August 13, 2021: Uncertainty

August 13, 2021: Uncertainty
Doug Noland Posted on August 14, 2021

We shouldn’t read too much into one month of weak Chinese Credit data. July’s growth in Aggregate Financing (system Credit) slumped to $164 billion, almost 40% below estimates, and down from June’s booming $566 billion – to the slowest expansion since covid crisis February 2020. July can be a seasonally weak month for lending, following a typical end-of-quarter surge. Analysts are downplaying the significance of July’s slowdown, expecting a seasonal pick up and a boost from last month’s reduction in bank reserve requirements.

We should, however, also consider Beijing’s newfound resolve in implementing a comprehensive reform agenda. It’s certainly not lost on Chinese officials that their runaway Credit expansion poses the greatest risk to China’s financial, economic and social stability. Still, they recognize market sensitivity to all developments impactful to financial conditions – especially now that significant cracks have surfaced in Chinese Credit. So, Beijing will move cautiously and without transparency. Moreover, they will play into the market perception that Beijing has everything under control. I would expect a tightening cycle to unfold with corresponding lower reserve requirements, interest rate cuts and PBOC liquidity injections.

From the perspective of a determined Beijing, coupled with heightened Credit stress, July’s weak data is likely sending a warning. New Loans dropped to $167 billion, about half June’s $327 billion, and the weakest reading since October 2020. But at $2.135 TN, year-to-date Loan growth is running 5.8% ahead of 2020 and 29% ahead of comparable 2019. Loans were up 12.3% year-over-year, 26.9% in two years and 83% in five years.

Corporate Loan growth dropped to $67 billion, the weakest reading since October, and only a fraction of June’s $224 billion. At $1.358 TN, year-to-date Corporate lending is running 2.6% below 2020, but 34% ahead of comparable 2019. Corporate Loans expanded 11.3% over the past year, 25.5% over two years, 39% over three and 67% over five years.

The Consumer lending slowdown is perhaps the most intriguing aspect of July data. Mortgage borrowing dominates Consumer Loans. And while it doesn’t garner the same media attention as stock market-impactful reform measures, Beijing has moved aggressively to rein in mortgage lending excess. At $62 billion, Consumer Loan growth was less than half of June’s to the lowest level since February 2020’s covid-related contraction.

Again, we don’t want to read too much into a single month. But we should at least contemplate the possibility that Beijing’s determined effort to rein in apartment Bubble excess is finally making some headway. A sustained lending slowdown would presage a downturn in transactions and apartment prices, unleashing a problematic downside to historic Credit, asset and economic Bubbles. There is great Uncertainty associated with Chinese officials, citizens, bankers, and corporate managements having no experience with the downside of Credit and asset Bubbles. Such a prospect would explain sanguine Treasury and global bond markets in the face of non-transitory inflationary pressures.

Living here in the Pacific Northwest, it was another week of 100 degree plus temperatures and thick smoke from scores of wildfires. This will undoubtedly be the hottest summer in Oregon’s recorded history.

August 13 – CBS (Li Cohen): “It’s been a summer of sweltering heat waves and raging wildfires, and now it’s confirmed: July 2021 was the hottest month on Earth since record-keeping began. The National Oceanic and Atmospheric Administration announced the findings on Friday, calling it an ‘unenviable distinction’ and part of a worsening trend related to climate change.”

It’s sad to see decades old fir trees succumb to protracted drought; heart-wrenching to know that hundreds of thousands of acres of beautiful forest are going up in flames. And as bad as things are on the U.S. West Coast, the fires in Greece, Turkey and Italy are nothing short of apocalyptic. This follows catastrophic flooding in Germany, Belgium and elsewhere in Europe. China is again this week suffering from devastating flooding.

August 9 – Reuters (Nina Chestney, Andrea Januta, Jake Spring, Valerie Volcovici and Emma Farge): “Global warming is dangerously close to spiraling out of control, a U.N. climate panel said in a landmark report…, warning the world is already certain to face further climate disruptions for decades, if not centuries, to come. Humans are ‘unequivocally’ to blame, the report from the scientists of the Intergovernmental Panel on Climate Change (IPCC) said. Rapid action to cut greenhouse gas emissions could limit some impacts, but others are now locked in. The deadly heat waves, gargantuan hurricanes and other weather extremes that are already happening will only become more severe.”

At this point, I cannot be alone in pondering whether climate change is already “spiraling out of control.” If not spiraling, it sure appears that climate instability is accelerating.

Markets are said to hate Uncertainty. Yet stock prices rise to unprecedented heights in the face of myriad extraordinary uncertainties. The current course of experimental monetary inflation and fiscal stimulus creates epic Uncertainty. The course of China’s historic Bubble is similarly unsettled. The geopolitical backdrop points to alarming instability. Yet global climate change poses the greatest threat to all aspects of human life, starting with economic, social, political and geopolitical stability.

Market analysts have been trumpeting phenomenal earnings growth. Cut rates to zero, throw in Trillions of monetary stimulus, and then add Trillions more of fiscal spending – and the upshot will be one spectacular – if unsustainable – profits bonanza. But what type of a multiple would a sensible analyst place on currently inflated corporate earnings? What discount rate would one apply to future earnings streams when contemplating reasonable valuation? A really low rate, factoring in the likelihood of years of near zero short-term funding rates (and associated low bond yields)? Or instead, a relatively high discount rate, reflecting today’s unprecedented backdrop and associated uncertainties? The Crowd answers the former; I say the latter.

I’ve witnessed scores of spectacular booms and busts during my career. I’ve witnessed nothing comparable to China’s Bubble. The world should be panicky. Instead, there is near absolute faith in the Beijing meritocracy.

Late-eighties “decade of greed” excesses were incredible – until they were completely overshadowed by the “roaring nineties”. I thought 1999 was a once-in-a-career experience. The 2008 mortgage finance Bubble collapse destroyed the myth that Washington had everything under control. Yet we’re now into the 13th year of the global government finance Bubble. Especially since the pandemic crisis response, manic excess has gone off the rails. The world should be panicky. Instead, it’s all business as usual, with near absolute faith in the power of central bank QE.

It’s unethical to impose years of negative real returns upon savers, coercing them into the securities markets. Having a small group of central bankers manipulating market yields is the antithesis of free market capitalism. And the longer zero rates and artificially low market yields are imposed, the more extreme the underlying market, financial and economic structural maladjustment. Injecting Trillions of new “money” directly into the securities markets is pernicious inflationism and a deleterious redistribution of wealth. Yet, to the markets, none of that matters. What matters tremendously is that the Federal Reserve sticks with policies to inflate stock, bond and home prices.

