China’s Central Bank Now Has World’s Largest Balance Sheet…

By Anthony B. Sanders

…As $1.1 TRILLION Is Injected Into Markets Via Repos (Curves Kinked)

China’s central bank, the People’s Bank Of China, now has the world’s largest balance sheet topping even the European Central Bank (ECB). Only The Federal Reserve is shrinking its balance sheet … for now.


The PBOC has injected almost $1.1 trillion in the market over the past two days.

Continue reading China’s Central Bank Now Has World’s Largest Balance Sheet…

This Isn’t the First ‘Fed Pause’

By Jeffrey Snider

And we come full circle back again. It’s not what they say, it’s what they do. Kansas City Fed CEO Esther George was at least consistent, unlike all the other voting FOMC members. Throughout 2015 and 2016, the rest of them would say the economy was strong but then vote the other way, no “rate hike.” December 2015 was the lone exception (and perfectly fitting).

President George, on the other hand, was almost irredeemably optimistic about the economy and voted that way, too. While the majority held steady, Esther was the one who would dissent against the then Fed Pause. The few times she didn’t was in early 2016 when the US economy approached recession conditions.

You knew it was serious when the hawkest of hawks stopped walking how she talked. In March 2015, George had said:

Continue reading This Isn’t the First ‘Fed Pause’

Post-CPI Summary

By Michael Ashton

Below is a summary of my post-CPI tweets.

  • A few minutes to CPI. Consensus 0.2%, 2.2% y/y on core, pretty much on the dot. That’s slightly lower on core than last month, which ALMOST rounded to 2.3%, but dropping off a strong Dec ’17. Remember Median is 2.82%, near the highs.
  • it will be hard to get a ‘handle surprise’ on core CPI today. But watch Apparel, which has been weirdly weak despite tariff tensions. Used cars/trucks has been strong for a couple months and is due to be back normal, but not to “retrace” as it was too low before.
  • In general, look at core goods, which last month went flat after a long time in deflation. And keep an eye on core-ex-shelter, which is near multi-year highs.
  • 21% on core, 2.21% y/y. Basically a consensus number.
  • Pretty stable last few months of core.

Continue reading Post-CPI Summary

Why Interest Rates Are Not Likely To Rise Much In The Near Future

By Anthony B. Sanders

Ford Cutting Thousands Of European Jobs, China Car Sales Plunge 13% YoY, Etc.

Since early November 2018 when the 10-year Tteasury note yield hit 3.24%, both the Treasury yield and 30 year mortgage rate (MBA) have plunged.


Partly to blame is the slowing economies around the globe, particularly in Europe (check out Ford’s announcement of job cuts in Europe: Ford Motor Co. will shed thousands of jobs at its European operations as part of a bid to return the business to profitability with a broad restructuring that could include shuttering factories).

Continue reading Why Interest Rates Are Not Likely To Rise Much In The Near Future

You Know it’s Coming

By Jeffrey Snider

After a horrible December and a rough start to the year, as if manna from Heaven the clouds parted and everything seemed good again. Not 2019 this was early February 2015. If there was a birth date for Janet Yellen’s “transitory” canard it surely came within this window. It didn’t matter that currencies had crashed and oil, too, or that central banks had been drawn into the fray in very unexpected ways.

Actually it did, at least with that last one. The world’s default setting remains central bankers. No matter how thoroughly they discredit themselves, in times of trouble people really, really want to believe there exists this technocratic savoir.

They can get it wrong time after time after time, but when things appear most dire it is almost like a defense mechanism this running back to “home” the Yellen’s, Bernanke’s, and Powell’s. The world looks like it is falling apart leading a central bank, any central bank to try something and for a time it appears to work.

Continue reading You Know it’s Coming

Global Markets’ Plumbing Problem

By Doug Noland

“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.

December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.

Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).

Continue reading Global Markets’ Plumbing Problem

Spinning Economic Stories

By Michael Ashton

As economists [1] we do two sorts of things. We do quantitative work, and we tell stories.

One of the problems with economics is that we aren’t particularly regimented about how we convert data into stories and about how we look at stories to decide how to interrogate the data. So what tends to happen is that we have a phenomenon and then we look at what story we like and decide if that’s a reasonable way to explain the data…without asking if there isn’t a more reasonable way to explain the data, or at least another way that’s equally consistent with the data. I’m not saying that everyone does this, just that it’s disturbingly common especially among people being paid to be storytellers and for whom a good story is really important.

