Weekly Commentary: Russia, And The Bond Vigilantes

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Doug Noland
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Summary

  • Chinese big four bank CDS each surged about 10 bps, the largest single-session gains since the July 15th peak risk off.
  • The dollar index gained 0.6% Tuesday, trading back above 110. EM currencies were under pressure, with the Polish zloty, Chilean peso, Hungarian forint and Czech koruna all down about 1%.
  • Global bond markets also showed heightened instability. Ten-year yields shot up 10 or 11 bps Tuesday in Italy and throughout European peripheral bond markets, with bund yields up 12 bps to a nine-year high (1.92%).

Stock market chart. Russian market collapses because of invasion of Ukraine and the global sanctions against russia.

Torsten Asmus

It really got going Tuesday. Chinese "big four" bank CDS each surged about 10 bps, the largest single-session gains since the July 15th peak "risk off." Heightened risk aversion was not limited to Chinese banks. European bank CDS shot higher, with (subordinate) bank debt CDS jumping 19 bps (largest move since July). UK banks Barclays (123bps) and Natwest (115bps) saw CDS prices jump 16 bps. Credit Suisse CDS rose 10 bps, Commerzbank eight (118bps), Deutsche Bank eight (137bps) and UBS eight (89bps). US banks were certainly not immune. JPMorgan CDS rose five (92bps) Tuesday, Citigroup six (108bps), Goldman five (113bps) and Morgan Stanley five (106bps)

The dollar index gained 0.6% Tuesday, trading back above 110. EM currencies were under pressure, with the Polish zloty, Chilean peso, Hungarian forint and Czech koruna all down about 1%. More notably, currency markets were on edge for central bank intervention. The Bank of Korea had moved to prop up the won, while Japanese officials' intervention warnings had reached a fever's pitch. Meanwhile, the People's Bank of China was clearly struggling with its own efforts to maintain currency stability.

September 19 - Bloomberg: "The yuan fell, an indication that China's latest attempts to beef up the currency with a record pushback in the reference rate and verbal warnings is barely holding back a selling wave. The People's Bank of China fixed the yuan at 6.9396 per dollar, 647 pips stronger than the average estimate in a Bloomberg survey of analysts and traders, the widest difference on record since Bloomberg started the survey in 2018. The onshore yuan dropped as much as 0.6% Monday even after state media cited the regulator as saying last week companies shouldn't bet on the direction and extent of currency moves."

Global bond markets also showed heightened instability. Ten-year yields shot up 10 or 11 bps Tuesday in Italy and throughout European peripheral bond markets, with bund yields up 12 bps to a nine-year high (1.92%). Treasury yields also traded up Tuesday to multi-year highs.

Such big moves, especially in bank CDS, usually have a relatively clear catalyst. It was unclear what was behind market instability. Sweden's Riksbank surprised markets with a 100 bps hike - "its most aggressive tightening in almost three decades" (Bloomberg), following the largest y-o-y inflation (9%) in 30 years. Importantly, the Swedish krona sank 1.1% for the session (4.9% for the week!) despite the forceful hike. It was another indication of acute currency market vulnerability and waning central bank control.

A crucial week for global central bankers got off to an ominous start. Also Tuesday, Japan reported its strongest CPI reading (2.8%) since 2014, with goods prices up 5.7% y-o-y. In an escalating battle with the markets, the Bank of Japan moved forward with "more aggressive and unscheduled" bond buying. Adding to the chorus of hawkish central banks, the Bank of Canada stated it would take "whatever actions" necessary to curb inflation.

I tend to separate market-related analysis from geopolitical, often placing the latter nearer the end. But when searching for catalysts for Tuesday's market moves, the most consequential news of the day was out of Russia.

September 20 - Wall Street Journal (van Gershkovich, Matthew Luxmoore and Mauro Orru): "Officials in Russian-occupied parts of Ukraine announced plans for Russia to annex four regions in the country's east and south, while Moscow moved to clear the way for a broader mobilization as an increasingly pressured Kremlin seeks a firm response to counter Kyiv's offensive. Russian-controlled parts of the Donetsk, Luhansk, Kherson and Zaporizhzhia regions of Ukraine said they would hold three-day votes on joining Russia starting this Friday, Moscow's latest effort to consolidate its hold on territory it took months to capture but now risks losing to Ukraine's forces. A Kyiv offensive in the annexed areas would allow Russia to claim an attack against its own territory, raising the threat of an escalation in the conflict. Russia's lower house of parliament also approved legislation that could help address its shortage of troops on the battlefield, raising fears that it could announce a full-scale mobilization possibly within days."

Russia media were prepared for a Tuesday evening Putin speech, though what was assumed would be a major announcement did not materialize. A Russian commentator was quoted: "The longer the announced appearance of President Putin is delayed, the more serious the announcements in it will be."

And from the New York Times (Anton Troianovski): "The Kremlin signaled that if Russia were to go forward with annexation - even if no other countries recognized it - any further military action by Ukraine in those regions could be seen as an attack on Russia itself, justifying any military response by the nation with the world's largest nuclear arsenal. 'Encroaching on the territory of Russia is a crime, the commission of which allows you to use all the forces of self-defense,' Dmitri A. Medvedev, the former Russian president and the vice chairman of Mr. Putin's Security Council, wrote…Tuesday, describing the referendums as having 'huge significance.'"

Putin's address to Russia and the world came Wednesday.

September 21 - Financial Times (Max Seddon and Polina Ivanova): "As he addressed the nation on Wednesday morning to announce a 'partial mobilisation' of 300,000 reservists, President Vladimir Putin framed Russia's war in Ukraine in stark, existential terms. The nation was defending itself against a west that wanted to 'weaken, divide and destroy Russia' and it was prepared to use nuclear weapons in response. The apocalyptic threats are intended to coerce Ukraine and its western allies to accept Russia's gains in the conflict. The hasty staging of 'referendums' in occupied areas this weekend is supposed to set a line that Ukraine and the west must not cross. By in effect annexing large parts of southern and eastern Ukraine, Putin wants to dissuade Kyiv and its western allies from attacking what the Kremlin now considers 'Russian territory' - laying the groundwork for full mobilisation or even nuclear conflict if they persist. Putin's escalation is a gamble that underscores his shrinking room for manoeuvre on the battlefield in Ukraine and domestically in Russia. 'The whole world should be praying for Russia's victory, because there are only two ways this can end: either Russia wins, or a nuclear apocalypse,' Konstantin Malofeyev, a nationalist Russian tycoon, said… 'If we don't win, we will have to use nuclear weapons, because we can't lose… Does anyone really think Russia will accept defeat and not use its nuclear arsenal?'"

Understandably, the main focus for the week was on a slew of central bank tightening measures. But Putin's speech marked an alarming ratcheting up of geopolitical risk. It essentially guarantees months of Putin hardball and associated uncertainty. Russia appears poised to further tighten the screws on European gas supplies into the winter. And while it has become easy to dismiss Putin's nuclear bluster, I'll assume he's prepared to make things more difficult. After sham referendums, Russia will annex the four Ukrainian regions. Putin could then threaten the use of tactical nukes to counter Ukrainian attacks (with U.S. weaponry) on the newly enlarged mother Russia.

The Ukrainian military has momentum on its side and has every reason to refuse conceding territory to Putin. Putin has the potential to significantly boost his forces and firepower. He has nuclear weapons, both tactical and conventional. Is the world witnessing an unfolding nuclear standoff? And will Putin set his sights back on Kiev? The likelihood of this terrible war taking another terrible turn increased this week.