I have posited that the great vulnerability of contemporary finance is that it doesn’t work in reverse. It appears miraculous, so long as finance is expanding and asset prices are inflating. Markets are these days content to disregard myriad risks because of confidence in the Fed’s willingness and capacity to sustain the monetary boom. Non-crisis, open-ended QE changed everything.

Inflation today poses a huge risk. A sustained inflationary surge would force the Fed to withdraw stimulus, ending the illusion of never-ending central bank market support. Historic Bubbles would lose their foundations. To this point, Federal Reserve officials have been able to assert “transitory.” The Fed would be in a precarious situation if inflation angst was stoking bond market instability. But the bond market is underpinned by open-ended QE and prospects for faltering Bubbles and resulting Trillions of additional Fed purchases.

It’s an extraordinary paradox: the bond market’s disregard for inflation risk reinforces Bubble excess while increasing the likelihood inflationary pressures attaining self-reinforcing momentum. Inflation complacency rests on the simple assumption that previous inflation dynamics will be sustained well into the future. Yet there is a confluence of unprecedented developments that point to a new paradigm. We have never witnessed such sustained monetary inflation, both at home and abroad. At the same time, fiscal deficit spending is unprecedented in a peacetime environment. Monetary stimulus literally opened the fiscal stimulus floodgates, with the combination in the process of creating the tightest labor market in decades.

Meanwhile, there’s global climate change. Similar to other major risks, markets today instinctively view climate change as one more development that guarantees the Fed and global central bankers will sustain monetary stimulus indefinitely.

August 11 – Associated Press (Nicholas K. Geranios): “The wheat harvest on Marci Green’s farm doesn’t usually begin until late August, but a severe drought stunted this year’s crop and her crews finished harvesting last week because she didn’t want what had grown so far to shrivel and die in the heat. It’s the same story across the wheat country of eastern Washington state, a vast expanse of seemingly endless stretches of flatlands with rolling hills along its edges that produces the nation’s fourth largest wheat crop. It’s been devastated by a drought the National Weather Service has classified as ‘exceptional’ and the worst since 1977. ‘This is definitely the worst crop year we have had since we started farming 35 years ago,’ said Green, whose family is the sixth generation on the same farming land just south of the city of Spokane.”

Washington’s stunted wheat crop is but one example. California farmers pulling out almond trees. Farmers in California, Oregon, Utah and elsewhere are being hit with water restrictions, as half the country suffers drought conditions. Reservoirs are running dry. From New York to California, there are calls to conserve electricity.

A Friday Reuters headline: “’Once in 100 Years’ Drought Seen Affecting Argentine Grains Exports Into 2022.” Last week from Bloomberg: “The Argentine River That Carries Soybeans to World Is Drying Up.” And this week: “Sugar Soars as Crops in World’s Top Producer Brazil Hit by Frosts.” And today from CNN: “Get Used to Surging Food Prices: Extreme Weather is Here to Stay.”

The “inflation is transitory” assertion completely disregards the possibility that climate change could wreak havoc on food production, harvesting and transportation. Beyond farming, it will impact production, supply chains and inventory management. Prepare for myriad disruptions in key facets of economic development. Life as we’ve known it could change profoundly, with inconceivable effects on many prices and market structures. Of course, manic markets will ignore such risks until they get hit over the head by them. This long, hot summer makes it seem as if that day is approaching.

For the Week:

The S&P500 increased 0.7% (up 19.0% y-t-d), and the Dow gained 0.9% (up 16.0%). The Utilities rose 1.6% (up 9.0%). The Banks jumped 2.0% (up 32.7%), and the Broker/Dealers added 0.7% (up 28.8%). The Transports advanced 2.9% (up 19.4%). The S&P 400 Midcaps increased 0.5% (up 18.4%), while the small cap Russell 2000 declined 1.1% (up 12.6%). The Nasdaq100 added 0.2% (up 17.4%). The Semiconductors dropped 2.3% (up 19.3%). The Biotechs fell 2.5% (up 1.2%). While bullion rallied $17, the HUI gold index fell 1.8% (down 14.9%).

Three-month Treasury bill rates ended the week at 0.045%. Two-year government yields were unchanged at 0.21% (up 9bps y-t-d). Five-year T-note yields added a basis point to 0.77% (up 41bps). Ten-year Treasury yields slipped two bps to 1.28% (up 36bps). Long bond yields declined two bps to 1.93% (up 28bps). Benchmark Fannie Mae MBS yields were unchanged at 1.78% (up 44bps).

Greek 10-year yields slipped one basis point to 0.54% (down 8bps y-t-d). Ten-year Portuguese yields declined two bps to 0.11% (up 8bps). Italian 10-year yields dipped two bps to 0.55% (unchanged). Spain’s 10-year yields declined two bps to 0.22% (up 17bps). German bund yields dipped a basis point to negative 0.47% (up 10bps). French yields declined a basis point to negative 0.13% (up 21bps). The French to German 10-year bond spread was unchanged at 34 bps. U.K. 10-year gilt yields fell four bps to 0.57% (up 38bps). U.K.’s FTSE equities index rose 1.3% (up 11.7% y-t-d).

Japan’s Nikkei Equities Index increased 0.6% (up 1.9% y-t-d). Japanese 10-year “JGB” yields rose two bps to 0.03% (up 1 bp y-t-d). France’s CAC40 gained 1.2% (up 24.2%). The German DAX equities index rose 1.4% (up 16.5%). Spain’s IBEX 35 equities index added 1.4% (up 11.5%). Italy’s FTSE MIB index jumped 2.5% (up 19.9%). EM equities were mixed. Brazil’s Bovespa index fell 1.3% (up 1.8%), while Mexico’s Bolsa added 0.7% (up 16.8%). South Korea’s Kospi index sank 3.0% (up 10.4%). India’s Sensex equities index rose 2.1% (up 16.1%). China’s Shanghai Exchange rallied 1.7% (up 1.2%). Turkey’s Borsa Istanbul National 100 index gained 0.9% (down 2.0%). Russia’s MICEX equities index jumped 1.8% (up 17.8%).

Investment-grade bond funds saw inflows of $3.908 billion, and junk bond funds posted positive flows of $510 million (from Lipper).

Federal Reserve Credit last week expanded $16.3bn to a record $8.205 TN. Over the past 100 weeks, Fed Credit expanded $4.478 TN, or 120%. Fed Credit inflated $5.394 Trillion, or 192%, over the past 457 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week increased $5.7bn to $3.496 TN. “Custody holdings” were up $88.5bn, or 2.6%, y-o-y.

Total money market fund assets gained $9.2bn to $4.510 TN. Total money funds declined $45bn y-o-y, or 1.0%.

Total Commercial Paper added $3.9bn to $1.142 TN. CP was up $132bn, or 13.1%, year-over-year.

