the start of a trend? Why is M2 velocity increasing?
With an elevated M2 money supply, inflation can remain low if economic participants, such as investors and consumers, hold on to the money and invest or save it. Though monetary inflation since covid rose in an unprecedented fashion, price inflation was actually more subdued. Generally speaking, it is possible to have a lower rate of price inflation than monetary inflation if the money is somehow sterilized and not turned over in the economy.
What happens when people lose confidence in a currency?
If there is a gradual loss of confidence in a currency, and in this case the US dollar, it would be noted in its velocity. The velocity of money, simply put, is the number of times a dollar turns over during a given period of time, usually a year.
The velocity of money measures the number of times that the average unit of currency is used to purchase goods and services within a given time period..The concept relates the size of economic activity to a given money supply, and the speed of money exchange is one of the variables that determine inflation. The measure of the velocity of money is usually the ratio of the gross national product (GNP) to a country’s money supply.
Velocity of money – Wikipedia
The measure of the velocity of money in this instance is not the independent variable, but rather the dependent variable. The money velocity is becoming an important litmus measure in this instance as to me, it represents a growing unwillingness of all economic participants to hold on to cash. There are a number of reasons as to why economic participants choose to offload cash as opposed to hoarding it.
The first instance could be because of rising price inflation and the people spend money more quickly out of necessity. Also, if the global economic regime faces sudden unexpected shocks, this can show up in an increased velocity as well. These types of factors could be longer lasting than forecasters anticipate.
The second instance could be an increased willingness of all economic participants in aggregate to become more encouraged to speculate and invest in capital improvements and such, like factories, infrastructure, oil and gas exploration, etc.
The third instance could be that people are losing confidence in the underlying currency in which the velocity is being measured.
Let’s take the first instance. If price inflation were truly falling as the mainstream economists are saying, this should reflect in a stable to flat velocity. Normally velocity would be falling under a falling inflationary scenario, but velocity should not be rising as much as it is right now with falling prices.
I’m looking at the second instance in which economic participants are investing in capital improvements and I don’t see a lot of this that could explain the sudden increases in the velocity of money. Of course, velocity could be increasing here over the past couple quarters to show a resumption of the long-term trend of M2 velocity, but if this were the case inflation on the price level should not be falling as much as what the economists are claiming.
Let’s take the third instance; people are losing confidence in the underlying currency and wish to get rid of it more quickly.
Imagine a scenario in which people begin to lose confidence in the dollar. Regardless of what the Federal Reserve does to quell price inflation, a loss of confidence in the underlying currency would mean that the dollar itself will begin to turn over more often in the economy, and even if M2 declines on a sustained basis, if people are less willing to hold the currency, price inflation can still rise.
My concern going forward is that the global environment will become much more hostile to the US dollar as a reserve. Although many nation-state participants desire to jettison the dollar for transactions, there is still no efficient and viable alternative.
Nevertheless, if the world begins to turn on the dollar for any numbers of reasons it will definitely show up in an increase in M2 velocity. This will mean continued increases in the costs of everything and the Fed ultimately has little control over these variables , especially if it goes insolvent trying to pay banks to sterilize their capital.
Every author tempers his dollar doom article with” but there’s no alternative yet”. Have you not heard of the forex market and computers? Digitally get out of dollars in a second and use any currency you need to transact in. It’s what the buyers & sellers are willing to accept and now they are accepting near anything that’s not an FRN.
It sounds like a step up from bartering. Noting worse than having to log into computers and figure out and agree to a form of payment. Perhaps they can settle in bitcoin.
Okay, armed with our computers and instant information, what do you suggest as an alternative that can efficiently transact hundreds of billions of dollars?
By the way, I remember the recordings of the Jerky Boys. They were big back in the early to mid-90s with phone pranks and you could get them on cds. One of the pseudonyms they used was “Jocko johnson”.
Another injected one bites the dust…. Of course, there was no cause of death given. Just send out your hopes and prayers to another untimely death. Enjoy your iron and clay kingdom where no one has any say, because each shard of pottery fights for its piece of the pie. Racial and social justice! Never before have countries been able to mix their populations and succeed without death and tyranny following, but humanity in the West is just so much smarter now. 🤣🤣🤣🤣
I laugh, because I know the truth and I see a sea of humanity who are just a bunch of stupid dumb suckers. There will be no great awakening, my friends.
