Weekly Commentary: 2021 Year In Review

Summary

• The Federal Reserve’s historic experiment in inflationism ran wild. For those fretting a policy mistake in 2022, the harsh reality is that policy mistakes have been compounding for years.
• New record highs in the S&P 500 - 70 times. A short squeeze for the history books. Meme stock mayhem. The SPAC craze. A record IPO boom. Unparalleled “retail” market participation/enthusiasm and unprecedented speculative excess.
• Meanwhile, the VIX Index remained elevated throughout much of the year (averaging almost 20), with multiple bouts of skittishness pushing the VIX above 25.
• The 2021 bond market “conundrum” is the most consequential of the year’s extraordinary market dynamics. From an inflation perspective, current market yields are impossible to comprehend.

Petrovich9/iStock via Getty Images

Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. Covid ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Extreme weather ran wild. Bucking the trend, confidence in Washington policymaking ran - into a wall.

Covid running wild. With the hope for vaccines and a waning pandemic, few anticipated the tragedy of more than 475,000 Covid deaths (exceeding 2020). As the year comes to its conclusion, we are shocked by daily new cases exceeding 500,000 - and two million for the week. Globally, daily cases exceed two million.

Inflation running wild. CPI surged 6.8% y-o-y in November, the strongest consumer price inflation since June 1982. Core PCE, the Fed’s favored inflation gauge, rose above 6% for the first time since 1983. Surging food and energy prices, in particular, punish those who can least afford it.

Monetary inflation running wild. Federal Reserve Credit expanded $1.391 TN over the past year, or 19%, to a record $8.742 TN. The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10-fold since the mortgage finance bubble collapse.

M2 “money” supply inflated another $2.478 TN (12 months through November) to a record $21.437 TN – with egregious two-year growth of $6.185 TN, or 40.6%. Bank Deposits surged $1.957 TN over the past year (12.1%), with two-year growth of $4.812 TN (36%). Money Fund Assets rose another $408 billion y-o-y, or 9.5%, to $4.70 TN. The myth that QE effects remain well contained within Treasury and securities markets has been debunked.

In the seven pandemic quarters through Q3 2021, Non-Financial Debt surged $9.183 TN, or 16.8%, in history’s greatest Credit expansion.

The Federal Reserve’s historic experiment in inflationism ran wild. CNBC: “El-Erian Says ‘Transitory’ Was the ‘Worst Inflation Call in the History’ of the Fed.” For those fretting a policy mistake in 2022, the harsh reality is that policy mistakes have been compounding for years - the primary risk of discretionary monetary management recognized generations ago.

We need to place the Fed’s 2021 blunder into proper context. Compound mistakes over a long period, and associated risks explode exponentially. The Federal Reserve is now 13 years into a failed QE experiment. As history teaches, once monetary inflation is unleashed it becomes extremely difficult to rein in. “Just one more year of money printing - only one more crisis or downturn to overcome.” It just doesn’t stop. Moreover, the Fed is 25 years into a flawed experiment of using the securities markets as the primary mechanism for system stimulus (as opposed to the traditional principal role held by the banking system and lending).

The Fed blew its transitory inflation call. Moreover, it clung to the misguided notion of a weak jobs market as justification for keeping the printing press running full tilt. Despite pockets of weakness (i.e. leisure and hospitality) and an extraordinary exodus from the workforce, overall labor market dynamics were governed by tight conditions. January’s eight million job openings (“JOLTS” data) surpassed 11 million by July. For comparison, job openings averaged 4.6 million over the period 1999 to 2019. The unemployment rate dropped precipitously, from January’s 6.3% to November’s 4.2%. As companies struggled to retain and attract employees, workers enjoyed their strongest bargaining power in decades.

It wasn’t just rising compensation that ensured inflation became deeply rooted. Massive monetary and fiscal stimulus - along with associated asset inflation-induced gains in perceived wealth - stoked unprecedented spending. The monthly U.S. Goods Trade Deficit ballooned to a record $98 billion in November (two-decade average $56bn). A unique confluence of extreme global monetary inflation, excessive demand, and Covid-related disruptions (and some weather impact) forged an inflationary supply chain nightmare.

December 5 - New York Times (Lazaro Gamio and Peter S. Goodman): “Ships stuck at sea, warehouses overflowing, trucks without drivers: The highly intricate and interconnected global supply chain is in upheaval, with little end in sight. The turmoil has revealed how the need to ship surgical masks to West Africa from China can have a cascading effect on Ford’s ability to put back-up cameras on its cars at factories in Ohio and delay the arrival of Amazon Prime orders in Florida in time for the holidays. In one way or another, much of the crisis can be traced to the outbreak of Covid-19.”

Open-ended “whatever it takes” QE had fundamentally altered perceptions and market function. The Fed, of course, is not solely to blame for surging prices. But along with its inflationary money printing, QE operations granted spendthrift Washington a blank checkbook.

The fiscal 2021 federal deficit reached $2.77 TN, with a historic $5.90 TN two-year shortfall (28% of GDP). Outstanding Treasuries ended Q3 at $24.250 TN, up from year-end 2007’s $6.051 TN. Treasuries surged $5.678 TN in seven quarters, matching the total amount of accumulated federal debt through 2006. Treasuries ended Q3 at 105% of GDP, up from Q4 2007’s 41%.

During his November 3rd post-meeting press conference, Chair Powell explained QE’s impact: “[Asset purchases] will drive down longer-term rates and hold them lower - and rates right across the rates spectrum matter for borrowers. So, lower rates encourage more borrowing, encourage more economic activity, people can service their debt. You have more free cash flow - it’s not different from what we do at the short end.”

The conventional (“portfolio balance”) economic view of QE effects ignores the reality of the Fed creating and injecting Trillions of purchasing power directly into the system. And depending on the prevailing inflationary biases in the asset markets and real economy, QE can exert profoundly disparate inflationary effects. The $1.0 TN post-bubble QE1, for example, largely accommodated market deleveraging, deceptively feeding the notion of QE as non-inflationary. Resume QE when markets have attained powerful inflationary biases (i.e., 2019), and the additional liquidity will spur manic excess. Throw Trillions into highly exuberant markets, and the upshot will be a full-fledged mania. Manias ran wild in 2021.

December 26 - Bloomberg (Matt Turner): “Superlatives followed one after another in 2021’s wild ride for U.S. stock investors. The most all-time highs in 26 years. Triple-digit rallies in some small caps thanks to retail-trader frenzies. A $1 trillion rout after China cracked down on some of its biggest companies… Flush with cash and trapped at home due to the ongoing pandemic, retail traders started the year by supercharging the so-called meme stocks. GameStop Corp. and AMC Entertainment Holdings Inc. were emblematic of the movement as investors flooded social media platforms with calls to buy shares of the struggling companies. AMC Entertainment has skyrocketed more than 1,200% and GameStop rallied about 700%.”

New record highs in the S&P 500 - 70 times. A short squeeze for the history books. Meme stock mayhem. The SPAC craze. A record IPO boom. Unparalleled “retail” market participation/enthusiasm and unprecedented speculative excess. Meanwhile, the VIX Index remained elevated throughout much of the year (averaging almost 20), with multiple bouts of skittishness pushing the VIX above 25. Archegos 10-times (or more) levered in stocks, financed by some leading Wall Street brokerage firms. A prolonged period of extreme trader bullish sentiment.

While it had been building for years, it became an indisputable fact in 2021: The stock market offers a can’t lose proposition. There will, of course, be pullbacks. But stocks always recover and trade to higher highs.

December 12 - Wall Street Journal (Michael Wursthorn): “A historic surge of cash has swept into exchange-traded funds, spurring asset managers to launch new trading strategies that could be undone by a market downturn. This year’s inflows into ETFs world-wide crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion, according to Morningstar Inc. data. That wave of money, along with rising markets, pushed global ETF assets to nearly $9.5 trillion, more than double where the industry stood at the end of 2018. Most of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group, BlackRock Inc. and State Street Corp., which together control more than three-quarters of all U.S. ETF assets.”

