Wednesday 15 June 2022

A Liquidity Crisis Ahead?

 Baltic Dry Index. 2384 +24   Brent Crude 121.57

Spot Gold 1815          US 2 Year Yield 3.45 +0.05

Coronavirus Cases 02/04/20 World 1,000,000

Deaths 53,100

Coronavirus Cases 15/06/22 World 541,792,327

Deaths 6,334,272

“Other inflationists realize very well that an increase in the quantity of money reduces the purchasing power of the monetary unit. But they endeavour to secure inflation none-the-less, because of its effect on the value of money; they want depreciation, because they want to favour debtors at the expense of creditors and because they want to encourage exportation and make importation difficult.”

Ludwig von Mises, The Theory of Money and Credit.

It is Fed Chairman Powell’s big day. Today he must put up or wimp out on inflation. 

Putting up risks bringing on a crash landing for the US economy and stock casinos. Wimping out will bring on double digit inflation and very mad voters in the November mid-term elections, if not social disorder.

What to do? What to do?

Still, Chairman Powell might take inspiration from China, where yet another set of dodgy statistics rallied the stock casinos. 

Despite all the lockdowns and supply chain disruption, China’s industrial production rose 0.7 percent in May.

Well if they say so I suppose, though they did say SARS-Cov-2 came from a Wuhan Wet Market. 

"Why, sometimes I've believed as many as six impossible things before breakfast."

President Xi, with apologies to Lewis Carroll and Alice.

China stocks lead gains in Asia-Pacific following release of better-than-expected Chinese economic data

SINGAPORE — Shares in China led gains in mixed Asia-Pacific trading on Wednesday following the release of better-than-expected Chinese economic data.

The Shanghai Composite in mainland China climbed 1.41% while the Shenzhen Component advanced 1.478%.

Hong Kong’s Hang Seng index rose 1.42% as shares of Alibaba jumped 4.64%.

Shares of Prada in Hong Kong, however, declined more than 3% in Wednesday trade after an Oliver Wyman survey showed luxury brands slashing expectations for their China business this year following the country’s latest Covid lockdowns.

China’s industrial output climbed 0.7% in May as compared with a year earlier, official data showed Wednesday, rising from the April’s 2.9% decline. The reading for May came in above expectations by analysts in a Reuters poll for a 0.7% drop.

Meanwhile, retail sales in May fell 6.7% year-on-year, better than the expected 7.1% fall predicted by analysts in a Reuters poll.

“I think this data really kind of reinforces the view that Citi has had ... that … maybe we’re already at peak growth pessimism in China,” said Johanna Chua, head of Asia economics and strategy at Citi Global Markets Asia.

The Chinese industrial production data for May was a “big surprise,” she said.

“We were expecting a 1.1% contraction [year-on-year]. So the fact that we’ve had a positive number perhaps still suggests that production side of China’s economy was not really as disrupted by Covid and China continues to remain you know fairly strong in terms of the manufacturing side,” Chua said.

Elsewhere in Asia-Pacific, the Nikkei 225 in Japan slipped 0.8% while the Topix index dipped 0.78%. South Korea’s Kospi fell 1.81%.

The S&P/ASX 200 in Australia declined 0.62%. MSCI’s broadest index of Asia-Pacific shares outside Japan traded 0.22% higher.

Overnight on Wall Street, the S&P 500 fell deeper into bear market territory, declining 0.38% to 3,735.48. The Dow Jones Industrial Average shed 151.91 points, or 0.5%, to 30,364.83. The tech-heavy Nasdaq Composite outperformed, rising 0.18% to around 10,828.35.

The moves stateside came as U.S. Treasury yields rose again as investors anticipate more aggressive tightening policies from the Federal Reserve, which is set to announce its latest interest rate decision later Wednesday stateside.

Markets are “convinced” that the Fed will hike rates by 75 basis points at the June FOMC meeting, Mizuho Bank’s Vishnu Varathan said in a note.

The market is betting on a more than 95% chance of a 75-basis-point rate hike, the biggest increase since 1994, according to the CME Group’s FedWatch tool. 1 basis point equals 0.01%.

“Bets are also mounting that July FOMC will deliver another 75bp hike,” said Vishnu, head of economics and strategy at the firm. “It appears 75 is the new 50.”

