Faber News Flow

Back in 2018 leading up to Christmas the Federal Reserve began publicly flirting with the notion of ending asset purchases, reducing their balance sheet and committing to an all around taper of stimulus.  I wrote about it extensively at the time along with my position that the Fed could and would taper, at least for a short period, which would lead to an accelerated crash of stocks. This did in fact happen, but  as we all know the Fed reversed course not long after. This reversal was seen by many as proof that the Fed would "never" actually pursue a full blown taper and that stimulus measures would go on forever. I believed it could be a dry run for a more aggressive taper event down the road. I argued that the fed would continue stimulus until stagflation became evident to the public, and then a careful game of scapegoating would have to be played and another taper would commence. It is also important to understand that there were many in the economic media that also argued ...

The economist consensus is optimistic about economic growth in 2022.  Financial conditions will remain broadly accommodative despite monetary policy tightening. With a faster vaccine rollout and new Covid antibody cocktails, the pandemic will be under control, at least in the developed world. The direct inflationary effect of bottlenecks will progressively vanish. On the production side, supply will increase and will reduce the risk of shortage.  But what if the consensus is wrong?  Our proprietary leading indicator for growth, the global credit impulse, flashes a warning to major economies. It tracks the flow of new credit issued by the private sector as a percentage of GDP. In our sample, we have the eighteenth largest economies which represent 69.4 % of global GDP share.  The global credit impulse is now in contraction territory, running at minus 1.3 % of global growth, according to our preliminary estimates.  What is Saxo Credit Impulse ? The notion of Credi...

As DB's Jim Reid writes in his always entertaining weekly preview this morning, " If you'd have told anyone at the start of the year that annual US CPI would be 5.9% in the penultimate print of the year (as consensus expects on Wednesday) after already spending five months already above 5% then I don't think you'd have got many predicting that there would be utter calm and buoyancy in the market."   That's certainly the case, because while Goldman was - and still is - predicting buoyancy in the market, the bank's inflation forecast has been a total disaster as the following monthly forecast revisions so clearly show - in April, the bank saw year-end headline CPI at 2,77%; it is now 6.31%. In any case, at the start of the year the forecast for the full year was 2%. That said, it is a quieter week ahead after all the fun and games of central banks and payrolls Friday last week.  The peak of earnings season is well behind us now, especially in the US with...

As we noted earlier,  a huge divergence has opened up between stock and bond market volatility, the former measured by the absurdly calm VIX index, the latter by the surging MOVE... ... whose spike pushed it to the   highest levels since April 2020, suggesting bond traders are increasingly on edge over how the Fed's taper announcement could impact bond prices even as equity markets continue to ignore any and all potential risks. As the next chart shows, we haven't seen a divergence this wide between the two since before the covid crisis: We discussed some of the reasons behind the turmoil in bonds in ""10 To 20 Asset Managers Are Being Liquidated" - Rate Vol Exploding Just As Funds Pile Into Repo Trade That Blew Up Market" and earlier today we showed the ominous collapse in the 5s30s curve, one of the most credible early indicators that not all is well in the economy... ... a signal that was further reinforced by the first ever inversion in the 20s30s curve....

"Every policy-type person is asking – what is the cost of hiking interest rates early?"   said Marcel, our head of research, updating us on the state of such chatter. "Historically, an extrapolation of rate hike expectations leads to a material jump in terminal real rates and an undue tightening in credit conditions," he explained. "The most obvious recent analog branded in policy minds is the 2013 taper tantrum. 5y5y real OIS jumped from -0.75% in 2012 to +1.50% in 2013 with ~75% of that move happening on Bernanke's misstep. A lot of factors contributed to the reversal – 5y5y real OIS returned to –0.75% in 2016." "The bond market is giving policy makers a free pass, at least for now," continued Marcel. "Bloomberg headlines about bond market carnage are true for some micro, leveraged funds but not accurate for the broader asset class. Treasury total return indices were up on the week (+0.5%) and virtually unchanged for the month (-0.07%)...

Cow farts are the new 'public enemy No. 1' when it comes to the global battle against climate change. Source:  FT During the COP26 conference in Glasgow on Tuesday, more than 100 countries, including the US, committed to reducing methane emissions by 30% by 2030 -  although a handful of major emitters including - of course - China, Russia as well as India did not sign the "global methane pledge",  which was spearheaded by the EU and US. It also doesn't include Australia,  where major plumes of methane from coal mines have been identified. The pledge commits countries to reducing their emissions of methane from agriculture and waste. Still, the US, which helped spearhead the pledge, has helped recruit dozens of new countries after  only a handful were willing to sign on back in September.  Per  the FT , the number of countries that supported the initiative has grown from just six members when it was initially announced in September, to 105 at its official launch at...

Earlier this week,   Morgan Stanley showed   that more than inflation, more than concerns about the historic labor crisis, definitely more than covid, one thing has preoccupied the minds of most management teams this quarter: " supply chain issues ", a topic which has seen an explosion of mentions on Q3 earnings calls. But while by now everyone is aware that the global supply-chain shock is truly historic and getting worse by the day, with used car prices rising sharply again and over 30 million tons of cargo waiting outside US ports ahead of the holiday season, few have considered what realistically could normalize these frayed supply chains. To address this topic, we discussed a research report from Goldman Sachs in which the bank's economists listed what they viewed as the three key drivers of supply chain normalization and their most likely timing: improved chip supply driven by post-Delta factory restarts (4Q21) and eventually by expanded production capacity (2H22 an...

"You see what is happening in Europe. There is hysteria and some confusion in the markets. Why?…Some people are speculating on climate change issues, some people are underestimating some things, some are starting to cut back on investments in the extractive industries. There needs to be a smooth transition." - Vladimir Putin (someone with whom this author rarely agrees) "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of its citizens." – John Maynard Keynes (an interesting observation for all the modern day Keynesians to consider given their support of current inflationary US policies, including energy-related) Introduction This week's EVA provides another sneak preview into David Hay's book-in-process, "Bubble 3.0" discussing what he thinks is the  crucial topic of "greenflation."   This is a term he coined referring to the rising price for metals and minerals tha...