January 17, 2020: “This is Insane”

January 17, 2020: “This is Insane”
Doug Noland Posted on January 17, 2020

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ETF.com: “…Investors kept plowing money into U.S.-listed ETFs. A cool $13.4 billion flowed into the space during the week…, sending year-to-date inflows to $35.2 billion, well ahead of year-ago levels of $8.4 billion.”

Bloomberg: “Global currency volatility has dropped to the lowest level ever recorded.”

Bloomberg: “Bond managers are starting to contemplate the prospect of another decade without a Federal Reserve interest-rate hike.”

Bloomberg: “Forward price-to-earnings ratios for U.S. growth stocks have reached levels only seen in eight months over a span of three decades of data…”

Reuters: “J.P. Morgan Chase posted profit and revenue that smashed through analysts’ expectations on a strong rebound in trading revenue… Bond trading revenue surged 86% to $3.4 billion…”

Bloomberg: “‘This is Insane’: Muni Yields at the Lowest Since Elvis was King.”

We’re witness to historic developments across global financial markets extending far beyond an equities melt-up. U.S. corporate Credit this week traded near the narrowest spreads (to Treasuries) since 2007. Popular Credit default swap (CDS) indices priced this week at pre-crisis lows – investment-grade and high yield. At 46 bps, Goldman Sachs (5-yr) CDS closed the week at the low since 2007. JPMorgan CDS fell five bps this week to 30.6 bps, the low going back to October 2007. A Leveraged Loans index closed Friday at a record high price. European fixed-income CDS ended the week at or near multi-year lows – investment-grade, high-yield and financial. And this week from Bloomberg: “U.S. High-Grade Market Devours Nearly $100 Billion in New Debt.”

This historic financial Bubble is a manifestation of Monetary Disorder and a direct inflationary consequence of an unprecedented global Credit Bubble. There were new data this week from the Institute of International Finance (IIF).

January 13 – Reuters (Marc Jones): “Global debt is expected to climb to a new all-time high of more than $257 trillion in the coming months, the Institute of International Finance estimated…, adding there was no sign of it retreating either. The amount works out at around $32,500 for each of the 7.7 billion people on planet and more than 3.2 times the world’s annual economic output, but the staggering numbers don’t stop there. Total debt across the household, government, financial and non-financial corporate sectors surged by some $9 trillion in the first three quarters of 2019 alone. In mature markets total debt now tops $180 trillion or 383% of these countries’ combined GDP, while in emerging markets it is double what it was in 2010 at $72 trillion, driven mainly by a $20 trillion surge in corporate debt.”

Global debt has been expanding at the most rapid clip since 2016. After ending 2015 at about $210 Trillion, global debt growth has been in parabolic rise to the IIF’s Q1 2020 estimate of $257 Trillion. This historic debt expansion has been across the board, household, corporate, government and financial – “emerging” and developed economies. From Reuters: “All parts of the world are loading up… Household debt-to-GDP have reached a record high in Belgium, Finland, France, Lebanon, New Zealand, Nigeria, Norway, Sweden and Switzerland. Non-financial corporate debt to GDP topped in Canada, France, Singapore, Sweden, Switzerland and the United States. Government debt-to-GDP has also hit an all-time high in Australia and the United States.”

Total global debt ended Q3 2019 at 322% of GDP, up from the year ago 319%. Global government debt rose to 88.3% of GDP, up from 86%. Corporate debt increased to 92.5% from 91.6%, and Household to 60.2% from 59.6%.

Emerging Asia continues to pile it on, boosting Total Debt-to-GDP to 271% (from the previous year’s 262%). China’s Credit Bubble saw Total Debt expand from 297.4% to 308.5% of GDP. China’s Corporate Debt-to-GDP ratio rose to 156.7% from 154.4%, while rapidly expanding government Debt increased from 49% to 53.6%. From Reuters (Marc Jones): “China’s government debt also grew at its fastest annual pace last year since 2009…, and household debt and general government debt are now at all-time highs of 55% of GDP.”

Asia’s debt boom is a particularly alarming accident in the making. With corporate debt rising to a staggering 227% of GDP, total Hong Kong Debt exceeds 500% of GDP (Financial Debt declining to 133.5% of GDP). Singapore’s financial Bubble continues to inflate, with Financial sector borrowings increasing to 187.7% of GDP (up from 184%). Total Singapore debt inflated to 473.5% of GDP from 462.3%. South Korea is also worthy of special attention. With corporate debt jumping to 101.6% from 95.3%, total South Korean debt surged to 325.6% of GDP (up from 304.5%).

From Reuters: “Another potentially risky trend is that the amount of emerging market ‘hard currency’ debt – debt sold in a major currency like the dollar that can become hard to pay back if a crisis hits a local currency’s value – reached $8.3 trillion in Q3 2019, $4 trillion higher than a decade ago.”

The IIF used salient language: “Spurred by low interest rates and loose financial conditions…” Pondering the data, one thought repeatedly comes to mind: These central banks have really done it this time.

January 16 – Bloomberg (Chang Shu and David Qu): “China’s December supply of credit was steady, taking into account a boost from a widening in the data coverage. The headline figure now includes all government bonds, broadened from the previous definition of special government bonds. New loans and other categories of aggregate social financing were broadly stable — boding well for economic growth support. The monthly increase in aggregate social financing was 2.1 trillion yuan, up slightly from 1.9 trillion yuan in December 2018 on a comparable basis.”

The People’s Bank of China (PBOC) has, once again, revised its tabulation of system Credit, now to include China’s “Treasury” and local government bonds. With the new components, Aggregate Financing expanded $307 billion in December, up from November’s $291 billion and 9% ahead of December 2018 (and up 10.7% y-o-y). For the year, Aggregate Financing surged a historic $3.728 TN, 13.7% ahead of growth from 2018.

By the main categories, Bank (“yuan-denominated”) Loans expanded 12.5% for the year. Booming capital markets continue to provide a stiff tailwind powering huge bond issuance. Corporate Bonds expanded 13.4% in 2019, with Government Bond growth at 14.3% and Asset-Backed Securities surging 31.5%. The contraction of key “shadow banking” categories runs unabated, with Entrusted Loans down 7.6%, Foreign Currency Loans contracting 4.6%, Undiscounted Bankers Acceptances sinking 12.5%, and Trust Loans declining 4.4%.