Wharton professor Jeremy Siegel told CNBC’s “Squawk Box Asia” that the market would be disappointed if the Fed only hiked rates by 50 basis points, deeming the central bank as being unaggressive in reining in inflation.

More

https://www.cnbc.com/2022/06/15/asia-markets-chinese-economy-federal-reserve-us-treasurys-currencies-oil.html

1980s-era rate hikes designed to fight inflation will create more market turmoil, Canaccord’s Tony Dwyer predicts

Published Mon, Jun 13 2022 7:17 PM EDT

Stocks may go into a deeper tailspin.

Canaccord Genuity’s Tony Dwyer predicts 1980s-era interest rate hikes will exacerbate the turmoil and make a recession seem increasingly more likely.

“Typically, I’ve been bullish over the years. But there’s a money availability problem,” the firm’s chief market strategist told CNBC’s “Fast Money” on Monday. “Ultimately, you have to have money to buy stuff, to do stuff and to invest in stuff. And, the avenues for money availability have largely closed down since the beginning of the year.”

In a note out this week, Dwyer warns the Federal Reserve is “under significant pressure” to cut inflation by clamping down on demand. He contends the economy is on the cusp of rate spikes reminiscent of Paul Volcker’s tenure as Fed chair.

“Debt-to-GDP in the Volcker era was at a generational low,” said Dwyer. “So, debt to GDP wasn’t anywhere near the issue it is today. We’re at generational high at 138% debt to-GDP. So, if you’re going to take a levered economy and shut it down, that’s not good.”

----The pain on Wall Street coincided with a jump in the benchmark 10-year Treasury Note yield. The move comes a day ahead of the Fed’s policy meeting on interest rates.

“We’ve taken limited money availability, bloated inventories because of the supply chain constraints, cratered CEO and consumer confidence into a lower demand environment in a levered system,” said Dwyer.” “Upside in the market, upside in the economy or upside in anything has to come with more money.”

According to Dwyer, the market won’t reach “the” bottom until the central bank abandons its tightening policies.

“The Fed has to signal a turn,” he said.

https://www.cnbc.com/2022/06/13/feds-inflation-battle-to-worsen-market-turmoil-canaccords-dwyer.html

Basically, the Fed was fast filling up the bath tub of liquidity with the plug of zero interest rates in, and both taps of bond and mortgage support fully open.

Now the Fed has removed the plug of zero interest rates and has already said it will turn off one tap starting this month and turn off the other shortly ahead.

If they actually do this, we have a liquidity crisis right ahead for many firms. But of course, if they don’t do this inflation will quickly move into double digit inflation.

Actually, if we recorded US inflation by the old 1970s and 80s methodology, US inflation is already in the mid-teens. It’s one reason why the general public is feeling so much inflation distress, anger.

Global Inflation/Stagflation Watch.

Given our Magic Money Tree central banksters and our spendthrift politicians,  inflation now needs an entire section of its own.

USDA REPORTS 97% OF CORN, 88% OF SOYBEANS PLANTED, OTHER CROP CONDITIONS
Jun. 14, 2022

BrownfieldAgNews reports:

U.S. corn and soybean planting should be able wrap up in the next few days if weather cooperates. Most forecasts for the early part of this week do show generally hot, dry conditions in much of the Midwest and Plains.

The USDA says 97% of corn is planted, matching the five-year average, and 88% emerged, compared to 89% on average, with 72% of the crop rated good to excellent, 1% less than last week.

88% of soybeans are planted, in-line with the normal rate, and 70% has emerged, compared to 74% on average, with 70% called good to excellent, 8% above the first rating a year ago.

86% of winter wheat has headed, compared to 90% on average, and 10% has been harvested, compared to the usual pace of 12%, with 31% of the crop in good to excellent shape, 1% higher than the previous week.

94% of spring wheat is planted, compared to 99% typically in mid-June, and 72% has emerged, compared to the five-year average of 93%, with 54% of the crop reported as good to excellent, 17% more than the first rating in 2021.

more

https://www.agrimarketing.com/s/141277

‘Profit recession’ warning as markets wait for aggressive central bank moves

Published Tue, Jun 14 2022 4:51 AM EDT

Global stock markets diverged on Tuesday after a worldwide sell-off in the previous session, as analysts assessed the longevity of the bear market and risk of recession.

U.S. stock futures bounced in early premarket trade on Tuesday after the S&P 500 slid back into bear market territory the day before. 

