Friday, 29 September 2023

An “Economic Doom Loop” Arriving? Permacrisis?

Baltic Dry Index. 1716 -36              Brent Crude 95.05

Spot Gold 1865                 US 2 Year Yield 5.04 -0.06

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith.

In the stock casinos, one final day to try to dress up the markets to stave off an October disaster?


Asia markets rebound, with Hong Kong leading gains; Japan data in focus

UPDATED THU, SEP 28 2023 11:52 PM EDT

Asia-Pacific markets largely climbed in the final trading day of the week, with Hong Kong’s Hang Seng index leading gains in the region and rising over 2%.

This comes as traders assess to key economic data out of Japan, including the September inflation rate for Tokyo. The capital’s data is seen as a leading indicator of nationwide trends.

Tokyo’s consumer price index rose 2.8% in September from a year ago, softening from the 2.9% gain in August. The core inflation rate, which strips out prices of fresh food, came in at 2.5%, lower than the 2.6% expected by a Reuters poll.

Japan also saw unemployment, industrial output and retail sales data for August.

Japan’s Nikkei 225 gained 0.1% in early trade, while the Topix continued to extend losses and slid 0.51%.

In Australia, the S&P/ASX 200 advanced 0.44%, rebounding after a three day losing streak.

South Korean and mainland Chinese markets are closed for a holiday.

Overnight in the U.S., all three major indexes rallied ahead of the U.S. personal consumption expenditures price index reading due Friday. The PCE reading is the Federal Reserve’s preferred inflation metric.

Wall Street is also keeping an eye on Washington, as lawmaker negotiations on a U.S. spending bill continue before a Oct. 1 shutdown deadline for the government..

The Dow Jones Industrial Average climbed 0.35% The S&P 500 added 0.59%, and the Nasdaq Composite jumped about 0.83%.

Asia stock markets today: Live updates (cnbc.com)

Why such a dire headline today?

Well today in the stock casinos, if the month-end and quarter-end don't pull off a miracle stocks ending, lookout below. October looks bleak, or worse.


JPMC's CEO is now talking about the Fed going up to 7 percent. If so, US real estate, commercial and residential, will join China's property market in a crash.  If that happens, welcome to US banking rout 2.0 in Q4 23, Q1 24 and Q2 24.

China's police detaining the head of the Evergrande property company, suggests to me that China's CP think it's about time to put it out of its misery and try to fire sale off its real assets, dumping the remains into the equivalent of a bad property bank. No state bailout for Evergrande?

 

US corporate bankruptcies are already higher than 2022 and headed for a multi-year high. Nothing good comes from that.

 

Credit card and US auto loan delinquencies are rapidly rising, with more to come as some 40 million student loan holders have to start servicing their debt starting from Sunday. A difficult Christmas selling season likely lies ahead, with more retail failures to come starting in Q1 24.

 

But retail failures will just add to the growing crisis in US commercial real estate, which in turn just adds to the likelihood of more US bank failures to come.

Costco starting to sell 1oz. physical gold bullion bars and unable to keep up with demand, also suggests to me that trouble is fast approaching.

Next, although unlikely, there’s always a last minute deal, the US Federal government has warned its workers of a possible shutdown starting Sunday. That this is no way to run the world’s leading democracy and economy, is obvious to all but the two governing parties in Washington, District of Crooks.

 

U.S. government tells federal employees a shutdown may be imminent

September 28, 2023

The U.S. government notified federal workers on Thursday that a shutdown appears imminent, as a Republican-led standoff on Capitol Hill forced the Biden administration to begin the formal, methodical process of preparing much of Washington to come to a halt.

The new warnings underscored the growing likelihood that millions of employees and military service members may stop receiving pay in just three days, even as talks commenced on Capitol Hill in pursuit of a long-elusive, last-minute deal that would extend federal funding beyond Sept. 30.

Across the government, federal officials dusted off the intricate blueprints that help unwind and pare down the sprawling bureaucracy to only its most vital functions. They braced for disruptions that are likely to be significant, especially if the stalemate persists for weeks, potentially dragging down the fragile U.S. economy while complicating many of the services on which millions of Americans and businesses rely.

