Back in 2014, Citigroup's Matt King calculated that it costs central banks $200 billion per quarter to avoid a market crash. Boy have things changed since then.
After another modest dip in the market was bought with frenzied gusto this morning, BofA chief investment strategist Michael Hartnett writes in his latest Flow Show note that "investors have zero fear of central banks", to which one can add that investors fully expect central banks to bail out even the tiniest market dip.
And who can blame them? On Wednesday, the New Zealand Central Bank - which as a reminder is now tasked with also containing the country's massive housing bubble it helped create - balked at raising rates this week after the country announced a fresh round of lockdowns due to one covid case, despite NZ house prices up 30%.
But there is another, more tangible reason, why investors feel emboldened by central banks. As Hartnett calculates, the Fed has bought $4 trillion bonds in the past 18 months, twice the amount the US spent on War in Afghanistan past 20 years...
... as it, and other global central banks, have spent $834 million every hour buying bonds since COVID.
Add to this that the US government spends $875 million every hour in ’21 and one gets a staggering number of $1.7 billion spent between central banks and the profligate US government to prevent a
market crash economic disaster. As Hartnett puts it, "little wonder everyone believes in TINA & BTD."
While most of this money has ended in stocks, a lot of which has also trickled down into the broader economy, and according to Hartnett, "stimulus has caused immense inflation of Wall St assets; and more recently inflation on Main Street." Some numbers:
- July 6-month annualized US CPI 7.8%, core US CPI 6.8%,
- US house prices (May) 19.7%;
- Canada CPI @ 20-year high; UK/Canada/NZ/Australia real estate surging;
- "pipeline inflation" PPI's popping in US/China/Japan;
- secular themes of geopolitical risk and nationalism crushing globalization remain inflationary.
And even as the Fed continues to preach that this soaring inflation is "transitory", the BofA strategist believes that it is about to hammer profits leading to the stagflation that Goldman warned about this week:
"the V-shape recovery was very strong but inflation now inducing stagflation; economic surprise indices -ve in US/China/Japan, auto production plummeting in US/Germany/Japan, US consumer confidence smacked to 10-year lows, US home sales - 13% from peak; China growth wobbling, US consumer has peaked, US fiscal optimism fading"
All of this leads to a likely outcome of a Fed potential “policy mistake” in the fall, when the US economy could be hit by a “flash recession”, which Hartnett believes will be revealed via the sharp dip in global PMIs which is already in progress.
So as we head to a period of negative returns in stocks and credit in the second half, Hartnett's advice is to own defensive quality in H2 as a good market hedge to peak policy in H1 and a good macro hedge to the coming peak profits.
That said, his long-term secular view remains inflation>deflation.
This Has To Be A Mistake
This Has To Be A Mistake
While we were digging through the data for today’s household net worth report we stumbled upon something that seem…
While we were digging through the data for today's household net worth report we stumbled upon something that seem beyond ridiculous: the ratio of Household Net Worth to Disposable Net Income. At 786% in the latest quarter, the chart at first appears to be a mistake but we triple checked it, and... well, here it is.
The latest, all-time high print is an increase from 698% in Q1 and also represents the biggest quarterly increase in history!
This number is so ridiculous, it is almost 50% higher than the long-term average of 540%. More importantly, it means that the total net worth number we reported earlier today, which in Q2 hit a record high of $142 trillion, is massively inflated on the back of what is obviously the biggest asset bubble on record.
It also means that if one were to strip away the asset bubble, and net worth was purely a reasonable function of disposable income, then total net worth worth be haircut by 31%, or some $43 trillion, which incidentally, is equivalent to the net worth of the top 1% of US society...
... and which as we showed earlier today is a record 32% of total household net worth.
As an aside, the fact that the top 1% have gained $10 trillion in wealth since the covid pandemic outbreak, is probably just a coincidence, and yet...
Covid has been the best thing ever to happen to the wealthy and powerful. No wonder they don’t want it to end— Hipster (@Hipster_Trader) September 23, 2021
As for the chart which clearly has to be a mistake, we are sad to report that it isn't, and as politicians of both the Democrat and Republican party pretend to fight for the common man, all they are doing is enabling and accelerating the greatest wealth transfer in the world but not for nothing: they too want to be in the top 1%.
“Culture As An Asset”
#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…
Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls.
This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.
In general, there are two types of assets,
- They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or baseball cards or
- They can generate cash flows over time – GaveKal
Creating An Illusion Of Scarcity
Scarcity relative to the money stock is what its all about now, folks.
It probably won’t be long before the Fed has to bailout the baseball card market, no?
Full disclosure, I do own a Mike Trout rookie card.
Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to justify, rationalize, and drive speculation.
Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain and super charge the price ramp by snapping a few pictures of each sample, converting them to NFTs to load up to the internet.
Then again, maybe all this is signaling the start of a big, big inflation cycle and the markets are looking to get out of cash and protect their purchasing power. But that’s too rational.
Can you believe what markets have become, folks? It is hard to see clearly when everybody is making money.
gold inflation markets fed bubble
US Meat Prices To Remain Elevated Amid Depleted Reserves
US Meat Prices To Remain Elevated Amid Depleted Reserves
Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic…
Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic lows and could continue to support higher prices.
New United States Department of Agriculture (USDA) data shows beef reserves dropped 7.7% from a year ago in August, poultry supplies fell 20%, and pork plunged 44% to their lowest levels since 2017, according to Bloomberg.
Jim Sullivan, commercial director for Stable USA, said low meat inventories would suggest meat prices will stay elevated.
"Prices remain very elevated compared to seasonal expectations," Sullivan said.
Soaring supermarket prices have been on the radar of the Biden administration as working-poor families allocate a high percentage of their incomes to basic and essential items. Higher food inflation eats away their wages and is why Biden recently increased SNAP benefits by a quarter.
Earlier this month, the Biden administration finally addressed inflation as a concern but didn't blame the trillions of dollars in fiscal and monetary policies and labor shortages on increased food inflation but instead placed responsibility on meatpackers.
White House National Economic Council Director Brian Deese said "pandemic profiteering" food companies are driving up supermarket costs for Americans. This is nothing more than a blame game and failed government policies that have not just increased food prices but have left supply chains reeling due to stimulus checks that disincentivized workers from working.
New data of low meat supply at US cold storage facility is more bad news for the Biden administration, who will have to develop a new narrative about why meat prices aren't going down. If food inflation remains elevated into early next year, Americans might vote with their wallets during next year's midterms.
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