Oh Atlanta! Atlanta Fed GDPNow Q1 Forecast Drops To 0.631% With REAL Wage Growth At -2.38% (Coal Is SOARING!)

Oh Atlanta! Fed, that is.

The Atlanta Fed GDPNow Q1 real-time GDP index fell to 0.631%. And the Atlanta Fed REAL wage tracker fell to -2.38 growth.

Volatility reigns supreme on the energy front (look at NYM Dubai crude AVAT!) And coal is up 18.68% this morning.

Here is a map of gas and oil pipelines in Europe.

US Trade Balance Widens To All-time High, Rise In Imports, Drop In Exports (10Y Treasury Yield Sags To 1.884%, Russian Ruble Getting Clobbered)

The U.S. merchandise-trade deficit unexpectedly widened in January to an all-time high, reflecting a record value of imports and a drop in shipments overseas.

The shortfall grew to $107.6 billion last month from $100.5 billion in December, according to Commerce Department data released Monday.

Meanwhile, the US Treasury 10Y yield fell to 1.884%.

The cost for shipping from the US to China has surged.

Meanwhile, the Russian Ruble is getting clobbered.

At least Putin hasn’t put himself on Russian currency … yet. Or nyet.

Weekend Update: US Q1 GDP Falls To 0.6%, Treasury 10Y-2Y Curve Flattens and Commodity Prices UP 52% Under Biden (Ports Still Clogged)

Russia is still attacking Ukraine and I am still seeing stories about actor/comedian Bob Saget’s cause of death. So now for something completely different.

After last week’s Personal Consumption Expenditures, GDP and new home sales reports, the Atlanta Fed’s GDPNow real GDP estimate for Q1 shriveled to 0.6%.

The US Treasury yield curve? It is flattening rapidly as it typically does prior to a recession.

Commodities? Commodity prices are UP 52% under Biden. And that includes prices dropping slightly from 2/24 to 2/25.

And then there is average port delays in US ports. Hey, I thought Mayor Pete the port Czar was supposed to unclog the ports!

Hopefully this coming week will be better! Particularly for the Ukrainian people.

Russian Stock Market Drops Over 30% As Their 10-year Yield Rises To 15.23%, Ruble Crashes And UK Natural Gas Rises 51% (As Biden Throws The Booklet At Russia)

We now know that Russia has invaded Ukraine and President Biden really threw the booklet at Putin in a speech today. Rather than removing Russia from the SWIFT banking system which would have really hurt Russia’s trade with Europe, he gave a surprisingly cogent speech about the US and NATO agreeing to do … not much. He did warn us that energy prices would rise (which he helped do when he took office) and told energy companies not to gauge consumers.

The reaction in Russia? Their stock market tanked over 30% (not because of Biden’s speech, but because of negative costs of war).

Russia’s 10-year sovereign yield rose to 15.23%.

The Russian Ruble crashed and burned.

UK natural gas prices rose 51% today.

And while 17 Euro nations have negative 2 year sovereign yields, Russia has 2-year sovereign yield of 28.65% which is nothing compared to Ukraine’s 75% 2-year yield (in US Dollars).

The SWIFT system, or Society for Worldwide Interbank Financial Telecommunication, facilitates financial transactions and money transfers for banks located around the world. The system is overseen by the National Bank of Belgium and enables transactions between more than 11,000 financial institutions in more than 200 countries around the world. Removing Russia from the SWIFT system would really hurt Russian trade with Europe. I assume that Europe is scared of soaring energy costs, so probably doesn’t want Russia removed from SWIFT.

Queue Creedence Clearwater singing “Lookin’ Out My … Limo Window.”

World’s New Supply Trackers Flash Caution Amid Omicron Worries (Add Ukraine-Russia Tensions To The Mix)

COVID and its omicron variant (as well as government reactions such as mask and vaccination mandates) are wreaking havoc on the global economy, but particularly in the USA where the Federal government dumped trillions of dollars in fiscal stimulus along with The Federal Reserve’s monetary stimulus into an economy not prepared for it. The result? INFLATION.

