0.53% of gross domestic product, the highest in records going back to 1988. This year’s figure would represent roughly 12.4% of their total spending.”

February 5 – Wall Street Journal (Eric Wallerstein): “Banks were chasing away deposits during the depths of the pandemic. Now, some are paying higher rates to shore up cash. Borrowing in the federal-funds market hit $120 billion on Jan. 27, the highest one-day total in Federal Reserve data going back to 2016. Activity in fed funds—used by banks and government-backed lenders to exchange cash reserves parked at the Fed—surged throughout the past year… Some banks are scrambling to borrow, looking to improve their liquidity and satisfy regulatory requirements while customers pull cash from savings accounts in search of higher-yielding products. The typical fed-funds trade involves a Federal Home Loan Bank, or FHLB, lending cash overnight to a commercial bank.”

China Watch:

February 5 – Bloomberg: “Chinese banks are touting a wide variety of retail lending products as authorities need a pickup in consumer spending to create a more solid foundation for the world’s second largest economy. Lenders including Bank of China Ltd. and China Construction Bank Corp. are offering preferential interest rates and incentives such as gift cards on e-commerce platforms to lure customers to their retail loan offerings.”

February 8 – Bloomberg: “China’s rapid reopening is having an unfortunate side effect for banks — a surge in funding costs to levels not seen in two years. A gauge of overnight borrowing costs climbed to the highest since 2021 on Wednesday, even as the People’s Bank of China pumped short-term cash into the financial system. Analysts say several factors are behind what they see as a temporary liquidity squeeze, including the after-effects of China’s Lunar New Year Holiday and a sudden increase in loan demand as the country moves away from Covid-Zero.”

February 8 – Wall Street Journal (Cao Li): “Beijing is trying to kick-start economic growth after lifting its stringent Covid-19 restrictions. One challenge: Chinese citizens borrowed less and saved more last year and it isn’t clear how long it will take to return to freer-spending ways. Individuals in China took out the equivalent of $564 billion in new loans in 2022, down more than half from a year earlier, marking the lowest total since 2014… The big drop was largely due to a decline in home sales… Everyday consumer spending also took a hit during lockdowns that affected many Chinese cities, reducing the need for short-term borrowing. People instead accumulated cash, pushing new household deposits in China to a record high of more than $2.6 trillion in 2022.”

February 8 – Bloomberg: “China’s successful development shows there is another way to modernize, President Xi Jinping said, rejecting any need to ‘westernize’ and doubling down on his goals of increased self reliance and improved social justice. China must work to create a path to modernization that is more efficient than capitalism, Xi told top officials… Innovation must be placed in a prominent position in overall national development and there should be better balance between efficiency and equity, Xi said. The core of achieving these goal lies with sticking to the leadership of the Communist Party, Xi said, adding that this will decide the ‘ultimate success or failure’ of China’s efforts to develop.”

February 6 – Bloomberg: “As China’s cash-strapped private developers avoid buying land to build homes during the industry’s unprecedented slump, one group has emerged to prop up the ailing market. Local government financing vehicles, or LGFVs, snapped up more than half of residential land sales last year, spending 2.2 trillion yuan ($324bn), according to… Guangfa Securities Co... ‘LGFVs and national state-owned developers have dominated the land market,’ said Liu Shui, research director at China Index Holdings. ‘National private players have almost vanished from land buying under liquidity pressure.’”

February 5 – Bloomberg: “China’s unprecedented housing slump and construction halt led to the worst earnings for real estate developers in at least seven years, according to Bloomberg estimates. Among 60 mainland-listed property firms that made profit alerts by a Jan. 31 deadline, 60% expected losses for last year… Only 5% of firms turned profitable, while another 5% saw net income growing from a year earlier. The rest said profit fell. The figures shed light on the scale of the property meltdown’s impact on the industry…”

February 8 – Bloomberg: “Sales of cleaner cars in China plunged in January as consumers dialed back purchases during the Lunar New Year holiday and others got in earlier in December before electric vehicle subsidies fell away. A total of 332,000 new-energy vehicles… were sold last month, down 48.3% from the month prior and 6.3% lower than sales in January 2022… Overall, passenger car sales in China slumped 38% year-on- year in January to 1.29 million… That was down 40% from December and the lowest since at least April last year, when China was in the throes of Covid lockdowns.”

Central Banker Watch:

February 6 – Reuters (Marc Jones): “Central banks face mounting losses on the trillions of dollars of bonds they bought in the past 15 years of rolling crises, a paper from the Bank for International Settlements (BIS) said, warning that the deficits could leave them open to political attack. Having rapidly raised interest rates to fight inflation, the Federal Reserve and its European peers are now making huge interest payments to commercial banks on deposits they themselves created… The U.S. Treasury will not need to worry about bailing out the Fed, which can simply defer any loss. But the Treasury will still be missing the $50 billion to $100 billion the Fed's bond profits used to provide each year.”