New Bank Loans expanded $166 billion during December, down from November’s $202 billion but 5% ahead of December 2018. For the year, Loans expanded $2.451 TN – about 4% ahead of 2018 growth. Consumer (chiefly mortgage) Loans continue to power ahead. At $95 billion, Consumer Loans were down slightly from November’s $100 billion expansion but were 40% ahead of December 2018 growth. For the year, Consumer Loans expanded $1.084 TN, or 15.5% – slightly ahead of 2018’s annual expansion. Consumer Loans surged 37% over two years, 66% over three and 139% over five years.

It’s worth noting China’s M2 money supply growth accelerated to 8.7% y-o-y in December, higher than Bloomberg’s consensus estimate of 8.3%. December saw the largest monthly expansion since January, with y-o-y M2 growth the strongest since February 2018’s 8.8%. With Credit booming, China’s economic resilience is no surprise. Ominously, economic growth has slowed markedly in the face of ongoing excess of increasingly unsound money and Credit.

Here at home, further indications of a housing market poised for a big year:

January 17 – Bloomberg (Ana Monteiro): “Groundbreakings on new U.S. homes surged in December to a 13-year high, giving the housing market momentum heading into the new year amid low mortgage rates, solid job growth and optimistic buyers and builders. Residential starts rose 16.9% to a 1.61 million annualized rate after an upwardly revised 1.375 million pace in the prior month… The gain was the biggest in three years and well above all estimates…”

January 16 – CNBC (Diana Olick): “The nation’s single-family homebuilders are feeling very confident about their business in the new year, as high demand and low supply make for a profitable mix. Yet, sentiment in January did slip 1 point on the National Association of Home Builders/ Wells Fargo Housing Market Index to 75, but that is considerably higher than last January, when it was 58. Last month’s reading was a 20-year high.”

January 15 – CNBC (Diana Olick): “It was a seriously strong start to 2020 in the mortgage business for new home loans and refinances. Total mortgage application volume surged 30.2% last week from the previous week… Refinancing led the surge, thanks to a drop in mortgage rates. Those applications jumped 43% for the week and were 109% higher than a year ago… Homebuyers also rushed in, sending purchase application volume up 16% for the week and up 8% from one year ago. Purchase mortgage activity hit the highest level since October 2009.”

And with stocks at record highs and housing markets bubbling, no surprise that the U.S. consumer is both confident and spending.

January 16 – Bloomberg (Max Reyes): “U.S. consumer confidence advanced last week to the highest level in more than 19 years on increased optimism about the economy, personal finances and the buying climate. Bloomberg’s index of consumer comfort rose to 66 in the week ended Jan. 12, the best reading since October 2000, from 65.1… The gain was the eighth in the last nine weeks. A measure of Americans’ views of the economy climbed to the highest since early 2001.”

For the Week:

The S&P500 jumped 2.0% (up 3.1% y-t-d), and the Dow rose 1.8% (up 2.8%). The Utilities surged 3.7% (up 3.4%). The Banks slipped 0.2% (down 2.2%), while the Broker/Dealers jumped 2.5% (up 4.0%). The Transports rose 2.8% (up 3.5%). The S&P 400 Midcaps gained 2.2% (up 1.6%), and the small cap Russell 2000 surged 2.5% (up 1.9%). The Nasdaq100 advanced 2.3% (up 5.0%). The Semiconductors rose 2.7% (up 3.6%). The Biotechs declined 0.5% (up 2.2%). With bullion slipping $5, the HUI gold index fell 1.0% (down 5.4%).

Three-month Treasury bill rates ended the week at 1.5225%. Two-year government yields slipped a basis point to 1.56% (down 1bp y-t-d). Five-year T-note yields declined one basis point to 1.62% (down 7bps). Ten-year Treasury yields were unchanged at 1.82% (down 10bps). Long bond yields were unchanged at 2.28% (down 11bps). Benchmark Fannie Mae MBS yields were little changed at 2.62% (down 9bps).

Greek 10-year yields rose six bps to 1.41% (down 2bps y-t-d). Ten-year Portuguese yields jumped 11 bps to 0.50% (up 6bps). Italian 10-year yields rose five bps to 1.38% (down 4bps). Spain’s 10-year yields increased two bps to 0.46% (down 1bp). German bund yields dipped two bps to negative 0.22% (down 3bps). French yields were unchanged at 0.04% (down 7bps). The French to German 10-year bond spread widened two to 26 bps. U.K. 10-year gilt yields sank 14 bps to 0.63% (down 19bps). U.K.’s FTSE equities index rose 1.1% (up 1.8%).

Japan’s Nikkei Equities Index gained 0.8% (up 1.6% y-t-d). Japanese 10-year “JGB” yields were little changed at zero (up 1bp y-t-d). France’s CAC40 rose 1.1% (up 2.1%). The German DAX equities index added 0.3% (up 2.1%). Spain’s IBEX 35 equities index gained 1.1% (up 1.4%). Italy’s FTSE MIB index increased 0.5% (up 2.7%). EM equities were mostly higher. Brazil’s Bovespa index jumped 2.6% (up 2.4%), and Mexico’s Bolsa rose 2.6% (up 5.2%). South Korea’s Kospi index advanced 2.0% (up 2.4%). India’s Sensex equities index gained 0.8% (up 1.7%). China’s Shanghai Exchange declined 0.5% (up 0.8%). Turkey’s Borsa Istanbul National 100 index jumped 2.4% (up 6.2%). Russia’s MICEX equities index rose 2.3% (up 5.0%).

Investment-grade bond funds saw inflows of $6.624 billion, and junk bond funds posted inflows of $1.730 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates added a basis point to 3.65% (down 80bps y-o-y). Fifteen-year rates increased two bps to 3.09% (down 79bps). Five-year hybrid ARM rates jumped nine bps to 3.39% (down 48bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 3.99% (down 47bps).

Federal Reserve Credit last week expanded $4.4bn to $4.133 TN, with an 18-week gain of $406 billion. Over the past year, Fed Credit expanded $117bn, or 2.9%. Fed Credit inflated $1.322 Trillion, or 47%, over the past 375 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $11.9 billion last week to $3.420 TN. “Custody holdings” increased $16.5 billion, or 0.5%, y-o-y.

M2 (narrow) “money” supply increased $1.9bn last week to a record $15.432 TN. “Narrow money” surged $1.022 TN, or 7.1%, over the past year. For the week, Currency increased $4.1bn. Total Checkable Deposits fell $37.0bn, while Savings Deposits jumped $32.1bn. Small Time Deposits increased $0.6bn. Retail Money Funds gained $2.0bn.

Total money market fund assets fell $7.2bn to $3.630 TN, with institutional money fund assets down $6.6bn to $2.251 TN. Total money funds gained $581bn y-o-y, or 19.1%.