Might a major Russian escalation spur even more onerous Western sanctions? Could Putin shut all gas flowing into Europe? Would Ukrainian wheat exports be in jeopardy (wheat up 2.4% this week in the face of a commodities tailspin). And in such a scenario, would Russia's "partner without limits" be called upon for financial, economic and even military support? The bottom line: an unhinged Putin comes with the highest risks imaginable.

Irrespective of a cornered Putin, global market risks are about the most extreme one could imagine. And I'm not even sure Jerome Powell would make my top ten list of reasons behind this week's global market rout. Powell's press conference was firm but measured, even mentioning the Fed's focus on financial conditions and the possibility of smaller rate increases and even a pause. The S&P500 popped to an almost 1% gain during his press conference, before selling resumed into the close.

Meanwhile, global currency markets have dislocated, creating a huge predicament for the global leveraged speculating community. Despite repeated Beijing efforts to bolster the sagging renminbi, China's currency declined another 2% this week (down 10.8% y-t-d). Everything points to rapidly escalating systemic risks in China. China Construction Bank CDS surged a notable 32 this week to 127 bps, the high in data back to 2019 (and up from 37bps in early-2021) and more than 50% above the March 2020 peak. Industrial & Commercial Bank of China (ICBC) CDS jumped 25 to 116 bps - the high in data back to 2017. For perspective, ICBC CDS traded at 33 bps in early 2021, after spiking to a high of 72 bps during the 2020 pandemic panic. Bank of China CDS rose 26 to 120 bps, the high since 2014. And China Development Bank CDS jumped 24 to a five-year high 110 bps.

China sovereign CDS surged an ominous 27 this week to surpass 100 bps (101.3) for the first time since 2017. Underscoring the degree of current instability, it was the largest weekly advance in China CDS since the global crisis backdrop in September 2011. Especially with global markets dislocating, a run on the renminbi and crisis of confidence in the $53 TN Chinese banking system is no longer far-fetched.

Meanwhile, an accident in Japan seems inevitable.

September 22 - Financial Times (Kana Inagaki and Leo Lewis): "Japan intervened to strengthen the yen for the first time since the late 1990s on Thursday, after the currency tumbled to a 24-year low on pledges by the central bank to stick with its ultra-loose policy. Masato Kanda, the country's top currency official, said the government had 'taken decisive action' to address what it warned was a 'rapid and one-sided' move in the foreign exchange market… Shunichi Suzuki, finance minister, declined to comment on the scale of the intervention… 'It's the next logical step of the psychological game the Japanese are trying to play here. The yen was heading very steeply to 146, and the [Japanese authorities] had to get a message out quickly. I think the idea is to plant the idea in the market that this is their line in the sand,' said one Tokyo-based trader."

Despite the first currency intervention since 1998, the Japanese yen posted another weekly loss (0.3%). Why can't I shake this nagging feeling their weak currency is not Japan's greatest risk? Each passing week of spiking global yields finds the BOJ's 25 bps bond yield ceiling more untenable. All the components of a major market dislocation are evident and seemingly poised to erupt.

And erupt they did in the UK this week. At least from a financial markets standpoint, the sudden appearance of the Bond Vigilantes in the gilts markets (after all these years) was the most portentous market development in a week of portentous developments.

September 23 - Financial Times (Tommy Stubbington and Nikou Asgari): "UK government bonds sold off sharply, and the pound hit a new 37-year low against the dollar as investors worried that Kwasi Kwarteng's tax cuts and energy subsidies would place Britain on an 'unstable' fiscal trajectory. Long-term borrowing costs surged in one of the biggest weekly increases on record, with one investor describing Kwarteng's plan as a 'radical economic gamble'. Sterling fell on Friday below $1.10 for the first time since 1985, while the FTSE 100 share index slid 2.3%."

"Sold off sharply" does not do justice to what transpired in the UK government debt market. Ten-year UK "gilt" yields jumped 33 bps Friday and an alarming 69 bps for the week - to the highest yields since 2010. Amazingly, two-year UK yields spiked 44 bps Friday and 81 bps for the week (to 3.93%).

UK government officials must be asking, "what the hell was that all about?" After all, didn't markets relish tax cuts and additional deficit spending? The arrival of the Vigilantes confirms New Cycle Dynamics. Deficits now matter, Current Account Deficits now matter - traditional fundamentals matter, and governments had better get used to it.

Two-year Treasury yields surged 34 bps this week to 4.21%. German two-year yields spiked 38 bps to 1.90%, the high back to December 2008. Keep in mind that the German two-year traded at negative 0.74% as recently as six months ago. They traded at 26 bps to end July. Two-year yields surged 38 bps this week in France (1.84%), 38 bps in Spain (2.14%), 43 bps in Italy (3.04%), 50 bps in Portugal (1.94%), and 27 bps in Switzerland (1.33%).

Seeing spiking developed sovereign yields in the face of "risk off" market instability - especially at the front-end (shorter maturities) of the yield curve - is taking some getting used to. And I suspect it has more to do with de-risking/deleveraging than expectations for more aggressive rate hike cycles. Huge amounts of leverage likely accumulated in short-dated sovereign debt. After all, in a world of fragile Bubble markets, central bankers wouldn't actually aggressively raise rates and risk financial meltdown, would they? I wouldn't be surprised if we're in the throes of major speculator losses and derivatives blow-ups.

And this is where things turn messy.

September 23 - Bloomberg (David Goodman): "The Bank of England needs to unleash a sizable interest rate hike outside of its normal decision-making cycle in the wake of 'historical drops' in the pound and gilts, according to George Saravelos, global head of foreign exchange research at Deutsche Bank AG… Saravelos said the extraordinary step is needed to calm the markets. The view is his own, rather than the view of Deutsche Bank economists. 'The market is giving very strong signals that it is no longer willing to fund the UK's external deficit position at the current configuration of UK real yields and exchange rate,' Saravelos wrote. 'The policy response required to what is going on is clear: a large, inter meeting rate hike from the Bank of England as soon as next week to regain credibility with the market.'"

For almost three decades, the policy response to market instability was unambiguous and predictable: lower rates, or at least a signal looser "money" was available as needed. Conceptually, I understand the impetus to aggressively hike rates to stabilize a nation's currency and keep inflation expectations in check. Huge hikes in the face of acute debt market de-leveraging would be a novel approach - with a clear risk of sparking panic and market collapse.

Is it feed a cold and starve a fever - or vice versa? We'll assume a full-fledged bout of de-risking/deleveraging has been unleashed. And analysts will debate whether more aggressive tightening is required to calm currency markets and inflation fears, or rather how central bankers have overdone it and will soon shift to dovish pivots.

Importantly, we've reached a critical juncture with respect to the New Cycle Thesis: It's unclear to central bankers what the best course of action is to counter acute market instability. Continue with the inflation fight to ensure price pressures are reined in. Or must they immediately turn their attention to rapidly escalating financial crisis risks and illiquid markets?

The Bank of England is today surely not contemplating another big QE program to hold crisis dynamics at bay. And it's unclear whether the Fed, ECB, or other central banks are prepared to abruptly shift course and orchestrate another concerted QE program to reliquefy liquidity-challenged global markets. And this is a huge issue. The world could now be in the early stage of history's greatest globalized de-risking/deleveraging cycle - and a global central bank liquidity backstop is not a policy focus.

