China’s Central Bank (PBOC) Cuts Reserve Requirements By 50 Basis Points To Stem Tide Of Economic Slowdown And Real Estate Development Problems (Big Trouble In Big China?)

Big Trouble In Big China?

China cut the amount of cash most banks must hold in reserve, acting to counter the economic slowdown in a move that puts the central bank on a different policy path than many of its peers.

The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks on Dec. 15, releasing 1.2 trillion yuan (US$188 billion) of liquidity, according to a statement published Monday.

The reduction was signaled by Premier Li Keqiang last week when he said that authorities would cut the RRR at an appropriate time to help smaller companies, and is the second reduction this year.

The decision comes after recent data showed the economy and industry stabilizing, although Beijing’s tightening curbs on the property market have led to a slump in construction and worsened a liquidity crisis at developer China Evergrande Group and other real estate firms.

Evergrande’s ADR is collapsing (now 5.975) along with Evergrande debt falling to 23.12 (versus 100 par).

China’s credit impulse has nosedived (see pink box) as the PBOC drops bank reserve ratios to lowest level since 2007 in an effort to float the boat. Will the PBOC drop in reserve ratios stem the tide? Or is it peasant magic?

Yes, its big trouble in big China. Let’s hope it isn’t the Three Storms (commercial real estate bubble, low Central Bank reserve ratios and … fear).

Margin Accounts at Brokers and Dealers EXPLODES As CMBX Remains 30.5% Below Pre-Covid Levels (What Money Printing CAN’T Fix)

As we are all painfully aware, The Federal Reserve went on a 2nd money printing spree to allegedly stave-off the economic impacts of the COVID outbreak in March 2020. The first money printing spree took place in late 2008 as The Fed tried to stave-off the economic impacts of the housing bubble burst of 2008 and the ensuing financial crisis.

But for now, we have this horrifying chart showing the exploding margin accounts at security brokers and dealers (not, not the Walter White-type dealers, but Wall Street dealers). Notice the 400% surge in M1 Money stock after COVID struck.

Of course, the soaring stock market is feeding the margin loop, encouraged by The Fed. Check out the Shiller Cyclically Adjusted Price Earnings (CAPE) ratio after The Fed’s M1 printing storm.

What can’t money printing fix? How about CMBS prices (or CMBX BBB- S6 prices … down 30.5% since just before COVID struck.

Let’s see if The Fed sucks the 400% growth back to zero.

Calamity Jay Powell Ditches Transitory Inflation Tag, Paves Way for Rate Hike (Compare To Volcker’s Record)

Calamity Jay Powell is no longer mentioning “transitory” when it comes to inflation, but does Powell and the FOMC have the moxie to ACTUALLY raise rates more than a smidge??

(Bloomberg) — Team Transitory is throwing in the towel.

In a clear sign that the Federal Reserve is shifting to tighter monetary policy, Jerome Powell — who’s spent months arguing that the pandemic surge in inflation was largely due to transitory forces — told Congress on Tuesday that it’s “probably a good time to retire that word.”

The Fed chair, tapped last week for another four-year term, still thinks inflation will ebb next year.

But in testimony before the Senate Banking Committee, he acknowledged that it’s proving more powerful and persistent than expected, and said the Fed will consider ending its asset purchases earlier than planned.

A number of economists are forecasting cooling inflation next year, which gives Powell an excuse to NOT raise rates, other than just a bit.

For a little history, inflation was rampant in the 1970s and early 1980s. Fed Chair Paul Volcker, all 6’7 of him, raised the Fed Funds target rate (white line) to 20% on several occasions. The result? Inflation cooled from over 14% in 1980 to 2.46% by 1983. But since 2008, Fed Chairs Bernanke, Yellen and Powell have been the ANTI-Volckers … keeping the Fed Funds Target rate near zero for the the most part and adopted their gut-wrenching quantitative easing programs that are still here today.

Of course, Powell could do what Volcker did (and the Taylor Rule suggests) and raise their target rate to 15% to cool inflation.

But does Powell and the other FOMC members have the moxie to really cool inflation? Frankly, no. Powell until yesterday played the TRANSITORY card and still believes that inflation will cool by 2022.

True, the Federal government has binged on borrowing (up 172% since January 2009). And with Biden and Congress trying to spend trillions more (much of which will be added to the public debt rolls, so increasing interest rates ala Volcker is very problematic.

And then there is always the good ‘ole excuse not to raise rates if needed. Other than admitting that The Fed is monetizing Federal government spending to which there is no end in sight.

Given Fauci’s alleged strong belief in “science” he could play Esqueleto in a remake of Nacho Libre.

US Home Prices “Slow” To +19.51% YoY In September (Phoenix AZ Sizzles At +33.1%, Chicago Slowest At 11.8%)

When I told Benzinga’s Phil Hall in an interview a while back that I thought US home price growth would slow, I didn’t consider the never-ending COVID epidemic (now with the Omicron Variant taking the stage. But at least the CoreLogic Case-Shiller National home price index (HPI) “slowed” in September from +19.84% to +19.51%.

Once again, low available inventory of houses for sale coupled with outlandish Fed stimulus has resulted in a housing crisis where home price growth (+19.51%) exceeds hourly wage growth (+5.76%) by almost 4x.

Where are all the home prices above 10% YoY? Every one of the 20 metro areas covered by Case-Shiller. Phoenix AZ leads at +33.1%. Chicago IL is the “slowest” at 11.8%.