Freddie Mac 30-year fixed mortgage rates surged 10 bps to 2.87% (down 9bps y-o-y). Fifteen-year rates rose five bps to 2.15% (down 31bps). Five-year hybrid ARM rates gained four bps to 2.44% (down 46bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up nine bps to 3.06% (down 11bps).

Currency Watch:

For the week, the U.S. Dollar Index slipped 0.3% to 92.52 (up 2.9% y-t-d). For the week on the upside, the Norwegian krone increased 1.0%, the Mexican peso 0.8%, the Japanese yen 0.6%, the New Zealand dollar 0.5%, the Canadian dollar 0.3%, the euro 0.3%, the Swedish krona 0.3% and the Australian dollar 0.2%. On the downside, the South Korean won declined 2.3%, the South African rand 0.7%, the Brazilian real 0.3%, and the Swiss franc 0.1%. The Chinese renminbi increased 0.09% versus the dollar (up 0.77% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index increased 0.5% (up 21.9% y-t-d). Spot Gold rallied 0.9% to $1,780 (down 6.3%). Silver fell 2.4% to $23.75 (down 10.0%). WTI crude increased 16 cents to $68.44 (up 41%). Gasoline added 0.3% (up 61%), while Natural Gas sank 6.7% (up 52%). Copper recovered 0.8% (up 24.5%). Wheat surged 7.7% (up 25%). Corn gained 3.0% (up 18%). Bitcoin surged $3,698 this week to $47,603 (up 64%).

Coronavirus Watch:

August 13 – USA Today (Elizabeth Weise): “Since July 1, there’s been a 700% increase in the week-over-week average of COVID-19 infections in the United States… The information was presented Friday at CDC’s Advisory Committee on Immunization Practices meeting… ‘There’s no doubt we’re seeing a surge in cases now,’ said Dr. William Moss, a professor of epidemiology at the Johns Hopkins Bloomberg School of Public Health. The United States was at a low point in new cases in late June, with an average of about 10,000 a day. Today the average is closer to 125,000 a day, he said.”

August 13 – CNN (Virginia Langmaid): “Florida reported a new record number of Covid-19 cases Friday — more over the past week than any other seven-day period during the pandemic. Data published Friday by the state health department showed 151,415 new Covid-19 cases over the past week, for an average of 21,630 cases each day. The previous record high was just a week ago — on August 6 — with 134,711 total cases reported over seven days, for an average of 19,244 cases each day.”

Market Mania Watch:

August 12 – Wall Street Journal (Michael Wursthorn): “Investors poured $705 billion into exchange-traded funds through the first seven months of the year, pushing 2021’s world-wide tally to a record $9.1 trillion, according to… Morningstar… Net flows so far this year have nearly eclipsed the $736.5 billion investors had moved into ETFs globally in all of 2020. Most of the cash has gone into cheap, index-tracking funds, with large-cap and short-term bond ETFs, as well as products offering inflation protection, attracting significant investor interest… U.S. ETFs accounted for a record $519 billion of the total, sending assets in U.S. funds to about $6.6 trillion. ETFs now hold more money than index-tracking mutual funds, which had about $8.8 trillion in assets as of June, though mutual funds overall still command more money, with about $40.7 trillion in assets.”

August 9 – Financial Times (Steve Johnson): “The mutual fund industry is poised to lose its crown as the dominant passive investment vehicle, with the non-active exchange traded fund sector on track to surpass it for the first time. Global assets under management of passive, index-tracking ETFs hit a record $8.66tn at the end of June…, just $132bn shy of those in passive mutual funds. The gap has narrowed from $623bn at the end of 2019 and $305bn in December 2020… Net flows into ETFs hit a record $661bn in the first six months of the year, according to… ETFGI, smashing the previous first-half record of $294bn set in 2020.”

August 12 – Bloomberg (Eric Lam): “The cryptocurrency sector is back in sight of a $2 trillion market value, a level last seen in May, but further gains face an obstacle from potential new U.S. tax reporting requirements. The value of more than 8,800 tokens tracked by CoinGecko has risen 55% to $1.95 trillion from a July low, helped by rallies in Bitcoin and Ether.”

August 9 – New York Times (Erin Griffith): “On a recent Wednesday evening, 60 people gathered in a virtual conference room to discuss start-up investments. Among them were a professional poker player from Arizona, an allergist in California and a kombucha maker from Tennessee. All were members of Angel Squad, a six-month $2,500 program that aims to help people break into the clubby world of venture capital as individual investors, known as ‘angels.’ The group listened as Eric Bahn, the instructor, rattled off anecdotes and advice from the front lines of start-up investing. ‘The most important question when you are an early stage investor is: What happens if things go right?’ he said… Caroline Howard, 29, one of the founders of Walker Brothers Beverage… said the class taught her how to better evaluate deals. ‘I think it’s so fun to see companies when they’re so young and have a germ of an idea and back them,’ she said.”

August 9 – Bloomberg (Melissa Karsh and Sonali Basak): “Silver Lake, known for its focus on technology deals, is in preliminary discussions with investors for a new flagship private-equity fund that may raise at least $20 billion, according to people familiar with the matter. The firm… amassed $20 billion for its sixth flagship fund in January — its largest to date. Silver Lake has not yet solidified the target amount for what would be its seventh flagship pool, but it has raised the prospect with investors of reaching another record…”

Market Instability Watch:

August 8 – Financial Times (Colby Smith, Kate Duguid and Ortenca Aliaj and Laurence Fletcher): “Losses for hedge funds betting big on the so-called reflation trade piled up in July, exacerbated by a dizzying rally in US government debt this summer that pushed Treasury yields to multi-month lows. Graham Capital Management, Rokos Capital Management and Brevan Howard were among the funds hit, with Graham losing about 4.5% in its $2.6bn Absolute Return fund in July… Rokos lost 3.8% last month, while Brevan Howard lost 3.9% in a $1.2bn portfolio… The soured trades hinged on a view that higher growth and inflationary pressures from America’s emergence from the coronavirus pandemic would weigh heavily on longer-dated Treasury bonds, whose fixed payments erode in value over time in prolonged periods of rising consumer prices.”

August 10 – Bloomberg (Stephen Spratt): “Treasury yields’ journey back to peaks last seen before the pandemic hit the U.S. could get an added boost if they hit a level that would trigger hedging flows in the $7 trillion mortgage-backed bond market, Morgan Stanley strategists say. They expect 10-year yields to rise to 1.80% by year-end… That view is driven partly by convexity hedging, a phenomenon where Americans sell bonds to compensate for lost interest in refinancing their old mortgages as a result of higher yields.”