But global supply chains are nearing a turning point that’s set to help determine whether logistics headwinds abate soon or keep restraining the global economy and prop up inflation well into 2022, according to several new barometers of the strains.

Just a week before the start of Lunar New Year, the holiday celebrated in China and across Asia that coincides with a peak shipping season, economists from Wall Street to the U.S. central bank are unveiling a string of models in the hope of detecting the first signs of relief in global commerce. 

From Europe to the U.S. and China, production and transportation have stayed bogged down in the early days of 2022 by labor and parts shortages, in part because of the fast-spreading omicron variant.

Among the big unknowns: whether solid demand from consumers and businesses will start to loosen up, allowing economies to finally see some easing in supply bottlenecks. Fresh indicators from the private and official sectors are in high demand because there’s still much uncertainty in industries overlooked by mainstream economics before the pandemic.

Once the realm of trade and industrial organization experts, supply chains “have shifted to center stage as a critical driver of sky-high inflation and a stumbling block to the recovery,” Bloomberg Chief Economist Tom Orlik said. “The profusion of new indices and trackers won’t unblock the arteries of the global economy any quicker. They should give policy makers and investors a better idea of how fast — or slowly — we are getting back to normal.”

The Bloomberg Economics Index

Bloomberg Economics’ latest supply constraint index for the U.S. shows that shortages have trended modestly lower for six months. Even so, strains remain elevated, and the wave of worker absenteeism is adding to the problems at the start of 2022.

Port traffic tracked by Bloomberg shows container congestion continues to rankle the U.S. supply chain from Charleston, South Carolina, to the West Coast. The tally of ships queuing for the neighboring gateways of Los Angeles and Long Beach, California, continued to extend into Mexican waters, totaling 111 vessels late Sunday, nearly double the amount in July.

Source: Bloomberg, IHS Markit, Genscape

Note: Data counts the total number of container ships combined in port and in offshore anchorage area.

Kuehne+Nagel’s Disruption Indicator

Kuehne+Nagel International AG last week launched its Seaexplorer disruption indicator, which the Swiss logistics company says aims to measure the efficiency of container shipping globally. It shows current disruptions at nine hot spots is hovering near “one of highest levels ever recorded,” with 80% of the problems happening at North American ports.

Seaexplorer disruption indicator as of Jan 20, 2022

Flexport’s Guages

Another freight forwarder, San Francisco-based Flexport Inc., last year developed its Post-Covid Indicator to try to pinpoint the shift by American consumers back to purchasing more services and away from pandemic-fueled goods. The latest reading released Jan. 14 “indicates the preference for goods will likely remain elevated during the first quarter of 2022.”

Flexport has a new Logistics Pressure Matrix with a heat map showing demand and logistics trends, and much of those numbers are still flashing yellow or red. Flexport supply chain economist Chris Rogers said in a recent online post that similar grids for Asia and European markets will be part of the research.

The Federal Reserve’s Stress Monitor

Adding their stamp to the burgeoning genre of supply stress indicators were three Ph.D. economists from the Federal Reserve Bank of New York, with the launch its Global Supply Chain Pressure Index. Rolled out earlier this month, it shows that the difficulties, “while still historically high, have peaked and might start to moderate somewhat going forward.” The New York Fed said it plans a follow-up report to quantify the impact of shocks on producer and consumer price inflation.

Morgan Stanley’s Index 

Less than a week later came the Morgan Stanley Supply Chain Index. It lined up with the Fed’s view that frictions have probably peaked, though some of improvement ahead will come from a slowdown in the demand for goods. 

“Supply disruptions remain a constraint to global trade recovery, but as firms continue to make capacity adjustments to address them, capacity expansion could mitigate these,” Morgan Stanley economists wrote in a report Jan. 12.

Citigroup’s Tool

Citigroup Inc. last week released research that was less optimistic yet complementary to the New York Fed’s work, which Citi said doesn’t factor the role of surging demand as a contributor to the supply disruptions. Sponsored Content The Collaboration Disconnect Atlassian

Co-written by Citi’s global chief economist Nathan Sheets, a former U.S. Treasury undersecretary for international affairs, the bank’s analysis “gives a more complete, and intuitive, picture of the current situation.” While strains may ease in coming months, Citi said, “these supply-chain pressures are likely to be present through the end of 2022 and, probably, into 2023 as well.”