Some federal programs, including Social Security and mail delivery, would be unaffected because they are funded outside of the annual appropriations process on Capitol Hill. But many other government operations would be rendered inaccessible if funds expire as soon as this weekend — potentially resulting in closed parks and passport offices, and eventually, more worrisome interruptions affecting federal housing, food and health aid for the poor.

More

U.S. government tells federal employees a shutdown may be imminent (msn.com)

Gold Bars Sold Out in ‘a Few Hours,’ Says Costco

Experts believe the demand for gold is strong due to its 'safe haven' status amid uncertain economic conditions

9/28/2023 Updated: 9/28/2023

Online inventory of gold bars is being snapped up by customers rapidly, said Costco on Tuesday.

“I've gotten a couple of calls that people have seen online that we've been selling one-ounce gold bars, yes, but when we load them on the site, they're typically gone within a few hours and we limit two per member,” said Richard Galanti, executive vice president of Costco, during the company’s Q4, 2023, earnings call on Sept. 26. At present, Costco offers 1 ounce, 24 karat gold bars from two suppliers on its website—South Africa’s Rand Refinery and Switzerland’s PAMP Suisse.

The gold bars are being sold for around $1,949 and $1,979 respectively, according to Business Insider, and are air shipped via UPS insured service. Both bars are “member-only” items. A Costco standard membership costs $60 per year, with the executive membership costing $120.

More

Gold Bars Sold Out in ‘a Few Hours,’ Says Costco | The Epoch Times

In China news, nothing good.


China’s economic activity again weakened in September, China Beige Book survey shows

China’s small economic rebound appears to have stalled in September, with retail sales and pricing power as well as manufacturing production and loan growth weaker than the print for the month before, according to the monthly China Beige Book survey released Friday.

This setback will inflame fears of anemic third-quarter growth, escalating the risks of the world’s second-largest economy falling short of the central government’s stated 5% growth target. Economists still currently expect September data to remain relatively soft, with most data pointing to a further stabilization in the slowdown.

Several August economic indicators underscored nascent signs of stabilization in the slowdown in the Chinese economy. Official retail sales and industrial production data last month had in fact, beat expectations, corroborating encouraging signs from other data points — from inflation rates to the purchasing managers index, typically seen as leading indicators.

More

China's economic activity again weakened in September: China Beige Book (cnbc.com)

China Evergrande’s troubles mount as chairman is suspected of ‘illegal crimes’

A day after China Evergrande’s shares were suspended in Hong Kong, the beleaguered Chinese property firm revealed that its director and executive chairman is under scrutiny over suspected crimes.

Hui Ka Yan “has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes,” Evergrande said in a statement to the Hong Kong Stock Exchange late Thursday.

As such, the company’s shares will remain suspended until further notice.

This follows a Bloomberg report on Wednesday that said Hui had been “placed under police control,.”

Bloomberg said that Hui was taken away by Chinese police earlier this month and is being monitored at a designated location, citing people familiar with the matter.

Late Thursday, Evergrande released a separate filing regarding the status of its subsidiary Hengda Real Estate Group, which most recently failed to pay the principal and interest for a 4 billion yuan ($547 million) bond that was due Sept. 25.

Evergrande said that as of end-August, Hengda had a total of 1,946 pending litigation cases which involved more than 30 million yuan each, with the total amount involved of approximately 449.298 billion yuan ($61.61 billion).

Total unpaid debts from Hengda amounted to approximately 278.53 billion yuan, with overdue commercial bills of about 206.777 billion yuan.

In the same filing, Evergrande revealed there were 163 new enforcement cases against Hengda Real Estate in August, involving a total amount of approximately 9.13 billion yuan, although it did not elaborate on the nature of the cases.

Hengda also saw 68 new cases where its equity interest in subsidiaries and investee companies were frozen as a result of enforcement actions against it.

More

China property: Evergrande's chairman suspected of illegal crimes (cnbc.com)

Finally, the canary in the stock casino’s mine just died. When corporate bankruptcies soar, a stock market fall/crash usually follows. Did that Fed soft landing just die with the casino’s canary.