August 10 – Financial Times (Joe Rennison): “Investors have backed away from the debt of some of the most Covid-afflicted US companies, after re-evaluating the pace of the reopening of the American economy in light of the spread of the Delta variant of the coronavirus. Bonds issued by cruise companies, cinema operators and retailers all fell in price last week, as more businesses delayed plans to return workers to offices due to the Delta escalation…”

August 8 – Wall Street Journal (Julia-Ambra Verlaine): “An unusual surge of short-term lending by cash-rich companies is raising concerns on Wall Street that a period of unrest may lie ahead. Investors such as money-market funds and banks are parking over $1 trillion in spare cash overnight at the Federal Reserve. That is the most on record since the Fed opened its facility for these reverse repurchase agreements in 2013. The scale of the moves has some analysts warning that the markets for short-term funding are vulnerable to disruption.”

August 11 – Bloomberg (Lu Wang): “A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases. The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account. The shortfall comes from an expanding economy that’s quickly depleting the nation’s available money. The deficit could become a problem for markets at a time when excess liquidity is seen as underpinning rallies in everything from Bitcoin to meme stocks.”

Inflation Watch:

August 12 – Associated Press (Martin Crutsinger): “Inflation at the wholesale level jumped a higher-than-expected 1% in July, matching the rise from the previous month, and dimming hopes that the upward trajectory of prices would begin to slow. Prices at the wholesale level over the past 12 months are up a record 7.8%, the largest increase in that span of time in a series going back to 2010… Consumer prices in July rose 0.5%, compared with a 0.9% jump in June. Over the past year retail prices are up a notable 5.4%, the same 12-month gain posted in June with both months recording the largest annual gain since 2008. July’s 1% wholesale price uptick exceeded the 0.6% gain many economists…”

August 11 – Financial Times (Colby Smith): “The rapid pace of US consumer price increases steadied at a 13-year high in July while month-on-month gains moderated slightly, as inflationary pressures persisted because of supply-chain constraints and soaring demand. The consumer price index (CPI)… rose 5.4% in July from a year ago, surpassing the 5.3% expected by economists. That is in line with the 5.4% increase reported in June, which was the largest such surge since 2008. On a month-to-month basis, prices rose 0.5%, compared with a 0.9% gain in June.”

August 9 – Bloomberg (Alexandre Tanzi): “U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in July, according to a Federal Reserve Bank of New York survey. The median survey respondent anticipated an inflation rate of 3.7% in three years’ time, the highest since August 2013 and up from 3.6% in June… Expectations for inflation over the next year rose to a record 4.8%… Consumers polled by the New York Fed said they expected rents to increase 9.8% in the coming year, the highest reading since the survey began in 2013. Expected changes in medical care costs over the next 12 months ticked up to 9.5%, while the expected change in gas prices moderated to 8.1%.”

August 9 – Bloomberg (Jordyn Holman, Leslie Patton and Peyton Forte): “For the first time in decades, the American worker is finally in command when it comes time to talk money. There are tell-tale signs everywhere that this is so. Like the way some employers — such as Kroger Co., Chipotle Mexican Grill Inc. and Under Armour Inc. — are frantically pushing up hourly wages to try to retain employees. Or the way others — like Starbucks Corp. and Drury Hotels — are dangling hiring bonuses to entry-level applicants. Or the way CVS Health Corp. is no longer requiring job seekers to have high-school diplomas. Or the way Dan Sacco, the owner of Your Pie restaurants in Iowa, is instructing his general managers to poach workers from rivals with offers of better hours and higher pay. ‘Everything is fair game now,’ Sacco says.”

August 8 – Wall Street Journal (Nick Timiraos): “The biggest wildcard for U.S. inflation over the next year doesn’t come from used cars or airline fares. Instead, it is housing. Officials at the Federal Reserve and the White House have highlighted what many forecasters expect will be the temporary nature of elevated price readings stemming from the reopening of the economy following pandemic-related restrictions. But the degree to which 12-month inflation readings fall back to the central bank’s 2% goal could rest on the behavior of rents and home prices. In recent months, housing-cost trends point to more persistent, rather than transitory, upward price pressures in the coming years.”

August 10 – Yahoo Finance (Brian Cheung): “The need for workers is weighing on the trucking industry, where freight operators are struggling to raise wages fast enough to find drivers. Eric Fuller, the CEO of U.S. Xpress (USX), said that his company has doled out 30% to 35% in total pay increases over the last 12 months — but suggested more may be needed. ‘The driver situation is about as bad as I’ve ever seen in my career,’ Fuller told Yahoo Finance…”

August 11 – CNBC (Amelia Lucas and Melissa Repko): “Restaurant chain Denny’s recently mobilized its 53-foot kitchen truck. But instead of serving up pancakes and coffee to natural disaster victims, as it usually does, it had a different mission: a nationwide hiring tour. Employers are going to new lengths to attract workers. CVS Health dropped its requirement that entry-level job candidates have a high school diploma. And Walmart is doling out bonuses to warehouse workers for staying on the job this summer and fall. For many low-wage workers, the tighter labor market means that the tables have turned with employers. Companies’ desire to quickly fill job openings has taken on more urgency, as retailers gear up for the holiday season and restaurants race to make up for months when they had to temporarily shutter or they saw sales crater. That has meant bigger paydays and perks for employees.”

August 12 – New York Times (Coral Murphy Marcos): “Coffee roasters have a problem. The cost of the beans that they import has soared this year, leaving roasters anguishing over whether their customers, from grocery stores to cafes to people looking for their daily latte, will tolerate higher prices. Extreme weather has damaged crops in Brazil, the world’s largest coffee exporter. On top of pandemic-related shipping bottlenecks and political protests that stalled exports from Colombia, that has pushed the cost of beans up nearly 44% in 2021.”

Biden Administration Watch:

August 10 – Reuters (Richard Cowan and Susan Cornwell): “The Democratic-controlled U.S. Senate… passed a massive infrastructure bill and immediately kicked off debate on a $3.5 trillion spending blueprint for President Joe Biden’s key priorities on climate change, universal preschool and affordable housing. The bipartisan $1 trillion infrastructure bill, which the 100-member chamber passed in a 69-30 vote, could provide the nation’s biggest investment in decades in roads, bridges, airports and waterways.”

August 10 – Reuters (Makini Brice and Susan Cornwell): “Hours after the U.S. Senate approved a $3.5 trillion budget blueprint chock-full of investments in new domestic programs, fissures emerged between the moderate and liberal wings of the Democratic Party over the size and scope of the spending. Senator Joe Manchin… issued a warning shortly after the Senate early on Wednesday passed the budget deal here that would carry out President Joe Biden’s top priorities. Manchin, who often acts as a bridge between his party and Republicans, voiced concerns about potentially ‘grave consequences’ for the nation’s debt as well as Washington’s ability to respond to other potential crises.”