Global markets were back to the precipice this week. While scary, the alarm bells aren't blaring yet. After all, the precipice provided nice short-term buying opportunities both in June and July. It's Pavlovian: The precipice is time for a short squeeze and to force the unwind of risk hedges. And that game works until it doesn't. It certainly doesn't work as well as it used to, back when the precipice ensured central bank dovish pivots. Global markets are to the point where I don't know how many more treks there are to the precipice - without tumbling off the cliff.

The UK is certainly not the only country with exorbitant debt and fiscal deficits. When it comes to spendthrift governments in desperate need of market discipline, the world is the Vigilantes' oyster. Not sure why they'd stop with the UK. More likely, we should be prepared for Vigilante contagion. And these Vigilantes could change everything. They certainly make life more difficult for the leveraged speculators, which implies persistence market liquidity challenges. Does leverage even work in fixed-income these days? If not, what is the scope of de-leveraging necessary to adjust to new market and policymaking realities?

JPMorgan CDS surged 17 this week to 105 bps, the high since the March 2020 panic, and the largest weekly move since June 2020. Citigroup CDS surged 21 to 123 bps, Goldman 21 to 130 bps, and Morgan Stanley 21 to 123 bps - all three the largest weekly moves since March 2020. It was curious to see the big U.S. banks at the top of this week's CDS leaderboard.

I suspect we might be at the initial phase of serious derivatives market issues. The mighty global derivatives complex operates on the assumption of liquid and continuous market. So last cycle. These days, it doesn't take a crystal ball to see an illiquid and discontinuous world. And it's a challenge to imagine a combination more potentially destabilizing than Putin and the Vigilantes.

For the Week:

The S&P500 dropped 4.6% (down 22.5% y-t-d), and the Dow fell 4.0% (down 18.6%). The Utilities declined 3.0% (down 0.5%). The Banks sank 6.8% (down 25.2%), and the Broker/Dealers lost 4.5% (down 13.9%). The Transports fell 5.4% (down 26.4%). The S&P 400 Midcaps slumped 5.9% (down 21.2%), and the small cap Russell 2000 sank 6.6% (down 25.2%). The Nasdaq100 fell 4.6% (down 30.7%). The Semiconductors dropped 60% (down 39.0%). The Biotechs lost 5.8% (down 18.9%). With bullion down $31, the HUI gold equities index stumbled 5.8% (down 30.6%).

Three-month Treasury bill rates ended the week at 3.115%. Two-year government yields jumped 34 bps to 4.206% (up 347bps y-t-d). Five-year T-note yields surged 35 bps to 3.98% (up 272bps). Ten-year Treasury yields rose 24 bps to 3.69% (up 218bps). Long bond yields increased nine bps to 3.61% (up 170bps). Benchmark Fannie Mae MBS yields spiked 42 bps to 5.49% (up 342bps).

Greek 10-year yields jumped 31 bps to 4.57% (up 326bps). Italian yields surged 31 bps to 4.34% (up 317bps). Spain's 10-year yields rose 27 bps to 3.18% (up 261bps). German bund yields spiked 27 bps to 2.02% (up 220bps). French yields jumped 29 bps to 2.60% (up 240bps). The French to German 10-year bond spread widened two to 58 bps. U.K. 10-year gilt yields surged 69 bps to 3.83% (up 286bps). U.K.'s FTSE equities index fell 3.0% (down 5.0% y-t-d).

Japan's Nikkei Equities Index declined 1.5% (down 5.7% y-t-d). Japanese 10-year "JGB" yields declined two bps to 0.24% (up 17bps y-t-d). France's CAC40 sank 4.8% (down 19.1%). The German DAX equities index dropped 3.6% (down 22.7%). Spain's IBEX 35 equities index slumped 5.0% (down 13.0%). Italy's FTSE MIB index lost 4.7% (down 23.0%). EM equities were mostly under pressure. Brazil's Bovespa index rallied 2.2% (up 6.6%), while Mexico's Bolsa index declined 2.9% (down 14.8%). South Korea's Kospi index dropped 3.9% (down 23.1%). India's Sensex equities index dipped 1.3% (down 0.3%). China's Shanghai Exchange Index fell 1.2% (down 15.1%). Turkey's Borsa Istanbul National 100 index dropped 2.8% (up 76.7%). Russia's MICEX equities index sank 14.2% (down 44.8%).

Investment-grade bond funds posted outflows of $4.969 billion, and junk bond funds reported negative flows of $1.663 billion (from Lipper).

Federal Reserve Credit declined $5.0bn last week at $8.784 TN. Fed Credit is down $117bn from the June 22nd peak. Over the past 158 weeks, Fed Credit expanded $5.057 TN, or 136%. Fed Credit inflated $5.972 Trillion, or 212%, over the past 515 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week rose $8.2bn to $3.385 TN. "Custody holdings" were down $99bn, or 2.8%, y-o-y.

Total money market fund assets jumped $31.8bn to $4.584 TN. Total money funds were up $69bn, or 1.5%, y-o-y.

Total Commercial Paper gained $21.0bn to $1.229 TN. CP was up $40bn, or 3.4%, over the past year.

Freddie Mac 30-year fixed mortgage rates surged 27 bps to 6.29% (up 341bps y-o-y) - the high since October 2008. Fifteen-year rates jumped 23 bps to an almost 14-year high 5.44% (up 329bps). Five-year hybrid ARM rates added four bps to 4.97% (up 254bps) - the high since June 2009. Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates surging 37 bps to 6.55% (up 350bps) - the high since June 2009.

Currency Watch:

September 19 - Bloomberg (Hooyeon Kim and Daedo Kim): "The Bank of Korea has asked foreign-exchange traders to provide hourly reports on the demand for dollars, according to three people with knowledge of the matter, as authorities ramp up oversight of the currency markets to help stem a slide in the won."

For the week, the U.S. Dollar Index surged 3.1% to 113.19 (up 18.3% y-t-d). For the week on the downside, the Swedish krona declined 4.9%, the British pound 4.9%, the New Zealand dollar 4.1%, the Norwegian krone 3.9%, the euro 3.3%, the Australian dollar 2.8%, the Canadian dollar 2.4%, the South African rand 1.9%, the Swiss franc 1.7%, the Singapore dollar 1.7%, the South Korean won 1.5%, the Mexican peso 0.9%, the Japanese yen 0.3% and the Brazilian real 0.2%. The Chinese (onshore) renminbi declined 2.0% versus the dollar (down 10.83% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index dropped 3.7% (up 13.3% y-t-d). Spot Gold declined 1.9% to $1,644 (down 10.1%). Silver slumped 3.7% to $18.87 (down 19.0%). WTI crude sank $6.37 to $78.74 (up 5%). Gasoline slipped 1.4% (up 7%), while Natural Gas sank 12.1% to $6.83 (up 83%). Copper dropped 4.9% (down 25%). Wheat gained 2.4% (up 14%), while Corn was little changed (up 14%). Bitcoin lost $650, or 3.3%, this week to $19,000 (down 59%).

Market Instability Watch:

September 21 - Reuters (Dhara Ranasinghe and John O'Donnell): "Earlier this year, markets were complacent as Russia massed troops on the Ukraine border. Now, they're once again largely shrugging off Vladimir Putin's signal that he could be prepared to use nuclear weapons. World shares weathered an early knock to risk appetite on Wednesday after Putin mobilised more troops for Ukraine and threatened to use all of Russia's arsenal against what he called the West's "nuclear blackmail" over the war there."