Total Commercial Paper declined $4.6bn to $1.121 TN. CP was up $55.7bn, or 5.2% year-over-year.

Currency Watch:

For the week, the U.S. dollar index increased 0.3% to 97.606 (up 1.1% y-t-d). For the week on the upside, the Mexican peso increased 0.7%, the Swiss franc 0.4%, the South Korean won 0.2% and the Singapore dollar 0.1%. On the downside, the Brazilian real declined 1.5%, the South African rand 0.7%, the Japanese yen 0.6%, the British pound 0.4%, the Australian dollar 0.3%, the Norwegian krone 0.3%, the euro 0.3%, the New Zealand dollar 0.2%, the Swedish krona 0.2% and the Canadian dollar 0.1%. The Chinese renminbi increased 0.87% versus the dollar this week (up 1.51% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index declined 1.1% (down 1.3% y-t-d). Spot Gold slipped 0.3% to $1,557 (up 2.6%). Silver dipped 0.2% to $18.073 (up 0.8%). WTI crude fell 50 cents to $58.54 (down 4%). Gasoline declined 0.8% (down 3%), while Natural Gas sank 9.0% (down 9%). Copper gained 1.1% (up 2%). Wheat rose 1.1% (up 2%). Corn increased 0.9% (unchanged).

Market Instability Watch:

January 14 – Wall Street Journal (Daniel Kruger): “One hurdle to a possible fix for recent volatility in the short-term cash markets: hedge funds. Federal Reserve officials are considering a new tool to ease stresses in the market for Treasury repurchase agreements, or repos. Through the repo market, banks and hedge funds borrow cash overnight, while pledging safe securities such as government bonds as collateral. In September, an unexpected shortage of available cash to lend sparked a surge in the cost of repo-market borrowing, prompting the Fed to intervene for the first time since the financial crisis. One potential solution is to lend cash directly to smaller banks, securities dealers and hedge funds through the repo market’s clearinghouse, the Fixed Income Clearing Corp., or FICC. Hedge funds currently borrow through a process called sponsored repo, in which they ask a large bank to act as a middleman…”

January 17 – Bloomberg (Sam Potter and Anchalee Worrachate): “Stocks may be grabbing most of the headlines, but equities aren’t the only asset class in uncharted territory. Global currency volatility has dropped to the lowest level ever recorded. Less than 48 hours after the U.S. and China put pen to paper on a trade deal that reaffirmed an agreement not to devalue their currencies, the JPMorgan Global FX Volatility Index — which tracks the options market to measure expected price swings — is trading lower than at any point since it was created almost three decades ago.”

January 14 – Bloomberg (Vivien Lou Chen): “Bond managers are starting to contemplate the prospect of another decade without a Federal Reserve interest-rate hike. Forecasting that far out may seem like a fool’s errand. But the central bank’s inability to push inflation sustainably above its 2% target, even after three 2019 rate cuts amid the strongest job market in 50 years, gives that outlook more weight, they said. The scenario rejects the notion that last year’s easing was a sort of insurance move that could be quickly reversed under an improving economy.”

January 14 – Reuters (High Son): “J.P. Morgan Chase posted profit and revenue that smashed through analysts’ expectations on a strong rebound in trading revenue at the end of 2019. …Fourth-quarter profit rose 21% to $8.52 billion… Profit in the investment bank climbed 48% to $2.9 billion, mainly on trading results. Bond trading revenue surged 86% to $3.4 billion, exceeding the $2.61 billion estimate by roughly $800 million, as fixed-income desks were humming, particularly in securitized products and rates. Stock traders posted a 15% increase in revenue to $1.5 billion, compared with the $1.37 billion estimate.”

January 13 – Wall Street Journal (Akane Otani): “Money managers aren’t expecting much when U.S. companies report their latest quarterly results over the next several weeks. But for the bull market to continue its more than decadelong ascent, they are leaning on one crucial assumption: that corporate earnings growth will pick up over the next couple of quarters… Companies in the S&P 500 are projected to report a 2% decline in earnings in the fourth quarter from the year-earlier period, according to FactSet… If that pans out, it would mark the fourth straight quarter of declining earnings—the longest such streak since a period from 2015-16.”

January 15 – CNBC (Yun Li): “Gold prices, which briefly topped $1,600 last week, could rally to $2,000 an ounce amid heightened political risks, Bridgewater’s co-chief investment officer Greg Jensen told the Financial Times… The manager from the world’s biggest hedge fund cited increased income inequality in the U.S. and rising tensions with China and Iran as uncertainties ahead that will prompt more safe-haven buying… ‘There is so much boiling conflict,’ Jensen told the paper. ‘People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.’”

January 14 – Bloomberg (Gregor Stuart Hunter): “The risk-on rally that rolled from December right on into the start of 2020 may be due for a breather, according to an increasing number of market analysts… Forward price-to-earnings ratios for U.S. growth stocks have reached levels only seen in eight months over a span of three decades of data, according to Lapthorne… Sundial Capital Research analysts flagged another warning sign in recent days: options buying has overwhelmingly favored calls over puts in U.S. markets this month. ‘As a percentage of total volume, speculative-call buying last week hit a level never seen in the past 20 years, and there was little in the way of protective-strategy volume as an offset,’ said Sundial president Jason Goepfert.”

Trump Administration Watch:

January 15 – Financial Times (Editorial Board): “For a self-declared master dealmaker such as US president Donald Trump, being able to flaunt a trade truce with Beijing may have been the main goal of his long and damaging trade war. For everyone else, it amounts to little more than a hope — and a weak one at that — that things will not get worse. The agreement, signed in Washington…, is billed as ‘phase one’ of a bigger deal. On its own, however, it leaves the US-China trade relationship in a much worse state than when Mr Trump took office. It leaves average tariff levels on both sides at around 20%. Two years ago the average US tariff on Chinese imports stood at 3%; in the other direction it was 8%.”

January 14 – Reuters (Makini Brice and Andrea Shalal): “The United States will maintain tariffs on Chinese goods until the completion of a second phase of a U.S.-China trade agreement, U.S. Treasury Secretary Steven Mnuchin said…, a day before the two sides are to sign an interim deal. Mnuchin told reporters that President Donald Trump could consider easing tariffs if the world’s two largest economies move quickly to seal a follow-up agreement. ‘If the president gets a Phase 2 in place quickly, he’ll consider releasing tariffs as part of Phase 2,’ Mnuchin said.”

