Faber News Flow

"This is not the inflation you are looking for. Move along." In recent weeks a veritable cottage industry of financial experts has cropped up, seeking to defuse ever louder fears that the burst in inflation observed in the past month is "transitory" and won't impact the Fed's medium-term thinking or its timeline for tapering/liftoff (not least of all due to the growing political blowback against soaring inflation as captured in " Biden Aides See Political, Not Economic, Peril in Inflation Data " and " Inflation fears grow for White House "). The latest to hammer the "transitory" point is Goldman economist David Mericle who has doubled down on the bank's sanguine view on inflation, writing in a Sunday note that the data surprises of the past two weeks "have left our Q1 2022 forecast for the start of QE tapering unchanged" adding that "if our taper timeline is right, then liftoff will probably not be on the tabl...

The second largest Swiss bank has been a veritable volcano of bad news in the past month, and today was no different: in the bank's earnings call, Credit Suisse Group announced it was raising $2 billion from investors in the form of convertible notes, while also suspending its share buyback and cut the dividend - news which sent the stock tumbling as much as 7%... ... while also warning of even more pain from the Archegos collapse and cutting the hedge fund unit at the center of that particular fiasco as embattled CEO Thomas Gottstein seeks to recover from one of the most turbulent periods in the bank's recent history. The bank said the convertibles notes were sold to core shareholders, institutional investors and high net worth individuals and will help bring the bank's CET1 ratio nearer its target 13%. That number had dropped to 12.2% at the end of the first quarter. In addition to the enforcement proceedings, Credit Suisse said that the Swiss regulator has told it to hol...

A tsunami is a wall of water that wipes out everything in its path, typically caused by earthquakes. But first, the water actually disappears from the usual shoreline, leaving land where there should be sea. A tsunami is a wall of water that wipes out everything in its path, typically caused by earthquakes. But first, the water actually disappears from the usual shoreline, leaving land where there should be sea. If you are on the shore and see that happen, the correct response is to run for high ground. Tragically, though, people often rush  toward  this new and unusual sight. It's hard to blame them; we humans are drawn to the unknown. This impulse explains much of our progress, but it has costs, too. Right now, the stock market is in the land-where-there-should-be-sea phase. What we don't know is when the wave is coming. Maybe there's time to venture out and see what treasure was hidden beneath the waves... or maybe not. Prudence would suggest that we go searching for tre...

The transition to a global energy system that runs on renewable energy rather than finite and dirty coal, oil, and gas is arguably the number-one topic in the media, sometimes eclipsing even the pandemic.  Yet, for all the enthusiastic talk, it seems that we are nowhere near accomplishing the transition—and it may already be too late to do anything about climate change anyway, according to some climate scientists . "Embedded power structures and support for a dying industry": these are the factors that are keeping oil and gas as the world's main sources of energy, according to the chief executive of one environmental nonprofit organization. Speaking to  CNBC , Carroll Muffett from the Institute for Environmental Law said,  "It is not a matter of the absence of the technology or the inability to do it. If you actually look at what are the cheaper sources of the energy supply right now, it is not really even a matter of economics. It is much more about embedded power s...

There was a remarkable disclosure in the latest JPMorgan earnings report: the largest US bank -  an entity that historically has best been known for making loans to the broader population  - reported that in Q1 its total deposits rose by a  whopping 24% Y/Y  and  up 6%  from Q4, to $2.278 trillion, while the total amount of loans issued by the bank was virtually flat sequentially at $1.011 trillion, and  down   4%  from a year ago. In other words, for the first time in its history,  JPM had 100% more deposits than loans, or inversely, the ratio of loans to deposits dropped below 50% for the third quarter in a row after plunging in the aftermath of the covid pandemic: An even more stunning divergence between total deposits and loans, emerges at Bank of America where deposits similarly hit a new all time high of $1.88 trillion, even as the bank's loans have continued to shrink at an alarming, deleveraging (and  deflationary ) pace and a...

The Fed tipped its hand today, and unveiled its " viral reaction function"  revealing the timetable according to which the Fed will start talking about QE tapering. As discussed previously, James Bullard, president of the St. Louis Federal Reserve, said in an interview with Bloomberg Television that getting 75% of Americans vaccinated would be a signal that the pandemic was ending, which is a necessary condition for the central bank to consider tapering its bond-buying program. According to our calculations, extrapolating current vaccination rates would mean that - all else equal - we could see the Fed's 75% bogey be hit in just two short months. As we further said, one thing Powell did not want to do is give any calendar estimation as to when the Fed could start "thinking about thinking" about tapering. Well, thanks to Bullard, it may have no choice but to do so as soon as the summer. And what's worse, now that the market is ...

Last Tuesday we reported that China Credit Impulse Is Set To Collapse As Beijing Orders Banks To Curtail Loan Growth For Rest Of 2021, and just a few days later we got the latest confirmation of this critical - for the global economy - transition. Overnight, China reported that the sequential growth of total social financing (TSF) moderated in March following a strong rebound in January and February, with robust loan growth offset by a contraction in shadow lending. Reflecting the normalization in monetary policy in past months, and the PBOC's most recent attempt to rein in runaway debt, Goldman believes that credit growth should moderate this year but remain broadly in line with nominal GDP growth. This would be primarily driven by moderation in government bond and corporate bond issuance, and slower loan growth. On the other hand, a big test to China's commitment to contain debt will emerge in the coming months, when issuance in local governmen...

The Federal Reserve's new policy approach is that policymakers want to see "actual progress, not forecast progress" before deciding to change its policy stance. Substantial actual progress is occurring in the economy, some places faster than others. How much monetary accommodation is needed to meet the ultimate employment and inflation objectives is debatable. But it is less than when the pandemic started and less after the passage of $1.9 trillion in federal stimulus. Determining when a policy stance has become too accommodative is not an easy matter—but enabling excessive risk-taking to become well-entrenched is comparable to past policy mistakes by allowing a build-up of inflation and inflation expectations. Both are difficult to unwind, and past episodes have shown it is impossible without triggering significant adverse effects in the economy. Evidence of Actual Economic Progress & Excessive Risk-Taking Employment and Jobless Rate:  In March, payroll employment in...

"Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose." -  Seth Klarman Growing wealth occurs over a long time horizon, including many bullish and bearish market cycles. While making the most out of bull markets is important, it is  equally  important to avoid letting the inevitable bear markets reverse your progress. Making this task much more difficult are extreme market environments and inane investor beliefs at such times. When markets are frothy and grossly overvalued, greed takes over, leading to lofty performance expectations and excessive risk stances. Equally tricky is buying when fear grips the markets. In both extremes and all points in between, we must maintain investor Zen. The best way to accomplish such mindfulness and awareness of market surroundings is to understand the risks and rewards present in markets.  Zen-like awareness allows us to run with the bulls and hide from the bear...