Bursting Bubble and Mania Watch:

September 18 - Financial Times (Nicholas Megaw): "The stock market downturn since the start of the year has caused the longest drought in US technology listings this century… Wednesday will mark 238 days without a tech IPO worth more than $50mn, surpassing the previous records set in the aftermath of the 2008 financial crisis and the early 2000s dotcom crash, according to research by Morgan Stanley… 'There's a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy of the IPO market,' said Matt Walsh, head of tech equity capital markets at SVB Securities."

September 16 - Bloomberg (Amanda Albright): "California drew in 11% less in personal income tax revenue than it expected so far this year, the latest warning sign for the finances of a state whose fortunes are closely tied to the performance of markets. Total revenue collections through August, which is the second month of the 2022-2023 fiscal year, came in about 8% below the forecast, according to a bulletin from the California Department of Finance. 'Shortfalls in August continued to be largely driven by lower proceeds from personal income tax, however, the month also saw lower proceeds from sales and corporation taxes,' the bulletin said."

September 22 - Wall Street Journal (Katherine Clarke): "A new report by real-estate brokerage Redfin shows that in the three months ending Aug. 31, sales of luxury U.S. homes dropped 28.1%, from the same period last year. That marks the biggest decline since at least 2012, when Redfin's records began, and eclipses even the 23.2% decrease recorded during the onslaught of the pandemic in 2020... Sales of nonluxury homes also fell during the same period, but that drop-19.5%- was smaller than the decline in the luxury market, which is defined as the top 5% of homes based on estimated market value..."

September 19 - Bloomberg (Patrick Clark and Elizabeth Kane): "The US housing market's sharp downturn has been bad for builders, flippers and almost anyone who had plans to sell a home when rising mortgage rates shut down the pandemic buying frenzy. The slump has been especially harsh for Opendoor Technologies Inc., pioneer of a data-driven spin on home-flipping known as iBuying. The company, which sells thousands of homes in a typical month, lost money on 42% of its transactions in August… Opendoor's performance - as measured by the prices at which it bought and sold properties - was even worse in key markets such as Los Angeles, where the company lost money on 55% of sales, and Phoenix, where the share was 76%."

September 20 - Bloomberg (John Gittelsohn, Hannah Levitt and Natalie Wong): "Banks including Wells Fargo…, Bank of America Corp. and JPMorgan… have pulled back on financing for offices and other commercial real estate following a record burst of lending in the first half of this year. The biggest US lenders - which also include Morgan Stanley and Goldman Sachs Group Inc. - have become more selective and stiffened borrowing terms while issuing fewer new commercial property loans…"

September 22 - Bloomberg (Yueqi Yang): "The cryptocurrency industry's epic shakeout, having cost thousands of jobs and set off a round of consolidation, is reaching the corner office. Crypto exchange Kraken announced… that co-founder Jesse Powell will step down as CEO, to be replaced by Chief Operating Officer David Ripley. The reshuffle comes shortly after Genesis's Michael Moro and Bitcoin evangelist Michael Saylor, along with Sam Trabucco of Alameda Research, relinquished top positions."

September 19 - Wall Street Journal (Collin Eaton and Benoît Morenne): "Dozens of small drillers helped fuel a resurgence in the busiest U.S. oil patch over the past two years. But they tapped many of their best drilling spots, and will have to ease their rapid pace of drilling as their inventory shrinks, analysts and executives say. Private oil companies in the Permian Basin of West Texas and New Mexico emerged from the pandemic-induced oil downturn last year as a growth engine for U.S. shale, now running almost half of the working drilling rigs there… Their publicly traded rivals are restrained by shareholders pushing for conservative spending and using leftover cash to pay investors and reduce debt. After growing rapidly, most smaller producers now have, on average, around six years of drilling locations that could generate returns at low prices… Energy executives say those limitations will likely lead them to slow their drilling."

Ukraine War Watch:

September 21 - Associated Press (Karl Ritter): "Russian President Vladimir Putin ordered a partial mobilization of reservists Wednesday to bolster his forces in Ukraine, a deeply unpopular move that sparked rare protests across the country and led to almost 1,200 arrests. The risky order follows humiliating setbacks for Putin's troops nearly seven months after they invaded Ukraine. The first such call-up in Russia since World War II heightened tensions with Ukraine's Western backers, who derided it as an act of weakness and desperation. The move also sent some Russians scrambling to buy plane tickets to flee the country. In his 14-minute nationally televised address, Putin also warned the West that he isn't bluffing about using everything at his disposal to protect Russia - an apparent reference to his nuclear arsenal."

September 22 - Reuters: "Former Russian president Dmitry Medvedev said… any weapons in Moscow's arsenal, including strategic nuclear weapons, could be used to defend territories incorporated in Russia from Ukraine. Medvedev, deputy chairman of Russia's Security Council, said that referendums being organised by Russian-installed and separatist authorities in large swathes of Russian-occupied Ukrainian territory will take place, and that 'there is no going back': 'The Donbas (Donetsk and Luhansk) republics and other territories will be accepted into Russia.' Medvedev said the protection of all the territories would be significantly strengthened by the Russian armed forces, adding: 'Russia has announced that not only mobilisation capabilities, but also any Russian weapons, including strategic nuclear weapons and weapons based on new principles, could be used for such protection.'"

September 21 - Reuters (Humeyra Pamuk and John Chalmers): "President Vladimir Putin's thinly veiled threat to use nuclear weapons after Russian setbacks in Ukraine was 'dangerous and reckless rhetoric,' NATO's secretary general said…, adding that the only way to end the war was to prove Moscow will not win on the battlefield. Jens Stoltenberg also told Reuters… Putin's announcement of Russia's first military mobilization since World War Two would escalate the conflict and cost more lives. But, the NATO chief added, it also represented evidence that Putin had made a 'big mistake' with Russia's decision to invade its neighbor on Feb. 24."

U.S./Russia/China Watch:

September 21 - Financial Times (Henry Foy): "Russian President Vladimir Putin's moves to significantly escalate the war in Ukraine with a thinly veiled reference to his willingness to use nuclear weapons came with a theatrical flourish. 'When the territorial integrity of our country is threatened, to protect Russia and our people, we will certainly use all the means at our disposal,' he said. 'It's not a bluff.' Yet that is exactly what western officials made of the bombast. Putin's announcements… to threaten a nuclear strike, mobilise hundreds of thousands of reservists and rapidly annex parts of Ukraine were a desperate attempt to test the strength of western support for Kyiv, said officials and analysts. But the nervousness of western capitals about the possible use of weapons of mass destruction by the world's second-biggest nuclear power, as well as the threats of a drawn-out war and a prolonged period of higher energy and food prices, is outweighed by their resolve to call Putin's bluff, they added. 'This is probably the most delicate phase of this decades-long game of chicken,' said a senior European diplomat. 'He is actively trying to sow discord. His hope is to drag it out until winter and use the social discontent to actually widen the very real rifts - both intra-EU and transatlantic - that for now stay below the surface.'"