Investors are awaiting a landmark monetary policy announcement from the Federal Reserve on Wednesday, with bets on a 75 basis point interest rate hike rising in light of a shock 8.6% annual inflation print for May.

The prospect that the Fed and other central banks will be forced to hike interest rates more aggressively in order to rein in inflation — at a time when growth is slowing across most major economies — has reignited fears of a global recession.

Profit recession

Guy Stear, head of EM and credit research at Societe Generale, told CNBC on Tuesday that while a recession was looking more likely, there were two prongs to consider.

“One is the pure economic outlook, and secondly the profit outlook. I would actually be more worried about profits than I would about economic growth itself,” Stear said. 

He said that the more-than 25-year trend of profit rising as a percentage of GDP was “more or less finished,” given the ongoing themes of deglobalization, higher energy and input costs, and higher wages.

“So I think that no matter what happens in terms of the economic outlook – and yes, the likelihood of an economic recession is mounting – the likelihood of a profit recession is mounting a lot faster.”

Central banks ‘starting to panic’

As well as the Fed, the Bank of England, Bank of Japan and Swiss National Bank are all set to announce monetary policy decisions this week. Each is facing its own set of economic challenges, along with the global problems of soaring food and energy costs, and supply chain disruptions.

“What we’re currently seeing is central banks somehow starting to panic, markets clearly facing all of a sudden this new era of higher interest rates, therefore we have this big stock market correction, I think rightly so,” said Carsten Brzeski, global head of macro at ING. 

More

https://www.cnbc.com/2022/06/14/profit-recession-warning-as-markets-wait-for-aggressive-central-bank-moves.html

Below, why a “green energy” economy may not be possible, and if it is, it won’t be quick and it will be very inflationary, setting off a new long-term commodity Supercycle. Probably the largest seen so far.

The “New Energy Economy”: An Exercise in Magical Thinking

https://media4.manhattan-institute.org/sites/default/files/R-0319-MM.pdf

Mines, Minerals, and "Green" Energy: A Reality Check

https://www.manhattan-institute.org/mines-minerals-and-green-energy-reality-check

"An Environmental Disaster": An EV Battery Metals Crunch Is On The Horizon As The Industry Races To Recycle

by Tyler Durden Monday, Aug 02, 2021 - 08:40 PM

https://www.zerohedge.com/markets/environmental-disaster-ev-battery-metals-crunch-horizon-industry-races-recycle

Covid-19 Corner

This section will continue until it becomes unneeded.

COVID reinfections set to spike in U.S. as new variants evade immunity

Mon, June 13, 2022 at 11:00 PM

f you’re anything like the majority of Americans — an estimated 60-plus-percent of them, according to government data — you’ve already had COVID-19.

And if you’re like most of those Americans, you had it fairly recently — during the enormous Omicron wave that engulfed the U.S. over the winter holidays.

The question now is whether you’re ready to get infected again — this time by a new subvariant that not only sidesteps some of your existing immunity but may also be more resistant to key treatments.

Two mutants matching that description, BA.4 and BA.5, are now taking off in the U.S. — and experts say they will soon outcompete the earlier versions of Omicron (BA.2 and BA.2.12.1) that have already been causing hundreds of thousands of new (and mostly unreported) infections every day for weeks on end.

The next chapter of the pandemic ... is a story of immune escape,” Dr. Eric Topol, founder of the Scripps Translational Institute, recently predicted.

And experts say the U.S. is not doing enough to keep up.

Once upon a time, reinfection was rare; some scientists even suspected that natural immunity from a prior case of COVID would shield most people from ever getting infected again. Vaccination blocked more than 90% of infections as well.

But Delta cracked that immunity wall, and Omicron BA.1 breached it, propelling infection rates — including breakthrough infections — to record highs.

BA.4 and BA.5 then evolved to dodge the enormous amount of immunity induced by the original Omicron — and over the last month, their share of U.S. cases has been roughly doubling every seven days, signaling exponential growth. At the same time, U.S. reinfection rates appear to be rising. By July, BA.4 and BA.5 will likely be dominant nationwide.

The implications of Omicron’s faster-than-expected evolution — from a new variant that evades prior immunity to a rapid succession of subvariants that evade immunity acquired even from earlier versions of Omicron — are only just becoming clear.