Why not leverage a sure bet? Options trading gone wild.

September 26 - Wall Street Journal (Gunjan Banerji): “Nine of 10 of the most-active call-options trading days in history have taken place in 2021, Cboe Global Markets data show. Almost 39 million option contracts have changed hands on an average day this year, up 31% from 2020 and the highest level since the market’s inception in 1973, according to… the Options Clearing Corp.”

December 30 - Wall Street Journal (Gunjan Banerji): “By one measure, options trading, which can be riskier than stock trading, is on track to surpass stock activity for the full year for the first time, according to Cboe Global Markets data as of Dec. 28. In 2021, the daily average notional value of traded single-stock options has exceeded $467 billion, compared with around $410 billion of stocks.”

November 12 - Wall Street Journal (Gunjan Banerji): “Options trading has soared this year and, by one measure, hit a fresh high in October. More than $890 billion of single-stock options changed hands on Oct. 29, the highest level ever, according to Goldman data. And activity in the options market has continued to eclipse stock trading, based on the notional value of options changing hands.”

Vulnerable emerging markets experienced some scary moments - and generally, EM currencies and bonds performed poorly. The strong dollar and faltering Chinese bubble were negative developments. For the most part, however, fundamental deterioration was largely offset by Trillions of global QE, surging U.S. trade deficits, and booming U.S. and “developed” markets. The year ended ominously for fragile Turkey, with the lira collapsing and bond yields spiking.

Holders of U.S. Treasury notes and bonds suffered losses (TLT ETF returned negative 4.60%). Outperforming (riskier the better) junk bonds posted solid 2021 performance (HYG ETF returned 3.75%). Investment-grade corporate bonds posted small losses (LQD ETF returned negative 1.84%). It was yet another year of huge corporate bond issuance. A record $463 billion of junk bonds were sold. At $475 billion, municipal bond issuance was only slightly below 2020’s record. A record $186 billion of CLOs (collateralized loan obligations) came to market, about 40% ahead of the previous high in 2018.

December 27 - Financial Times (Eric Platt, Nicholas Megaw and Joe Rennison): “Companies raised a record $12.1tn in 2021 by selling stock, issuing debt and inking new loans, as a torrent of central bank stimulus and the rapid recovery from the pandemic propelled many global markets higher. With a few days still left in the year, the cash haul is already up almost 17% from 2020, which was itself a historic year, and almost a quarter above the take in 2019 before the coronavirus crisis, according to Financial Times calculations based on Refinitiv data. The ferocious pace of fundraising underscores just how easy financial conditions are in many parts of the world, most notably the US, where more than $5tn was raised.”

Cryptocurrencies running wild…

After beginning the year at about $28,000, Bitcoin traded to almost $65,000 in April, sank back below $30,000 in July, before posting an all-time high on November 10th at $68,992. Bitcoin ended 2021 just below $47,000 - gaining 60% for the year. Ethereum surged more than 400%.

December 29 – CNBC (Taylor Locke): “It’s been a record year for the cryptocurrency market, which briefly surpassed $3 trillion in value in November. Bitcoin, the largest cryptocurrency by market value, and ether, the second-largest, hit all-time highs, while altcoins, like meme-inspired dogecoin, surged in popularity."

NFT speculation running wild…

December 29 - Fortune (Akayla Gardner): “Among the three largest digital tokens by market value, Binance Coin, or BNB, significantly outperformed its two larger rivals Bitcoin and Ether. The coin—issued by crypto exchange Binance Holdings Ltd.—gained roughly 1,300% in 2021… By comparison, market leader Bitcoin increased 65% while Ether, the second-biggest token, rose 408%. BNB is used widely on Binance, the world’s biggest crypto exchange by volume. Other alternative coins, or ‘altcoins,’ saw major gains in 2021, benefiting from an explosion in investor interest for digital assets and an expansion of the crypto ecosystem. Solana and Fantom, coins connected with other blockchain platforms that support smart contracts, outpaced Binance Coin’s returns, for instance.”

December 28 - Grit Daily (Juan Fajardo): “With just 1 week to go until the end of 2021, the Non-Fungible Token ecosystem has already seen its most successful year since the first NFT was minted back in 2014. NFTs have generated over $23 billion in trades this year… While the top 100 NFT collections generated $16.7 billion in trading volume several individual sales were the biggest contributors… Names like Beeple, Pak, xCopy, CryptoPunks, Axie Infinity, Decentraland, NBA Top Shot, and more, became synonymous with NFTs in popular cultures… NFT # 1: The Merge – PAK Sale price: $91.8 million. Sold earlier this month on December 4th, The Merge broke the record not only for the most expensive NFT ever sold but also for the most expensive artwork sold by living artists. Created by an anonymous artist known only by the pseudonym ‘Pak’, the artwork saw 28,983 collectors buy 312,686 units NFTs, which conformed to the entirety of the artwork… This fractional nature means that theoretically, the artwork has no owner… NFT #2: Everydays: the First 5000 Days – Beeple Sale price: $69.3 million. This artwork by Mike Winkelmann, who goes by the professional name of Beeple, was the record holder for the most expensive NFT prior to ‘The Merge’. The artwork depicts the work Beeple started back in 2017 when he set to create a new digital picture every day for 5,000 straight, which were then combined into the ‘Everydays: the First 5000 Days’.”

Deal-making running wild…

December 30 - Reuters (Niket Nishant): “Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity… Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007... The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv. Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year… The United States led the way for M&A, accounting for nearly half of global volumes - the value of M&A nearly doubled to $2.5 trillion in 2021…”

December 30 - Financial Times (Kaye Wiggins, Nikou Asgari, James Fontanella-Khan and Arash Massoudi): “Global mergers and acquisitions for 2021 have soared to their highest levels since records began more than four decades ago, thanks in part to booming markets and widespread stimulus measures… The M&A boom also contributed to record-breaking fees for investment banks in 2021. These totalled $157bn, including $47bn in fees for M&A advice, the most since records began more than two decades ago.”

Add Trillions of system liquidity after home price inflation has attained momentum - with mortgage rates held down (3% or lower for adjustable rates!) to a fraction of housing inflation rates - and the Fed confirms lessons from the “Great Financial Crisis” went unlearned. Housing bubble excess running wild…

The S&P CoreLogic Case-Shiller U.S. National Home Price Index jumped 19.1% y-o-y (as of October data), the strongest housing inflation in data back to 1988. The 20-city index gained 18.4% - “the hottest markets were Phoenix (up 32.3%), Tampa (28.1%) and Miami (25.7%)” (CNBC). Home sales are on track for the highest volume since 2006. At just over one million units, the available inventory of existing homes was the lowest on record. Through the first three quarters of the year, mortgage Credit expanded at the fastest pace since 2006. The cost of renting also inflated at double-digit rates.

From CNN (Anna Bahney): “‘It was an insane year,’ said Matt Holm, an agent… in Austin. Last January, he put a smaller five-year-old home on the market at $425,000, higher than comparable sale prices, and was flooded with offers. ‘I stopped counting at 35 offers,’ he said. The home sold for $545,000, a 30% increase over the list price. Another buyer, who bought a lakefront luxury home for $6 million in 2020, was offered $9 million a few months later and $11 million two months after that by buyers desperate for a lakefront property, Holm said.”

Commodities prices running wild.

The Bloomberg Commodities Index jumped 27.1%. WTI Crude surged 55%, with Gasoline futures inflating 58%. Copper jumped 27%, with Aluminum up 42%, Nickel 25%, Zinc 28%, and Tin 91%. The precious metals underperformed, with Gold down 3.7% and Silver falling 11.7%. In the hot soft commodities, Wheat jumped 20%, Corn 23%, Cotton 44%, Coffee 76%, Sugar 22%, and Live Cattle 24%. After beginning the year at $550, Lumber had more than doubled to $1,200 by May, then sank back to $500 before rallying to close the year at $1,143.

The inflation of perceived wealth ran wild.