Economic War/Iron Curtain Watch:

September 21 - Bloomberg: "China's focus of political goals like Covid Zero over economic objectives is making the country less appealing to European companies as a place to invest, a business group said… Recent Chinese policy decisions mean the country is now seen as 'less predictable, less reliable and less efficient' according to the… the European Union Chamber of Commerce in China. This has led to a loss of confidence in China and firms are increasingly looking to shift planned or future investments to other markets that are seen as providing 'greater reliability and predictability,' the paper said. 'Business people are here for the market and we can see that because of ideology the market is shrinking,' said Joerg Wuttke, president of the chamber. 'Ideology trumps the economy,' he said…"

Inflation Watch:

September 20 - Wall Street Journal (David Harrison): "Rents and other shelter costs are emerging as a major driver of overall consumer inflation, keeping it high at a time when many other sources are starting to ease. Economists expect housing inflation to strengthen further before cooling off in the coming months, but are unsure of when relief will appear. This creates another challenge for the Federal Reserve as it raises interest rates to reduce price pressures… Not only are shelter costs rising, they are climbing at an accelerating pace, accounting for a growing share of the overall inflation rate-about 25% of August's rate, up from about 20% in February."

September 20 - CNBC (Diana Olick): "Rents for single-family homes were 12.6% higher in July compared with the year-earlier month, but the gains continue to shrink from the record high seen in April, according to… CoreLogic. Most major metropolitan areas are seeing the same cooling, even in the Sun Belt which saw rents soar the most during the first years of the pandemic. Miami continues to see the biggest gain, with rents up nearly 31% from the year before, but that's actually down from 41% growth seen in March. Phoenix rents were up 12.2% in July, but down from an 18% gain in March."

September 18 - Wall Street Journal (Katherine Blunt and Jennifer Hiller): "U.S. utility customers, faced with some of their largest bills in years, are set to pay even more this winter as natural-gas prices continue to climb. Natural-gas prices have more than doubled this year because of a global supply shortage made worse by the war in Ukraine… The supply crunch has made it substantially more expensive for utilities to purchase or produce power, and those costs are being passed on to customers. From New Hampshire to Louisiana, customers' electricity rates are increasing. The Energy Information Administration anticipates the residential price of electricity will average 14.8 cents per kilowatt-hour in 2022, up 7.5% from 2021. The agency forecasts record gas consumption this year amid surging prices, in part because power producers are limited in their ability to burn coal instead due to supply constraints and plant retirements."

September 20 - Wall Street Journal (Patrick Thomas): "A lackluster U.S. harvest this year is setting back efforts to relieve a global food supply that has been constrained by Russia's war in Ukraine, agriculture-industry executives said. Senior executives from companies such as Bayer AG, Corteva Inc., Archer Daniels Midland Co. and Bunge Ltd. said worldwide crop supplies remain tight, and some said at least two more years of good harvests in North and South America are needed to ease the pressure. Persistent drought conditions in the U.S. and agricultural countries in South America, along with uncertainty over crop production in Ukraine, are making that harder, they said. 'When it comes to the global food-supply situation, I think things are going to continue to be tight for the time being,' said Werner Baumann, Bayer's chief executive."

September 21 - Wall Street Journal (Joe Wallace and Hardika Singh): "Surging prices for lithium are intensifying a race between auto makers to lock up supplies and raising concerns that a shortage of the battery metal could slow the adoption of electric vehicles. Lithium carbonate prices in China, the benchmark in the fast-growing market, stand at about $71,000 a metric ton… That is almost four times as high as a year ago and just below the record set this March in yuan terms."

Biden Administration Watch:

September 21 - Bloomberg: "President Joe Biden excoriated Vladimir Putin for making 'overt nuclear threats' to Europe as the Russian leader escalated his seven-month-old war in Ukraine with a partial mobilization and vowed to annex territory. Speaking to the United Nations General Assembly on Wednesday, Biden said Putin's effort to stage 'sham' referendums in occupied territory was an 'extremely significant violation' of the UN charter. German Chancellor Olaf Scholz earlier called Putin's announcement an 'act of desperation.'"

September 19 - Washington Post (Amy B Wang): "President Biden has again confirmed that U.S. troops would defend Taiwan in the event of an attack from China, the clearest recent statement Biden has made about how far the United States would go to support Taiwan militarily. In an interview with CBS's '60 Minutes'…, Biden told host Scott Pelley that the United States would defend Taiwan 'if in fact there was an unprecedented attack'… Since Russia invaded Ukraine more than six months ago, Biden had emphasized several times that U.S. military forces would not fight Russian troops on Ukrainian soil. Pelley pressed Biden on whether the situation would be different in the event of an attack on Taiwan. 'So unlike Ukraine, to be clear, sir, U.S. forces - U.S. men and women - would defend Taiwan in the event of a Chinese invasion?' Pelley asked. 'Yes,' Biden replied."

September 19 - Reuters (Michael Martina and David Brunnstrom): "Overshadowed by U.S. President Joe Biden's headline-grabbing vow that American forces would defend Taiwan against a Chinese attack was his hint at possibly shifting U.S. policy to support the island's right to self-determination. Though the White House has taken pains to say Biden's most explicit statement yet about defending the Chinese-claimed island, made during an interview broadcast on Sunday, did not signify a policy change, some analysts say he may have undercut - intentionally or not - a U.S. stance of not taking a position on Taiwan's independence."

September 21 - Reuters (Andrea Shalal): "A top adviser to U.S. Treasury Secretary Janet Yellen warned… China's foot-dragging on debt relief could burden dozens of low- and middle-income countries with years of debt servicing problems, lower growth and underinvestment. Yellen's counselor Brent Neiman criticized China's 'unconventional' debt practices and its failure to move forward with debt relief at an event at the Peterson Institute for International Economics. 'China's enormous scale as a lender means its participation is essential,' Neiman said…, citing estimates that China has $500 billion to $1 trillion in outstanding official loans, mainly to low and middle-income countries. Many of those countries are facing debt distress…"

Federal Reserve Watch:

September 21 - Associated Press (Christopher Rugaber): "Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate… by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come - an aggressive pace that will heighten the risk of an eventual recession. The Fed's move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008. The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year's end, a full point higher than they had envisioned as recently as June. And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007."

September 19 - Wall Street Journal (Nick Timiraos): "The Federal Reserve's annual August retreat in Jackson Hole, Wyo., was imminent, and markets were rallying on expectations the central bank might slow its pace of interest rate increases. Fed officials thought investors were misreading their intentions given the need to slow the economy to combat high inflation. In a widely anticipated speech, Chairman Jerome Powell decided to be blunt. He scrapped his original address…, and instead delivered unusually brief remarks with a simple message-the Fed would accept a recession as the price of fighting inflation. Mr. Powell cited the example of former Fed chairman Paul Volcker, who drove the economy into a deep hole in the early 1980s with punishing rate increases to break the back of double-digit price gains. 'We must keep at it until the job is done,' Mr. Powell said, invoking the title of Mr. Volcker's 2018 autobiography, 'Keeping At It.' The moment underscores the Fed chairman's rapid about-face during one of the most tumultuous periods for the economy and central bank since the 1970s. After championing an aggressive stimulus campaign just 12 months ago, he has this year led the most rapid tightening of monetary policy since the early 1980s."

U.S. Bubble Watch:

September 21 - Reuters (Lindsay Dunsmuir): "The average interest rate on the most popular U.S. home loan climbed to its highest level since October 2008, Mortgage Bankers Association (MBA) data showed… The average contract rate on a 30-year fixed-rate mortgage rose by 24 basis points to 6.25% for the week ended Sept. 16, a level not seen since towards the end of the financial crisis and the Great Recession."