More

https://www.yahoo.com/news/covid-reinfections-set-to-spike-in-us-as-new-variants-evade-immunity-220029351.html

Sharp rise in COVID-19 cases in Israel may be caused by BA.5 variant

Health Ministry recommends that people once again start wearing masks in enclosed spaces.

SHIRA SILKOFF Published: JUNE 13, 2022 14:51 Updated: JUNE 13, 2022 21:47

Israel has seen a sharp rise in COVID-19 cases over the last few days, with 5,817 new cases recorded throughout the day on Sunday and a 26.38% positive return rate for the 22,053 authorized PCR and antigen tests taken.

Over the last week, the country has recorded some 33,000 new coronavirus cases, marking a 105% increase in cases compared to the prior week. The sharp uptick in cases can also be seen in the reproductive rate, which is currently at 1.51. When the R-rate gets above 1.0, it means the virus is actively spreading.

Although 5,800 cases might not sound like much in comparison to the peak of the last wave caused by the Omicron variant, it is a significant increase compared to 10 days ago on June 3, when just 2,400 new cases were recorded. In fact, for the last month, recorded cases were consistently steady, measuring from 2,000-2,500 on most days, with a decrease on weekends.

More

https://www.jpost.com/health-and-wellness/coronavirus/article-709281

Next, some vaccine links kindly sent along from a LIR reader in Canada.

NY Times Coronavirus Vaccine Trackerhttps://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html

Regulatory Focus COVID-19 vaccine trackerhttps://www.raps.org/news-and-articles/news-articles/2020/3/covid-19-vaccine-tracker

Some other useful Covid links.

Johns Hopkins Coronavirus resource centre

https://coronavirus.jhu.edu/map.html

Centers for Disease Control Coronavirus

https://www.cdc.gov/coronavirus/2019-ncov/index.html

The Spectator Covid-19 data tracker (UK)

https://data.spectator.co.uk/city/national

Technology Update.

With events happening fast in the development of solar power and graphene, among other things, I’ve added this section. Updates as they get reported.

Could flat tyres soon be a thing of the past?

By Russell Hotten Business reporter, BBC News 14 June 2022

The sight of a car limping along on a near-flat tyre, or a roadside wheel change are still common.

So is the expense of replacing tyres that have worn out prematurely, perhaps because the driver may not have been checking the pressure as regularly as they should.

Sometimes it's difficult not to feel tyres are a car's weak link. But is this about to change?

Is it the end of the black rubber air-filled doughnut first used on vehicles in the 1890s - a product designed to be indestructible, and therefore not easy to recycle?

On a test track in Luxembourg, a Tesla Model 3 is twisting through tight corners, accelerating rapidly, and doing emergency stops. Standard stuff. What's remarkable, though, is the car is sitting on four airless tyres - made by Goodyear, the US manufacturer.

Special plastic spokes, support a thin, reinforced rubber tread. The spokes flex and contort as the car goes through its paces.

Michael Rachita, Goodyear's senior program manager for non-pneumatic tyres (NPTs), is upfront about the limitations: "There will be noise, and some vibration. We're still learning how to soften the ride. But we think you'll be surprised at the performance." He wasn't wrong.

Electric cars and autonomous mobility are changing tyre needs. Delivery firms and shuttle services want products that are low-maintenance, puncture-proof, recyclable, and have sensors that map road conditions.

----At Michelin's labs, the tyres are tested for 24 hours at a time, under different loads and speeds. That's thousands of miles non-stop. Some spokes deform, some break, but the structures continue to perform safely, Mr Rachita says. "It's test-learn, test-learn," he says. "But we're at a stage that's given us a huge amount of confidence. This is the real deal."

Goodyear rival, Michelin, has been working with General Motors (GM) on airless tyres since 2019. In February there were media reports that Michelin's Unique Puncture-proof Tire System (Uptis) could debut on a new Chevrolet Bolt electric car being planned by GM, possibly as early as 2024.

Uptis tyres are made of high-strength resin embedded with fiberglass and composite rubber (for which Michelin has filed 50 patents) to create a mesh structure that surrounds an aluminium wheel.

Cyrille Roget, a scientific and innovation expert at the French tyre maker, won't confirm the Bolt reports, but tells the BBC Michelin will have more to say later this year.

More

https://www.bbc.co.uk/news/business-61644033

"This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them."

Ludwig von Mises.

 

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