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What’s The Real Downside To Some of These Key Commodities?

Last night, Autodata reported its first estimates for September auto sales in the US. According to its own as well as those compiled by the Bureau of Economic…

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This article was originally published by Alhambra Investment Market Research

Last night, Autodata reported its first estimates for September auto sales in the US. According to its own as well as those compiled by the Bureau of Economic Analysis (the same government outfit which keeps track of GDP), vehicle sales have been sliding overall ever since April. For a couple months in the middle of Uncle Sam’s helicopter-fed frenzy, the number of vehicle units had surged to a high of more than 18 million (seasonally-adjusted annual rate) in both datasets.

It’s been all downhill ever since, the numbers dropping to just barely 13 million (again, both) during August. For September, though, Autodata’s newly released figure was an astoundingly low 9.66 million.

How low is that? COVID-level low; bottom of the Great “Recession” territory. Off the (my) chart.

No worries, it’s just chips. That’s what everyone says.; nothing more to see here.

The shortage of semiconductors is certainly weighing on automakers who can’t finish off their products without them. This bottleneck continues to choke off inventory, as the earlier spike in sales gifted by the government’s “stimulus” tore through whatever limited stock dealers (and some wholesalers) had on hand. Unable to keep up production without sufficient semis, overall inventory of available-for-sale cars and trucks is at historic lows.

Without much in stock, few units available to sell, there can’t be much for sales. Thus explains, apparently, September’s huge drop and retailing miss.

But is that all? Chips, yes, yet there are more fundamental questions arising over on the demand side.

More generally, first, no more helicopters. Second, a lot less unemployment payments (benefits cliff). Last and most of all, none of those things appear to have generated anything like a full recovery; meaning, the underlying economy which got whacked by the coronavirus restrictions and GFC2 during 2020 may really have been durably perhaps permanently damaged and in the same horrific way as the 2008 crisis had (see: labor force).

This is a (more than) possibility which wouldn’t just apply to the US segment of the global system. Outside the US goods sector, there’s been consistently much less to support either for the rebound or the more positive narrative surrounding it. Quite simply, apart from American consumption of especially durable goods (see: services) it has consistently remained quite ugly for some reason(s).

To that end, start with commodities immediately related to autos; those like palladium. This silvery metal is closely tied to the manufacture of combustion vehicles, used largely for environmental solutions put onto them (along with platinum). It’s been the familiar story in terms of price, with supply problems (and Chinese hoarding) in getting the commodity out of the ground running against a much faster rebound in demand.

Palladium prices naturally sky-rocketed to just about $3,000 per troy ounce at their peak in early May 2021. After May, it is shaping up to be a nearly equally epic crash; the front month price is down almost 40% since that top.

Chip shortage strikes again! Without semiconductors, carmarkers aren’t going to be able to make nearly as many cars as they wanted or expected, leaving overall production limited. Unless the chip problem is solved soon, which doesn’t appear as likely, then the use for palladium might be constrained so long as this other supply bottleneck hampers automakers.

But palladium prices aren’t the only commodity to suffer. How about iron? Another of the “supercycle” darlings, the futures prices for iron ore has likewise plummeted; even more than palladium. Down almost 50% from its high, it may be good that China’s markets are closed this week for their National Golden Week celebrations.

Iron, of course, is used to make steel and the Chinese have been cracking down on pollution at the same time as rationing electricity. Where palladium’s plunge has been excused under microchips and autos, iron’s is being blamed on Communist politics.

Yet, there’s an uncomfortable similarity between the two:

While iron prices had managed to rebound after May, unlike palladium, still the same general outline: parabolic price increased up to early May and then generally sideways (higher for iron, lower for palladium) thereafter until the summer really heated up. July, August, then September in both were similarly awful.

There are more; copper likewise topped out in early May, too. Unrelated to semis, not as directly subject to Chinese electrical rations, Dr. Copper has been substantially lower going back to that same spot on 2021’s calendar. While the decline isn’t in the same neighborhood as either iron or palladium’s, the similarities are obvious enough anyway.