September 19 - CNBC (Diana Olick): "More builders are lowering prices for homes as their confidence in the market continues to tumble. Homebuilder sentiment in September fell 3 points to 46 in the National Association of Home Builders/Wells Fargo Housing Market Index. Anything below 50 is considered negative. That is the ninth straight month of declines and the lowest level since May of 2014, with the exception of a short-lived drop at the start of the coronavirus pandemic in 2020. Sentiment was at 83 in January of this year… Nearly a quarter of homebuilders also reported lowering home prices, up from 19% in August, Konter added. Of the index's three components, current sales conditions dropped 3 points to 54, sales expectations in the next six months fell 1 point to 46 and buyer traffic declined 1 point to 31."

September 16 - Washington Post (Abha Bhattarai): "The U.S. economy came within hours of shutting down because of a standoff between unions and railroad carriers over sick pay and scheduling, highlighting just how dramatically staffing shortages have reshaped American workplaces and driven exhausted workers to push back. With more than 11 million job openings and only 6 million unemployed workers, employers have struggled for more than a year to hire enough people to fill their ranks. That mismatch has left employees frustrated and burnt out, and is fueling a new round of power struggles on the job… Some 15,000 nurses walked out of the job in Minnesota this week, and health-care workers in Michigan and Oregon have recently authorized strikes. Seattle teachers called off a week-long strike, delaying the start of the school year. At the center of each of these challenges are widespread labor shortages that have caused deteriorating working conditions."

September 22 - Wall Street Journal (Nicole Friedman): "Homeowners with low mortgage rates are balking at the prospect of selling their homes to borrow at much higher rates for their next homes, a development that could limit the supply of houses for sale for years to come. Housing inventory has risen from record lows earlier this year as more homes sit on the market longer. But the number of newly listed homes in the four weeks ended Sept. 11 fell 19% year-over-year, according to… Redfin Corp. That is an indication that sellers who don't need to sell are staying on the sidelines, economists say."

September 18 - Bloomberg (Alexandre Tanzi): "More US consumers are saddled with credit-card debts for longer periods of time, according to a survey, struggling to pay down amid high inflation and rising interest rates. Sixty percent of credit-card debtors say they have been in credit-card debt for at least a year, up from 50% a year ago, CreditCards.com said… The share of those who have been in debt for over two years also increased, to 40% from 32%... With inflation exceeding wage gains, more households have relied on revolving debt. Consumers in their 20s and 30s, and those in the lowest income brackets are more likely to carry a balance to cover daily expenses such as groceries, child care or utilities than older generations, the report shows."

September 21 - Reuters (Rose Horowitch): "The cost of renting a home in the United States is surging and young workers have felt the sharpest pain, many of them taking on additional jobs or roommates to afford housing costs. Household rents in 2021 jumped 10% from pre-pandemic levels, according to Census Bureau estimates... The figures came as rising healthcare and rental costs pushed U.S. consumer prices up unexpectedly last month. The data from the bureau's annual American Community Survey put median U.S. rent at $1,037 in 2021, up from $941 in 2019."

September 21 - Reuters (Mehnaz Yasmin): "Three major U.S. banks said… they will hike their prime lending rates by 75 bps, bringing the rates to their highest since the global financial crisis of 2008. JPMorgan…, Citigroup Inc and Wells Fargo & Co said the new rates would take effect on Thursday."

September 17 - Bloomberg (Joanna Ossinger): "Goldman Sachs… cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes. US gross domestic product will increase 1.1% in 2023, economists including Jan Hatzius wrote…, compared with a forecast of 1.5% previously. The projection for 2022 was left unchanged at 0%. Goldman raised its federal funds rate forecast by 75 bps over the last two weeks for a terminal rate forecast of 4% to 4.25% by the end of 2022."

Fixed Income Watch:

September 20 - Reuters (Matt Tracy): "When U.S. consumer products company Newell Brands Inc refinanced $1.1 billion worth of bonds earlier this month, it saw its borrowing costs jump by more than half. The maker of Sharpie pens and Rubbermaid storage containers agreed to pay annual interest of between 6.4% and 6.6%, up from the 3.9% annual coupon it was paying, in exchange for pushing back the bonds' maturity by four and six years… With a debt mountain net of cash of close to $5 billion and projected negative free cash flow this year of about $300 million, Newell Brands is one of hundreds of U.S. companies with overstretched balance sheets. Many of these companies binged on cheap debt in the past 15 years and are now confronted with higher borrowing costs as a result of central banks tightening their monetary policies. This is restricting their ability to hire and retain employees, as well as invest in their business and return capital to shareholders."

September 21 - Reuters (Abigail Summerville and Matt Tracy): "Wall Street banks completed the sale of $8.55 billion in loans and bonds backing the leveraged buyout of business software company Citrix Systems Inc by accepting a $700 million loss… The process emerged as a key test of banks' ability to offload junk-rated debt from their books, a process that is necessary for them to recycle capital and comply with regulations... While the syndication was completed successfully, it was done at a steep discount to the levels that the banks underwrote the debt. It was also buoyed by one of Citrix's acquirers, hedge fund Elliott Management, helping out by buying $1 billion in bonds…"

September 21 - Bloomberg (Scott Carpenter): "About $74 billion of loans within CLOs have had ratings cut so far this year, or roughly 9% of CLO portfolios, according to Bank of America. The share of defaulted loans is due to rise, thanks to around $3 billion of issuers within CLO portfolios having filed for bankruptcy over the past few weeks. 'As a result, we expect the share of defaulted loans in September reports to increase to 0.6% from 0.2% currently' analysts Pratik Gupta, Chris Flanagan and Victoria Xu wrote…"

China Watch:

September 20 - Bloomberg: "China's current interest rates are 'reasonable' and provide room for future policy action, the People's Bank of China said, adding to expectations it may resume lowering rates in coming months. Real interest rates in the country are 'slightly lower' than the pace of potential economic growth, the central bank said… Such a situation helps make debt sustainable and provides the government with 'extra' policy scope, it said. The current levels of interest rates are 'the best strategy that leaves room for the future,' the PBOC said."

September 18 - Reuters (Albee Zhang and Tony Munroe): "Before the pandemic, Doris Fu imagined a different future for herself and her family: new car, bigger apartment, fine dining on weekends and holidays on tropical islands. Instead, the 39-year old Shanghai marketing consultant is one of many Chinese in their 20s and 30s cutting spending and saving cash where they can, rattled by China's coronavirus lockdowns, high youth unemployment and a faltering property market. 'I no longer have manicures, I don't get my hair done anymore. I have gone to China-made for all my cosmetics,' Fu told Reuters. This new frugality, amplified by social media influencers touting low-cost lifestyles and sharing money-saving tips, is a threat to the world's second-largest economy, which narrowly avoided contraction in the second quarter. Consumer spending accounts for more than half of China's GDP."

September 20 - Bloomberg (Krystal Chia): "China's mortgage boycott may be picking up steam, even as authorities try to stem the crisis with support measures. A highly-watched list on the GitHub open-source site titled 'WeNeedHome' showed that homebuyers are boycotting 342 projects in 119 cities, up from about 320 in 100 cities in early August. There are a high number of boycotts in the central Henan and Hunan provinces."