Although Columbus OH is the growth hub of the state, Case-Shiller only reports Cleveland. So here is Columbus’s all-transactions home price growth for Q3: +16.2% YoY placing Columbus at the top of the midwest metro areas of Detroit, Chicago, Minneapolis and Cleveland.

With the latest Omicron Variation (sounds like a Star Trek TV show episode), I will bet that The Fed will stay a little longer and keep rates low, leading to home price growth (with limited available inventory) to continue to grow at double digit speeds.

The Fed is printing SOOOO much money that the dollar should have a double eagle on it.

Fear? The Omicron Variant Isn’t Scaring Treasury Investors (Treasury And US Dollar Swaps Curves Calm After Friday’s Flattening)

The latest scare hitting financial markets is the Omicron Variant (or Oh! Macron! Variant in France). While it caused an initial decline in global equity markets {Dow fell 900 points on early reports on Omicron), the Treasury market has been relatively unscathed.

For example, the US Treasury Actives curve dropped last Friday (the orange line represents the Wednesday before Thanksgiving), while the remaining three lines represent last Friday, Monday and Tuesdays (today). In other words, the US Treasury Actives curve has been quiet so far this week after Friday’s flattening.

The US Dollar Swaps curve shows the same dynamics. The dark blue line is last Wednesday, while the remaining lines are last Friday, this Monday and today. Not a lot happening after the initial Omicron fear factor was priced in.

Federal Reserve Chairman Jerome Powell believes that the omicron variant of Covid-19 and a recent uptick in coronavirus cases pose a threat to the U.S. economy and muddle an already-uncertain inflation outlook.

“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Powell said in remarks he plans to deliver to Senate lawmakers on Tuesday. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Do I detect FEAR in Powell’s voice? The odds of rate increases for next year just fell to one rate increase at the September 2022 meeting.

On the equity side, it seems to be all about whether The Fed will withdraw its support. Back in early 2018, then Fed Chair Janet Yellen and the FOMC started to shrink the Fed balance sheet (green line). This resulted in the “Smart Money Index” declining. The S&P 500 index received a jolt with the Fed stimulus around the COVID outbreak and have taken off like a jackrabbit. Despite the Smart Money Flow index being lower than in 2017.

The VIX and VVIX are elevated showing fear in the equity markets. But much less than when COVID broke out in March 2020. Each spike in VVIX (or the volatility of VIX) is likely when Dr. Anthony Fauci opened his mouth.

So, is Omicron the “planet killer” or just another mild flu-like outbreak? The data is pointing towards the latter, but FEAR may cause it to be a bigger deal than is warranted.

US Dollar, Gold, Ethereum SOARING As Fed Loses Control Of Inflation

As inflation seems unstoppable by The Federal Reserve, we are seeing the US Dollar, Gold and Ethereum soaring in price.

Persistent inflation is here to stay.

Yup, The Fed is firing blanks.

US Labor Productivity Output Plunges To Carter-era Stagnation Levels As Unit Labor Costs Soar

The last time we saw US labor productivity out per hour this low was in 1981 when President Reagan inherited stagflation from President Jimmy Carter.

As unit labor costs soar +8.3%.

Any wonder that the 1% have been doing so well relative to the bottom 50% in terms of wealth since entrance of The Fed in 2008 with zero-interest rate policies (ZIRP) and assets purchases (QE). And also after Covid struck.

“That will be $10,000 for your Big Mac, fries and a soda, please!”

Powell Flags Rising Inflation Risk While Playing Down Rate Hikes (US Dollar, 10Y Treasury Yield, Gold Fall With Powell’s Comments)

Like the old EF Hutton ads, “When Powell speaks, people listen.”

Federal Reserve Chair Jerome Powell sounded a note of heightened concern over persistently high inflation as he made clear that the central bank will begin tapering its bond purchases shortly but remain patient on raising interest rates.

“The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation,” Powell said Friday during a virtual panel discussion hosted by the South African Reserve Bank and moderated by Bloomberg’s Francine Lacqua.

“I would say our policy is well-positioned to manage a range of plausible outcomes,” he said. “I do think it’s time to taper and I don’t think it’s time to raise rates.”

Good luck with that, Jay! You are going to raise the short-end of the yield that will lead to a flattening of the Treasury yield curve. But you are going to continue to buy Treasuries and Agency MBS in order to monetize the rampant spending by Congress and the Biden Administration? C’mon man!

You can see where Powell spoke today. It is when gold tanked along with the 10-year Treasury yield. Both rebounded a bit, but the 10-year Treasury yield continue its fall to 1.6324%.

The US dollar (green) fell when Powell opened his pie-hole. But Bitcoin (blue) fell in advance as if they knew what Powell was going to say.

705742? Bitcoin Hits 63983 As US Treasury Curve Steepens (As Mortgage Rates Rise?)

I have no idea why Jack Dorsey tweeted “705742.” But I do know that Bitcoin hit 63,982.92 this morning as the US 10Y-3M curve has been steepening.

Since the 3-month Treasury yield has been repressed to near zero, the 10Y-3M curve is pointing to rising 10-year yields. Which likely means that 30-year mortgage rates will be rising too.

UPDATE! Bitcoin hits 66,615 as Proshares Bitcoin Strategy E rises as well.

Bitcoin Surges To $62,314.75 On SEC Approval Of Bitcoin Futures ETF

SEC approves first Bitcoin Future ETF, opening crypto to wider investor base. First product will track bitcoin futures, rather than price of bitcoin directly. SEC Chair Gensler indicated he believes futures-based products might provide stronger protections.

The reaction? Bitcoin surges to $62,314.75!