February 6 – Reuters (Stella Qiu): “Australia's central bank raised its cash rate 25 bps to a decade-high of 3.35%... and reiterated that further increases would be needed, a more hawkish policy tilt than many had expected. ‘The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,’ governor Philip Lowe said…”

February 6 – Bloomberg (Marton Eder): “The European Central Bank should actively fight inflation until people feel price stability in their everyday lives, according to Governing Council member Robert Holzmann. ‘The risk of over-tightening seems dwarfed by the risk of doing too little,’ Holzmann told a conference... ‘Monetary policy must continue to show its teeth until we see a credible convergence to our inflation target.’”

February 8 – Bloomberg (Erik Hertzberg): “Bank of Canada Governor Tiff Macklem conceded that rate hikes have hit the country’s homeowners hard, saying the impact of higher borrowing costs on consumers is a major reason why he chose to hit pause before the US Federal Reserve… Macklem said the central bank needs time to gauge how households and businesses are adapting to higher rates before it makes any further moves. Canadians ‘are more indebted today than they’ve ever been,’ Macklem said…”

February 9 – Bloomberg (Niclas Rolander): “The Riksbank raised borrowing costs by half a percentage point, pledged to start bond sales and declared it wants a stronger krona, as its new governor set out his inflation-fighting credentials. The krona jumped after the decision on Thursday to lift the Swedish central bank’s interest rate to 3% and accelerate the unwind of quantitative easing…”

February 9 – Bloomberg (Lucy White, Tom Rees and Andrew Atkinson): “Bank of England Governor Andrew Bailey and his colleagues noted the risks that inflation remain well above the UK’s 2% target for some time. In testimony to the Treasury Committee in Parliament on Thursday, Bailey said he expects inflation to fall sharply this year, but there are risks around that forecast.”

Europe Watch:

February 8 – Reuters (William Schomberg): “Britain's housing market suffered the most widespread price falls since 2009 last month… The Royal Institution of Chartered Surveyors (RICS) house price balance, which measures the gap between the percentage of surveyors seeing rises and falls in house prices, fell to -47, the lowest since April 2009, from -42 in December.”

Global Bubble Watch:

February 9 – Bloomberg (John Gittelsohn): “Global commercial real estate prices slipped late last year, the first quarterly decline since 2009. An index of office, industrial and retail properties fell 0.5% in the fourth quarter from the previous three months, breaking a 13-year streak of gains, MSCI Real Assets said in a report… that analyzed 18 metro areas in North America, Asia, Australia and Europe. The last period of negative quarterly change was in late 2009... For all of 2022, the biggest losers were San Jose, California, where prices fell 7.5%, and Manhattan, with a 7.2% drop.”

EM Crisis Watch:

February 10 – Bloomberg: “Turkish President Recep Tayyip Erdogan said the initial state response had been slowed by the fact that emergency personnel and their families were themselves trapped under collapsed buildings. BoFA estimates that rebuilding costs in Turkey could be between $3 billion and $5 billion, or possibly more. The Turkish banking regulator relaxed credit-card repayment rules for those in affected areas as well. The death toll in Turkey and Syria surpassed 23,000, with tens of thousands still missing. Over 86,000 have been evacuated from the earthquake area.”

February 8 – Bloomberg (Srinivasan Sivabalan, Netty Ismail and Colleen Goko): “A daunting economic landscape will exacerbate the humanitarian catastrophe wrought by a pair of earthquakes on Turkey, as early estimates of the damage point to mounting inflation and budget risks. Economists say it’s too early to gauge the exact impact of Monday’s tremors on the nation’s $819 billion economy. Nevertheless, a plunge in equity prices and jump in bond yields indicate fears of a substantial hit to gross-domestic-product growth, along with the recognition that a looser fiscal package is all but inevitable. Turkey suspended trade on its main stock stock exchange on Wednesday following this week’s 16% drop…”

February 6 – Reuters (Adnan Abidi, M. Sriram and Aditi Shah): “The crisis engulfing the Adani Group intensified on Monday as hundreds of members of India's opposition parties took to the streets to press for a probe into allegations by a U.S. short-seller against the conglomerate which triggered its market rout. Shares in billionaire Gautam Adani's companies have been in free-fall since a Jan. 24 critical report by Hindenberg Research, with group cumulative market losses now topping $110 billion, sparking fears of wider financial contagion.”

February 8 – Reuters (Una Galani): “Gautam Adani’s recent woes have vindicated persistent doubts in India about the tycoon’s rise. With his eponymous group’s bonds trading at distressed levels, big international banks which bankrolled the 60-year-old’s debt-fuelled ascent face increasingly awkward questions about how they assessed the risk. For lenders including Deutsche Bank, Barclays and Standard Chartered, the over $110 billion slump in the value of Adani’s seven core listed companies, triggered by last month’s critical report from short-seller Hindenburg Research, should not have come as a surprise. The warning signs were hiding in plain sight.”