January 15 – Associated Press (Paul Wiseman and Joe McDonald): “After 18 months of economic combat, the United States and China are set to take a step toward peace Wednesday. At least for now. President Donald Trump and China’s chief negotiator, Liu He, are scheduled to sign a modest trade agreement in which the administration will ease some sanctions on China and Beijing will step up its purchases of U.S. farm products and other goods. Above all, the deal will defuse a conflict that has slowed global growth, hurt American manufacturers and weighed on the Chinese economy. But the so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies —that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018.”

January 16 – CNBC: “White House trade advisor Peter Navarro told CNBC… the Trump administration is looking to make progress in ‘phase two’ trade talks with China on U.S. demands that fell short in phase one. The U.S. wants to work on getting China to stop subsidizing its state-owned enterprises, Navarro said…, a day after the U.S. and China signed their phase one deal. Navarro said China needs to stop ‘cyber intrusions.’ ‘It’s just insane that Chinese government officials continue to hack into American businesses and steal trade secrets,’ he added. ‘It’s very destructive to our businesses.’ Navarro said China also needs to curb the flow of illicit fentanyl.”

January 14 – Reuters (Philip Blenkinsop): “The United States, the European Union and Japan proposed new global trade rules… to curb subsidies they say are distorting the worldwide economy, with China their clear target… After meeting in Washington, Japanese Economy Minister Hiroshi Kajiyama, U.S. Trade Representative Robert Lighthizer and EU trade commissioner Phil Hogan said in a joint statement that existing World Trade Organization (WTO) rules were insufficient to tackle market distortions from subsidies.”

January 14 – Wall Street Journal (Bob Davis and Katy Stech Ferek): “The U.S. and China are about to declare a pause in their trade war by signing an initial pact this week, but a continuing battle over technology is bound to keep relations between the two superpowers on edge. The Trump administration’s immediate focus is tightening restrictions on Huawei… The Commerce Department recently sent regulations to the Office of Management and Budget that would largely eliminate a loophole that allowed U.S. companies to sell to Huawei from their overseas facilities, people familiar with the matter said.”

January 11 – Bloomberg (Glen Carey and David Wainer): “Iran and the U.S. stepped back from the brink of open military conflict this week, but underlying tensions that led to a spate of violence in the past month aren’t going away and sanctions pressure on Tehran is climbing even higher. Despite a modest easing of tensions… the Islamic Republic won’t back down from its goal of making the U.S. pay for killing a top general and for the crippling sanctions imposed since 2018, according to a senior Western diplomat. Instead, current and former diplomats and senior Pentagon officials predict the conflict is likely to return to a more common historic pattern: strikes by proxies on the U.S. and allies, cyber attacks and harassment of ships in the Persian Gulf.”

January 15 – Reuters (Andrea Shalal and Susan Heavey): “The U.S. economy is coping with large budget deficits at the moment, but government spending cannot continue to expand at the current rate indefinitely, Treasury Secretary Steven Mnuchin said… ‘At this point the economy can handle these deficits, but there’s no question over time we need to look at these government spending issues. We can’t continue to expand government spending at the rate that we are,’ Mnuchin said.”

January 13 – Reuters (Andrea Shalal, Alexandra Alper, David Lawder, Eric Beech and Kanishka Singh): “The U.S. Treasury Department… dropped its designation of China as a currency manipulator days before top officials of the world’s two largest economies were due to sign a preliminary trade agreement to ease an 18-month-old tariff war. The widely expected decision came in a long-delayed semi-annual currency report, reversing an unexpected move by Treasury Secretary Steven Mnuchin last August at the height of U.S.-China trade tensions.”

January 12 – Reuters (Steve Holland): “The United States and China have agreed to restart semi-annual talks aimed at resolving economic disputes between the two countries, a process abandoned at the start of the Trump administration as a trade conflict between the countries escalated.”

Federal Reserve Watch:

January 14 – Financial Times (Colby Smith): “The Federal Reserve signalled that it plans to maintain its interventions in short-term funding markets at an elevated level, even after a year-end cash squeeze passed without any jump in borrowing costs. The New York arm of the US central bank said… it would only start to cut back its cash injections for the repo market next month, and even then the reduction will be modest. Traders have been wondering when and how the market will be weaned off central bank loans, which began after a surprising jump in overnight borrowing costs in September and were expanded in size in December before the traditionally volatile end to the year… ‘History has shown us that whenever these sorts of programmes are introduced, they tend to last longer than what the Fed expects,’ said Nick Maroutsos, co-head of global bonds at Janus Henderson…”

January 15 – Bloomberg (Steve Matthews and Craig Torres): “The Federal Reserve’s low interest rates, the perception that there is a high bar to future increases and expansion of its balance sheet are helping to lift asset prices, Federal Reserve Bank of Dallas President Robert Kaplan said. ‘All three of those actions are contributing to elevated risk-asset valuations,’ Kaplan told Michael McKee… on Bloomberg Television. ‘And I think we ought to be sensitive to that.’ Kaplan’s views contrast with those of many of his colleagues, who insist the Fed’s resumption of purchases of assets is a technical change that has little or no effect on the value of asset prices.”

January 14 – Reuters (Jonnelle Marte): “U.S. Federal Reserve policymakers are forecasting an ‘almost ideal’ outcome in 2020 where the U.S. labor market will stay strong and inflation will approach the central bank’s 2% target, but officials should remember to consider potential risks, Boston Federal Reserve Bank President Eric Rosengren said…”

January 14 – Bloomberg (Christopher Condon): “Federal Reserve Bank of Kansas City President Esther George, one of the U.S. central bank’s most consistently hawkish officials, said she’s comfortable keeping interest rates on hold ‘for now’ amid a positive outlook for 2020. ‘The U.S. economy is currently doing well, with real GDP growth near trend, unemployment near record lows, and inflation low and stable,] George said… ‘Keeping rates on hold for now is appropriate in my view as we assess the economy’s response to last year’s rate cuts and monitor incoming data.’”

January 12 – Wall Street Journal (Sarah Chaney): “Federal Reserve payments to the U.S. Treasury declined in 2019 to a decade low, as the central bank’s expenses rose and income declined. The Fed sent about $54.9 billion to the government last year, down from $65.3 billion in 2018… The Fed payments to Treasury, called remittances, hit a record in 2015 due to swelling interest income from its huge bondholdings.”