At a record $163 TN, Household Assets (Fed’s Z.1) surpassed 700% of GDP for the first time. Household Net Worth (Assets less Liabilities) jumped to $145 TN, or 624% of GDP. This compares to previous cycle peaks $70.9 TN (488%) during Q3 2007 and $44.5 TN (445%) back in Q1 2000. Household holdings of Financial Assets reached a record 500% of GDP, up from previous cycle peaks 374% (Q3 2007) and 354% (Q1 2000).

The last time y-o-y inflation was at 6.8%, 10-year Treasury yields exceeded 14%. Ten-year yields ended the year at 1.51%, with inflation-adjusted “real” yields deeply into negative territory.

The 2021 bond market “conundrum” is the most consequential of the year’s extraordinary market dynamics. From an inflation perspective, current market yields are impossible to comprehend. Paltry current yields are much less difficult to explain from the perspective of a historic global bubble backdrop. As it did in raging risk markets 2007 and $140 crude mid-2008, the prescient Treasury market can look past inflationary risks when it discerns bubble fragility. With super bubbles spanning the globe and the Fed’s playbook by now well-worn, the Treasury market is warranted for anticipating a future of endless Trillions of additional QE purchases.

China’s historic bubble is faltering. The collapse of developer Evergrande (OTC:EGRNF) - with its $300 billion of liabilities - sparked panic throughout China’s developer (and high yield) bond universe. After ending May at 14%, Evergrande bond yields surpassed 60% in August, on their way to 83% to end the year. Cockroaches everywhere. Kaisa Group yields surged to 51%, Sunshine City to 70%, Shanghai Shimao to 67%, Easy Tactic to 95%, Yuzhou Grand to 58%, China Aoyuan to 60%, and Sunac to 80% - to highlight just a few.

Millions of Chinese, having placed down payments for new apartment units, faced the prospect of long construction delays. Tens of millions fretted their investments in developer “wealth management products.” It is unclear how much housing information is making its way to the Chinese people. Housing transactions have slowed markedly. Prices have begun to weaken, though data don’t appear to reflect the steep discounts offered by financially stressed developers.

A year-end CNBC headline: “China’s Big Challenge for 2022: Getting People to Spend Money.” This year marked a profound change in Chinese perceptions. Faith that housing speculation provides a guaranteed vehicle for wealth generation has been shaken. The optimistic view that Beijing has everything under control had to be adjusted. The communist party imposed wide-ranging crackdowns on everything from real estate speculation, financial regulation, technology company dominance, press freedoms, private education, entertainment, video games, and internet “influencers” (among others). The screws were severely tightened on Hong Kong.

After years of exploiting the forces of free market capitalism as a necessary expedient for national development, chairman Xi shifted Beijing’s focus to “common prosperity,” wealth redistribution, and communist party encroachment upon all aspects of China’s economy and society. Meanwhile, Beijing’s draconian Covid “zero tolerance” policy further burdened a population discombobulated from an overwhelming barrage of momentous change.

Despite major economic and financial risks associated with a faltering Chinese bubble, for a manic Wall Street it was just one more risk to disregard.

Extreme weather running wild.

December 27 - Washington Post (Jacob Feuerstein): “From record-shattering heat to frigid waves of cold, torrential downpours to relentless drought, 2021 has been a year of extremes in the United States. As personal stories and images illuminate the devastation wrought by the events, the raw numbers also underline the widespread impacts and extraordinary nature of this year's weather… The United States experienced 18 billion-dollar weather disasters in the first nine months of 2021, totaling more than $104 billion. Driven largely by severe thunderstorms and a relentless hurricane season, this year has so far seen the second-most billion-dollar disasters of any year since 1980, and it could surpass 2020 for the record when events from October, November and December are tallied.”

A year of record heat, drought, rain and wind. A wild weather year comes to an end, with hurricane force winds feeding the worst fire in Colorado history (up to 1,000 homes destroyed). Early in the year, the Texas power grid was at the brink of collapse from a February cold snap. Deaths reached 125, as millions lost power.

Ongoing drought impacted most of the West Coast. Lake Mead (reservoir for the Hoover Dam) and water levels for scores of reservoirs fell to all-time lows. There were the West Coast forest fires. The Dixie Fire was the largest of the California blazes that consumed a sickening 2.5 million acres this past year. “More than 57,000 large wildfires burned nearly 12,000 square miles of land in the U.S. this year, mostly in the hot, dry West…” (Weather.com).

Category four Hurricane Ida made landfall in Louisiana with 150 mph winds ($65bn damage). With 21 named storms, 2021 was the third most active hurricane season on record. July was said to be the “hottest month in human history.” An intense heat wave saw records shattered across Western states - 116 degrees in Portland and 108 in Seattle.

It was a year of extraordinary tornadoes in the Southeast (Kentucky and Illinois) during early March and, extraordinarily, in nine states in December – devastating Mayfield, Kentucky (“Historic tornado outbreak the night of Dec. 10th” - Weather.com).

Globally, there was historic flooding in Germany, Belgium, France, Netherlands, Canada, South Sudan and in China's Henan province. Drought in South America. Fires in Greece and Turkey. The list could go on and on.

Bubbles, at their core, are mechanisms of wealth redistribution and destruction. Ongoing global bubbles ensure geopolitical instability and worsening conflict. The year was notable for heightened geopolitical pressures on multiple fronts.

China turned up the rhetoric - and sorties - over the Taiwan issue. Beijing cracked down on Hong Kong, arresting pro-democracy advocates while crushing all opposition. Russia positioned 100,000 troops along the Ukraine border - demanding “security guarantees” from the U.S. and NATO. Iran returned to nuclear talks, as it pushes forward with uranium enrichment and rocket development.

Such a consequential year on all fronts. It just seemed as though the crucial development for 2021 was the wild divergence that ran unchecked between extreme faith in the securities markets and waning confidence in policymaking (along with our nation’s future). The Fed blew it, and only surging stock prices muzzled growing outrage. Bursting asset bubbles will expose badly depleted confidence in the too powerful institution of the Federal Reserve System. Wall Street late in the year trumpeted the success of Powell’s adept “hawkish pivot,” with unwavering confidence that the Fed won’t dare actually tighten financial conditions and risk bursting myriad fragile bubbles.

Especially after Omicron, nascent trust in the federal government’s capacity to manage the pandemic has withered away. Faith in vaccines has taken a blow. After almost two years, frustration with inadequate testing has reached the boiling point. In short, our nation’s hope for the pandemic’s approaching end - and a return to normalcy - had the rug yanked right out from underneath. As is often repeated, “our nation is sick and tired of being sick and tired.”

Could our nation possibly be more divided than it was in 2020? Even in a non-election year, a deeply fractured society became only more so in 2021. Epitomizing the disturbing backdrop, to a segment of the population Dr. Anthony Fauci is a devoted public servant and national hero. To others, he is a heinous villain deserving of public ridicule and even death threats to Dr. Fauci and his family. There is ongoing distrust of myriad critical national institutions, including Congress, the Federal Reserve, the CDC, and even “science” more generally - that only gained momentum in 2021. An insecure society quivers, while conspiracy theories run wild.

The year ends ominously. Omicron and Manias. Inflation and ever-widening wealth disparities. Anger, frustration and disillusionment. Irrepressible enthusiasm for stock market and economic prospects - for those fully consumed by the asset markets. A gambling mentality and wanton disregard for risk. Disheartenment for those surviving outside the bubble, while those on the inside - wallowing in the monetary deluge - bask in the “Roaring Twenties.”

How dark would the public mood dim if securities market bubbles burst and the deeply maladjusted U.S. economy sinks into recession? S&P 500 5,000 in sight! TINA (“there is no alternative”). FOMO (“fear of missing out”). For 2021, there was no taming wild bubble excess. Paraphrasing the great economist Charles Kindleberger: “There is no more powerful force than the angst of watching your neighbors get rich.”