One commodity which has performed even worse than those first two is another former darling once commonly asserted as the inflationary warning of all inflationary warnings: lumber. Except, nowadays its anti-darling status has absolutely nothing to do with any of those other factors supposedly influencing iron, copper, or palladium. Yet:

There are definite semi problems in autos, and these absolutely have been spilling over into physical commodity schedules and fundamentals. However, while that may seem to be the only factor commonly cited for price behavior, these other commodities and their globally synchronized behavior cannot help but strongly hint at “something” else besides chips, specifically, and supply constraints more broadly.

Blinded by the dazzling “stimulus” produced in the US as well as in other places, too little emphasis was left to peering behind the fuzziness of neo-Keynesianism to more thoroughly understand the true macro potential for when the world got to the other side of all that government intervention. Everyone seems to have assumed there wouldn’t be anything to trouble global demand. Inflation to the moon forever!

Somewhere around May, in commodities as well as bonds, these markets did seem to take a longer look – and do not appear to be sanguine about what was found out. As one metals market observer admitted at the end of August, the world was told it would all just go to plan:

The recent downturn in palladium prices has taken some onlookers by surprise, with several analysts having held a bullish stance mid-year after the steep PGM price rallies of the previous 12 months, buoyed by expectations that steady Covid-19 vaccine rollouts would boost consumption. But the mood appears to have now changed, with Heraeus among others saying that the outlook for the second half the year is now “weaker than anticipated only a few months ago and the price could slip further”.

One reason for swinging at least toward demand uncertainty had been delta COVID; the summer was filled with media sensationalism about its rabid dangers. That’s on the downswing, too, now, which then proposes more durable uncertainty than what’s attributable to what’s left of the pandemic.

Something is going on here which defies in time and substance all the common explanations. 

It had been widely believed the US and global economy would fully recover at some point. Ironically, much of that belief was based on Uncle Sam on the one hand and Chairman Xi on the other. The former is proving more and more transitory by the month, by the week, while the latter was never in that category to begin with (Xi had even said so all along).

Without hope for a rededicated China, and with fewer of the US federal government’s nickels floating freely around, while there are still supply issues present and they are causing some serious chaos and limiting potential, there may also be a growing realizing how as those fade they’ll be replaced and superseded by more serious, perhaps intractable problems with the world’s demand side.

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The Gaslighting Of America

The Gaslighting Of America

Authored by Bob Weir via,

I remember a comedy skit several years ago in which a woman comes…

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The Gaslighting Of America

Authored by Bob Weir via,

I remember a comedy skit several years ago in which a woman comes home unexpectedly and finds her husband in bed with another woman.  Shocked, she demands to know who the woman is and why her husband is doing this.  The couple get out of bed and start getting dressed as the man says to his wife, “Honey, what are you talking about?” The wife, perplexed at the question, says, “I’m talking about that woman!”  Meanwhile, the other woman, now fully dressed, heads for the door.  The husband says, “What woman?  Honey, are you feeling okay?  There’s no woman here.”  Feeling dazed and confused, the wife begins to question her own sanity.

That’s a pretty good example of what the Biden administration is pulling on the psyche of the American people.  

What they’re doing is not merely “spin,” which has become SOP whenever a political party does a clever sales job on the public in order to keep certain facts from them.  No, this is much more than shrewd marketing; this is blatantly lying in the public’s face and telling them they’re crazy if they believe their own eyes.  

When we look at videos showing thousands of migrants coming across our southern border with impunity, while Biden and his cohorts tell us they have the situation under control, we’re being gaslighted.

When thousands of Americans and Afghan allies are abandoned to be tortured and killed by Taliban terrorists, while Biden’s press secretary, Jen Psaki, tells us the war ended successfully, we’re being told not to believe what we’re seeing.  