The Keil Institute’s Flows Tracker

In Germany, the Kiel Institute for the World Economy updates twice a month its Trade Indicator, which looks at flows across the U.S., China and Europe. Its latest reading Jan. 20 shows that along the key trading route between Europe and Asia, there are 15% fewer goods moving than there would be under normal times. The last time the gap was that large was in mid-2020, when many economies were reeling from initial lockdowns, Kiel said.

More recently, “the omicron outbreak in China and the Chinese government’s containment attempts through hard lockdowns and plant closures are likely to have a negative impact on Europe in the spring,” says Vincent Stamer, head of the Kiel Trade Indicator, said in a post last week. “This is also supported by the fact that the amount of global goods stuck on container ships recently increased again.”

Baltic Dry Index

The Baltic Dry shipping cost index indicates that costs for shipping materials such as iron ore have decline to where it started under Biden, despite West Texas Crude Oil spot prices begin considerably higher thanks to Biden’s anti-fossil fuel policies.

So as the world comes out of Omicron (and whatever COVID variant rises to take its place), we should see a normalization in the supply chain. And with Intel building a new chip factory in New Albany Ohio (aka, outskirts of Columbus). the supply chain woes will eventually subside.

Then again, there is always the Russia-Ukraine tension that may erupt into a disaster. I suggest that President Biden sent Hunter Biden to Moscow to negotiate on behalf of The Ukraine.

Ain’t it funky now. The US’s new ambassador to Russia?

UMich Housing Sentiment “Rises” To 83 As Inflation Hurting Retail Sales (Industrial Production Declines -0.3%)

That Bidenflation is really hurting Americans.

Start with the UMich Buying Conditions for Houses. It “rose” to 83. Unfortunately, 100 is the baseline and any number below 100 is bad. The reason? The massive increase in US home prices since 2020.

But retail sales are hurting thanks to higher prices. Retail sales less food services and auto are DOWN 3.1% MoM.

Meanwhile, US industrial production fell to -0.3%.

GameStop: Rage Against The (Financial) Machine? Or Bidenflation? (Meme Stocks, Gold And Cryptos)

2021 has been a very weird year. Inflation has boomed (highest in 40 years) after the election of Joe Biden as President of the USA (call it Bidenflation). Then we have The Federal Reserve barely acting on the booming inflation (keeping rates at 25 basis points while withdrawing the COVID-related monetary stimulus).

Then we have the rise of cryptocurrency Ethereum and the surge meme stocks such game store GameStop, a favorite of the internet site Reddit.

Given the volatility of GameStop (Reddit-inspired), you can see the strange shape of GameStop’s volatility surface.

By contrast, gold is now where it was was at the beginning of 2021 and the surge of Bidenflation.

Here is volatility surface for gold.

So, there are a number of meme stocks (GameStop is just one example), gold, silver, cryptos such as Bitcoin and Ethereum. But gold seems to be placid with respect to inflation, but the meme stocks and cryptos seem to be motoring. Or is it rage against the financial machine? Or rage against Bidenflation??

The US stock and bond markets are closed today and tomorrow, Christmas day.

Have a Merry Christmas! And celebrate the “Santa Pause” as Powell refuses to raise rates to combat inflation until 2022.

Powell Says Foreign Buyers Distorting Yield-Curve Readings (Gold Rises On Powell Head Fake As US Dollar Declines)

Like John Belushi from The Blues Brothers, Fed Chair Jerome Powell is saying that the markets lackluster response in terms of bond yields to his “hawkish” announcement yesterday “isn’t his fault.”

(Bloomberg) Federal Reserve boss Jerome Powell appears unperturbed by the fact that longer-term bond yields remain low even as officials lay the ground work for tighter policy and inflation is ticking higher.