I hope this woman repented before she had her autonomic system shut down and die an untimely death from her DOD Pentagram bioweapon injection.
_________
US sprinter, Olympic medalist Tori Bowie dies at 32
https://apnews.com/article/tori-bowie-olympics-sprinter-us-f92b339b3dd576866011516285aa674c
A young teaching colleague of mine had to resuscitate a 13 year old student who suffered a heart attack after doing some mild exercise. The kid actually turned blue. My colleagues are in denial that it’s likely the vax. Never ever in my years of teaching did this happen to me nor anyone I knew. It’s amazing what the sheep will accept as normal.
Based on independent export data, it’s becoming clear that OPEC+ was full of hot air and Russia was full of shit.
The US government is full of shit and so is Russia’s.
Commodity prices really taking a tumble. They are breaking through support levels once again. After that big spike higher regarding oil production cutbacks, nothing really has changed.
Treasury Announces Marketable Borrowing Estimates
May 1, 2023
WASHINGTON — The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing for the April – June 2023 and July – September 2023 quarters.
During the April – June 2023 quarter, Treasury expects to borrow $726 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $550 billion. The borrowing estimate is $449 billion higher than announced in January 2023, primarily due to the lower beginning-of-quarter cash balance ($322 billion), and projections of lower receipts and higher outlays ($117 billion).
During the July – September 2023 quarter, Treasury expects to borrow $733 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $600 billion.
During the January – March 2023 quarter, Treasury borrowed $657 billion in privately-held net marketable debt and ended the quarter with a cash balance of $178 billion. In January 2023, Treasury estimated borrowing of $932 billion and assumed an end-of-March cash balance of $500 billion. The $275 billion difference in privately-held net market borrowing resulted primarily from the lower end-of-quarter cash balance, somewhat offset by lower net fiscal flows.
https://home.treasury.gov/news/press-releases/jy1453
Huge upside to estimates….
ADP Nonfarm Employment Change (Apr)
Act: 296K Cons: 148K Prev: 142K
Forecasters saw ADP’s April employment number at 148,000. This would compare with March growth in private payrolls reported by the Bureau of Labor Statistics of 189,000.
This is an email I received from Gun Owners of America (GOA), of which I am a lifetime member;
______
On the 40th Anniversary of Gun Owners Foundation, we received a great birthday present when a federal judge dealt a devastating blow to Illinois’ ban on so-called “assault weapons.”
We won a preliminary injunction that blocks Illinois from enforcing their ban on these commonly owned firearms and standard capacity magazines after U.S. District Judge Stephen P. McGlynn agreed that we were likely to succeed in our claim that state law violates the Second Amendment.
This is a HUGE VICTORY for the Second Amendment, and it lays the groundwork for us to challenge “assault weapon” bans – and other unconstitutional gun control – in EVERY state.
And there’s some icing on the cake…
In his opinion granting the preliminary injunction, McGlynn said arm braces are protected under the Second Amendment!
This ruling will set precedent in our Pistol Brace Rule lawsuit against the ATF!
Liberty has prevailed for now – but there’s still a fight to be had.
Anti-gunners are FURIOUS that McGlynn stayed true to his oath to the Constitution, and they’re already working to overturn the injunction and enforce the state’s draconian ban.
Explainer: How the Fed might act in a US default
May 2 (Reuters) – Federal Reserve Chair Jerome Powell at his press conference on Wednesday is likely to get asked – again – what contingencies he plans for in the event of a U.S. debt default, and he is likely to say – again – that there is no central bank silver bullet to shield the economy from such a damaging event.
The risk of default looms ever larger after Treasury Secretary Janet Yellen on Monday said the date the government may run short of funds to pay its bills under the current $31.4 trillion debt limit may be as early as June 1. Time is running short and President Joe Biden and congressional Republicans are unlikely even to meet for the first time for another week.