U.S. Bubble Watch:

January 13 – Associated Press (Martin Crutsinger): “The U.S. budget deficit through the first three months of this budget year is up 11.8% from the same period a year ago… The… deficit from October through December totaled $356.6 billion, up from $318.9 billion for the same period last year. Both government spending and revenues set records for the first three months of this budget year but spending rose at a faster clip than tax collections… The Congressional Budget Office is projecting that the deficit for the current 2020 budget year will hit $1 trillion and will remain over $1 trillion for the next decade.”

January 13 – CNBC (Jeff Cox): “The U.S. fiscal deficit topped $1 trillion in 2019, the first time it has passed that level in a calendar year since 2012… The budget shortfall hit $1.02 trillion for the January-to-December period, a 17.1% increase from 2018, which itself had seen a 28.2% jump from the previous year.”

January 11 – Wall Street Journal (Jacob M. Schlesinger): “As Democrats embrace a more activist government, some are flirting with an idea that hasn’t received serious attention since the 1970s: a minimum guaranteed income for all Americans. Entrepreneur Andrew Yang’s presidential candidacy has gained traction with a proposal to give a $1,000 monthly ‘freedom dividend’ to all Americans… No mainstream officeholder has joined Mr. Yang’s call for a universal basic income. But policies to create a kind of basic income—albeit not universal—in the form of a new financial floor for millions of households have drawn backing from other Democrats seeking the White House and many lawmakers. Party leaders are embracing a range of federally backed economic rights, including universal access to health care, college, child care, and broadband.”

January 16 – Reuters: “U.S. retail sales rose for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, which could strengthen the view that the economy maintained a moderate growth pace at the end of 2019. …Retail sales increased 0.3% last month. Data for November was revised up to show retail sales gaining 0.3%… Economists… Compared to December last year, retail sales accelerated 5.8%. Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5% last month…”

January 16 – MarketWatch (Keith Jurow): “The U.S. housing-market crash a dozen years ago is evidently ancient history for many mortgage lenders. Mortgage underwriting standards have eased considerably in the past couple of years; one of the largest U.S. mortgage originators now offers a jumbo mortgage of up to $1 million with only 10% down if you have a FICO score of at least 760. Borrowers who can scrape up a down payment of between 30% and 40% might be able to receive up to $3 million. One smaller lender is now offering home buyers a loan as high as $2 million with a FICO score as low as 640. This score was considered sub-prime during the bubble years… Such favorable terms indicate a confidence that housing markets are in decent shape and there is nothing on the horizon to worry about… In reality, jumbo mortgages — loans that exceed the guarantees set by Fannie Mae and Freddie Mac — are a jumbo-sized problem.”

January 14 – Wall Street Journal (David Benoit and Ben Eisen): “A healthy U.S. economy pushed up profits at America’s biggest banks, allowing them to grow even though falling interest rates made lending less profitable. Consumer borrowing and a rebound in investment-banking revenues propelled JPMorgan… and Citigroup Inc. to double-digit earnings growth in the final three months of 2019. JPMorgan… reported its most profitable year on record. For a while, companies and consumers were telling different stories about the state of the economy. Consumers continued to borrow and spend at a brisk pace, while companies were holding back due to fears that growth was on the wane. A trade deal with China and an improved outlook for the U.S. economy have eased those fears, boosting banks’ businesses that serve corporate clients.”

January 14 – Reuters (Lucia Mutikani): “U.S. consumer prices rose slightly in December even as households paid more for healthcare, and monthly underlying inflation slowed… The… consumer price index increased 0.2% last month after climbing 0.3% in November. The monthly increase in the CPI has been slowing since jumping 0.4% in October. In the 12 months through December, the CPI rose 2.3%. That was the largest increase since October 2018 and followed a 2.1% gain year-on-year in November. The CPI accelerated 2.3% in 2019, the largest rise since 2011, after increasing 1.9% in 2018.”

January 15 – Reuters: “U.S. producer prices edged up in December as a rise in the cost of goods was offset by weakness in services… The producer price index for final demand ticked up 0.1% last month after being unchanged in November… In the 12 months through December, the PPI increased 1.3% after gaining 1.1% in November.”

January 12 – Wall Street Journal (Austen Hufford): “Manufacturers are paying relocation costs and bonuses to move new hires across the country at a time of record-low unemployment and intense competition for skilled workers. Half a million U.S. factory jobs are unfilled, the most in nearly two decades, and the unemployment rate is hovering at a 50-year low… At the same time, Americans are moving around the country at the lowest rate in at least 70 years. To entice workers to move, manufacturers are raising wages, offering signing bonuses and covering relocation costs, including for some hourly positions.”

January 16 – CNBC (Jeff Cox): “The rapid increase of student loan debt has slowed over the past few years, but individual borrower balances aren’t going down mostly because hardly anybody is paying down their loans. Total indebtedness over the past year or so has stopped its meteoric rise, according to a study that Moody’s… Nevertheless, the study showed a number of factors are constraining borrowers from lightening their loads. Outstanding loans total more than $1.6 trillion, more than doubling over the last decade and tripling since 2006.”

January 13 – Wall Street Journal (Marc Vartabedian, Sara Castellanos and Steven Rosenbush): “Large technology companies have long maintained startup-investment programs, but now corporations across many non-tech industries are plowing more money into startups. The increased activity allows companies to keep tabs on nascent technology, have early looks at potential acquisitions and hopefully stave off technological disruption. The number of non-tech corporate venture deals last year reached 256 through Dec. 6, up from 152 in 2009, according to… PitchBook Data Inc. The total value of those deals rose to $8.8 billion from $2.7 billion over the same period…”

January 13 – Reuters (Anirban Sen and Jane Lanhee Lee): “In the months since office-sharing startup WeWork’s botched public debut, mid- and late-stage investors in big start-ups have been pushing for more safeguards in case their firms fail to go public or sell shares at a lower valuation than pre-IPO financing rounds. Fundraising terms are rarely made public, but more than a dozen Silicon Valley-based lawyers, entrepreneurs and venture-capital investors told Reuters that since WeWork’s canceled public offering and other ill-fated IPOs, investors have been securing protections of their original investments in ‘unicorns’ – private companies valued at $1 billion or more.”

January 15 – Bloomberg (Luke Kawa and Sonali Basak): “A private equity giant is warning that more untested companies are due for a reckoning in repeats of WeWork’s abrupt fall from grace. Henry McVey, the head of global macro and asset allocation at KKR & Co., recommends investors stay underweight many high-flying yet unprofitable companies funded by venture-capital firms or in the early stages of growth. The WeWork situation was not a ‘one-off’ occurrence,’ he added in a 2020 outlook report, which didn’t reference any specific companies. A growing number of the co-working company’s peers ‘may have difficulty funding in 2020.’”