US faces risk of highest corporate bankruptcies since 2010

9/24/2023 5:46:30 AM

(MENAFN) Guggenheim Investments has warned that corporate bankruptcies in the United States may surge to their highest levels since 2010. This dire prediction is attributed to a combination of factors, including a significant increase in borrowing costs and escalating economic uncertainty. MarketWatch reported on the findings of this report, underlining the potential challenges that lie ahead for the corporate sector in the United States.

The report revealed that the number of corporate bankruptcies in the country had been on a concerning trajectory. By the end of August, over 450 corporations had already sought bankruptcy protection in the current year. This figure has already surpassed the annual totals of the past two years, raising alarm bells within the financial sector.

Guggenheim's analysts offered a bleak assessment of the prospects for a rapid recovery in the US economy. They pointed to the absence of key supporting factors that would indicate a reacceleration of economic growth in the near future. This assessment underscores the prevailing uncertainties and challenges that businesses in the United States are grappling with, which are driving an elevated risk of bankruptcy for a wide range of companies.

US faces risk of highest corporate bankruptcies since 2010 | MENAFN.COM

People are having trouble paying off their credit cards, and these 2 department stores could be in trouble

September 27, 2023

The heavy hand of the Federal Reserve may pound the financials of big department stores Nordstrom (JWN) and Kohl's (KSS) this holiday shopping season. 

BofA slashed its profit estimates and price targets for Nordstrom and Kohl's on Tuesday, citing rising financial stress on households amid higher interest rates. Those higher rates are driving increased delinquencies (see BofA charts below) and could potentially lead to more charge-offs on department store credit cards soon.

"We expect KSS and JWN will see a decline in credit revenue in the coming quarters as rising delinquencies turn into charge-offs," BofA analyst Lorraine Hutchinson said in the note to clients.

Store credit cards — with interest rates in some cases above 30% — have long been a pure profit center for department stores.

Credit card sales made up about 87% of operating profits at high-end department store Nordstrom in 2022, according to experts. In 2021, that number was 79%. 

Meanwhile, credit card sales generated the majority of operating profits at Kohl's in 2022, pros estimated. 

BofA's Hutchinson now sees fair value for Nordstrom stock at $13, down from $14 previously. Kohl's stock is being valued at $22 a share by Hutchinson, down from $25.

Hutchinson added she expects a "worsening credit cycle" in coming quarters.

The negative narrative around department store stocks, in large part due to credit cycle worries, took center stage during the second quarter reporting season in August.

Macy's (M) said its second quarter credit card sales tanked 36% from the prior year to $150 million. The reason: Excess balances on Macy's Citibank-powered credit cards were met with a rising interest rate environment.

Cash-strapped consumers — enduring an almost 25% annual percentage interest rate on the Macy's card — haven't been able to pay off their bills. Macy's has opted to write off those balances and could keep doing so in the quarters ahead.

"While we have seen an increase in revenues as interest rates have risen, that has been more than offset by higher bad debt assumptions and write-offs," Macy's CFO Adrian Mitchell said on a call with Wall Street at the time. "These bad debt assumptions and write-offs are the result of rising delinquencies, which leads to higher net credit losses over time and contributes to increased bad debt within the portfolio."

Execs added that Macy's is seeing the most acute pressure among households earning $75,000 and under. Year to date, Macy's credit card sales are down about 24% from a year ago.

Nordstrom echoed Macy's on its earnings call too.

People are having trouble paying off their credit cards, and these 2 department stores could be in trouble (msn.com)

US commercial-property concerns keep mounting - experts warn of 'massive' debt refinancing risk and an economic 'doom loop'

Sun, 24 September 2023 at 6:45 pm BST

  • Concerns about the US commercial-property market are mounting as experts warn of worse times ahead.
  • Mohamed El-Erian has warned of looming "massive" debt refinancings, while others see the risk of an economic "doom loop."
  • Here is a selection of the latest expert warnings about the US commercial real-estate market.

Concerns about the US commercial real-estate (CRE) industry are mounting as office vacancy rates hit all-time highs, consumer savings dwindle, and interest rates march higher.

Some market experts have warned of a looming economic "doom loop" due to America's collapsing office market, while others have warned of losses for banks thanks to their CRE exposure.