Despite Powell’s protestations, the Fed would have a role in trying to limit the harm to financial stability. In past debt-ceiling standoffs – in 2011 and 2013 – Fed staff and policymakers developed a playbook that would likely provide a starting point.
And the recent banking turmoil has introduced at least one potential new twist.
Here are some of the Fed’s options:
THE BASICS
The U.S. central bank’s basic responses to debt-limit-related market stress were laid out in an August 2011 conference call held by its policy-setting Federal Open Market Committee to discuss what seemed to be imminent trouble.
Two of the key ideas developed then, the use of repurchase and reverse repurchase agreements to ensure liquidity for the most important financial markets, are now permanent Fed programs integral to how it manages interest rates on a day-to-day basis.
If market stress became apparent in short-term interest rates, it could temporarily increase the amounts available for “repos” – short-term sales or purchases of securities that can run into the trillions of dollars each day. Indeed, doing so might be necessary for the Fed to conduct monetary policy if market stress pushed its benchmark target rate outside the range set by policymakers.
SUSPEND QT?
Another quick tool at hand would be to suspend the current “quantitative tightening,” also known as QT, used by the Fed to shrink its balance sheet each month.
While QT is part of the Fed’s move to tighten monetary policy to control inflation, it has a net effect of pulling about $95 billion a month out of financial markets – money the central bank could in effect add back by holding its balance sheet constant until the debt-ceiling standoff ended.
OLD TOOL, NEW TWIST?
The Fed’s most standard tool, acting as lender of last resort to banks through its discount window, would also be available.
But now there’s a twist, one perhaps foreshadowed in the 2011 planning discussions but brought back into the light by the failures in March of Silicon Valley Bank and Signature Bank.
A default would not extend to the nearly $24 trillion stockpile of Treasury securities all at once – it would spread one bill, one note, one bond at a time as interest and principal payments became due.
In 2011, top Fed staff, led by then-head of its monetary affairs division William English, posited the central bank could accept any defaulted Treasury securities as collateral for its standing programs such as the discount window or repos.
That “seems appropriate so long as the default reflects a political impasse and not any underlying inability of the United States to meet its obligations, so that all payments on defaulted securities would presumably be made after a short delay,” English – now at Yale School of Management – told officials, the transcript of the 2011 conference call shows.
English, however, had envisioned the bonds being accepted by the Fed at a market price that would likely be impaired by their defaulted status.
But, following the bank failures in March, the Fed has a new bank lending facility – one that allows securities with impaired prices to be pledged at face value. The same terms apply to discount window loans.
THE ‘LOATHSOME’
The last and most sensitive step for the Fed would involve removing defaulted securities from the market altogether – either through outright purchases that would involve increasing its balance sheet, or “swaps” in which it would trade its own holdings of Treasuries on which interest or principal payments were expected to stay current for those that were in default.
English in the 2011 call warned that approach “would insert the Federal Reserve into a very strained political situation and could raise questions about its independence from Treasury debt management issues.”
When the issue resurfaced during another debt ceiling stand-off in 2013, Powell – then a rather junior member of the Board of Governors with a bit over a year of service at the central bank under his belt – chafed at that idea in particular. But also didn’t rule it out.
After endorsing a range of less fraught options during a briefing that October, the future Fed chief said, “as long as I’m talking, I find 8 and 9 to be loathsome,” referring to the swaps and outright purchases.
“I hope that gets into the minutes. But I don’t want to say what I would and wouldn’t do, if we have to actually deal with a catastrophe.”
Ben Bernanke, Fed chair at the time, quipped: “So you are willing to accept ‘loathsome’ under some certain circumstances,” drawing laughter from others on the call.
Powell responded: “Yes, under certain circumstances.”
VAIDS
The doctor’s offices and pharmacies are packed.
There is a local expression in Quebec, coup de vieux, it means sudden aging – literally to be hit with old.
https://en.m.wiktionary.org/wiki/coup_de_vieux
I have noticed quite a few people I haven’t seen for a couple of years who have resurfaced and look like they have been hit with old, not just grey hair but hunched over and walking like the crippled ( under 60 crowd).
Obviously, not doing well.