February 8 – Reuters (Shivam Patel): “Prime Minister Narendra Modi said… Indians will not swallow ‘lies and abuse’ against him, as opposition critics accuse his government of giving undue favours to a business group led by billionaire tycoon Gautam Adani. Modi spent a nearly 90-minute speech to parliament mainly listing governments achievements and without naming the under-fire Adani Group. However, opposition lawmakers who are demanding an investigation into the business group interrupted him several times shouting slogans.”

February 8 – Reuters (Marcela Ayres and Bernardo Caram): “Brazil's central bank newfound independence that was designed to shield it from politics has turned it into a convenient punching bag for the new government that can use it to fire up its leftist base and blame it for economic woes. Since his Jan. 1 inauguration President Luiz Inacio Lula da Silva has repeatedly attacked the bank, led by respected economist and financial markets executive Roberto Campos Neto, calling its interest rates excessively high and ‘shameful’ and blaming them for stunting growth.”

February 9 – Reuters (Wendell Roelf and Carien du Plessis): “South African President Cyril Ramaphosa… declared a national ‘state of disaster’ over his country's crippling power shortages, saying they posed an existential threat to the economy and social fabric. The electricity crunch has been years in the making, a product of delays in building new coal-fired power stations, corruption in coal-supply contracts, criminal sabotage and failures to ease up regulation to enable private providers to swiftly bring renewable energy on tap.”

Japan Watch:

February 7 – Reuters (Leika Kihara): “Japanese Prime Minister Fumio Kishida said the new central bank governor must have strong communication skills and be able to closely coordinate with global peers, offering his most explicit comment to date on his preference for the top job. Speaking in parliament, Kishida said… he was still in the process of selecting the successor to incumbent BOJ Governor Haruhiko Kuroda, whose term ends in April, noting ‘the impact the decision would have on financial markets.’”

February 6 – Reuters (Daniel Leussink and Leika Kihara): “Japan's government has sounded out Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya to succeed incumbent Haruhiko Kuroda as central bank governor, the Nikkei newspaper reported… Prime Minister Fumio Kishida told reporters… he would continue to consider the best candidate for the job, suggesting that no final decision had been made… A career central banker who has drafted many of the BOJ's monetary easing tools, Amamiya has been seen by markets as a top contender... Many analysts see him as a pragmatic policymaker who will prefer tip-toeing toward any exit, rather than make sudden changes to a stimulus programme he helped create.”

February 6 – Bloomberg (Erica Yokoyama and Toru Fujioka): “Japanese workers’ nominal wages in December rose at the fastest pace since 1997, an acceleration in gains that may fuel speculation the central bank will consider shifting policy after Governor Haruhiko Kuroda steps down in April. Nominal cash earnings for Japan’s workers jumped 4.8% from a year earlier in December… Hefty increases in winter bonuses boosted pay packets well beyond a 2.5% growth estimate by economists.”

Social, Political, Environmental, Cybersecurity Instability Watch:

February 6 – Reuters (Brad Brooks): “A leading conservation research group found that 40% of animals and 34% of plants in the United States are at risk of extinction, while 41% of ecosystems are facing collapse. Everything from crayfish and cacti to freshwater mussels and iconic American species such as the Venus flytrap are in danger of disappearing, a report… found. NatureServe, which analyzes data from its network of over 1,000 scientists across the United States and Canada, said the report was its most comprehensive yet, synthesizing five decades' worth of its own information on the health of animals, plants and ecosystems.”

February 9 – Bloomberg (Megan Durisin and Lisa Pham): “The global bird flu outbreak is worsening, highlighting the challenge farmers and officials face in reining in the deadly virus. Just over 100 million poultry died or were culled due to avian influenza between the start of October and Feb. 3, according to the World Organisation for Animal Health. That’s more than triple the number in the same period in the previous season, which ended with record losses from the disease.”

Leveraged Speculation Watch:

February 6 – Reuters (Nell Mackenzie and Carolina Mandl): “Hedge funds betting against stocks globally abandoned those trades last week at the fastest pace since 2015, surpassing the speed of their exodus from the meme stock frenzy two years ago, according to a Goldman Sachs research note. The latest short squeeze… saw hedge funds caught out by a sharp rally in equities on Feb. 2 after the U.S. Federal Reserve slowed the pace of interest rate hikes and markets anticipated that rates would peak soon.”

February 8 – Bloomberg (Denitsa Tsekova): “Money managers have cut $300 billion of bearish bets and are now positioned more in line with historic norms — robbing the market of pent-up demand just as the Federal Reserve warns its inflation-fighting battle is far from over. The shift in positioning has taken a broad array of investors from underweight to holding equities closer to the average of the past decade. Investors are now the closest to neutral positioning than they have been since the second quarter of last year…”

Geopolitical Watch:

February 9 – Reuters (Josh Smith and Soo-Hyang Choi): “Nuclear-armed North Korea showcased its missile production muscle during a nighttime parade…, displaying more intercontinental ballistic missiles (ICBMs) than ever before and hinting at a new solid-fuel weapon. The country has forged ahead with its ballistic missile programme, test-launching dozens of advanced missiles last year despite United Nations Security Council resolutions and sanctions.”