Faber News Flow

Because Orcs "And as if in answer there came from far away another note. Horns, horns, horns, in dark Mindolluin's sides they dimly echoed. Great horns of the north wildly blowing. Rohan had come at last." Today is going to be dominated by the market pricing in US fiscal stimulus for the  n th time , unless we buy the rumor and sell the fact: and it's rumors and facts I want to address. US CPI yesterday saw headline inflation in line with consensus at 0.4% m/m and rising from 1.3% to 1.7% y/y, but core inflation a tick lower at 0.1% m/m and so dipping to 1.3% y/y. On the back of that, and a moderate US 10-year auction, US equities rose (the S&P up 0.6%); US bond yields dipped, (10s down 6bp from their intraday peak to close at 1.52%); and USD wobbled. The CPI release included a footnote stating: "…data collection in February was affected by the temporary closing or limited operations of certain types of establishments. These fa...

The "wait and see" economy is about to face its moment of truth, and one truth is the $1.9 trillion being passed out like candy is already spent. The defining phrase of the U.S. economy for the past year is "wait and see":  every enterprise impacted by the pandemic that didn't close immediately has been in "wait and see" mode, clinging on to the hope that once the pandemic ends then everything will roar back to life, bigger and better than before. With the promise of herd immunity fast approaching, the moment of truth for "wait and see" is also fast approaching.  The conventional view is that the trillions of dollars in stimulus kept  business as usual  alive and ready to soar back to the good old days. The almost $2 trillion injection of financial smack currently in progress will ignite the afterburners and the economy will rocket higher than anyone can imagine. The problem with this rosy view is the economy was on fumes before the pandemic ...

Next to language, money is the most important medium through which modern society communicates. The Federal Reserve is responsible for signaling how fast this money should be created or destroyed via its federal funds interest rate. When demand is high and capacity/supply low, the Fed should ideally make rates low to support growth of loans to boost capacity/supply. When demand is low and capacity/supply high...the opposite. Instead, the Fed is doing the inverse...trying to focus on getting consumers to use more credit/debt (think record low mortgage rates) to create more demand and necessitate higher capacity (think homebuilders). In a ridiculously difficult chart to decipher below (so I'm told), I highlight the year over year change in working age population (yellow shaded area), year over year change in employees among them (grey shaded area), housing permits (blue line), and the 30 year mortgage rate (white line...driven by the Federal Reserve's federal funds rate a...

Two weeks ago, when discussing the imminent avalanche of cash set to be unleashed by the Treasury - as a tsunami of $800BN in extra liquidity hits markets over the next 6 weeks, and a total of $1.1 trillion in the next 10 weeks - we said that " nobody was paying attention" to this coming flood of liquidity. Since then, some have started to pay attention, with Bloomberg writing an article yesterday titled " Yellen Shift on Vast Treasury Cash Pile Poses Problem for Powell " in which it described the liquidity "tsunami" as a move which aims to return its cash position at the central bank to more normal levels, and which "will flood the financial system with liquidity and complicate Powell's effort to keep a tight grip over money market rates." Sounds awfully familiar... as does this: "All this cash from the Treasury's general account will have to go back from the Fed and into the market," said Manmohan Singh, senior economist at th...

In comments made on Monday morning,  Fed Chair  Treasury Secretary Janet Yellen set the stage for several  exciting  new initiatives, including a higher corporate tax, potentially higher capital gains taxes, yield curve control... oh and a digital dollar.  Yellen came out  in favor of boosting corporate taxes and said she was also open to raising capital gains taxes,  during a Monday conference hosted by the New York Times. Yellen said that the Biden administration could boost the corporate tax rate to 28% to help pay for "Biden's planned longer-term economic reconstruction program". Such a hike in corporate taxes could immediately trigger profit taking in financial assets that have benefited from a low corporate tax rate (the one that, according to CNBC, was being "priced in" at least once a day for several entire years during the Trump administration).  Despite this, she claimed that the Biden administration has not yet favored a wealth tax, ne...

US  money markets are starting to show signs of anxiety about the stimulus-squared flood into the US economy,  bringing forward expectations of the timing of the start of The Fed's next rate-hike cycle. Fed funds futures markets now imply a 70% chance of a 25bps Fed rate hike by the end of 2022 (compared to 50% last week)... Source: Bloomberg And March 2023 is almost a certainty... Source: Bloomberg BofA highlights the central planners' dilemma as  short-run gain opens the door for long-run potential pain . This is illustrated by the rapid closing and then overshooting of the output gap. Normally, BofA notes that this happens many years into the recovery  and is followed by a recession as the Fed puts on the brakes. This time around the Fed has more breathing room as inflation and inflation expectations are low and they are willing to allow a modest overshoot. This gives them time to gradually hit the brakes. But, the market is painting a story of optimism: strong growth and ri...

Here We Go Again: Zoltan Warns Repo Market On Verge Of Major Shock As Key Funding Rate Turns Negative - NXTmine Here We Go Again: Zoltan Warns Repo Market On Verge Of Major Shock As Key Funding Rate Turns Negative Two weeks ago, when discussing the imminent avalanche of cash set to be unleashed by the Treasury – as a tsunami of $800BN in extra liq… Here We Go Again: Zoltan Warns Repo Market On Verge Of Major Shock As Key Funding Rate Turns Negative Two weeks ago, when discussing the imminent avalanche of cash set to be unleashed by the Treasury - as a tsunami of $800BN in extra liquidity hits markets over the next 6 weeks, and a total of $1.1 trillion in the next 10 weeks - we said that " nobody was paying attention" to this coming flood of liquidity. Since then, some have started to pay attention, with Bloomberg writing an article yesterday titled " Yellen Shift on Vast Treasury Cash Pile Poses Problem for Powell " in which it described the liquidity "tsunami...

Between global central bank money-printing, government fiscal support out the wazoo, and hopes for vaccine-related developments, the world and his pet rabbit is betting on inflation (and just as confidently, central planners are sure they can tame the beast should it ever get out of hand). "It's hard to resist this reflation trade at the moment,"  said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG. "With policy all one-way and U.S. refunding coming up this week, we may require some more concessions." 'Inflationary' signals are evident everywhere : The Treasury curve is at its steepest since 2015... Source: Bloomberg Commodity prices are exploding... Source: Bloomberg and oil prices are surging... Source: Bloomberg As Global liquidity spews forth... Source: Bloomberg And the expectations for inflation are just as global,  with US breakevens at their highest since 2014... Source: Bloomberg And European inflation swap rates also surging......