For the Week:

The S&P 500 increased 0.9% (26.9% price gain in 2021), and the Dow gained 1.1% (up 18.7%). The Utilities surged 2.7% (up 14.6%). The Banks added 0.7% (up 35.0%), while the Broker/Dealers slipped 0.4% (up 28.9%). The Transports advanced 1.8% (up 31.8%). The S&P 400 Midcaps jumped 1.7% (up 23.2%), and the small cap Russell 2000 added 0.2% (up 13.7%). The Nasdaq 100 was little changed (up 26.6%). The Semiconductors increased 0.4% (up 41.2%). The Biotechs fell 2.3% (down 3.8%). With bullion gaining $12, the HUI gold index rose 2.0% (down 13.6%).

Three-month Treasury bill rates ended the year at 0.03%. Two-year government yields rose four bps to 0.73% (up 61bps in 2021). Five-year T-note yields added two bps to 1.26% (up 90bps). Ten-year Treasury yields increased two bps to 1.51% (up 60bps). Long bond yields were unchanged at 1.90% (up 26bps). Benchmark Fannie Mae MBS yields slipped two bps to 2.07% (up 73bps).

Greek 10-year yields were little changed at 1.32% (up 69bps in 2021). Ten-year Portuguese yields rose six bps to 0.47% (up 44bps). Italian 10-year yields gained six bps to 1.17% (up 63bps). Spain's 10-year yields rose six bps to 0.57% (up 52bps). German bund yields jumped seven bps to negative 0.18% (up 39bps). French yields surged eight bps to 0.20% (up 54bps). The French to German 10-year bond spread widened one to 38 bps. U.K. 10-year gilt yields gained five bps to 0.97% (up 77bps). U.K.'s FTSE equities index added 0.2% (up 14.3% in 2021).

Japan's Nikkei Equities Index was little changed (up 4.9% in 2021). Japanese 10-year "JGB" yields were unchanged at 0.07% (up 5bps in 2021). France's CAC40 gained 0.9% (up 28.9%). The German DAX equities index increased 0.8% (up 15.8%). Spain's IBEX 35 equities index jumped 1.8% (up 7.9%). Italy's FTSE MIB index rose 1.2% (up 23.0%). EM equities were mixed. Brazil's Bovespa index was about unchanged (down 11.9%), while Mexico's Bolsa increased 0.8% (up 20.9%). South Korea's Kospi index fell 1.2% (up 3.6%). India's Sensex equities index jumped 2.0% (up 22.0%). China's Shanghai Exchange increased 0.6% (up 4.8%). Turkey's Borsa Istanbul National 100 index dropped 1.8% (up 25.8%). Russia's MICEX equities index rallied 2.3% (up 15.1%).

Investment-grade bond funds saw inflows of $2.218 billion, and junk bond funds posted positive flows of $1.722 billion (from Lipper).

Federal Reserve Credit last week was little changed at a record $8.742 TN. Over the past 120 weeks, Fed Credit expanded $5.015 TN, or 135%. Fed Credit inflated $5.931 Trillion, or 211%, over the past 477 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $12.3bn to a 14-month low $3.413 TN. "Custody holdings" were down $78bn, or 2.2%, y-o-y.

Total money market fund assets jumped $39bn to an 18-month high $4.705 TN. Total money funds increased $408bn y-o-y, or 9.5%.

Total Commercial Paper increased $4.4bn to $1.087 TN. CP was up $66.7bn, or 6.5%, for the year.

Freddie Mac 30-year fixed mortgage rates rose six bps to 3.11% (up 44bps y-o-y). Fifteen-year rates increased three bps to 2.33% (up 16bps). Five-year hybrid ARM rates gained four bps to 2.41% (down 30bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 3.23% (up 33bps).

Currency Watch:

For the week, the U.S. Dollar Index slipped 0.4% to 95.67 (up 6.4% in 2021). For the week on the upside, the Brazilian real increased 1.8% (down 6.8%), the Canadian dollar 1.4% (up 0.7%), the British pound 1.1% (down 1.0%), the Swedish krona 0.8% (down 9.1%), the Singapore dollar 0.7% (down 2.0%), the Swiss franc 0.7% (down 3.0%), the Australian dollar 0.6% (down 5.6%), the Norwegian krone 0.5% (down 2.7%), the Mexican peso 0.5% (down 3.0%), the euro 0.5% (down 6.9%), and the New Zealand dollar 0.1% (down 5.0%). For the week on the downside, the South African rand declined 2.5% (down 7.8%), the Japanese yen 0.6% (down 10.3%) and the South Korean won 0.2% (down 8.6%). The Chinese renminbi increased 0.18% versus the dollar (up 2.69%).

For 2021, the Turkish lira declined 44.1%, the Argentine peso 18.1%, the Chilean peso 16.5%, the Colombian peso 15.9%, the Thai baht 10.3%, the Peruvian sold 9.6%, the South Koran won 8.6%, the Romanian leu 8.6%, the Hungarian forint 8.5%, the Polish zloty 7.5%, the Bulgarian lev 6.8%, the Philippine peso 5.8%, the Malaysian ringgit 3.5%, the Czech koruna 1.9%, the Indian rupee 1.7%, the Indonesian rupiah 1.4% and the Hong Kong dollar 0.6%.

Commodities Watch:

The Bloomberg Commodities Index added 0.3% (up 27.1% in 2021). Spot Gold gained 0.7% to $1,829 (down 3.7%). Silver rose 1.3% to $23.31 (down 11.7%). WTI crude rose $1.42 to $75.21 (up 55%). Gasoline added 1.0% (up 58%), and Natural Gas jumped 2.8% (up 47%). Copper increased 1.6% (up 27%). Wheat dropped 5.4% (up 20%), and Corn fell 2.1% (up 23%). Bitcoin sank $4,690, or 9.2%, this week to $46,370 (up 60%).

Coronavirus Watch:

December 29 - Reuters (Crispian Balmer and Alexandra Alper): “Global COVID-19 infections hit a record high over the past seven-day period…, as the Omicron variant raced out of control and governments wrestled with how to contain its spread without paralysing fragile economies. Almost 900,000 cases were detected on average each day around the world between Dec. 22 and 28, with myriad countries posting new all-time highs… Although studies have suggested Omicron is less deadly than some previous variants, the huge numbers of people testing positive mean that hospitals in some countries might soon be overwhelmed, while businesses might struggle to carry on because of workers having to quarantine. Fearful of the economic impact of keeping so many people at home, some governments are looking at shortening the period that people have to isolate if they are COVID positive or have been exposed to someone who is positive.”

December 30 - New York Times: “With a caseload nearly twice that of the worst single days of last winter, the United States shattered its record for new daily coronavirus cases, a milestone that may still fall short of describing the true toll of the Delta and Omicron variants because testing has slowed over the holidays. As a second year of living with the pandemic was drawing to a close, the new daily case total topped 488,000 on Wednesday… Wednesday’s seven-day average of new daily cases, 301,000, was also a record, compared with 267,000 the day before… In the past week, more than two million cases have been reported nationally, and 15 states and territories reported more cases than in any other seven-day period.”

December 30 - Reuters (Carl O'donnell and Ahmed Aboulenein): “Within weeks, the Omicron variant has fueled thousands of new COVID-19 hospitalizations among U.S. children, raising new concerns about how the many unvaccinated Americans under the age of 18 will fare in the new surge. The seven-day-average number of daily hospitalizations for children between Dec. 21 and Dec. 27 is up more than 58% nationwide in the past week to 334, compared to around 19% for all age groups…”

December 29 - Bloomberg: “Ohio Governor Mike DeWine is deploying an additional 1,250 National Guard members to aid hospitals in northern Ohio unable to cope with depleted staffing amid record Covid-19 hospitalizations. The Cleveland Clinic... is down 2,700 staff - roughly 10% of its medical caregiving workforce - due to quarantines... And the remaining staff must take care of more patients than ever. The Cleveland Clinic is running roughly 2,000 tests daily, and 30% of those tests are coming back positive... The positivity rate for the state overall neared 25% Wednesday…”

December 26 - Bloomberg (Jason Gale): “The coronavirus that causes Covid-19 can spread within days from the airways to the heart, brain and almost every organ system in the body, where it may persist for months, a study found. In what they describe as the most comprehensive analysis to date of the SARS-CoV-2 virus’s distribution and persistence in the body and brain, scientists at the U.S. National Institutes of Health said they found the pathogen is capable of replicating in human cells well beyond the respiratory tract. The results… point to delayed viral clearance as a potential contributor to the persistent symptoms wracking so-called long Covid sufferers.”