Durables Ex Defense (MoM) (Mar)
Act: 3.4% Cons: Prev: 3.5%
Durables Ex Transport (MoM) (Mar)
Act: 0.2% Cons: Prev: 0.3%
Factory Orders (MoM) (Mar)
Act: 0.9% Cons: 1.1% Prev: -1.1%
Factory orders ex transport (MoM) (Mar)
Act: -0.7% Cons: Prev: -0.7%
JOLTs Job Openings (Mar)
Act: 9.590M Cons: 9.775M Prev: 9.974M
https://knowyouradversary.com/wp-content/uploads/2023/05/unemployed-per.png
https://knowyouradversary.com/wp-content/uploads/2023/05/latest_numbers_JTS000000000000000JOL_2013_2023_all_period_M03_data.gif
Today’s BLS JOLTS release. Detailed data.
https://knowyouradversary.com/wp-content/uploads/2023/05/jolts.pdf
Federal spending continues to escalate post-covid stimulus. This is why asset prices have a floor.
Federal Government: Current Expenditures
Q1 2023: 6,444.119 | Billions of Dollars | Quarterly | Updated: Apr 27, 2023
https://knowyouradversary.com/wp-content/uploads/2023/05/Current-.png
This morning’s ISM Manufacturing numbers indicate a higher level in the ‘prices paid” component. I think it’s a significant divergence from consensus.
My personal take is that I doubt inflation will be coming down domestically as much as the consensus indicate. I suspect there’s going to be a prolonging of the trend.
___________
Manufacturing PMI (Apr)
Act: 50.2 Cons: 50.4 Prev: 49.2
Construction Spending (MoM) (Mar)
Act: 0.3% Cons: 0.1% Prev: -0.3%
ISM Manufacturing Employment (Apr)
Act: 50.2 Cons: 47.9 Prev: 46.9
ISM Manufacturing New Orders Index (Apr)
Act: 45.7 Cons: 45.5 Prev: 44.3
ISM Manufacturing PMI (Apr)
Act: 47.1 Cons: 46.8 Prev: 46.3
ISM Manufacturing Prices (Apr)
Act: 53.2 Cons: 49.0 Prev: 49.2
My intuition tells me the same, exactly the same.
I do not understand the whole picture no I need to as I make enough connections with my observations, readings and studying to be pretty sure that some of the main reasons are that governments, US, Europe, UK, and almost all of them really, are not trying to balance their budgets in any way, just the opposite is true, and the other is that they are not telling any truths of the real economic state of their “feuds”, I mean about their ability to continue to pay the increasing debt contracts they are signing on the backs of us on their secret meetings with the bankers.
Borrow now whatever pay later, it seems to be, and the collateral?…
Our pound of flesh seem to be always. At the end, for them, we are just a mass of non human “useless eaters” to milk away.
So, is it inflation coming?…
We can look a little bit to history to understand what sins governments are tented to fall to thanks to banker’s cooperation when they are not willing to accept their inability to pay for their budgets.
https://www.britannica.com/place/Weimar-Republic/The-Ruhr-and-inflation
———————————————————-
The Ruhr and inflation
During these immediate postwar years the value of the mark steadily deteriorated. This was due to a number of factors, among them reparation payments, the flight of German capital abroad, obstacles to the revival of German foreign trade, and a consequent adverse balance of payments. Faced with budgetary deficits, the German government followed a practice already begun during the war: issuing more money to meet its expenses.
The result was runaway inflation that was more severe than in any other country of postwar Europe. This process was well under way in 1922, when the exchange rate of the mark to the dollar (pre-1914 relation: 4.20 marks = $1) fell from 162 marks to more than 7,000 marks.
I am going to add something to this story.
Rulers and politicians, bankers and all the sinner souls to the temptations of this world and the Devil’s many lures, as the material world seems to be on you feet and you are increasingly richer and more powerful by the day, I am sorry, but, you in your God’s induced madness think you are in charge but you are not.
Do not make foolish idols of yourselves as you are gonna be as hackable as Abraham’s father’s Idol Shop’s wooden statues were. You know, and axe was enough to destroy all of them but one, the real one, this one has never changed nor it will and this one in charge is God, and no one else.