January 14 – Bloomberg (Simon Casey): “Such is the extent of the shakeout in the U.S. shale industry that Permian Basin oil production is closer to peaking than many forecasts suggest, according to one energy investor. Adam Waterous, who runs Waterous Energy Fund, regards the sector’s financial position as unsustainable after years of disappointing returns for investors and negative free cash flow. With capital markets now largely shunning shale producers, the impact will begin to show in oil and natural gas output from the largest U.S. oil patch, he said. ‘We think we are at or near peak Permian’ production, Waterous said… ‘The North American oil market has been grossly overcapitalized, which is not sustainable.’”

January 15 – Bloomberg (Martin Z Braun): “New York City is reaping the benefits of a construction boom. The city set a value of $1.38 trillion for its more than one million properties for the fiscal year beginning in July, a $62 billion increase from the prior period, as the value of new construction reached the highest level in the last 10 years… New construction boosted the market value of city property by $14 billion, more than 20% of the increase in market value. Rental apartments account for $4.4 billion, or about 32%, of citywide construction activity.”

January 10 – Bloomberg (Nic Querolo): “The Bay Area’s housing market is cooling off after years of growth fueled by the tech boom. The median price of a house in San Francisco increased just 1.3% from a year earlier to $1.6 million, the smallest gain since 2012, according to… Compass. Prices in Santa Clara County, which includes San Jose and Palo Alto, declined almost 6% to $1.26 million. The housing market in the Bay Area has exploded in recent years, with the tech industry driving a wealth boom that pushed up prices, particularly in San Francisco. A flurry of IPOs in 2019 was expected to continue the momentum…”

Fixed-Income Bubble Watch:

January 15 – Bloomberg: “Investments in fixed income mutual funds expanded in the week ended Jan. 8 for the 31st straight week of inflows, according to the Investment Company Institute. Inflows totaled $20.4 billion, compared with $5.74 billion the prior week.”

January 17 – Bloomberg (Danielle Moran and Mallika Mitra): “The last time municipal-bond yields were this low Dwight D. Eisenhower was the president, Elvis Presley released his second studio album and Grace Kelly married Monaco’s Prince Rainier III. The Bond Buyer’s 20-year index of general-obligation bonds reset at 2.56% this week, the lowest since June 1956… And for some context, that year some $5.4 billion of new long-term bonds were sold, a sum that’s now considered a somewhat slow week… ‘That is insane,’ said Nisha Patel, the director of portfolio management at Parametric…”

January 14 – Reuters (Kate Duguid): “The dawn of the new decade has brought a reprieve for debt-laden companies in the energy sector: Investors are throwing money their way again, for now. Having been largely shut out of capital markets in 2019, low-rated energy firms, some on the brink of default, are racing to secure financing. They are finding willing lenders. Indeed, the first two weeks of the year have brought as many energy junk bond sales as in the last half of 2019, according to… Dealogic… In addition, total return in the oil and gas sector is broadly outperforming the wider high-yield debt market after getting walloped last year.”

January 14 – Wall Street Journal (Julia-Ambra Verlaine and Sam Goldfarb): “A surprise rally in riskier corporate bonds is providing much-needed help to some energy companies with lower credit ratings, allowing them to issue new bonds to push back looming repayment dates. Seven energy companies with speculative-grade ratings sold roughly $6 billion of bonds last week. That is the largest weekly total since September 2014, just before oil prices crashed that November, and it amounted to nearly 60% of total high-yield bond issuance over the five-day period…”

January 17 – Bloomberg (Molly Smith, Tasos Vossos and Olivia Raimonde): “Money managers like KKR & Co. and Guggenheim Partners fear that the party may be nearing an end for the weakest investment-grade corporate bonds. With economic growth relatively stagnant in major global economies, and heightened risk of disappointing earnings and greater regulation in areas like technology, a wave of investment-grade companies could get cut to junk over the next 12 to 18 months… Because BBBs make up more than half the $8.4 trillion investment-grade corporate markets in both the U.S. and Europe, there’s that much more debt at risk of possibly falling to speculative grade. In 1993, BBBs were more like a quarter of the market.”

January 16 – Bloomberg (Adam Tempkin): “Bonds backed by riskier mortgage collateral are set to see issuance double in 2020 for the sixth straight year, according to Angel Oak Capital Advisors. Sales of securities backed by collateral known as non-qualified mortgages should increase to close to $50 billion this year from roughly $25 billion in 2019, Sam Dunlap, senior portfolio manager at the Atlanta-based investment management firm, said… ‘If supply reaches this high, it would indicate the sixth straight year of 100% growth in non-QM issuance,’ Dunlap said.”

China Watch:

January 15 – Reuters (Ryan Woo, Jeff Mason, Andrea Shalal and Dave Lawder): “China will boost purchases of U.S. goods and services by $200 billion over two years in exchange for the rolling back of some tariffs under an initial trade deal signed by the world’s two largest economies, defusing an 18-month row that has hit global growth. While acknowledging the need for further negotiations with China to solve a host of other problems, President Donald Trump hailed the agreement as a win for the U.S. economy and his administration’s trade policies.”

January 13 – Wall Street Journal (Yoko Kubota): “The wheels are coming off the world’s biggest auto market after decades of blistering growth, as a prolonged and unprecedented sales slump partly induced by policy changes closes thousands of dealerships, idles factories and weighs on an already slowing economy. In Tangshan, a city of about 7.6 million in the country’s north known for its steel producers and heavy industry, around five of the 30 dealerships in the Lunan Car Culture Industrial Park have closed in the past year, dealers said. Abandoned furniture sits in empty showrooms, while ‘For Rent’ signs appear behind shuttered glass doors. Similar scenes are unfolding across small and midsize cities like Tangshan that supercharged China’s auto-market expansion in recent years, even as growth was capped in megalopolises like Beijing and Shanghai, where congestion and pollution led the government to place quotas on license-plate issuance.”

January 15 – Reuters (Yawen Chen, Ryan Woo and Lusha Zhang): “China’s new home prices grew at their weakest pace in 17 months in December, with broader curbs on the sector continuing to cool the market in a further blow to the sputtering economy. Average new home prices in China’s 70 major cities rose 6.6% in December, slowing from a 7.1% gain in the previous month… It was the slowest pace since July 2018, and significantly weaker than the 9.7% gain seen in December 2018.”

January 14 – Reuters (Winni Zhou and Andrew Galbraith): “China’s central bank extended fresh short- and medium-term loans on Wednesday but kept the borrowing cost unchanged, as it seeks to maintain adequate liquidity in a slowing economy and ease a potential crunch ahead of the Lunar New Year… It injected 300 billion yuan ($43.51 billion) via the liquidity tool.”