Since the start of this year, the commercial property market has been grappling with multiple challenges including a steep surge in high interest rates, work-from-home trends, and a credit squeeze that followed the banking turmoil of the first half.

Here's a selection of the latest expert warnings about CRE and its implications on consumers, businesses, and the broader economy.

More

US commercial-property concerns keep mounting - experts warn of 'massive' debt refinancing risk and an economic 'doom loop' (yahoo.com)

Are we in the age of the ‘permacrisis’?

September 28, 2023

Nobel Prize winning economist Michael Spence and leading economic commentator Mohamed El-Erian tell City A.M. about the age of the ‘permacrisis’ as they release their new book with Gordon Brown.

The global economy is rapidly changing. Failing to recognise the deep-rooted changes that are reshaping the underlying economic framework will have deep and long-lasting implications for global growth.

That’s the argument of a new book – Permacrisis: A Plan to Fix a Fractured World – co-authored by ex-Prime Minister Gordon Brown, Nobel-prize winning economist Michael Spence and leading economic commentator Mohamed El-Erian.

As Spence told City A.M., “we think we’re in a fairly fundamental and relatively rapid regime change in the global economy”.

This rapid regime change creates crises, and lots of them. From financial blow-ups to de-globalisation and from climate change to Covid, the world has been hit by a whole catalogue of once in a generation shocks.

El-Erian explained that the word Permacrisis captures the sense that “every time we emerge from one crisis there’s another one waiting for us around the corner”. The policy failure is to see these crises as disconnected.

The spate of crises are not random pieces of bad luck, preventing the global economy returning to a steady state of stable growth and low inflation. Ageing populations, trade fragmentation and the “expensive pattern” of friendshoring all pose significant headwinds to growth, not to mention the existential challenge posed by climate change.

As Spence said, “the mistake is to miss the underlying trends”.

El-Erian, who was one of the first to suggest the economy was adjusting to a ‘new normal’ post-financial crisis, said policymakers have failed to recognise that “we’re living in a structural world, not a cyclical world”.

The trends described in the book have dramatically changed the relationship between supply and demand.

For years after the financial crisis, the world was defined by a deficiency in demand. Now, however, the global economy is facing supply constraints as made abundantly clear by the post-pandemic surge in inflation.

But policymakers failed to appreciate the change because they had not focused on structural changes. When inflation took off, El-Erian said policymakers dismissed it as “simply a cyclical blip”, using “that awful word transitory”.

In a supply-constrained world, Spence said inflation is “a threat lurking in the background”.

And this poses risks to a global economy which has grown used to low and stable inflation. “Mindsets tend to lag the change, which creates the conditions for accidents of a variety of kinds,” Spence said.

More

Are we in the age of the ‘permacrisis’? (msn.com)

Global Inflation/Stagflation/Recession Watch.

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

Entire U.S. Treasury yield curve moves toward or above 5%, raising risk something may break

Sep 27, 2023 8:52 PM GMT+1

On a day devoid of any major market-moving news, investors sent yields in the roughly $25 trillion Treasury market closer to or further above 5% on Wednesday. It isn't the level of yields that may prove to be problematic as much as it is the speed with which they got there, with the pace only accelerating since the Federal Reserve's policy announcement last Wednesday, analysts said.

Three years ago, during the U.S. onset of the Covid-19 pandemic, yields on everything from Treasury bills to the 10-year security were near zero. But in just the past handful of months, rates on 2-, 10- and 30-year government debt have all jumped by more than a full percentage point each from their 2023 lows. One of the biggest factors that is sending long-term Treasury yields to multi-year highs is a recalculation of what's known as term premium, or compensation that investors demand for the risk of holding a bond over the life of that security, according to Alex Pelle, an economist at Mizuho Securities in New York. Unlike the risk of holding cash, which is seen as limited, the same can't necessarily be said for long-term government debt.

"What are the components of long-term yields? The market's estimate of the long-term dot, or level which Fed officials see as appropriate for their main interest-rate target, and some term premium because investors demand compensation for duration risk," Pelle said via phone on Wednesday. "One of the things that's happening here is a re-evaluation of term premium, given a high fiscal deficit and large amount of supply coming on line."The move toward 5% Treasury yields "is not all a bad thing if it is an endorsement of the structurally higher growth environment we're in, in which the economy is fundamentally more resilient than in the past," he said. "But the other part of this is more negative, with investors worried about the trajectory of government debt and a huge deficit, plus the Fed's quantitative-tightening effort."