Covid Disruption Watch:

December 28 - Financial Times (Sarah Neville and Jasmine Cameron-Chileshe): “A sharp rise in NHS staff absences because of coronavirus risks delaying patient care, health leaders have warned, as the number of hospitalisations in England hit a nine-month high. Government figures show that a record 129,471 people tested positive for Covid-19 in England and Wales on Tuesday. Meanwhile, NHS England data showed a total of 9,546 people were in hospital across England with Covid on December 28, a rise of 38% from a week earlier and the highest figure since March 3.”

December 27 - Daily Mail (Keith Griffith): “The Omicron variant is triggering a de facto lockdown in parts of the country as scores of businesses shutter on their own due to staff outbreaks, raising concerns about the impact on small businesses after nearly two years of disruptions. Perhaps aware that the US public has little appetite for further government restrictions, elected leaders are avoiding mandatory shutdowns in the Omicron wave. Nevertheless in New York City, where Omicron hit early and hard, many restaurants and bars have shuttered on their own after staff outbreaks or exposure, and as customers cancel bookings for fear of the virus.”

December 27 - Reuters (Dania Nadeem): “U.S. health authorities… shortened the recommended isolation time for Americans with asymptomatic cases of COVID-19 to five days from the previous guidance of 10 days. The Centers for Disease Control and Prevention also said the asymptomatic people after isolation should follow five days of wearing a mask when around others.”

December 30 - CNN: “Airline cancellations are surging Thursday for a seventh straight day and threaten to throw off weekend flights home for holiday travelers. Carriers canceled more than 1,000 US flights on Thursday and have already canceled 500 from Friday’s schedule, according to… FlightAware. In total, FlightAware recorded more than 8,500 US flight cancelations since Christmas Eve, when heavy holiday travel collided with a spike in coronavirus cases among industry workers and weather issues.”

December 29 - New York Times (Andy Newman): “One New York City subway line was suspended on Wednesday and five others were running with delays because so many workers were out sick. Twenty CityMD locations, where thousands of New Yorkers go to get tested for the coronavirus, were closed because of staffing shortages caused by the virus. The Police Department has canceled days off for any officer healthy enough to work. Nearly one in three paramedics are out sick, and the Fire Department begged New Yorkers not to call 911 unless they were truly experiencing an emergency… Broadway shows are closing even as others reopen. Libraries are shuttering left and right. New York City is exhausted, beleaguered and riddled with coronavirus thanks to the Omicron variant. More than 110,000 people have tested positive just since Christmas Day, and the positivity rate in some neighborhoods is approaching 30%.”

December 30 – Reuters (Joyce Lee and Manya Saini): “Samsung Electronics and Micron Technology, two of the world's largest memory chip makers, warned that strict COVID-19 curbs in the Chinese city of Xian could disrupt their chip manufacturing bases in the area. The lockdown in the city puts further pressure on global supply chains and adds to a torturous year for exporters facing sharply higher freight costs even as prices for raw materials including semiconductors skyrocket amid the two-year long pandemic.”

December 28 – Bloomberg (Kasia Klimasinska and Martine Paris): “The U.S. Centers for Disease Control and Protection identified 89 cruise ships with Covid-19 cases on Tuesday, nearly all of which have met the threshold for a formal investigation. Democratic Senator Richard Blumenthal urged cruise companies and health agencies to stop ships from sailing, saying they are ‘repeating recent history as petri dishes of Covid-19 infection.’”

Market Mania Watch:

December 27 – Wall Street Journal (Amrith Ramkumar and Eliot Brown): “Investors are defying a share-price slump for newly public companies to make hundreds of billions of dollars available to startups… Special-purpose acquisition companies, which take startups public through mergers, raised about $12 billion in each of October and November, roughly doubling their clip from each of the previous three months, Dealogic data show. So far in December, three SPACs a day are being created. While that is below the first quarter’s record pace, it brings the total amount held by the hundreds of SPACs seeking private companies to take public in the next two years to roughly $160 billion. The cash committed to venture-capital firms and private-equity firms focused on rapidly growing companies but not yet spent also is ballooning. So-called dry powder hit about $440 billion for venture capitalists and roughly $310 billion for growth-focused PE firms earlier this month, according to Preqin.”

December 30 - Bloomberg (Sonali Basak): “Goldman Sachs… held on to the top spot in dealmaking during a record year. The investment bank was the No. 1 adviser on mergers and acquisitions for the fifth year in a row, as measured by the total dollar value of transactions it handled… Goldman’s dominance comes as global M&A and related deals surpassed $5 trillion in volume for the first time. The bank advised on more than $1 trillion worth of deals, giving it a market share of more than 24%, the data show.”

December 28 - Wall Street Journal (Corrie Driebusch and Peter Santilli): “Looming behind a record-breaking run for IPOs in 2021 is a darker truth: After a selloff in high-growth stocks during the waning days of the year, two-thirds of the companies that went public in the U.S. this year are now trading below their IPO prices. Traditional initial public offerings raised more money than ever before in 2021, as startup founders and early investors tried to cash in on sky-high valuations. In the first eight months of the year, IPO shares rose. In November, 2021’s class of IPOs were trading up 12% on average… By late December, they traded 9% below their IPO prices.”

December 30 - Financial Times (Kaye Wiggins, Nikou Asgari, James Fontanella-Khan and Arash Massoudi): “Global mergers and acquisitions for 2021 have soared to their highest levels since records began more than four decades ago, thanks in part to booming markets and widespread stimulus measures… The M&A boom also contributed to record-breaking fees for investment banks in 2021. These totalled $157bn, including $47bn in fees for M&A advice, the most since records began more than two decades ago.”

December 30 - Financial Times (Hannah Murphy and Joshua Oliver): “At the beginning of 2021, only a niche group of crypto enthusiasts knew what non-fungible tokens (NFT) were. But by the end of the year nearly $41bn had been spent on NFTs, according to the latest data, making the market for digital artwork and collectibles almost as valuable as the global art market. ‘This year witnessed the NFT market explode from a sub-billion-dollar market to a multi-decabillion industry,’ said Mason Nystrom, research analyst at crypto data group Messari, adding that buyers were rushing to uncover art that aligns with their ‘digital identities’.”

Market Instability Watch:

December 28 - Financial Times (Eric Platt and Madison Darbyshire): “Investors are increasingly turning to a tool to protect them if the US stock market careens lower in the coming weeks. Traders are buying put option contracts in ever greater numbers, hoping the derivatives will provide a hedge if stocks fall from record territory. The rising use of put contracts, including by the swell of new retail day traders who entered markets this year, has accompanied a surge of volatility in the $53tn US equity market. Stocks have whipsawed over the past month as traders have been confronted by the spread of the Omicron coronavirus variant, tighter monetary policy from the US Federal Reserve and the prospect that the White House’s flagship $1.75tn spending bill may stall in Congress.”

December 24 - Financial Times (Tommy Stubbington): “Global bond markets are on course for their worst year since 1999 after a global surge in inflation battered an asset class that is typically allergic to rising prices. The Barclays global aggregate bond index… has delivered a negative return of 4.8% so far in 2021.”

December 31 - Bloomberg (Sydney Maki): “Money-market participants are about to send the amount of money placed in a key Federal Reserve facility soaring. On the final day of 2021, volumes at the Fed’s overnight reverse repurchase agreement operation are expected to break records. ‘Balance sheet compression by dealers is likely to force a record amount of cash into the RRP facility,” according to Wrightson ICAP, which expects increase of $250 billion to $300 billion on Friday. That would mark a new all-time high of more than $1.9 trillion.”