August 10 – Wall Street Journal (Nick Timiraos): “Members of President Biden’s economic team generally support nominating Federal Reserve Chairman Jerome Powell to a second term, but growing resistance from prominent Democrats including Sen. Elizabeth Warren (D., Mass.) could lead to his replacement… Mr. Powell… has received high marks from some Democrats for steering the central bank toward a paradigm shift that has placed greater attention on reducing unemployment. That coincided last year with a forceful response to the coronavirus pandemic. But some progressives are unhappy with his bent toward easing financial regulations that were put in place after the 2008 crisis and think the central bank should have someone more in sync with Democratic politics in charge.”

August 11 – Associated Press (Zeke Miller): “President Joe Biden’s administration is moving at home and abroad to try to address concerns about rising energy prices slowing the nation’s recovery from the pandemic-induced recession. National security adviser Jake Sullivan on Wednesday called on the Organization of the Petroleum Exporting Countries to move faster to restore global supply of petroleum to pre-pandemic levels, and the White House asked the Federal Trade Commission to investigate the domestic gasoline market for any anti-competitive behavior that could be increasing prices. The joint actions come as the administration is increasingly sensitive to rising prices across the economy as it faces both political and policy pressure from inflation.”

August 11 – Reuters (Jeff Mason and Trevor Hunnicutt): “President Joe Biden said… his administration is working to relieve bottlenecks threatening the economic recovery and trusts the Federal Reserve to take any steps that may be needed to rein in prices… ‘Right now, our experts believe that – the major independent forecasters agree as well – that these bottlenecks and price spikes will reduce as our economy continues to heal,’ Biden said. ‘While today’s consumer price report points in that direction, we will keep a careful eye on inflation each month, and trust the Fed to take appropriate action if and when it’s needed.’”

August 10 – Financial Times (Kiran Stacey): “In 1914, US President Woodrow Wilson enacted what was meant to be the final flourish of the early antitrust movement. In the previous decade, the US government had broken up some of the most powerful monopolies in history, including Standard Oil, American Tobacco and the Northern Securities Company. Now Wilson wanted to make sure such monopolies were never allowed to exist again. So he set up the Federal Trade Commission, an almost uniquely powerful Washington regulator tasked both with writing new competition rules and enforcing them. More than 100 years later, many progressives think the FTC has failed in its core mission. They point to the existence of giant US technology companies such as Google, Facebook and Amazon and argue that monopolies have once more been allowed to take over the US economy.”

Federal Reserve Watch:

August 12 – Reuters (Howard Schneider): “The Federal Reserve’s new approach to monetary policy, meant to provide a clear path for the central bank to reach its inflation target, has led for now to a conflicting array of interpretations as officials turn perhaps sooner than anticipated to a debate about when to raise interest rates. That decision seemed far away last December when the Fed laid out what seemed a clear test for when its inflation goal would be achieved and make it appropriate for rates to rise from near zero. But this year’s inflation jump has some officials already declaring the new benchmark tests have been met, others saying the goal remains a long way off, and others shrugging their shoulders… It’s a division some analysts anticipated when the Fed adopted a new framework focused on average inflation over time, with periods of higher prices offsetting lower ones, but did not pin down key concepts like the length of the averaging period or the level of overshoot it would tolerate.”

August 9 – Associated Press (Christopher Rugaber): “The president of the Federal Reserve Bank of Boston added his voice… to a growing number of people, inside and outside the Fed, who say the central bank should soon begin to dial back its extraordinary aid for an economy… Eric Rosengren said… the central bank should announce in September that it will begin reducing its $120 billion in purchases of Treasury and mortgage bonds ‘this fall’… Rosengren also echoed some of the Fed’s recent critics by arguing that the bond purchases are no longer helping to create jobs but are instead mostly helping drive up the prices of interest-rate sensitive goods such as homes and cars. Home prices are rising at the fastest pace in nearly 20 years… ‘If you continue to purchase assets, the reaction primarily is in pricing, not so much in employment,’ the Boston Fed president said. ‘I don’t think asset purchases are having the desired impact on really promoting employment.’”

August 11 – Bloomberg (Steve Matthews): “Federal Reserve Bank of Kansas City President Esther George said the central bank needs to move ahead with reducing monetary stimulus, citing expectations for continued labor-market gains. ‘Now, with the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral settings must follow,’ George said… ‘Today’s tight economy as I described earlier certainly does not call for a tight monetary policy, but it does signal that the time has come to dial back the settings.’”

August 9 – Bloomberg (Steve Matthews): “Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should move to taper its asset purchases after another strong month or two of employment gains, and proceed with that scaling-back process faster than in past episodes. ‘We are well on the road to substantial progress toward our goal,’ Bostic told reporters…, calling the addition of 943,000 jobs last month ‘definitely quite encouraging in that regard. My sense is if we are able to continue this for the next month or two I think we would have made the ‘substantial progress’ toward the goal and should be thinking about what our new policy position should be.’”

August 10 – Associated Press (Christopher Rugaber): “Last week’s jobs report demonstrated the ongoing strength of the U.S. economy and underscored the need for the Federal Reserve to rein in its stimulus efforts, a Fed official said… St. Louis Federal Reserve Bank President James Bullard said that Friday’s report… means the economy is making sufficient progress to start reducing, or tapering, the Fed’s $120 billion in monthly bond purchases… ‘It’s not clear to me that we’re really doing anything useful here,’ Bullard said about the bond buys. Bullard’s comments echo other recent calls from inside and outside the Fed that the central bank should start dialing back its ultra-low interest rate policies.”

August 10 – Bloomberg (Lisa Abramowicz): “Don’t expect the Federal Reserve to materially shrink its balance sheet for quite some time. Analysts and economists are coming to the conclusion that U.S. central bankers will keep slowly expanding their $8.2 trillion stockpile for the foreseeable future, even if the economic recovery stays on track and they start to pare back their $120 billion monthly bond purchases. Societe Generale’s Subadra Rajappa could see a $1 trillion boost to the assets already held by the Fed within the next 12 months, even with a taper… Steven Ricchiuto, chief U.S. economist at Mizuho Securities, said he expects the Fed to keep expanding its books at the pace of nominal gross domestic product, even after it stops its latest round of quantitative easing.”

August 11 – Reuters (Howard Schneider): “It may take a few months more for the U.S. job market to recover enough that the Federal Reserve can reduce its crisis-era support for the economy, according to Richmond Federal Reserve Bank President Thomas Barkin… Several of Barkin’s colleagues have argued the purchases should be phased out fast to put monetary policy on a more normal footing, prepare for eventual interest rate increases as a guard against inflation, and temper housing and other asset price increases that may be boosted by the Fed’s bond buying.”