The speed of the current selloff in U.S. government debt is raising the possibility of renewed trouble for banks and other existing holders of Treasurys, which tend to get hit hardest by rising yields. TD Securities strategists Gennadiy Goldberg and Molly McGown said that a persistent selloff in bonds "increases the risk of 'breaks' similar to" those seen during the U.K.'s liability-driven investment crisis of last year and this year's collapse of Silicon Valley Bank.Global insurers surveyed by BlackRock Inc. (BLK) prior to the recent run-up in market-implied rates cited the potential for more cracks to occur at banks as their biggest concern. And in a note addressing what it would take for the 10-year rate to reach 5% in the near term, BofA Securities strategist Bruno Braizinha said "we continue to recommend hedging scenarios where yields continue to push higher."

Wednesday's selloff in Treasurys took off just before midday in New York, reversing the buying seen earlier in the morning. The 10- BX:TMUBMUSD10Y and 30-year yields BX:TMUBMUSD30Y respectively jumped to 4.625% and 4.731%, ending at their highest closing levels since Oct. 16, 2007, and Feb. 10, 2011. Big jumps were also seen in 3- and 20-year yields, which each rose to 4.9%. "We are seeing a re-steepening of the curve with lots of yields going higher, including 3-, 5-, 7- and 10-year rates," said Mizuho's Pelle. "But is it going to break something? Certainly, there are people who are going to lose money. The speed of these moves is hurting investors, who were long duration. We're moving higher in rates on a day when nothing else is happening. There's an asymmetry in these market moves, as investors re-evaluate the yield levels at which they are willing to buy long-term government debt."

Entire U.S. Treasury yield curve moves toward or above 5%, raising risk something may break | Morningstar

Why Delinquencies Could Spoil The Soft Landing For Banks

Sep 26, 2023,09:20am EDT

With inflation easing and talk of a “Goldilocks scenario” abundant, banks might be tempted to think that the economic tides have turned. At the risk of outing myself as a banking Cassandra, I must point out that there are very good reasons why risk could be poised for a comeback later this year and into 2024, via a rise in consumer delinquencies.

Finances are stretched today, and more consumers are falling behind on loan or credit card payments. The pandemic boost from government stimulus and a pause on student loan payments in the U.S. are shrinking in the rearview as more consumer credit scores slide back into sub-prime territory.

While inflation seems to be easing, interest rates are showing no sign of coming down, which means everything from auto loans to credit card payments to mortgages are more expensive. Federal Reserve data from July revealed that U.S. credit card debt reached record highs this summer. Meanwhile, a record 16% of American consumers now pay at least $1,000 a month for their cars, with the percentage of borrowers 60 days late on vehicle payments higher today than it was at the peak of the Great Recession.

This problem extends beyond America. Consumers in the UK, Canada and Australia all face similar challenges to the ones described above and inflation in Europe has yet to break.

And if we look to the near future things don’t look much rosier, with the pause on U.S. federal student loan payments and interest slated to end in October, and the well-publicized stress in commercial real estate as loan maturities loom closer in North America.

In short, the oldest risk in banking looks poised to make a comeback. Moody’s seems to agree, as it cut the credit ratings of several small- and mid-sized American banks this summer and warned that it may downgrade some of the biggest lenders due to concerns about credit risk. As of today, the delinquencies on auto loans, credit cards and consumer loans are at their highest level in a decade.

More

Why Delinquencies Could Spoil The Soft Landing For Banks (forbes.com)

Covid-19 Corner

This section will continue until it becomes unneeded.

China, Germany Resume High-Level Financial Talks After COVID-19

Sept. 28, 2023, at 3:44 a.m.

BEIJING (Reuters) - China and Germany will co-host a third financial dialogue in Germany on Oct. 1, the Chinese foreign ministry said on Thursday, resuming high-level talks that had stalled for several years due to COVID-19.