September 19 - Bloomberg (Krystal Chia): "Financial contagion has spread so far across China's property industry that even state-backed developers are at risk of surging defaults, according to Citigroup Inc. analysts. Bad debt climbed to about 29.1% of total property loans in the first half of this year, up from 24.3% at the end of 2021, according to calculations by Citi's team... The increase is largely attributable to developers controlled by the Chinese government… China's $52 trillion banking industry is dealing with an increasing number of soured loans as the property crisis and sporadic Covid Zero lockdowns hammer business confidence."

September 18 - Bloomberg: "China's doubling down on its zero-tolerance stance toward Covid-19 is draining local-government coffers, posing a fresh threat to the economy and bond investors. Jilin province… has warned of 'increasingly outstanding conflicts' between spending and income. Finances at almost half of its 60 county and district level governments are so tight they are exposed to 'operational risks,' the provincial finance department said… All 31 provincial regions in China -- with the exception of Shanghai -- logged a deficit in the first seven months of the year. Authorities handed out trillions of yuan in tax breaks to support businesses amid the economic slowdown, as well as covered the cost of Covid Zero policies, such as mass-testing and restricting the movement of residents. Plunging land sales are adding to the squeeze by cutting a key funding source."

September 21 - Bloomberg (Lorretta Chen): "China's four major bad debt managers were downgraded by S&P Global Ratings, which said the country's economic slowdown and property-sector slump have made operating conditions more challenging and weakened earnings prospects. China Huarong Asset Management Co. was dropped to one notch above junk territory... China Orient Asset Management Co. and China Cinda Asset Management Co. were also downgraded by one step. Meanwhile, China Great Wall Asset Management Co. was cut by two notches on S&P's expectations of rising leverage levels because of elevated impairment losses."

September 20 - Reuters (Ellen Zhang, Albee Zhang and Ryan Woo): "China's commercial hub of Shanghai… announced eight infrastructure projects with total investment of 1.8 trillion yuan ($257bn), after the city was hit hard by COVID-19 lockdowns in April and May. The economy of China's biggest city slumped 13.7% in the second quarter, the worst performance among all 31 of China's province-level regions. In the first eight months of the year, Shanghai's infrastructure investment fell 27.4% versus an 8.3% gain nationwide…"

September 21 - Bloomberg: "Goldman Sachs… cut its 2023 economic growth forecast for China sharply, predicting Beijing will stick to its stringent Covid Zero policies through at least the first quarter of next year. Gross domestic product will probably increase 4.5% in 2023, down from a previous projection of 5.3%..."

Central Banker Watch:

September 22 - Financial Times (Delphine Strauss and Chris Giles): "The Bank of England raised interest rates by 0.5 percentage points to 2.25%..., setting out the prospect of a further big increase in November to bring inflation under control. The move takes the BoE's benchmark rate to its highest level since the start of the global financial crisis in 2008. However, the nine-member Monetary Policy Committee held back from the even more aggressive approach… The MPC split three ways, with the majority - including BoE governor Andrew Bailey and chief economist Huw Pill - voting for the 0.5 percentage point move. Three members… favoured a bigger, 0.75 percentage point increase, arguing that acting faster now could help the BoE avoid 'a more extended and costly tightening cycle later'."

September 22 - Reuters (John Revill and Silke Koltrowitz): "Switzerland exited the era of negative interest rates on Thursday when its central bank joined others around the world in tightening monetary policy more aggressively to combat resurgent inflation. The Swiss National Bank (SNB) raised its policy interest rate by 0.75 of a percentage point, ending the country's seven-and-a-half year experiment with negative rates which sparked opposition from its financial sector and fears of asset bubbles."

September 20 - Reuters (Simon Johnson): "Sweden's central bank raised interest rates… by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months as it sought to get to grips with surging inflation. Inflation hit 9% - a 30-year high - in August as the effects of soaring energy prices spread through the economy, and has overshot the Riksbank's forecasts."

September 18 - Bloomberg (Zoe Schneeweiss): "The European Central Bank must be resolute in its response to inflation rates that could reach the double digits later this year, according to Bundesbank President Joachim Nagel. 'If the data trend continues, more interest-rate increases have to follow -- that's already agreed in the Governing Council,' he said... 'We have to be determined, in October and beyond… We must bring inflation back under control… We mustn't let up, even if the economy worsens.'"

September 19 - Bloomberg (Nicholas Comfort and Steven Arons): "The European Central Bank is pushing lenders to scrutinize their exposure to energy-intensive industries as the fallout from Russia's invasion of Ukraine spreads through the economy. The ECB is also calling on lenders to look at risks they could face from rising interest rates… The ECB wrote recently to lenders, telling them to analyze the impact of a gas stoppage on their businesses…"

September 20 - Reuters (Wayne Cole): "Australia's central bank… said its equity had been wiped out by losses suffered on pandemic-era bond buying, but its ability to create money meant it was not insolvent and would continue as normal. Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock said the bank had taken a mark-to-market valuation loss on its bond holdings of A$44.9 billion ($30.02bn) in 2021/22. The bonds were accumulated under a A$300 billion emergency stimulus programme that ran from November 2020 to February 2022."

Global Bubble and Instability Watch:

September 22 - Yahoo Finance (Dani Romero): "Snarled supply chains were a massive aspect of pandemic-era disruptions globally, and ongoing issues may continue to wreak havoc in the U.S. economy despite recent easing. 'It's still a major problem,' S&P Global Chief U.S. Economist Beth Ann Bovino told Yahoo Finance… 'It's one of the biggest factors that are causing this where we are today. We have seen some signs of softness, some signs of moderation - but nowhere near what we need to get to.'"

September 17 - Bloomberg (Alfred Cang and Jack Farchy): "From a start guarding trains full of metal from thieves on freezing winter nights, He Jinbi built a copper trading house so powerful that it handles one of every four tons imported into China. A born trader with an infectious sense of humor, the 57-year-old grew Maike Metals International Ltd. through the rough-and-tumble rush for commodities in the early 2000s, to become a key conduit between China's industrial heartlands and global merchants like Glencore Plc. Now Maike is suffering a liquidity crisis, and He's empire is under threat. The ripple effects could be felt across the world: the company handles a million tons a year - a quarter of China's refined copper imports - making it the largest player in the most important global trade route for the metal, and a major trader on the London Metal Exchange."

Europe Watch:

September 20 - Reuters (Rachel More and Rene Wagner): "German producer prices rose in August at their strongest rate since records began both in annual and monthly terms, driven mainly by soaring energy prices, raising the chances that headline inflation will surge even higher. Producer prices of industrial products increased by 45.8% on the same month last year... Compared to July 2022, prices rose 7.9%, it added… Energy prices in August on average were over double the same period last year, up 139%, and 20.4% higher than the previous month…"

September 21 - Bloomberg (Ewa Krukowska and Todd Gillespie): "The bill for Europe's energy crisis is nearing 500 billion euros ($496bn) as governments rush to soften the blow of soaring prices, according to the Bruegel think-tank. The European Union's 27 member states have so far earmarked 314 billion euros to cushion the impact of the energy crunch on consumers and businesses, while the U.K. has allocated 178 billion euros, Bruegel's updated estimates showed… The growing fiscal burden… comes as European nations grapple with accelerating inflation and a bleak economic outlook. EU ministers are negotiating an emergency plan that will transfer windfall energy company profits to vulnerable households and firms."

