Faber News Flow

China's factory-gate prices grew at the fastest pace in almost 26 years   in September, adding to global inflation risks and putting pressure on local businesses to start passing on higher costs to consumers.   The  producer price index climbed 10.7% from a year earlier, the highest since November 1995,  data from the National Bureau of Statistics showed Thursday,  far higher than the 9.5% gain in August and hotter than the 10.5% expected. On the other hand,  consumer prices rose 0.7% last month  from a year earlier, lower than a 0.8% gain in the previous month., but Bloomberg notes that  for now consumer inflation remains in check because of falling pork prices , even though the removal of most virus controls by the end of September may have helped to boost household spending. "The widened gap between PPI and CPI means greater pressure for upstream sectors to pass on rising costs to the downstream," said Bruce Pang, head of macro and strategy research at China Renaissanc...

As the following chart from Bloomberg shows, for six consecutive quarters, earnings season provided the antidote to all the stock market ills (if not on fundamentals but because stock stubbornly tracked the relentless growth of the Fed's balance sheet which rose by $120BN every month like clockwork). But that perfect record is about to get its biggest test yet at a time when uncertainty is swirling among equity investors, and not just because a potentially ugly earnings season is on deck but because the Fed's liquidity cannon is about to see its first "tapering" since the covid pandemic unleashed trillions and trillions in liquidity. Looking back, the large and persistent earnings beats over the last 5 quarters... ... prompted record upgrades to forward earnings estimates. The market has moved higher in lockstep with these upgrades... ... leaving the forward multiple remarkably flat at very elevated levels since May of last year. And as Deutsche Bank's Binky Chadh...

One week ago, Bank of America's derivatives team observed that " equity investors are losing confidence in Buy The Dip"  and warned that after suffering a "meaningful setbacks in recent weeks," the coast appears far from clear. The bank pointed to recent episodes of increasing market fragility, and highlighted the recent market volatility manifesting in the second daily selloff of 3 standard deviations or more in just 7 trading days,   only the 24th time since 1928 that the S&P experienced two or more 3-sigma shocks within 10 trading days . Fast forward a week and BofA's increasingly bearish derivatives team led by Riddhi Prasad and Benjamin Bowler has intensified their warning, and pointing to the market's increasing trouble to rebound from its recent slump - it has now been 27 trading days without a record high, the longest such stretch since September 2020 - they note that momentum has been fading this fall, "and investor confidence in buying...

US markets were closed yesterday. However, there was no lack of action out East.  Indeed, Monday was a real  zāo gāo  (too bad; how terrible; what bad luck) day in China: the kind of trading that even worries the many Banana Splits among market analysts (" Tra la la; Tra la la la" ). Evergrande contagion continued to spread . If you cut off funding to a highly leveraged sector, and it sees sales collapse too, bad things tend to happen to liquidity. Specifically, Evergrande once again did not pay interest on US dollar debt due on Monday, while two more small Chinese developers pushed their debt repayment date and offered only 5% of the principal required. Generally, junk bond yields surged. The FTSE Chinese High-Yield index has now tumbled to 275.4, the lowest since late 2015, when back in May it was at 375.4, and looks like a falling knife. Chinese government bond yields didn't benefit, rising slightly, and more so down the curve. The Wall Street Journal is stressing deta...

The number of container ships at anchor or drifting at one of the busiest ports in China has jumped to the highest level since August, indicating supply chain disruptions will continue into the holiday season. Right now is the critical period where US importers build inventory for Christmas shopping. If they fail to do so, expect shortages of popular consumer goods.  China's Yantian port in Shenzhen has had its fair share of issues this past summer, primarily due to a COVID outbreak forcing one of its terminals to shutter operations. Since then, the terminal has reopened. But now, the port has ceased container handling operations after the Chinese weather authorities issued cyclone alerts.  Bloomberg's vessel tracking data  shows at least 67 ships are currently queued outside Yantian, the highest since 26 August.  "Kompasu is the second tropical storm to affect southern China in the last few days, after Lionrock brought flooding to some low-lying areas of Hong Kong over th...

We got the highly anticipated employment report on Friday. It came in far below expectations. But despite weak economic data, bond yields are rising, along with the price of just about everything. Meanwhile, a gold rally fizzled. Peter Schiff talked about it during his podcast, explaining just how badly the markets are misinterpreting the data. When you add up plunging bonds yields, strong oil, and weak economic data – that equals stagflation. According to the September Labor Department report, the US economy added 194,000 jobs last month. The projection was for around 500,000 new jobs. A big decline in government jobs helped drive overall job growth down. As Peter noted, that's not necessarily a bad thing. The only way to pay government workers is through taxes. So, if government workers are not employed, that is actually a benefit for the taxpayer because they're relieved of the burden of paying their salaries. And of course, a lot of the government work that's done actua...

The US bond market may be closed, but it was fully open in China, and locals took advantage of this fact to do one thing:  sell . In the aftermath of the post ""Catastrophic" Property Sales Mean China's Worst Case Scenario Is Now In Play", China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its  third round of (offshore) bond payments  in as many weeks and rival Modern Land became the latest scrambling to delay deadlines. Having already suffered the fastest drop on record, Chinese junk bond markets - where property developer issuers dominate - were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment. Meanwhile, China Evergrande Group's offshore bondholders still had not received interest payment by a Monday deadline Asia time, Reuters reported citing sources. But while Evergrande's default ...

How does it affect me? The graph below shows a decreased fear of US default. While still elevated, it is off recent highs. Important to understand this is not a predictor of default. It is the price of insurance should the US actually default. It reflects risk managers taking out policy to protect bond portfolios. That doesn’t make it any less important of a barometer. So feel free to not panic, unless you are in need of bond insurance. But the price of insurance  is  correlated with default risk. At the highs, default risk protection was 6x the cost from a month ago. So that may not be a big absolute  jump from a low starting point, but 6x the cost is still 6x the cost. Let’s look quickly how this manifests in the very short term. When everyone was concerned about a debt ceiling crisis, Bonds that expired right before that date went bid as bonds right after it cratered. As the can gets kicked down the road, so does the divergence, like a python eating a pig. Source:...