January 14 – Reuters (Gabriel Crossley): “China’s exports in December rose 7.6% from a year earlier…, signaling a modest recovery in demand as a preliminary trade deal with the United States raised hopes that a prolonged tariff war will be de-escalated. It was the first rise in China’s exports since July 2019 and the fastest growth rate since March 2019.”

January 16 – Reuters (Yawen Chen, Ryan Woo and Stella Qiu): “China’s property investment hit a two-year low in December even as it grew at a solid pace in 2019, adding to recent signs of a slackening in the sector and suggested Beijing might need to offer more stimulus to stabilize a cooling economy. Real estate investment… increased 9.9% in 2019 from the year-earlier period, down from 10.2% in the first 11 months but still outpaced a 9.5% gain in 2018. In December alone, year-on-year growth slowed to 7.3% from 8.4% in November, the weakest pace since December 2017…”

January 12 – Bloomberg: “A distressed Chinese fertilizer company said it may report one of the nation’s biggest-ever annual losses, sparking a slump in its shares and underscoring the challenges faced by some pockets of corporate China… State-owned Qinghai Salt Lake Industry Co. expects to record a 2019 net loss of as much as 47.2 billion yuan ($6.8bn) largely due to asset writedowns, an amount that’s nearly twice as big as the company’s market value and one-seventh the size of its home province in northwest China.”

January 12 – Reuters (David Stanway): “China disposed of around 2 trillion yuan ($289.11bn) in non-performing loans over the whole of last year amid a national campaign to restrict high-risk lending, the country’s banking regulator said… The China Banking and Insurance Regulatory Commission (CBIRC) said… that the total assets of the country’s shadow banking sector had fallen by 16 trillion yuan over the past three years. It said it would continue to ‘dismantle’ the shadow banking sector in 2020 and step up punishments for those that violate regulations.”

January 14 – Reuters (Yimou Lee and Felice Wu): “Taiwan President Tsai Ing-wen urged China… to review its policy towards the island, days after she won a landslide re-election victory, in a rebuke that could fuel further tensions with China. ‘We hope China can understand the opinion and will expressed by Taiwanese people in this election and review their current policies,’ Tsai told reporters…”

January 12 – Financial Times (Editorial Board): “The crushing victory for Tsai Ing-wen in Taiwan’s presidential election has just provided an unwelcome New Year’s present for Xi Jinping… Under Mr Xi, Beijing has stepped up its efforts to end Taiwan’s de facto independence, and to incorporate the island into the mainland. At the weekend, Taiwanese voters delivered their response by re-electing President Tsai — who has enraged Beijing by putting the defence of her country’s sovereignty and democracy at the very centre of her electoral campaign. A year ago, Ms Tsai was in political trouble. But events in Hong Kong have provided the Taiwanese leader with a compelling theme. Hong Kong’s relationship with the PRC — known as ‘one country, two systems’ — was originally held out as a model for the incorporation of Taiwan into the Chinese state, as Mr Xi has noted. However, the popular revolt in Hong Kong allowed Ms Tsai to argue that ‘one country, two systems’ has clearly failed…”

January 13 – Reuters (Huizhong Wu, Lusha Zhang, Judy Hua and Ben Blanchard): “Separatists will ‘leave a stink for 10,000 years’, the Chinese government’s top diplomat said…, in Beijing’s most strongly worded reaction yet to Taiwan President Tsai Ing-wen’s re-election on the back of a message of standing up to Beijing… Chinese State Councillor Wang Yi said the ‘one China’ principle that recognizes Taiwan as being part of China had long since become the common consensus of the international community. ‘This consensus won’t alter a bit because of a local election on Taiwan, and will not be shaken because of the wrong words and actions of certain Western politicians,’ Wang added, in an apparent reference to U.S. Secretary of State Mike Pompeo.”

Central Bank Watch:

January 12 – Financial Times (Martin Arnold): “When the European Central Bank holds its first rate-setting meeting of 2020 this month, almost half of its governing council will have been members for less than a year… The arrival of former IMF managing director Christine Lagarde to replace Mario Draghi as ECB president in November is only the most obvious part of a changing of the guard at the bank… ‘We are moving from a dovish and experienced team of central bankers to a less dovish and less experienced team of central bankers, so that is a risk for markets,’ said Frederik Ducrozet, global strategist at Pictet Wealth Management.”

EM Watch:

January 13 – Bloomberg (Anirban Nag): “Just two years ago, Prime Minister Narendra Modi was helming an economy expanding 8%, spurring optimism India was on a path to become a major global growth driver. Now, stagflation looms as the economy grinds toward its slowest expansion in more than a decade and inflation spikes above the central bank’s target, driven by higher food prices. Social unrest against a restrictive new citizenship law is yet another challenge.”

January 14 – Financial Times (Arvind Subramanian): “India’s economy is experiencing a sharp slowdown… For several years, analysts and organisations such as the IMF and World Bank have touted India as the fastest-growing major economy, with the world’s brightest medium-term outlook. But in December the Reserve Bank of India, the central bank, cut its forecast for 2019 growth in gross domestic product to 5%. That headline figure actually understates the slowdown. High-frequency indicators show that in the first eight months of the current fiscal year, non-oil exports and imports have fallen, as has production of investment goods. Production of consumer goods and real government tax receipts have both grown by only 1%. And a savage credit crunch has reduced commercial lending to less than Rs1tn in the first six months of this fiscal year, one-seventh its level the previous year.”

January 13 – Reuters: “India’s retail inflation accelerated to 7.35% in December due to high food prices… December inflation was higher than 6.20% forecast…”

January 12 – Bloomberg (Dana Khraiche): “Lebanon’s central bank wants local holders of a $1.2 billion sovereign Eurobond maturing in March to swap into new notes as part of an effort to manage the country’s debt crisis. ‘We are making preemptive proposals that are voluntary’ and dependent on the consent of Lebanese banks, Governor Riad Salameh said… ‘We haven’t taken any decision yet because we don’t have a government.’”

Europe Watch:

January 16 – Financial Times (Tommy Stubbington): “Records have tumbled across eurozone bond markets this week as investors queue to lend to governments, betting that interest rates in the currency bloc will stay at rock bottom for the foreseeable future. Spain amassed €53bn of bids for its new 10-year bond on Tuesday — the most ever for any euro bond — in a sale that raised €10bn. Italy came close to breaking that record with €47bn of orders for its new €7bn 30-year bond, while Belgium, Cyprus and Ireland have all racked up their biggest-ever order books in recent days.”