So for example, there is a well -known phenomenon that inflation tends to accelerate after the Fed begins raising interest rates.[2] Purporting to explain this phenomenon, here is a popular story that the Fed is just really smart, so they’re ahead of inflation, and when they seeing it moving up just a little bit they can jump on it real quick and get ahead of it and so inflation goes up…but the apparent causality is there because we just knew it was going to go up and acted before the observation of the higher inflation happened. This is basically Keynesian theory combined with “brilliant person” theory.

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Mispriced Delusion

By Jeffrey Snider

Recency bias is one thing. Back in late 2006/early 2007 when the eurodollar futures curve inverted, for example, it was a textbook case of mass delusion. All the schoolbooks and Economics classes had said that it couldn’t happen; not that it wasn’t likely, it wasn’t even a possibility. A full-scale financial meltdown was at the time literally inconceivable in orthodox thinking. A global panic, some sort of unserious joke.

Because of that hardened attitude, what followed was an almost perverse emotional response from those who believed in this. Central banks couldn’t possibly let things go so astray. Yet, the more everything was ripped apart the more fervently they held to the same belief. Bernanke said subprime was contained and only a very few responded with “how would he know?”

If there are rationalizations that hold up asset bubbles, these rationalizations put them to shame.

Again, it was recency bias in 2008 so what is everyone’s excuse in 2018? No one can make the case that bad things don’t happen because since 2007 bad things keep happening. There’s now a mappable regularity to it.

Continue reading Mispriced Delusion

2018 People’s Choice Charts

By Callum Thomas

Last week we published the 2018 End of Year Special Edition of the Weekly Macro Themes report – a summary of some of the best, worst, and most notable charts of 2018 (and the ones to watch in 2019).  This article brings you a look at an interesting section of the report: “The 2018 People’s Choice Charts”.  In this post we look at the 5 most popular charts we tweeted this year as ranked by views and engagement.  I’m sure you along with our Twitter followers will find the charts interesting and insightful – of course if you think we missed one that should be included please get in contact.

Also, keep an eye on our Twitter account as we’ll be posting updated versions of these charts shortly [n.b. these charts are not updated to the latest (to help explain why folk were so interested in them at the time)]

1. This one raised a lot of eyebrows – a combined view of leveraged bets on US stocks… close to half a trillion in leverage added by traders in the past 5 years. The unwind however has begun.

Continue reading 2018 People’s Choice Charts

Thoughts on Liquidity

By Doug Noland

“Money” challenged – and often confounded – economic thinkers for centuries. It functions both as a “medium of exchange” and “unit of account.” Simple enough. Too often the focus has been how to use money to stimulate economic activity and achieve political gains. From my perspective, money’s importance rests with its fundamental roles as a “Store of Value” and as the bedrock of financial systems. Unsound money has been a root cause of a lot of turmoil throughout history – including the monetary fiasco that collapsed in 2008. Yet concerns for the soundness of contemporary “money” these days are viewed as hopelessly archaic.

My thinking on contemporary “money” has been adapted from a much earlier focus on money’s “preciousness.” Traditionally, money was precious either because it was made of or backed by gold/precious metals. It retained preciousness only so long as its quantity remained carefully contained. Throughout history, the value of “paper money” has invariably moved inversely to the quantity issued – fits and starts, enthusiasm and revulsion and, too often, a path to worthlessness.

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Bear Markets and Recessions

By Charlie Bilello

It’s official: the Bear Market of 2018. Like many of the previous Bears, it’s been an elevator down, with a 20% decline in just 3 months.

The question many are asking: is this decline just a decline or is it signaling an oncoming recession?

Looking back at history, the answer is far from clear. This is now the 21st Bear Market since 1929. Of the previous 20, only 11 were associated with a recession (55% of the time).

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There Are No Atheists in Foxholes

By Kevin Muir

It seems like a lot of hard-money-hawks were caught off guard by last month’s dovish shift by Powell. I have had more than a couple of conversations with different market participants who have expressed disbelief about how quickly Powell abandoned his tough “we-won’t-let-market-conditions-influence-our-monetary-decisions” policy. These Powell-disciples are rightfully feeling a little betrayed. After all, Powell promised he would tune the economy to the real economy, not the financial economy. For these new-era hawks, the problem of the last decade has been a FOMC board that has caved to every hiccup in the stock market. They have argued that in the long run, these policies create an economic environment filled with excesses and mis-allocated resources which ultimately leads to less growth. They were excited to finally have a non-academic business-person in the FOMC Chair that recognized this reality.

Continue reading There Are No Atheists in Foxholes