August 10 – Reuters (Howard Schneider): “The current inflation spike shouldn’t push the Federal Reserve to tighten monetary policy prematurely, with more months of labor data needed before any changes as well as more certainty that the pace of price increases will remain above the Fed’s 2% target, Chicago Fed president Charles Evans said… ‘We are making progress … We are well on our way,’ to the point where it would be appropriate for the Fed to begin trimming its $120 billion in monthly bond purchases and eventually raising interest rates, Evans said in an online meeting with reporters. The benchmark for that bond ‘taper’ is likely to be met ‘later this year’ based on expected strong continued job growth, Evans said.”

U.S. Bubble Watch:

August 11 – Reuters (David Lawder): “The U.S. government… posted a July budget deficit of $302 billion, a record for that month, as COVID-19 relief spending stayed elevated while receipts returned to a more normal pace after a delayed July tax deadline last year. The Treasury Department said the July deficit compared to a year-earlier $63 billion budget gap. Receipts for the month totaled $262 billion, down 54% percent from July 2020, while outlays were $564 billion, down 10% from the year-earlier period.”

August 11 – Associated Press (Martin Crutsinger): “The U.S. budget deficit hit $2.54 trillion for the first 10 months of this budget year, fed by spending to support the country after the pandemic-induced recession. The figures keep the deficit on track to be second largest annual shortfall in U.S. history, behind only the most recent fiscal year… The Congressional Budget Office is forecasting that this year’s deficit will narrow slightly to $3 trillion. The CBO projects further improvement for the next budget year, which starts Oct. 1, expecting the deficit to fall to $1.2 trillion. However, that estimate does not take into account the impact of two huge spending bills now advancing in Congress… Nancy Vanden Houten, an economist with Oxford Economics, said she is projecting a rise in the deficit this year to $3.17 trillion, up slightly from last year’s record of $3.13 trillion deficit. Before last year, the largest deficit was a $1.4 trillion imbalance in 2009…”

August 9 – Reuters (Lindsay Dunsmuir): “U.S. job openings jumped to a fresh record high in June and hiring also increased, an indication that the supply constraints that have held back the labor market remain elevated even as the pace of the economic recovery gathers momentum. Job openings, a measure of labor demand, shot up by 590,000 to 10.1 million on the last day of June, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report…”

August 10 – Reuters (Evan Sully): “Small business owners across the United States grew less confident in the economic recovery in July as labor shortages remained an issue, according to a survey… The National Federation of Independent Business (NFIB) Optimism Index fell 2.8 points to a reading of 99.7 in July, almost erasing all of June’s gain. Six of the 10 index components declined, three improved and one was left unchanged. ‘Small business owners are losing confidence in the strength of the economy and expect a slowdown in job creation,’ Bill Dunkelberg, the NFIB’s chief economist, said…”

August 9 – Yahoo Finance (Brian Sozzi): “Goldman Sachs sees the U.S. labor market maintaining its momentum well into 2022. Economists at the firm led by Jan Hatzius lowered their year-end 2021 unemployment rate forecast slightly to 4.1%… For 2022, Hatzius and his team projects a 3.5% unemployment rate. If achieved, the unemployment rate would be at a 50-year low…”

August 10 – Yahoo Finance (Ihsaan Fanusie): “The current national bout of low inventory represents an ‘unprecedented non-recessionary inventory collapse’ for the last 20 years, a new report by JPMorgan found. ‘While non-manufacturing activity is now tracking a strong and steady recovery, the goods-producing sector has been buffeted by supply constraints alongside continued boomy gains in final demand,’ the report noted. ‘The result has been a slump in inventories that, over the past two decades at least, looks to be unprecedented outside of a recession.’ Supply has faced a number of challenges this year, including shortages in labor and raw materials.”

August 7 – Reuters: “China’s trade surplus with the United States stood at $35.4 billion in July, Reuters calculations based on Chinese customs data showed on Saturday, up from $32.58 billion in June. For the first seven months of the year, the surplus was $200.32 billion, up from $164.92 billion during the first half of 2021.”

Fixed-Income Bubble Watch:

August 10 – Bloomberg (David Wethe): “Shale drillers — some of them just emerging from bankruptcy — racked up a staggering $42 billion in new debt in the first half of the year. It’s not what you think… They’re holding the line on production, boosting investor returns and are now attracting the lowest bond yields they’ve ever seen. And instead of using their newly found cheap credit to boom once again, they’re using it to retire costlier debt.”

China Watch:

August 12 – Financial Times (Christian Shepherd, Ryan McMorrow, Hudson Lockett and Edward White): “China has released a five-year plan to strengthen regulatory control over strategic sectors including technology and healthcare, in Beijing’s latest push to assert Communist party supremacy over the world’s second-largest economy. The party’s Central Committee and the State Council, or cabinet, jointly released a policy document… that would expand government legislation and build a modern regulatory environment to ‘meet people’s ever-growing demands for a good life.’ The plan’s release followed a series of regulatory measures that have stunned investors in Chinese business and knocked tens of billions of dollars off the valuations of some of the country’s biggest tech groups.”

August 12 – Bloomberg: “China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling. The document… said authorities would ‘actively’ work on legislation in areas including national security, technology and monopolies. Law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence, the document said. ‘The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,’ it said. ‘It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.’”

August 12 – Reuters (Yew Lun Tian): “China will draft new laws on national security, technology innovation, monopolies and education, as well as in areas involving foreigners, the national leadership said in a document… The announcement signals that a crackdown on industry with regard to privacy, data management, antitrust, and other issues will persist on through the year. The Chinese Communist Party and the government said in a blueprint for the five years to 2025… that they would also improve legislation around public health by amending the infectious disease law and the ‘frontier health and quarantine law’.”

August 8 – Reuters (Liangping Gao and Gabriel Crossley): “China’s factory gate inflation in July rose at a faster clip from the previous month and exceeded market expectations, adding to strains on an economy losing recovery momentum as businesses struggle with high raw material costs. The world’s second-biggest economy is on track to expand more than 8% this year but analysts say pent-up coronavirus demand has peaked and forecast growth to moderate amid supply chain bottle necks and outbreaks of the Delta variant of COVID-19. The producer price index (PPI) grew 9.0% from a year earlier, matching the high seen in May…”

August 9 – Bloomberg: “China’s economic risks are building in the second half of the year, with growth set to slow while inflation pressures are picking up, clouding the outlook for central bank support. A report… showed factory-gate inflation surging again to 9% in July as commodity prices climbed, while core consumer prices — which strip out volatile food and fuel costs — rose the most in 18 months. At the same time, the spread of the delta variant is threatening China’s outlook, with Goldman Sachs… and JPMorgan… downgrading growth forecasts for the third quarter and full year, and predicting more central bank easing.”