President Trump made our country energy independent, only to have his success overturned by Biden on day one of Biden’s presidency.  That forced our country to once again be dependent on foreign oil.  Biden said his action would help protect the environment.  We scratch our heads and wonder how it makes sense to ship millions of barrels of oil on cargo ships from thousands of miles away, only to be used the same way it was used when it was processed here.  

Does foreign oil have less environmental effect than American oil?

When Biden proposes a $3.5-billion “infrastructure bill” that is heavily weighted toward social engineering and radical “Green New Deal” initiatives, we’re told that everything is infrastructure.  

We’re also told that the massive spending bill will cost “zero dollars” because the new taxes will be assessed only on the wealthy.  

Then, to add more consternation to a public getting groggy trying to keep up with twelve-digit numbers, Biden and his accomplices want another $80 billion for the IRS so its agents can check into every bank account that has transfers of $600 or more.  As if the IRS weren’t already a liberty-crushing organization, Biden wants to provide it with more ammo to use against those who oppose him.  Nevertheless, we’re told it’s going after only tax cheats.  Why would these people need $80 billion more to do what they’ve always done?  Don’t ask, lest you get audited for questions they don’t want asked.

When the supply chain of cargo ships, carrying about a half-million shipping containers filled with goods from all around the globe, are stalled in the waters outside major American port cities, we’re told by White House chief of staff Ron Klain that it’s just “high-class problems.”  

In other words, only the wealthy are waiting for the goods to arrive at stores.  Moreover, Jen Psaki mocks it as the “tragedy of the treadmill that’s delayed” — another elitist poking fun at the reasonable expectations coming from the working class.

The list of gaslighting incidents is growing longer than Pinocchio’s nose. 

Each time we are faced with another destructive lie, our attention is diverted to the latest Trump investigation or the probe of one of his supporters.  Keeping the January 6 imbroglio alive is one of those diversions.  The radical left has come to power by a sinister display of distractions from reality.  A major part of that distraction is using accusations of racism to muzzle opposition.  Most people will cower in fear of such labeling, even when they know in their hearts it’s not true.  That’s precisely what makes the accusations so useful to those who seek power through intimidation and distortion of reality.  

President Trump called out situations for what they are, without the odious and murky filtration of political correctness.  That’s why the entrenched powers of Deep State corruption despised him.  

Now we’re stuck with a president who says “what inflation?” as we pay higher prices than ever at the gas pump and the supermarket.  I seriously doubt that shoppers are questioning that reality.

Tyler Durden
Mon, 10/25/2021 – 21:10

Author: Tyler Durden

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The U.S. Budget Deficit

#CKStrong The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to…

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The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to September).  The deficit came in at $2.8 trillion (12.0 percent of GDP, based on our Q3 GDP estimate) , a bit lower than FY 2020’s $3.1 trillion (14.8 percent of GDP).  Those are some massive deficits, folks. 


U.S. Deficit Larger Than 95 Percent Of Global Economies

In fact, the FY 2021 deficit was larger than Italy and Canada’s economy, bigger than 185 of the 192 country economies in the lastest IMF database.  Take a look at the peak 12-month deficit of $4.1 trillion in March.  The March deficit would have made the G5. 

This image has an empty alt attribute; its file name is usg_deficit_3.png

Financing The COVID Deficit

How can the U.S. Treasury finance $5 trillion in borrowing over the past 18-months without spiking global interest rates, crowding out investment and other asset markets, and tanking asset prices?   They can’t.  

The table below breaks down the financing in several different measures.  Check it out.

The bottom line is that 23 percent of the COVID deficit borrowing has been financed by an increase in Treasury bill issuance, easy given the mass excess liquidty on the short-end where the Fed is soaking up over a trillion with overnight reverse repos in order to keep short-term rates postives.  Most of that liquidity, by the way, was created from QE.   

Of the remaining $4.1 trillion of non T-Bill debt issuance, 75 percent was taken down by the Fed, albeit indirectly.   

