Slump, Downturn, Recession; All Add Up To Sideways

By Jeffrey Snider

According to Germany’s Zentrum für Europäische Wirtschaftsforschung, or ZEW, the slump in the country’s economy has now reached its fourteenth month. The institute’s sentiment index has improved in the last two, but only slightly. As of the latest calculation released today, it stands at -3.6.

That’s up from -24.7 back in October, though sentiment had likewise improved at one point last year, too. In July, the number was also -24.7 rebounding to -10.6 in September before the real stuff began.

Continue reading Slump, Downturn, Recession; All Add Up To Sideways

Economic Trends, Market signals, Expected Returns

By Callum Thomas

Here’s some of the standout economic and markets charts on my radar (originally posted on LinkedIn). I aim to pick a good mix of charts covering key global macro trends, and ones which highlight risks and opportunities across asset classes.

Hope you enjoy!

1. Philly Fed Fakeout? This chart should seem familiar to regular readers, I featured the full version of it a few weeks ago in musing on whether it was a case of “Recession or Reset?” for the US economy. I show here the composite economic confidence indicator for the USA, and one component of it; the Philly Fed Index – which is a regional business survey.

There is an interesting pattern for the Philly Fed index to be somewhat manic-depressive, and it seems from first glance that sharp and extreme movements in this indicator often mark an exhaustion of the prevailing trend, i.e. a turning point.

So the implication is that this here could be is as bad as it gets for the US economy, and that the “reset theory” may win out…


Continue reading Economic Trends, Market signals, Expected Returns

Q4 2018 Z.1 “Flow of Funds”

By Doug Noland

I’ve been anxiously awaiting the Fed’s Q4 2018 Z.1 “Flow of Funds” report. It provided the first comprehensive look at how this period’s market instability affected various sectors within the financial system. From ballooning Broker/Dealer balance sheets to surging “repo” lending to record Bank loan growth – it’s chock-full of intriguing data. All in all, and despite a Q4 slowdown, 2018 posted the strongest Credit growth since before the crisis – led, of course, by our spendthrift federal government.

Non-Financial Debt (NFD) rose $2.524 TN during 2018 (5.1%), exceeding 2007’s $2.478 TN and second only to 2004’s $2.915 TN growth. NFD closed 2018 at a record 253% of GDP, compared to 230% to end of 2007 and 189% to conclude the nineties. By major category, Federal borrowings expanded $1.258 TN during the year, up from 2017’s $599 billion, and the strongest growth since 2010’s $1.646 TN. Year-over-year growth in Total Household borrowings slowed ($488bn vs. $570bn), led by a drop in Home Mortgages ($285bn vs. $312bn). Total Corporate borrowings slowed to $532 billion from 2017’s $769 billion. Foreign U.S. borrowings declined to $207 billion from 2017’s $389 billion.

Continue reading Q4 2018 Z.1 “Flow of Funds”

Yield Curve Really Does Matter for Unemployment

By Tom McClellan

Yield Curve and Unemployment

Back in February 2007, former Fed Chairman Ben Bernanke actually said the following:

“I think the yield curve could be inverted for a considerable period without significant implications for the economy as a whole, yes— possibly for some banks, but not for the economy as a whole.”  He said that in testimony before the Senate Banking Committee.  To our knowledge, Dr. Bernanke has not been stripped of his degree in economics for that comment, as he rightfully should be.

Continue reading Yield Curve Really Does Matter for Unemployment

Not Buying the New Stimulus

By Jeffrey Snider

What just happened in Europe? The short answer is T-LTRO. The ECB is getting back to being “accommodative” again. This isn’t what was supposed to be happening at this point in time. Quite the contrary, Europe’s central bank had been expecting to end all its programs and begin normalizing interest rates.

The reaction to this new round was immediately negative:

The euro and euro zone government bond yields fell sharply on Thursday after the European Central Bank changed its rate guidance while banking stocks tumbled as a fresh round of cheap loans was less generous than previous packages.

Continue reading Not Buying the New Stimulus

Deja Vu? Bankers Get Creative to Offload CLO Risk in U.S. and Europe

By Anthony B. Sanders

Bankers dumping business loans and corporate debt in the forms of Collateralized Loan Obligations off on investors in the US and Europe? As New York Yankee legend Yogi Berra once said, “It’s déjà vu all over again.”

(Bloomberg Quint) — Arrangers of collateralized loan obligations are innovating their way through a tough market as they try to shift a stockpile of warehoused assets from their balance sheets.

The year’s first batch of new CLO issues to price in the U.S. includes two transactions with short maturities and one static deal, where the underlying pool of loans remains the same throughout its lifetime. These non-typical features are offered to draw in investors some of who have grown more cautious after leveraged-loan prices dropped and CLO funding costs rose at the end of last year.