Global Bubble Watch:

January 15 – Bloomberg (Eric Roston): “The planet is warming faster than at any time in the history of civilization. Five major independent assessments of global temperatures in 2019 each concluded that last year was the second hottest in 140 years of data. The record in 2016 came along with one of the most intense El Nino events ever measured, which has the tendency to push up the average. This year attained the second highest reading without being juiced by major natural variability.”

January 16 – Financial Times (Camilla Hodgson and Billy Nauman): “Financial markets could face upheaval if the risks of climate change are not taken more seriously, McKinsey warned in a report… Even climate-conscious investors, companies and regulators could be wrongfooted as slight increases in global temperatures threaten to create havoc, said the consultancy’s research arm, the McKinsey Global Institute. ‘Markets have been premised on the context of a relatively stable climate,’ said Jonathan Woetzel, one of the report’s authors. ‘But there is an edge where risks can spike, which calls into question the capacity of the system.’”

January 12 – Reuters (Shubham Kalia): “Bank of England Deputy Governor Sam Woods… said that Britain’s financial sector could face a crackdown by regulators seeking to enforce their rules more tightly. ‘I think it’s possible that as we come out of the reform phase, and enter a phase where we’re defending the reforms that have been put in place, that you may see more enforcement activity,’ Woods told the Telegraph…”

January 14 – Bloomberg (Gabriel Crossley): “South Korean leader Moon Jae-in ramped up his commitment to rein in rising property prices…, pledging an ‘endless’ stream of stronger measures if soaring housing prices in some neighborhoods don’t cool. ‘Excess liquidity and low rates around the globe are behind the rise in property prices, drawing speculative money into real estate and causing large price jumps in many countries,’ Moon said. ‘South Korea is showing the same trend.’”

Leveraged Speculation Watch:

January 17 – Bloomberg (Ksenia Galouchko): “A breed of systematic trader acutely sensitive to volatility is charging into U.S. stocks at the kind of pace last seen before ‘volmageddon’ rocked Wall Street almost two years ago. Volatility-targeting funds are doubling down on equities after geopolitical turmoil that threatened to derail the bull market in the end barely slowed it down. These players buy and sell based on price swings, and their leverage — a measure of exposure to stocks — now sits at its 81st percentile since 2011, according to Morgan Stanley.”

Geopolitical Watch:

January 15 – Bloomberg (Iain Marlow and Hannah Dormido): “The violent protests and political upheaval that marked 2019 and challenged governments from Hong Kong to Chile is set to stay and is now the ‘new normal,’ according to a global risk firm. Verisk Maplecroft… said in a new report… that it predicts ‘continued turmoil in 2020’ as administrations around the world continue to be surprised by demonstrators and ill-prepared to address the underlying social grievances that spur them. ‘We all need to buckle up for 2020,’ said Miha Hribernik, …head of Asia risk insight for Verisk Maplecroft. ‘The rage that caught many governments off-guard last year isn’t going anywhere and we’d all better adapt.’”

January 12 – Reuters (Parisa Hafezi): “Protests erupted across Iran for a second day on Sunday, increasing pressure on the Islamic Republic’s leadership after it admitted its military shot down a Ukrainian airliner by accident, despite days of denials that Iranian forces were to blame. ‘They are lying that our enemy is America, our enemy is right here,’ one group of protesters chanted outside a university in Tehran…”

January 13 – CNBC (Abigail Ng): “Beijing has been forthcoming about its long-term goals and is the ‘most serious threat’ to the U.S., according to a former U.S. national security advisor. ‘China has been very clear about what its long-term goals are strategically,’ James Jones, who served as NSA under former President Barack Obama, told CNBC’s Hadley Gamble. ‘We need to take that very seriously.’ One Chinese goal is “total control of their own people using technology,’ he said… ‘They’re making astonishing progress to control every single citizen, whatever he or she does.’”

January 16 – Reuters (Ben Blanchard): “A U.S. warship sailed through the Taiwan Strait on Thursday, the island’s defense ministry said, less than a week after Taiwan President Tsai Ing-wen won re-election by a landslide on a platform of standing up to China which claims the island. The ship sailed in a northerly direction through the sensitive waterway and Taiwan’s armed forces monitored it throughout, the ministry said…”

January 16 – CNBC (Holly Ellyatt): “Russia saw extreme political upheaval on Wednesday with constitutional reforms announced by President Vladimir Putin leading to the resignation of government. By the end of the day, Putin had also proposed a new prime minister and political commentary was rife with speculation over the strongman’s strategy and grip on power. The day started with Putin giving his annual address to lawmakers and members of the elite in which he announced a national referendum on the reforms that would seek to limit presidential power and hand more control to parliament. One notable change would be that the Duma (Russia’s parliament), rather than the president, would appoint any prime minister.”

January 16 – Reuters (Tuvan Gumrukcu and Ece Toksabay): “Turkey is beginning to send troops into Libya in support of the internationally recognized government in Tripoli, President Tayyip Erdogan said on Thursday, days before a summit in Berlin which will address the Libyan conflict.”

January 14 – Bloomberg (Karl Maier): “Once again, a U.S.-backed toppling of a longstanding dictator has led to a power vacuum and widespread violence that’s been exploited by a revolving door of militant groups. The scenario that unfolded in Iraq after the 2003 U.S. invasion is replaying in Libya, where warring factions are battling for control of the capital, Tripoli. The conflict has killed more than 2,000 people, forced tens of thousands to flee and opened up the oil-rich country to traffickers of African migrants to Europe. It’s been a mess since NATO helped oust dictator Moammar Qaddafi in 2011.”

January 14 – Financial Times (Michael Peel): “Talks between Libya’s warring parties are finally due to happen in Berlin on Sunday — but it is a sign of the EU’s struggle for relevance that Moscow this week hosted the first international negotiations on the oil-rich country’s fate. Europeans were nowhere to be seen as Russian diplomats sat down with Turkish counterparts on Monday in an attempt to seal a fragile ceasefire in Libya. The gathering foundered on Tuesday after Khalifa Haftar, the military strongman seeking to win control of the country, walked out. But the meeting had already stoked fears that, as in Syria, the EU risks being shut out of efforts to deal with a crisis it sees as crucial to its own security. ‘We do have this pattern emerging: Russia and regional powers are playing us in our own neighbourhood,’ said Kristina Kausch, senior fellow at the Brussels office of the German Marshall Fund of the US, a think-tank.”

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