Inflation Watch:

December 29 - Washington Post (Rachel Siegel and Laura Reiley): “Strong consumer demand, continuing supply chain troubles and the emergence of the omicron variant of the coronavirus threaten to prolong sharply rising prices well into 2022, potentially making inflation the premier economic challenge of the new year. Prices defied many economists' expectations in 2021 by rising at the fastest pace in nearly 40 years. Everything from rent to the price of used cars to groceries climbed higher as the nation's economy has recovered from the pandemic. That caused pain for consumers - eating into sizable wage gains. It also caused headaches for the Federal Reserve, which had forecast much less inflation, and the White House, which faced concerns even from some Democrats about whether plans for more federal spending would drive inflation higher still. Now, companies and economists are bracing for inflation continuing into the new year.”

December 27 - Wall Street Journal (Jaewon Kang): “Everything from coffee to mustard is getting more expensive next year. Many food manufacturers say they plan to raise prices in 2022 for a range of products from macaroni-and-cheese to snacks, the latest sign that consumers will continue to face higher costs at the supermarket. ‘There’s nothing immune from price increases,’ said Tony Sarsam, chief executive officer of food retailer and distributor SpartanNash Co., adding that produce, dairy and packaged food such as bread and juice are among many items set to become more pricey next year. Food prices are estimated to rise 5% in the first half of 2022, according to research firm IRI…”

December 29 - CNBC (Ylan Mui): “The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices. That’s because a bigger portion of their budget goes toward categories that have spiked in cost. Food is up 6.4% over the past year, for example, while gasoline jumped a whopping 58%. And now many people are facing those higher prices as federal stimulus programs fade away. ‘They’re essentially looking to stretch a dollar most days,’ said Chris Wimer, co-director of the Center on Poverty & Social Policy at Columbia University. ‘It’s going to lead to difficult choices between putting gas in the car or paying for your kids’ child care or putting food on the table.’”

December 28 - Wall Street Journal (Ryan Dezember): “One of the major inflationary forces of 2021 has been the weather. Wild weather around the world wreaked havoc on markets for raw materials, lifting prices for everything from electricity and heat to houses and breakfast cereal. Policy makers and investors have debated the effects of fiscal and monetary policy on inflation, but a big reason for rising prices this year have been factors that neither lawmakers nor central banks can do much about. Prices for natural gas, lumber, corn, soybeans, wheat and other building blocks of modern commerce surged to multiyear highs - in some cases records - because of fire, freezes, flood, drought, hurricanes and some of the hottest weather ever.”

Biden Administration Watch:

December 29 - Reuters (Pete Schroeder): “Next year will be a turning point for U.S. financial policy as Democratic President Joe Biden's new regulators ready a slew of rule changes that are set to create headaches for Wall Street and corporate America. A year into his administration, Biden's top financial regulatory team is finally taking shape. Over the next 12 months, his picks are set to reverse the former Trump administration's light touch, taking a tough stance on Wall Street and new players entering the financial sector. Top items on the Biden administration's ambitious agenda include creating a regulatory framework for digital assets and financial technology players, boosting competition and addressing climate change.”

December 28 – Wall Street Journal (Andrew Ackerman and Nick Timiraos): “President Biden is considering Sarah Bloom Raskin for a top role at the Federal Reserve as part of a slate of three nominees for central bank board seats, according to people familiar with the matter. The administration is eyeing Ms. Raskin, a former Fed governor and onetime Treasury Department official, to become the central bank’s vice chairwoman of supervision, the government’s most influential overseer of the U.S. banking system... Mr. Biden, a Democrat, is also considering two economists for other Fed board seats that will soon be vacant: Lisa Cook, a professor of economics and international relations at Michigan State University; and Philip Jefferson, a professor and administrator at Davidson College in North Carolina.”

December 31 - Wall Street Journal (Josh Zumbrun): “Beijing’s commitment to step up purchases of U.S. goods and services under a 2020 trade pact expires Friday with China expected to miss its targets by a wide margin, creating a dilemma for the Biden administration as it calibrates a response. The White House could potentially reinstate certain tariffs that were cut as part of the trade deal, but that could backfire if China cut back U.S. purchases or took measures against American companies doing business there. Alternatively, the U.S. could ignore the shortfall, which could send a signal to Beijing that it won’t face consequences.”

Federal Reserve Watch:

December 28 - Bloomberg (Alister Bull): “On paper, the U.S. central bank’s policy-setting committee is set for a hawkish lean this year as incoming voters in the annual rotation among regional Fed presidents replace some colleagues who’ve typically been more dovish. The 2022 calculus will be a little tricky though, because the Biden administration could tilt the balance with its picks to fill three open seats. The incoming voters are Kansas City’s Esther George, Cleveland’s Loretta Mester, St. Louis’s James Bullard and the new president of the Boston Fed, which is in the process of recruiting for the position. In the meantime, Philadelphia’s Patrick Harker will cast Boston’s vote. They replace Chicago’s Charles Evans, Atlanta’s Raphael Bostic, Richmond’s Thomas Barkin and San Francisco’s Mary Daly. Bullard, Mester and George have all made hawkish comments recently about steeply rising prices. Still, the bigger question is who will fill three vacancies on the Fed’s Board of Governors.”

U.S. Bubble Watch:

December 29 - Bloomberg (Ana Monteiro): “The U.S. merchandise-trade deficit widened to a record in November as imports surged to an all-time high. The gap increased to $97.8 billion last month from a revised $83.2 billion in October... The figure exceeded all estimates… The value of imports rose 4.7% to $252.4 billion, led by industrial supplies. Imports of consumer goods climbed to a record $67 billion. Exports decreased to $154.7 billion. The goods-trade shortfall has reached new records this year, consistent with solid consumer demand and business investment.”

December 26 - Bloomberg (Angelica Peebles): “U.S. holiday sales jumped 8.5% from last year as consumers spent more money on clothes, jewelry and electronics, a report from Mastercard SpendingPulse showed… Sales surged 47% for apparel, 32% for jewelry and 16% for electronics compared with 2020, with all three categories up at least 20% from their pre-pandemic levels in 2019 as well. Department stores saw a 21% jump from last year and gained 11% from two years ago. Online shopping surged 11%, according to the report, which tracks retail sales across all payment types. E-commerce now accounts for roughly 21% of all holiday sales.”

December 30 - CNBC (Jeff Cox): “Initial filings for unemployment insurance dipped last week and remained close to their lowest level in more than 50 years, the Labor Department reported… Jobless claims for the week ended Dec. 25 totaled 198,000, less than the 205,000 Dow Jones forecast and a dip of 8,000 from the previous period.”

December 28 - Associated Press (Paul Wiseman): “U.S. home prices surged again in October as the housing market continues to boom in the wake of last year’s coronavirus recession. The S&P CoreLogic Case-Shiller 20-city home price index…, climbed 18.4% in October from a year earlier. The gain marked a slight deceleration from a 19.1% year-over-year increase in September but was about in line with what economists had been expecting. All 20 cities posted double-digit annual gains. The hottest markets were Phoenix (up 32.3%), Tampa (28.1%) and Miami (25.7%). Minneapolis and Chicago posted the smallest increases, 11.5% each.”

December 29 - CNBC (Amelia Lucas): “California’s largest businesses will be required to pay workers a minimum of $15 an hour in January. It’s a milestone fast-food workers have been trying to achieve since 2012. But anti-poverty activists aren’t satisfied. Citing the state’s high cost of living and rising inflation, they are pushing for more… Next year, 26 U.S. states and Washington will raise their minimum wages, but only California and parts of New York will mandate hourly pay of at least $15, according to a report from payroll experts at Wolters Kluwer Legal & Regulatory U.S.”

December 26 - Wall Street Journal (Lauren Weber): “Salaried employees are joining hourly workers in getting hefty raises, thanks to the hot job market and inflationary pressures that are also boosting pay for workers including waiters and warehouse staff. U.S. professionals toward the end of this year saw their compensation jump at the fastest rate in nearly 20 years... Hanging over bigger paychecks is the specter of inflation running near an annual rate of 7%, the highest in 39 years… Wages for all private-sector workers grew 4.6% year over year in the third quarter, according to federal data, with the biggest gains going to workers in service occupations and industries such as retail and hospitality.”