Continue reading Deja Vu? Bankers Get Creative to Offload CLO Risk in U.S. and Europe

The Many Obvious Dots of Keynes, Friedman, And Fisher

By Jeffrey Snider

The obsession with inflation is grounded in historical fact. This is true both of our recent “conundrum” as well as broader circumstances surrounding slow burning structural changes. As to the former, last year the global economy was supposed to take off, concurrently signaled by accelerating inflation rates due to what are always claimed to be tight labor markets.

The worldwide LABOR SHORTAGE!!! was supposed to lead somewhere very good; an end to a decade of increasingly dangerous malaise.

This didn’t happen, a fact more and more central bankers are trying to come to terms with. As you would expect, they are having a lot of trouble doing so. The reason is because every answer is staring right back at them from the mirror.

Continue reading The Many Obvious Dots of Keynes, Friedman, And Fisher

The Triple B Problem

By Kevin Muir

Lately I have fallen down when it comes to the number of MacroTourist posts. It’s not that I didn’t want to write, but I got Lennon’ed with life getting in the way of my plans. So to remedy this situation, I have decided to commit to posting today’s write up, but also a follow up tomorrow. I figure that if I promise you two pieces, the shame of not following through will ensure compliance. Call it my own little life hack.

Continue reading The Triple B Problem

Something Different About This One

By Jeffrey Snider

In Japan, they call it “powerful monetary easing.” In practice, it is anything but. QQE with all its added letters is so authoritative that it is knocked sideways by the smallest of economic and financial breezes. If it truly worked the way it was supposed to, the Bank of Japan or any central bank would only need it for the shortest of timeframes.

That would be powerful stuff.

Instead, in June last year the narrative shifted (again). Surpassing half a decade of this “easing”, it became clear after an upward start to the year inflation wasn’t going to come anywhere close to meeting the official price mandate. This time the central bank would try and blame online shopping for its apparent defeat. Seriously.

Fast forward eight more months and BoJ now signals it stands ready to do more. Reversing itself entirely, where once Kuroda’s gang openly talked about ending the thing, a year later they are back to taking it up a notch; this “easing.” Japan’s central bank is joining the rest of them in turning “dovish.”

Continue reading Something Different About This One

USA & China Macroeconomic Trends

By Callum Thomas

Here’s some of the standout economic and markets charts on my radar (originally posted on LinkedIn). I aim to pick a good mix of charts covering key global macro trends, and ones which highlight risks and opportunities across asset classes.

Hope you enjoy!

1. US Economic Optimism: Here’s an interesting chart – it shows the overall trend in economic confidence in America based off more than half a dozen surveys.

The key point is there has been quite the slump in the last couple of months. I labeled the title “recession or reset?” as a nod to the fact that there seems to be a lot of pundits rushing to call a recession. I think this is premature.

The last couple of months have brought a heavy flow of negative headlines (e.g. the shutdown, tradewar, potential actual wars) and there has been heightened market volatility.

I think this is a reset…


  Continue reading USA & China Macroeconomic Trends

How The Fed, The Clinton Administration and Congress Nearly Killed-off The US Housing Market

By Anthony B. Sanders

And Why It Is Struggling To Recover

Radio show host Tom Sullivan (my favorite financial/business-oriented radio show program), asked me in an interview to talk about the US housing market. Oh, where to begin (on a short radio interview)? Well, here goes!

We’ve enjoyed years of “recovery” since the Great Financial Crisis by literally papering over our problems with newly-printed money, instead of addressing their root causes.

For example, The Federal Reserve dropped their benchmark target rate to 25 basis points in December 2008 just after President Obama was elected to his first term as President, and began their asset purchases (QE) in September 2008. The Fed raised their target rate only once during Obama’s eight years as President (December 2015) and only stated shrinking its balance sheet in earnest in 2018 (while Trump was President).

Continue reading How The Fed, The Clinton Administration and Congress Nearly Killed-off The US Housing Market


By Doug Noland

February 8 – Bloomberg (Brian Chappatta): “Bond traders are dusting off their tried and true post-crisis playbook after the Federal Reserve’s pivot last month. What they don’t realize is that the game has most likely changed. In an unabashed reach for yield, investors suddenly can’t get enough of the riskiest debt, with the Bloomberg Barclays U.S. Corporate High Yield Bond Index posting a staggering 5.25% total return in the first five weeks of 2019, led by those securities rated in the CCC tier. In the largest CCC borrowing since September, Clear Channel Outdoor Holdings Inc. received orders this week of more than $5 billion for a $2.2 billion deal, allowing it to price its debt to yield 9.25%, compared with whisper talk of about 10%.”

A Friday headline from a separate Bloomberg article: “Corporate Bonds on Fire as Dovish Fed Soothes Investors,” with the opening sentence: “Fear is turning to exuberance in credit markets.” According to Lipper, corporate investment-grade funds enjoyed inflows of $2.668 billion last week, with high-yield funds receiving $3.859 billion. Bloomberg headline: “High-Yield Bond Funds See Biggest Inflow Since July 2016.” This follows the biggest high-yield inflows ($3.28bn) since December 2016 from two weeks ago.

Continue reading Delusional