While the drop in longer-term rates may be viewed by some as indicative of where so-called terminal rates for U.S. policy might ultimately lie, Powell on Wednesday emphasized the impact of ultra-low yields in places like Japan and Germany in helping to keep them anchored. 

“A lot of things go into the long rates and the place I would start is just look at global sovereign yields around the world,” Powell said at a news conference following the Fed’s final scheduled policy meeting for the year, which saw officials ramp up the pace of stimulus withdrawal and boost predictions for rate hikes in 2022. The Fed Chair noted that rates on Japanese and German government bonds are “so much lower” than those on Treasuries and that with currency hedging taken into account American debt provides investors with a higher yield. “I’m not troubled by where the long bond is,” he said. 

This stands as something of a contrast to the view expressed back in 2005 by one of Powell’s predecessors. Back then, Fed chief Alan Greenspan described a decline in long-term bond yields even in the face of six policy rate increases as a “conundrum.” 

Or it could be that no one REALLY believes that Central Banks will ever cut interest rates, despite surging inflation.

The US Treasury 10-year yield dropped 7 basis points overnight and remains just south of 1.50%. The Eurozone remains below 1% (with Germany at -0.358% and France at -0.009% at the 10-year mark). Japan is at 0.039%. This is what Powell means by low global rates keeping US long-term rates down.

The 10-year Treasury term premium (measured before Powell’s head fake on raising rates) has returned to pre-Biden levels.

Meanwhile, global equities futures are up across the board (well, except for Mexico).

Gold rose on Powell’s “Tomorrow” talk while the US Dollar fell.

The Fed could have raised their target rate if they were REALLY interested in cooling inflation. The Taylor Rule remains at 14.94% while The Fed is stalled at 0.25%. Even if you don’t like the Taylor Rule, it still highlights how ridiculous Fed Stimulypto is.

Well, we do have a government-propelled economic recovery, but at a cost of declining REAL wages thanks to the highest inflation rate in 40 years.

U.S. Producer Prices Jump in Biggest Annual Gain on Record (9.6% YoY Versus CPI Of 6.8%)

Yes, we have trouble in river city with a capital T than rhymes with P and that stands for Producer Prices.

Prices paid to U.S. producers posted a record annual increase of almost 10% in November, a surge that will sustain a pipeline of inflationary pressures well into 2022.

The producer price index for final demand increased 9.6% from a year earlier and 0.8% from the prior month, Labor Department data showed Tuesday. Both advances topped economists’ forecasts.  

Even more interesting (or frightening) is that PPI Final Demand YoY is soaring faster than CPI YoY. If CPI catches up to PPI, then we have serious trouble.

With inflation seemingly growing out of control, Powell and Biden should sing “76 Trillion Dollars” which will be the US national debt after Biden and Congress get done with their spending splurge.

Jerome Powell directing The Inflation Orchestra.

Biden’s Build Back Better Act May Add $3 Trillion To The Federal Deficit (And Cost $4.73 Trillion)

Call it “The Letter That Phil Swagel Wrote.”

The letter from Phil Swagel, Director of the Congressional Budget Office, sent a letter to Congress stating that

“The Congressional Budget Office and the staff of the Joint Committee on
Taxation project that a version of the bill modified as you have specified
would increase the deficit by $3.0 trillion over the 2022–2031 period.”

In short, members of Congress asked the CBO “What would happen if the programs in the bill would be made permanent (which they almost always are made permanent). The result? The Letter That Phil Swagel Wrote: Federal Deficits would increase by $3.0 trillion over the next 10 years.

The Center For A Responsible Federal Budget is even more glaring. The permanent cost of Build Back Better is $4.73 trillion … and a deficit of $3.01 trillion.

Here is all 2,466 pages of the Build Back Better Act (or Build Back Deficits Act).

The Penn-Wharton Budget Model estimates that — if Congress follows White House policy to make most provisions permanent — then Build Back Better will reduce the long-term GDP by 2.8 percent, reduce wages by 1.5 percent, and reduce work hours by 1.3 percent. The only thing it will expand is government debt, by 25 percent.

Build Back Badly?