August 10 – New York Times (Alexandra Stevenson and Cao Li): “The company owes hundreds of billions of dollars. Its creditors are circling. Its shares have taken a beating. But if anything forces a reckoning for Evergrande, a vast real estate empire in China, it might be the nervousness of ordinary home buyers like Chen Cheng. Ms. Chen, 30, and her husband thought they had found the perfect apartment… Evergrande was asking for a deposit worth nearly one-third of the price before the property was completed. After reading headlines about the company’s financial difficulties and complaints about construction delays from recent buyers, Ms. Chen walked away. ‘We don’t have a lot of money,’ she said. ‘We were really afraid this money would evaporate.’ China has a special term for companies like Evergrande: ‘gray rhinos,’ so large and so entangled in the country’s financial system that the government has an interest in their survival. A failure on the scale of Evergrande would ripple across the economy, and spell financial ruin for ordinary households.”

August 12 – Bloomberg: “At least three major creditors to China Evergrande Group have given it more time to repay maturing loans, according to people familiar with the matter, offering some relief for the cash-strapped developer as it fends off a string of demands for unpaid dues.”

August 11 – Bloomberg (Alice Huang): “Fitch… downgraded one of China Huarong Asset Management Co.’s units deeper into junk territory, citing questions about future support from the parent and lack of a debt refinancing plan. Huarong Industrial Investment & Management Co. was slashed to CCC from BB, with the firm no longer on watch for downgrade. Fitch said… the ratings cut was prompted by its reduction of the unit’s standalone credit profile, caused by the lack of a refinancing plan for 2022 maturities and its view on the unit’s linkage with China Huarong changing to ‘weak’ from ‘strong.’ China Huarong has faced months of questions about its future, after the firm failed to release 2020 results by the end of March.”

August 8 – Bloomberg (Chester Yung and Stephen Spratt): “China’s benchmark sovereign bond yield jumped the most in a year, as quickening inflation sowed doubts about whether the nation’s notes can maintain their world-beating advance. The 10-year government bond yield climbed as much as six basis points to 2.87% on Monday, its biggest rise since July 2020, after eight straight weeks of declines.”

August 11 – Reuters (Yilei Sun and Brenda Goh): “China’s vehicle sales slid in July for a third consecutive month, hit hard by flooding in some areas of the country, COVID-19 outbreaks in other areas and the global shortage of semiconductors. The world’s biggest auto market saw sales drop 11.9% from the same month a year earlier to 1.86 million vehicles…”

August 9 – Bloomberg (Jeanny Yu): “China’s microchip industry is feeling the heat of Beijing’s regulatory scrutiny. A warning in state media Friday that regulators will show no tolerance in cracking down on speculators in the chip market sent related stocks lower on Monday. China’s biggest chip foundry Semiconductor Manufacturing International Corp. dropped 5% in Hong Kong, while Hua Hong Semiconductor Ltd. tumbled 5.7% in its worst drop in nearly three months.”

Central Bank Watch:

August 7 – Reuters (Paul Carrel): “The European Central Bank must tighten monetary policy if it needs to counter inflationary pressures and cannot be put off from doing so by the financing costs of euro zone states, ECB policymaker Jens Weidmann told the Welt am Sonntag newspaper. Euro zone countries have ramped up their borrowing to cope with the coronavirus pandemic, potentially leaving them exposed to increased debt servicing costs if the central bank tightens policy to counter upward pressure on prices. ‘The ECB is not there to take care of the solvency protection of the states,’ said Weidmann, whose role as president of Germany’s Bundesbank gives him a seat on the ECB’s policymaking Governing Council.”

August 12 – Bloomberg (Max de Haldevang and Maya Averbuch): “Mexico’s central bank raised borrowing costs for the second consecutive meeting…, as stubbornly elevated and above-target consumer price increases are pushing inflation expectations higher for this year and next. Banco de Mexico boosted its key interest rate by a quarter-point to 4.5% in a split decision… after a surprise hike in June that did little to tame inflation, currently running at almost double the bank’s target… Although inflation shocks ‘are expected to be transitory, due to their variety, magnitude, and the extended horizon over which they have affected it, they may pose risks to the price formation process,’ the board wrote…”

August 11 – Bloomberg (Ken Parks): “Uruguay’s central bank tightened monetary policy for the first time since it reintroduced a benchmark interest rate last year as it pivots from aiding the economy to fighting above-target inflation. Policy makers lifted the key rate by a half-point to 5% from the 4.50% set last September following seven years of failing to tame chronically high inflation through targeting changes in the money supply.”

Global Bubble Watch:

August 10 – Wall Street Journal (Matt Wirz): “Policy moves in Beijing are hitting Chinese corporate bonds and rippling across global markets through the U.S. and European money managers who loaded up on the securities in recent years. Emerging-markets investors have long been subject to such shocks, but Chinese bonds are now so widely held that swings in their prices are affecting even bond funds that don’t specialize in developing countries, including funds managed by firms such as Pacific Investment Management Co. and BlackRock Inc.”

August 12 – Reuters (Patturaja Murugaboopathy and Gaurav Dogra): “Global merger and acquisition (M&A) activity has breached new highs, building on the record-breaking dealmaking streak from the beginning of the year that has been aided by low interest rates and soaring stock prices. According to Refinitiv data, the total value of pending and completed deals announced in 2021 has already touched $3.6 trillion year-to-date, surpassing the full-year tally of $3.59 trillion in 2020. So far this year, 35,128 deals have been announced, a 24% jump over last year.”

August 9 – Bloomberg (Michael Heath): “Australian business sentiment tumbled in July as Sydney’s outbreak of the delta strain of coronavirus forced even tighter stay-at-home orders and leaks of the virus prompted snap lockdowns in other major cities. Business confidence slumped to minus-8 points from plus-11 in June, National Australia Bank Ltd. said in a statement Tuesday. The conditions index — measuring hiring, sales and profits — dropped to 11 points from a revised 25.”