December 29 - Bloomberg (Joe Carroll): “Oil drillers in the biggest U.S. fields are shouldering record costs at the same time that some banks are increasingly reluctant to loan money to the sector, according to the Federal Reserve Bank of Dallas. Equipment, leasing and other input costs for oil explorers and the contractors they hire surged to an all-time high during the current quarter, the Dallas Fed said... Drillers also are seeing the universe of willing lenders shrink… ‘The political pressure forcing available capital away from the energy industry is a problem for everyone,’ an unidentified survey respondent said. ‘Banks view lending to the energy industry as having a ‘political risk.’ The capital availability has moved down-market to family offices, etc., and it is drastically reducing the size and availability of commitments regardless of commodity prices.’”

December 28 - Bloomberg (Mark Gurman): “Apple Inc. has issued unusual and significant stock bonuses to some engineers in an effort to retain talent, looking to stave off defections to tech rivals such as Facebook owner Meta Platforms Inc. Last week, the company informed some engineers in silicon design, hardware, and select software and operations groups of the out-of-cycle bonuses, which are being issued as restricted stock units… The shares vest over four years, providing an incentive to stay at the iPhone maker. The bonuses, which came as a surprise to those who received them, have ranged from about $50,000 to as much as $180,000 in some cases.”

Fixed-Income Bubble Watch:

December 29 - Wall Street Journal (Heather Gillers): “Investors have poured more money into municipal bond funds so far this year than they have in decades, providing the fuel for borrowing by states and cities to fund new bridges, sewers and other state and local projects to a second-straight 10-year high. Municipal bond funds now hold an unprecedented 24% of outstanding debt compared with 16% five years ago… The move marks the latest step in a fundamental shift away from a buy-and-hold market where individual investors quietly collect interest year after year… Buoyed by stimulus funds, state and local governments issued $301.9 billion of debt for new projects as of Dec. 21, the most in at least a decade.”

China Watch:

December 28 - Bloomberg: “Chinese companies reduced investment and remained reluctant to borrow in the fourth quarter, with small business’ financing costs soaring despite favorable policies, according to China Beige Book International. Only the retail and manufacturing sectors borrowed more when comparing to the third quarter, the CBBI said…, while services growth slowed ‘across the board.’ In addition, it became more expensive for smaller firms to borrow, with the gap between the interest rates on loans for small and large companies surging to 2.73 percentage points, the highest level since the survey began in 2012… That’s despite a series of policies aimed at helping smaller companies…”

December 28 - Bloomberg: “China is seen adding stimulus to stabilize growth next year, with various ministries vowing more proactive measures to reverse the slowdown caused by a worsening property slump, weak consumption and the coronavirus. As downward pressure on the economy increases, China’s top leaders made ensuring stability their top priority for next year, telling all regions and ministries to share responsibility in achieving that goal... The People’s Bank of China will use a variety of monetary policy tools to keep liquidity ‘reasonable and ample’ and ensure credit growth is stable, according to a statement Monday evening after the bank’s planning conference for 2022. On the same day, the finance ministry said it would proactively roll-out fiscal policies to stabilize growth, with greater cuts in taxes and fees planned for 2022.”

December 28 - Bloomberg: “China boosted its injection of short-term cash into the banking system to the highest in two months, as demand for liquidity climbed before year-end. Government bonds gained. The People’s Bank of China added 200 billion yuan ($31bn) of cash into the financial system through seven-day reverse repurchase agreements, more than offsetting the 10 billion yuan coming due. The yield on 10-year government bonds fell to 2.795%, the lowest level since June 2020. The PBOC’s operation came after an indicator for short-term borrowing costs soared the most in a year on Monday, a sign of liquidity shortages in the interbank market...”

December 31 - Wall Street Journal (Rebecca Feng): “China Evergrande Group said it has come up with a new repayment plan for disgruntled individual investors who purchased its wealth-management products… The conglomerate, which earlier this month sought government help to manage its debt crisis, on Friday said one of its units has proposed to pay almost all holders of its wealth-management products 8,000 yuan - equivalent to $1,255 - a month from December to February.”

December 30 – Bloomberg (Kevin Kingsbury): “Chinese borrowers’ dollar-note sales have slumped to a more than five-year low, as a surge in junk-bond yields made the cost prohibitive for many to sell fresh debt amid worries about developers. Issuance has dropped this month to $4.7 billion, the least since March 2016. Builders’ dollar-bond sales have dried up… China’s noninvestment-grade property firms have sold just $812 million of dollar notes this quarter, 86% less than the third quarter.”

December 29 - Reuters (Roxanne Liu, Martin Quin Pollard, Sophie Yu, Ryan Woo and Gabriel Crossley): “A lockdown of 13 million people in the Chinese city of Xian entered its seventh day on Wednesday, with many unable to leave their residential compounds and relying on deliveries of necessities as new COVID-19 infections persisted. Xian reported 151 domestically transmitted infections with confirmed symptoms for Tuesday, or nearly all of the 152 cases nationwide, bringing the total number of local Xian cases to nearly 1,000 during the Dec. 9-28 period. No cases of the Omicron variant have been announced in the city so far.”

December 26 - Bloomberg: “The western Chinese city of Xi’an has begun widespread disinfection measures since late Sunday to counter a jump in Covid infections that forced the lockdown of 13 million residents. Authorities are spraying disinfectants across the city and asking residents to close windows and avoid touching architectural surfaces and vegetation on streets. Private cars are not allowed on roads. The move came as daily infections spike to around 150 on Sunday and Monday…”

December 27 - Reuters (Gabriel Crossley and Stella Qiu): “China will roll out fiscal policies proactively next year to stabilise economic growth, the finance ministry said…, vowing that the impact of the drive would be felt earlier than usual. The government will launch another round of tax and fee cuts to support businesses and help them make infrastructure investments ‘appropriately’ ahead of time, according to a readout from an internal meeting by the finance ministry on fiscal policy for 2022.”

December 27 - CNBC (Weizhen Tan): “As many as one third of 40 Chinese property developers rated by Fitch… could suffer a cash squeeze in a severe scenario where home sales revenue drops by 30% next year, says the ratings giant. ‘The longer the stresses on China’s property sector last, the greater the risk of a loss in consumer confidence,’ Fitch said… Residential sales plummeted alongside home buyer confidence. Home sales by value dropped 16.31% from last year in November, a fifth month of declines. New home prices fell 0.3% from the previous month, the largest decline since February 2015… Fitch said in its report that in a severe scenario where residential home sales drop by 30%, 12 or roughly a third of its 40 rated developers could go into negative cash flow.”

December 30 - Associated Press: “Two former editors from a Hong Kong online pro-democracy news outlet were charged with sedition and denied bail Thursday, a day after one of the last openly critical voices in the city said it would cease operations following a police raid on its office and seven arrests. Hong Kong leader Carrie Lam defended the raid on Stand News amid a wider crackdown on dissent in the semi-autonomous city, telling reporters that ‘inciting other people ... could not be condoned under the guise of news reporting.’ U.S. Secretary of State Anthony Blinken called on Hong Kong authorities to release the detainees, and Canadian Minister of Foreign Affairs Melanie Joly said her country was deeply concerned about the arrests, which included singer Denise Ho, a Canadian citizen and activist.”

Central Banker Watch:

December 26 - Financial Times (Christine Murray): “The Bank of Mexico’s outgoing governor has spoken out about the importance of protecting the bank’s constitutional mandate as the institution faces mounting political pressure from President Andrés Manuel López Obrador and his party. The bank’s autonomy was recently called into question when López Obrador withdrew his nominee to be the next governor and replaced him with a little-known public sector economist.”

