Faber News Flow

At some point, the economy is no longer controlled by individual citizens in the marketplace but by government "planners,"  who find they have only one of two alternatives: stop "stimulating" and permit a full-scale credit collapse, or continue stimulating until the dollar loses all value and society breaks down. Depending on which they choose, we will have a depression characterized by deflation or by hyperinflation. Deflationary Depression This is the 1929-style depression, where huge amounts of inflationary credit are wiped out through bank failures, bond defaults, and stock and real-estate crashes. Before 1913 (the inception of both the Federal Reserve and the income tax), having the dollar pegged to gold (at $20 an ounce) inhibited the scale of monetization. When depressions of this type occurred, depositors acted quickly to collect their money; they had no illusion that the government would bolster their banks; once the banks ran out of gold, their bank accou...

For many years after the financial crisis, US commercial banks were mocked when instead of generating earnings the old-fashioned way, by collecting the interest arb on loans they had made, or even by front running the Fed with their prop (and flow) trading desks, they would "earn" their way to just above consensus estimates by releasing some of their accumulated loan loss reserves, which thanks to creative accounting, would end up boosting the bottom line. The thinking here went that having suffered massive losses during the financial crisis "kitchen sink" when all banks suffered crushing losses to they would get bailed out, banks would then "recoup" billions in losses over time that would be run through the income statement as a reversal of accrued loss provisions. Well, after the longest expansion in history, it's time for this process to go into reverse, and instead of releasing loan loss reserves the banks are now starting to build them up again i...

When Harry Met Comic-Book-Guy " Worst global downturn since the Great Depression " says the IMF .  Actually, it's potentially worse than that.  We are seeing credible (initial) claims in the UK and US that millions/tens of millions are going to be unemployed – again taking us back to black & white memories of long queues of the jobless holding signs saying "Will Work For Food." We are also seeing calls for GDP to collapse by up to a third in the presumed Q2 trough in the UK and the US, as just two examples, which in the space of months would already take us to the kind of depths plunged back in the 1930s ( and actually this will be the worst recession since the 18th century according to one UK report .) Moreover, in a world far more economically-integrated today than it was in the 1930s, what happens in the (smaller) West will rapidly hit the (larger) rest. As will the virus itself, of course. What is to stop it rampaging through Africa and South Asia, as ju...

Earlier this morning, the Dept of Commerce   reported that March retail sales saw  the biggest sequential drop on record, and biggest annual decline since the financial crisis. Which was to be expected: with the US economy shutting down and Americans forced to isolate themselves in the second half of the month, the print is hardly a surprise. Curiously, some welcome detail was available in this morning's BofA earnings release which showed the trajectory of total consumer payments made within its network (defined as payments include total credit card, debit card, ACH, wires, bill pay, person-to-person, cash and checks), and which showed that after a curious bounce at the start of the month, likely as a result of Americans stockpiling food and non-perishables ahead of the pandemic, spending hit a brick some time around March 18 at which point payments starting dropping  but not nearly as fast as many would have expected,  and in fact according to BofA as of the second week of April, ...

While overall mortgage applications rose 7.3% week-over-week, thanks to a 10.1% surge in refinancings, the Mortgage Bankers Association report this week shows that  home purchase applications have plunged to their lowest since 2015... Source: Bloomberg " The 30-year fixed mortgage rate decreased last week to the lowest level in MBA's survey  at 3.45 percent. The decline in rates – despite Treasury yields rising – is a sign that the mortgage-backed securities (MBS) market is stabilizing and lenders are successfully working through their lending pipelines," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. " Refinance activity has experienced a volatile four-week period,  but did increase 10 percent last week. Refinancing will continue to be beneficial for the many borrowers able to lower their monthly payments during this time of economic distress." This is the biggest year-over-year crash in purchase applications since 2011....