Chinese Vice Premier He Lifeng will co-chair the dialogue with German Finance Minister Christian Lindner, ministry spokesperson Mao Ning said at a regular news conference.

In the last round of talks in January 2019, China and Germany signed agreements to strengthen coordination in banking, finance and capital markets, and pledged to further open market access and deepen cooperation to broaden economic ties.

Since then, the European Union, including Germany, has expressed concerns about being too economically dependent on China.

Last week, Germany said it was planning to force telecoms operators to slash the use of equipment from Huawei and ZTE in their 5G networks after a review highlighted an over-reliance on these Chinese suppliers.

China, Germany Resume High-Level Financial Talks After COVID-19 (usnews.com)

 

What is Pirola? New variant sets ‘alarm bells ringing’

Wed, 27 September 2023 at 12:58 pm BST

The new Covid variant, Pirola, has set "alarm bells ringing" as the disease “shows no signs of stopping”, according to a leading virologist.

This year, around 14,000 people in the UK so far have died after contracting Covid. Professor Stephen Griffin told The Mirror that Covid is far from over. “The perception we're done with it and the narrative of having to live with it is another way of saying we're willing to deal with the damage it does. It’s the opposite of the Emperor’s new clothes, it is there, it’s killing people, and we’re not talking about it.

“None of these elements keeping Covid where it is are stable, and immunity will wain and things can get worse.”

Multiple cases of Pirola BA.2.86 have been detected in the UK, including an outbreak that infected almost every resident and member of staff at one care home.

Professor Griffin said: “It’s obviously successful because it’s spread round the world very quickly against the background of hugely successful Omicron XBB variants.

“The idea that it’ll burn out could happen, but I suspect it won’t... if you look back, the Delta variant was quite similar at the beginning and it had fits and starts, before it really got going. It could reach critical conditions. There are very few sequences at the moment but testing bias is very poor.

“It could be a matter of time [until case numbers take off], it could be it doesn’t become very much itself, but it’s another sign we can’t consign this to being a seasonal flu.

“It’s really hard to tell the future with that, if nothing else, it’ll be a forebearer for other variants that could outcompete the XBBs... we keep saying this, we keep seeing these jumps in evolution for the virus, and it shows no sign of stopping.”

This month, England begun to offer new Covid boosters following the discovery of the Pirola variant.

NHS England is urging people to get both jabs to avoid a potential “twindemic” of flu and Covid, which would put pressure on the health service.

More

What is Pirola? New variant sets ‘alarm bells ringing’ (yahoo.com)

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.

Testing particle scattering and reflection in graphene

SEPTEMBER 27, 2023

Humanity stands on the verge of two major revolutions: the boom in 2-dimensional supermaterials like graphene with incredible properties and the introduction of quantum computers with processing power that vastly outstrips that of standard computers.

Understanding materials like graphene, made of single sheets of atoms, means better investigations of the properties they display at an atomic level. This includes how electrons behave around superconductors — materials that when cooled to temperatures near absolute zero, can conduct electricity without energy loss.

When a superconductor is sandwiched between metal materials, a type of scattering called crossed Andreev reflection may appear, and in an s-wave superconductor junction, the Andreev reflection usually induces correlated opposite spin in electrons. This can be used to induce entanglement, a quantum phenomenon that is critical for quantum computers.

In a new paper in The European Physical Journal B, author Rui Shen, from the National Laboratory of Solid State Microstructures and School of Physics at Nanjing University, China, and his co-authors theoretically assess nonlocal transport and crossed Andreev reflection in a ferromagnetic s-wave superconductor junction composed of the gapped graphene lattices.

"A staggered potential can be induced by growing the ferromagnetic graphene on the boron nitride substrate, leading to the symmetry breaking and the fully spin-polarized electron state," Shen says. "The Fermi level is properly tuned via gate voltage or doping so that it crosses only one conduction band in the left lead and one valence band in the right lead."

More

Testing particle scattering and reflection in graphene (phys.org)

Another weekend and the arrival of crash month October. What could possibly go wrong?  Have a great weekend everyone.

“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

John Kenneth Galbraith. The Great Crash: 1929.

No comments:

Post a Comment