Global Bubble Watch:

December 28 - Bloomberg (Fergal O'Brien): “U.K. households are heading into the ‘year of the squeeze’ as surging energy bills and faster inflation eat into incomes, according to the Resolution Foundation think tank. In a grim report days before the New Year holiday, it said real wages will effectively stagnate in 2022, rising just 0.1%. In three years, they’ll be 740 pounds ($996) a year lower than if the pre-pandemic wage trend had continued. U.K. inflation has already breached 5% and may hit 6% early next year, the highest in three decades. That will hit consumers already dealing with the ongoing economic fallout from the coronavirus.”

December 30 – CNBC (Nicolas Vega): “Heading into 2022, the 10 wealthiest individuals in the world are all worth more than $100 billion, according to the Bloomberg Billionaires Index… Combined, the 10 richest billionaires added $402.17 billion to their net worths in 2021. They were led by Tesla CEO Elon Musk, who this year became the world’s richest man and briefly saw his net worth top $300 billion. He added $121 billion to his net worth in 2021 — just shy of the $140 billion he added in 2020.”

December 29 - Bloomberg (Venus Feng): “It’s been a record year for China’s internet moguls, but not in the way most would have hoped. The country’s 10 richest tech tycoons lost $80 billion in combined net worth in 2021, according to the Bloomberg Billionaires Index, amid widescale crackdowns by Chinese regulators. The drop represents almost a quarter of their total wealth and is the largest one-year decline since 2012, when the index started tracking the world’s richest people.”

EM Watch:

December 30 – Bloomberg (Asli Kandemir): “The cost of borrowing money in Turkey is surging, a sign that President Recep Tayyip Erdogan’s policy of driving down interest rates is starting to backfire. Since the central bank began slashing rates in September, the yield on 10-year government bonds has climbed more than 7 percentage points, touching an all-time high of 24.9% on Wednesday. It stands at more than 10 percentage points above the bank’s benchmark repo, the biggest premium on record.”

December 30 - Bloomberg (Carolina Gonzalez and Max de Haldevang): “Mexico’s president said he’d like the central bank to help boost growth during an event with his new pick to lead Banxico… ‘One job of the bank is to control inflation and the other, which we would like very much to see, but we are only giving an opinion, is that it also helps to boost growth,’ President Andres Manuel Lopez Obrador… said… ‘Inflation can be controlled but if there isn’t growth we don’t make progress.’”

Europe Watch:

December 30 - Bloomberg (William Mathis and Jesper Starn): “Europe has never paid so much for electricity as in 2021. The average cost of power for delivery in the short-term soared to record levels this year, rising over 200% in Germany, France, Spain and the U.K. In the Nordic region - where vast supplies of hydro power tend to cap prices - costs surged 470% from a year earlier. The crunch is leaving consumers and heavy industrial users with rising bills heading into 2022. Metals smelters from France to Spain have already been forced to curb output, while some fertilizer producers were forced to halt output altogether.”

Japan Watch:

December 27 - Bloomberg (Yuko Takeo): “Japan’s industrial production jumped by a record in November, adding to evidence that a manufacturing recovery from supply chain snags was solidly underway before the omicron variant started to spread around the globe. A bounce back in the auto industry helped production climb 7.2% from October’s level, the biggest gain in data going back to 1978... Analysts had expected a 4.8% increase.”

Social, Political, Environmental, Cybersecurity Instability Watch:

December 31 - Bloomberg (Vincent Del Giudice and Joe Ryan): “Wildfires propelled by hurricane-force winds destroyed hundreds of homes near Boulder, Colorado, overwhelming firefighters and forcing the evacuation of entire towns in the drought-stricken region. More than 500 homes and a large hotel were engulfed by flames Thursday in the latest devastating blazes to hit the U.S. West… The wildfires are the most recent bout of extreme weather as climate change and a La Nina weather pattern leaves much of the U.S. West hotter and drier. Most of the region, including all of Colorado, are gripped by drought.”

December 27 – Bloomberg (Damian Shepherd): “Ten of this year’s most destructive weather events cost a combined $170 billion in damages... Hurricane Ida, a tropical storm that pummeled much of the eastern U.S. with lashing rain in August, killed at least 95 people and cost the economy $65 billion. A month earlier, floods in Europe caused 240 deaths and an economic loss of $43 billion… Floods in China’s Henan province in July killed more than 300 and cost in excess of $17 billion. ‘The costs of climate change have been grave this year,’ said Kat Kramer, Christian Aid’s climate policy lead and author of the report. ‘It is clear that the world is not on track to ensure a safe and prosperous world.’ This year is expected to be the sixth time global natural disasters have cost more than $100 billion, the report stated, citing insurer Aon Plc. All six of those years have happened since 2011.”

Leveraged Speculation Watch:

December 30 - Bloomberg (Hema Parmar and Katherine Burton): “For some of the world’s largest hedge funds, private equity ended up making - or saving - the year, and they’re betting that will be the case again in 2022. Those with big holdings in non-public enterprises were rewarded in 2021 as a record number of companies debuted on U.S. exchanges, allowing the asset managers to realize gains. Deep-pocketed investors have been flocking to private companies because stakes can be acquired relatively cheaply. ‘Entering early allows us to acquire significant ownership in great companies at an entry price that is a small fraction of their ultimate public valuations,’ Third Point’s Dan Loeb wrote…”

December 29 - Bloomberg: “China’s top quant hedge fund apologized to investors after a record slump in performance, highlighting challenges facing the industry following a period of breakneck growth. The recent drawdown, caused in part by mistimed trades, was the biggest in the firm’s history, Zhejiang High-Flyer Asset Management said… ‘We feel deeply guilty,’ the... firm wrote. High-Flyer managed about 90 billion yuan ($14.1bn) as of September, making it the largest quant hedge fund in China.”

Geopolitical Watch

December 30 - Financial Times (Colby Smith and Polina Ivanova): “The US and its allies are prepared to respond ‘decisively’ should Russia invade Ukraine, President Joe Biden told his Russian counterpart Vladimir Putin on Thursday amid mounting tensions at the border. The telephone call between the leaders, which was arranged at Moscow’s request, marked the latest in a string of diplomatic efforts to defuse what has been described as a ‘moment of crisis’ as Russia amasses roughly 100,000 troops on Ukraine’s eastern frontier.”

December 29 - Reuters (Gabriel Crossley): “The United States is at risk of paying an ‘unbearable price’ due to its actions over Taiwan, Wang Yi, state councillor and foreign minister, said in an interview with state media… By ‘encouraging 'Taiwan independence' forces’ the United States ‘not only puts Taiwan into an extremely dangerous situation but also exposes the United States to an unbearable price’, Wang said. Taiwan has emerged as a key factor in strained relations between China and the United States, the island's most important international backer and arms supplier despite the absence of formal diplomatic ties.”

December 29 - Reuters (Ryan Woo): “China will take ‘drastic measures’ if Taiwan makes moves towards independence, a Beijing official warned…, adding that Taiwan's provocations and outside meddling could intensify next year. China claims democratically governed Taiwan as its own territory and in the past two years has stepped up military and diplomatic pressure to assert its sovereignty claim, fuelling anger in Taipei and concern in Washington. China was willing to try its utmost to seek peaceful reunification with Taiwan but would act if any red lines on independence were crossed, Ma Xiaoguang, spokesman of the Taiwan Affairs Office, told a media briefing. ‘If separatist forces in Taiwan seeking independence provoke, exert force or even break through any red line, we will have to take drastic measures,’ Ma said.”

December 28 - Bloomberg (Ryan Beene): “Top U.S. defense contractors are competing for billions of dollars of work tied to the next big technology focus in national-security circles: hypersonic weapons. The military’s renewed interest in ultra-high-speed missiles - spurred by concern that the U.S. is lagging behind Russia and China - opens the door to lucrative contracts that could last decades. That may provide a much-needed boon for manufacturers seeking to capitalize on growth segments as the Biden administration keeps overall defense outlays in check. The industry is developing an array of the super-high speed armaments for the U.S. Army, Navy and Air Force, with the aim of being able to launch them from planes, submarines and trucks.”

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.