No Judgement

There you have have it, folks, T-Bills and the Fed have financed the bulk of the COVID deficit and debt buildup.   No judgment, but policymakers are now going to have engineer a soft landing in the economy and asset markets as we approach a fiscal cliff to normalize the budget deficit and tighten up monetary policy. 

We are not throwing stones as they saved the world from a global economic castasophe.

We do criticize their continued irresponsible policies as inflation rages and stagflation sets in.  It’s not wise, in our experience, to try and monetize supply shocks.  We learned that hard and painful lesson by doing so with the OPEC oil shocks.  

Narrow window for a soft landing.  Stay tuned. 

Email us or comment if you have questions.  

Author: macromon

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An Anti-Inflation Trio From Three Years Ago

Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash…

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Do the similarities outweigh the differences? We better hope not. There is a lot about 2021 that is shaping up in the same way as 2018 had (with a splash of 2013 thrown in for disgust). Guaranteed inflation, interest rates have nowhere to go but up, and a certified rocking recovery restoring worldwide potential. So said all in the media, opinions written for everyone in it by none other than central bank models.

It was going to be awesome.

Straight away, however, right from the very start of 2018 there were an increasing number (and intensity) of warning signs. Flat curves were a big one – which then later inverted. In global economic data, crucial contradictions were purveyed by Japan and Germany.

In other words, taking cues from those three – Japanese and German conditions augmented by consistent contortions in the US Treasury yield curve – before we even got to the end of 2018, while the mainstream narrative prevailed unopposed with Jay Powell still hiking rates, we said very differently. Here’s early November 2018, with already negative GDP in both those places:

This year is proving to be a trainwreck in too many important places. It was supposed to be the arrival of worldwide recovery. Worse, too many arrows are still pointing down for 2019. But you wouldn’t know it from the Bank of Japan, ECB, Federal Reserve, etc. Not until they are forced into some honest assessments for once.

Heads in the sands (or another orifice, if you prefer), “tightening” became the preferred if only option across the globe. The Fed, the ECB, others around the world rushed to get ahead of the (imagined) inflationary pressures “everyone” said were on the cusp.

Just a few months further on, March 2019, everything had already changed though it would take many more months for the stunned mainstream to even begin appreciating all the roughness.

As is standard practice, when weak data began showing up last year it was attributed to anything, everything else. Europe was downright booming, they said, so there was no possible way for a macro negative scenario…Europe isn’t the only place where manufacturing declines are showing up. Just as Germany is a bellwether for global trade and therefore global economy, Japan is in very much the same situation. Export-oriented, if Japan Inc. isn’t making new goods that’s because the rest of the world isn’t demanding them.

Germany. Japan. Yield curve. Twenty-eighteen.

Twenty twenty-one?



Yield curve:

Germany and Japan the economic bellwethers for the whole global economy (the importance of trade at the margins) along with the Treasury curve reacting to, and forecasting ahead from, the real global economy’s interior and insides. Economists are, by contrast, so removed from the realities of real-time facts so as to be modern day astrologers making claims based on little more than specious privileges.

Germany or Japan struggling isn’t really about Japan or Germany; nor the UST curve specific to US and Treasury. With a massive overflow of goods heading toward especially the US, however warehoused on the way, as I wrote earlier today, what might this trio bode with regard to the direction for future demand?

Many companies have claimed they are absolutely ready for “too many goods”, believing both their newfound penchant for individual supply chains as well as logistical consulting to manage more than ever. This so long as demand doesn’t “unexpectedly” fall off, even a little, which then might trigger the downside of the inventory cycle.

Three years ago, these three indications taken together were keen warning signs how demand was about to and would fall off “unexpectedly” (if it hadn’t already). And these ended up being highly accurate measures of the global economic direction that were completely, utterly contrary to the surefire, guaranteed inflation/recovery/BOND ROUT!!! no one ever challenged.

Is this time different? Hope so, but history keeps repeating because no one ever explains what happened last time. And the time before. And the time before. And…

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