September 21 - New York Times (Melissa Eddy): "In its latest outlay to secure energy for Europe's largest economy, the German government… announced the nationalization of Uniper, a company responsible for providing more than a third of Germany's natural gas. Germany will spend 8 billion euros ($7.9bn) to acquire shares in Uniper it does not already own, raising its stake to 99 percent, and inject an additional €8 billion in fresh capital into the company, the economy minister, Robert Habeck, said. 'The state will do everything necessary, that is evident, to stabilize companies and keep them operating on the market,' Mr. Habeck said. Uniper, once Germany's largest importer of Russian gas, is the second energy provider within a week that the German government has had to save by intervening to ensure supply, and the third company linked to fuel imports from Russia that has required government intervention since Russia invaded Ukraine."

September 21 - Wall Street Journal (Rochelle Toplensky): "Germany's nationalization of gas giant Uniper… lays bare the seismic ructions in the once-sleepy world of European utilities triggered by the new Cold War with Russia. Investing in the sector will change dramatically. Berlin said it would inject €8 billion… It will also buy Finnish utility company Fortum's majority stake in Uniper at the same rate. The deal ups the ante after the state's first attempted bailout, announced just two months ago, proved insufficient… There are echoes of the 2008 financial crisis. Even if Lehman Brothers was the bank that didn't get bailed out, Uniper is similarly too big to fail and German government officials are warning of further bailouts."

September 21 - Financial Times (Amy Kazmin): "As European household energy bills surged at the onset of a blistering hot summer, Italy's prime minister Mario Draghi framed the sacrifices he was asking Italians to make on behalf of Ukraine as a stark choice. 'Do you want peace,' he asked in April, 'or do you want air conditioning?' Now, after the premature collapse of Draghi's cross-party coalition in July, Italians are poised to vote for a new government whose willingness to put them through further economic disruption and sacrifices is in doubt. If polls are correct, Italy will emerge from its general election on Sunday with a new far-right government led by arch-conservative Giorgia Meloni, president of the Brothers of Italy. She and her populist ally Matteo Salvini, leader of the League, together appear poised for a decisive victory over a deeply divided centre-left."

September 22 - Reuters (Riham Alkousaa, John O'Donnell and Tom Sims): "The German government is in talks about providing urgent financial support for scores of regional state-owned energy providers which are struggling to cope with soaring gas prices… The discussions centre on the critical network of hundreds of firms that supply energy and other vital services, such as water, to the country's homes and industry, underpinning Europe's biggest economy."

September 19 - Reuters (Miranda Murray, Rachel More and Sergio Goncalves): "Germany was pressing on Monday to secure liquefied natural gas contracts with Gulf producers and other European states outlined measures to conserve energy, with Russian flows running at severely reduced levels as winter approaches. Berlin said it aimed to sign LNG contracts in the United Arab Emirates to supply terminals it is building, now that the vital Nord Stream 1 gas pipeline from Russia is shut, while Spain, France others outlined contingency planning to try to avoid power cuts."

September 18 - Reuters (Gabriela Baczynska and Gergely Szakacs): "The European Union executive recommended… suspending some 7.5 billion euros in funding for Hungary over corruption, the first such case in the 27-nation bloc under a new sanction meant to better protect the rule of law. The EU introduced the new financial sanction two years ago precisely in response to what it says amounts to the undermining of democracy in Poland and Hungary, where Prime Minister Viktor Orban subdued courts, media, NGOs and academia, as well as restricting the rights of migrants, gays and women during more than a decade in power."

EM Crisis Watch:

September 22 - CNBC (Natasha Turak): "Turkey's central bank surprised markets once again with its decision Thursday to cut its key interest rate, despite inflation in the country surging beyond 80%. The country's monetary policymakers opted for a 100 bps cut, bringing the key one-week repurchase rate from 13% to 12%. In August, Turkish inflation rate was recorded at 80.2%, quickening for the 15th consecutive month and the highest level in 24 years. Turkey also cut rates by 100 bps in August, and had gradually lowered interest rates by 500 bps at the end of 2021, setting off a currency crisis."

Japan Watch:

September 19 - Reuters (Leika Kihara and Takahiko Wada): "Japan's core consumer inflation quickened to 2.8% in August, hitting its fastest annual pace in nearly eight years and exceeding the central bank's 2% target for a fifth straight month as price pressure from raw materials and yen weakness broadened. The strength of August inflation reinforced growing suspicions among economists that price pressure will last longer than the Bank of Japan (BOJ) has been expecting…"

September 20 - Bloomberg (Takashi Nakamichi and Taiga Uranaka): "Japan is intensifying a clampdown on its $29 billion structured products market, threatening a lucrative business for banks and brokerages after it saddled mom-and-pop investors with losses. The country's financial regulator wants to largely eliminate sales to individual investors of so-called structured bonds, which offer higher returns than regular debt but at significantly higher risk…"

Social, Political, Environmental, Cybersecurity Instability Watch:

September 20 - Associated Press (Jennifer Peltz): "The world's problems seized the spotlight Tuesday as the U.N. General Assembly's yearly meeting of world leaders opened with dire assessments of a planet beset by escalating crises and conflicts that an aging international order seems increasingly ill-equipped to tackle. After two years when many leaders weighed in by video because of the coronavirus pandemic, now presidents, premiers, monarchs and foreign ministers have gathered almost entirely in person for diplomacy's premier global event. But the tone is far from celebratory. Instead, it's the blare of a tense and worried world. 'We are gridlocked in colossal global dysfunction,' Secretary-General Antonio Guterres said, adding that 'our world is in peril - and paralyzed.'"

Original Post

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This article was written by

Doug Noland profile picture
2.02K Followers
I'm at about 30 years persevering as a “professional bear.” My lucky break came in late-1989, when I was hired by Gordon Ringoen to be the trader for his short-biased hedge fund in San Francisco. Working as a short-side trader, analyst and portfolio manager during the great nineties bull market – for one of the most brilliant individuals I’ve met – was an exciting, demanding and, in the end, a grueling and absolutely invaluable learning experience. Later in the nineties, I had stints at Fleckenstein Capital and East Shore Partners. In January 1999, I began my 16 year run with PrudentBear (that concluded at the end of 2014), working as strategist and portfolio manager with David Tice in Dallas until the bear funds were sold in December 2008. In the early-nineties, I became an impassioned reader of The Richebacher Letter. The great Dr. Richebacher opened my eyes to Austrian economics and solidified my lifetime passion for economics and macro analysis. I had the good fortune to assist Dr. Richebacher with his publication from 1996 through 2001. Prior to my work in investments, I worked as a treasury analyst at Toyota’s U.S. headquarters. It was working at Toyota during the Japanese Bubble period and the 1987 stock market crash where I first recognized my love for macro analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated summa cum laude from the University of Oregon (Accounting and Finance majors, 1984) and later received an MBA from Indiana University (1989). By late in the nineties, I was convinced that momentous developments were unfolding in finance, the markets and policymaking that were going unrecognized by conventional analysis and the media. I was inspired to start my blog, which became the Credit Bubble Bulletin, by the desire to shed light on these developments. I believe there is great value in contemporaneous analysis, and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke has referred to understanding the forces leading up to the Great Depression as the “Holy Grail of Economics.” I believe “The Grail” will instead be discovered through knowledge and understanding of the current extraordinary global Bubble period.

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