EM Watch:

August 10 – Bloomberg (Andrew Rosati): “Brazil’s consumer prices rose more than forecast in July, as the central bank lifts its interest rate in efforts to bring inflation back to target next year. Prices increased 0.96% from the month prior… Annual inflation sped up to 8.99%, more than double this year’s 3.75% target…”

August 12 – Bloomberg (Maria Eloisa Capurro): “Brazilian policy makers will do whatever it takes to bring inflation expectations back to target despite a perceived deterioration in the country’s fiscal outlook, according to central bank President Roberto Campos Neto. ‘Keeping inflation anchored is key at this moment, when we are facing consecutive inflationary shocks and it’s becoming difficult to model inflation,’ Campos Neto said…”

August 11 – Bloomberg (Justin Villamil and Max de Haldevang): “At first blush, it is easy to lump Banco de Mexico in the camp of hawkish developing-nation central banks that are acting swiftly to snuff out inflation… But look closer and a different picture emerges: The conservative, stability-at-all-cost technocrats who’ve long held the levers inside Banxico are being forced to share power and forge consensus with a band of economists appointed by the country’s populist president. The new members are broadly seen to be more tolerant of inflation in their bid to stoke growth. The new governor taking over in January, former finance minister Arturo Herrera — a long-time ally of President Andres Manuel Lopez Obrador — hinted at his dovish leanings twice last month despite annual inflation running at about 6%, double the bank’s target.”

Japan Watch:

August 11 – Reuters (Leika Kihara): “Japanese wholesale prices rose in July at their fastest annual pace in 13 years… The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 5.6% in July from a year earlier…, increasing for the fifth straight month…”

Social, Political, Environmental, Cybersecurity Instability Watch:

August 10 – Associated Press (Seth Borenstein): “Earth is getting so hot that temperatures in about a decade will probably blow past a level of warming that world leaders have sought to prevent, according to a report… the United Nations called a ‘code red for humanity.’ ‘It’s just guaranteed that it’s going to get worse,” said report co-author Linda Mearns, a senior climate scientist at the U.S. National Center for Atmospheric Research. ‘Nowhere to run, nowhere to hide.’ But scientists also eased back a bit on the likelihood of the absolute worst climate catastrophes. The authoritative Intergovernmental Panel on Climate Change (IPCC) report, which calls climate change clearly human-caused and ‘unequivocal’ and ‘an established fact,’ makes more precise and warmer forecasts for the 21st century than it did last time it was issued in 2013.”

August 10 – Bloomberg (Will Wade): “Greenhouse gas emissions from the U.S. energy industry are on track to surge the most in more than three decades as utilities increasingly turn to coal to power the economic recovery from the Covid-19 pandemic. Carbon emissions will swell 7% this year to 4.89 billion metric tons, according to government data…, the biggest increase since at least 1990. Coal’s share of the U.S. power mix will increase to 23%, up from 20% last year, as high natural gas prices prompt utilities to burn more of the dirtiest fossil fuel.”

August 8 – Axios (Rebecca Falconer): “More than 100 large wildfires are burning across nearly 2.3 million acres of the U.S. West, as forecasters warn Americans to brace for another extreme heat wave this week. Driving the news: ‘Widespread air quality alerts and scattered Red Flag Warnings stretch from the Northwest and Northern Rockies to the High Plains, as well as throughout parts of central California,’ the National Weather Service said…”

August 11 – Associated Press (Nicholas K. Geranios): “The wheat harvest on Marci Green’s farm doesn’t usually begin until late August, but a severe drought stunted this year’s crop and her crews finished harvesting last week because she didn’t want what had grown so far to shrivel and die in the heat. It’s the same story across the wheat country of eastern Washington state, a vast expanse of seemingly endless stretches of flatlands with rolling hills along its edges that produces the nation’s fourth largest wheat crop. It’s been devastated by a drought the National Weather Service has classified as ‘exceptional’ and the worst since 1977. ‘This is definitely the worst crop year we have had since we started farming 35 years ago,’ said Green, whose family is the sixth generation on the same farming land just south of the city of Spokane.”

Leveraged Speculation Watch:

August 11 – Bloomberg (Justina Lee): “Between record dip-buying and the roller coaster in Robinhood Markets Inc., the meme-stock army is running wild across Wall Street again — making life harder for institutional pros trading popular quant strategies. With amateurs now commanding roughly one-fifth of U.S. equity volume, a cohort of systematic players suspect the retail billions are undermining time-tested trades like short selling and low-volatility investing. The industry is in better shape compared to the dark days of the pandemic… Yet there’s a palpable fear that the Reddit generation is getting strong enough to disrupt the market patterns underpinning math-powered allocations. Quants at the likes of UBS Group AG and Campbell & Company are trying to ride the retail-spurred market waves by incorporating trading activity in their models. But the day-trader penchant for chasing seemingly random companies and moving fast as a herd mean it’s not so easy to divine systematic method in the madness. ‘As households start owning more and more equities, there are definitely different patterns in the marketplace,’ said Mani Mahjouri, chief investment officer at quant hedge fund Blueshift Asset Management. ‘The retail investors coming in for whatever reason have a higher utility for risk than typical institutional investors.’”

Geopolitical Watch:

August 11 – Reuters: “Taliban fighters could isolate Afghanistan’s capital in 30 days and possibly take it over within 90, a U.S. defence official cited U.S. intelligence as saying, as the resurgent militants made more advances across the country. The official… said the new assessment of how long Kabul could stand was a result of the Taliban’s rapid gains as U.S.-led foreign forces leave. ‘But this is not a foregone conclusion,’ the official added, saying that the Afghan security forces could reverse the momentum by putting up more resistance.”

August 10 – Financial Times (Kathrin Hille and Henry Foy): “Russian forces are participating in a regular Chinese military exercise for the first time this week, stoking concerns among western analysts that the two US adversaries are developing joint operational capabilities. Joint Western 2021, a drill in the western region of Ningxia involving more than 10,000 troops, focuses on early warning and reconnaissance, electronic warfare and joint attacks, according to statements from the Chinese and Russian defence ministries.”

August 12 – US News WR (Paul D. Shinkman): “China is prepared to recognize the Taliban as the legitimate ruler of Afghanistan if it succeeds in toppling the Western-backed government in Kabul, U.S. News has learned, a prospect that undercuts the Biden administration’s remaining source of leverage over the insurgent network as it continues its startling campaign to regain control.”

August 10 – Newsweek (John Feng): “China said… it’s recalling its ambassador to Lithuania in an ongoing diplomatic spat over the planned opening of a de facto Taiwanese embassy in Vilnius. Taiwan has 23 representative offices in Europe, where the island nation’s only formal diplomatic relationship is with the Holy See. All its missions carry the deliberately ambiguous language of ‘Taipei’ instead of Taiwan or its formal title, the Republic of China.”

Stay Ahead of the Market
Receive posts right to your in box.
July 19, 2024: Election on the Brink
July 12, 2024: Houston, We Have a Bubble Problem
July 5, 2024: Nothing Matters
June 30, 2024: Just the Facts
June 21, 2024: Greatest Threat
June 14, 2024: Potential Catalyst and Q1 2024 Z.1
June 7, 2024: Summer of Discontent and Instability
May 31, 2024: Thesis Corroboration
Double your ounces without investing another dollar!