Or are you able to make the heavens, the creatures, the stars, or the winds, you fools?…
So, repent, be humble and pray Jesus for forgiveness and atonement for your sins. If you truly repent he will relent, he will give you peace and he will give you all his love and blessings whatever your errors were.
The first pope listed in Lignum Vitae’s initial publication regarding the prophecy of the popes was Pope Celestine II, who was elected in 1143. Pope Sixtus V was elected in 1585. In the publication, Lignum Vitae, the line attributed to Pope Sixtus V is “axle in the midst of a sign.” In this instance, the word *sign” refers to a prophecy.
The election of Pope Sixtus V in 1585 was 442 years after the election of Pope Celestine II.
If the election of Pope Sixtus V is indeed timed to coincide with the middle of the prophecy, this means the prophecy will be fulfilled 442 years later in 2027.
Now is the time to prepare. I just gave another tenant his move-out notice. I am selling another condo and transferring the proceeds out to a more remote location.
There will be no Great Awakening before the tribulation and apocalypse; the rapid degradation of humanity in the past 3 years precludes this from happening. If God wanted a Great Awakening before the tribulation, humanity would have woken up already.
The upper echelons and mighty captains of this Earth are no longer concerned with us and our reactions. They are much more concerned regarding biblical events. They are now only concerned with supernatural circumstances. The power elite have won and completely own us. They have established their Iron and Clay Kingdom of Daniel. For anyone who concerns him or herself with race and justice, you have been given over to the devil. You are well adjusted in this iron and clay kingdom and pose absolutely no threat to the established order. You are a domesticated animal.
It is without hope unless we put our faith in Jesus Christ and act with the holy Ghost and the testimony of Jesus in our hearts. Now is the time!
Hedge Funds Bet Dollar to Erase Hike-Cycle Gains as Fed Peaks
49 minutes ago
(Bloomberg) — Investors are piling into bets against the US dollar as this week’s expected Federal Reserve interest-rate hike is likely to bring the steepest tightening cycle in a generation to a halt.
Hedge funds and other large speculators boosted their net bearish position on the greenback against major peers to more than 70,000 contracts as of April 25, the most since June 2021, data from the Commodity Futures Trading Commission show. The currency is set to erase all of the gains posted since the Fed started raising the cash rate last March, according to Bloomberg’s gauge of the dollar against major trading partners.
The Fed is seen as almost certain to hike its rate by a quarter point this week, but then swaps traders are pricing for it to hold policy before turning toward lowering the benchmark by year’s end. With the European Central Bank and the Bank of England expected to be more aggressive in coming months, speculators are focusing on the potential that the euro and the pound will extend gains that have made them among the three best performers this year across major developed currencies.
“We remain positive on the euro, amid a strong consensus that the Fed will be ‘one and done’ while the ECB has more to do,” said Andrew Ticehurst, a rates strategist for Nomura Holdings in Sydney. “The thinking is that the ECB and BOE will out-hike the Fed, especially with the US outlook clouded by recession fears and concerns about the banking sector and the debt ceiling.”
©2023 Bloomberg L.P.
Enjoy your multicultural kingdom outlined in Daniel; the kingdom of iron and clay. It comes at a steep cost.
https://knowyouradversary.com/wp-content/uploads/2023/04/Interestcosts.png
If only we can overcome hatred and racism… 🤣🤣🤣
People like Neil Young and Bruce Springsteen virtue signal on interviews, because they both have hundreds of millions of dollars at stake with their catalogs and are under orders by contract to support NWO objectives lest they lose big. Hell is filled with billions of lost souls who took the easy route.
Those who take here on earth will not get their reward in heaven. Those who do not deny themselves here on earth will be denied in heaven.
Pretty good deal for JPM. It gets FRC deposits and loan portfolio with government guarantees, but doesn’t take on corporate debt and preferred debt/equity obligations. Good luck common shareholders; they are left twisting in the wind.
Homelessness has never been so inviting. Why bother trying to buy or rent anymore when we can live in a dumpster?
___________
This 28-year-old pays $62 a month to live in a dumpster he built for $5,000—take a look inside
https://www.cnbc.com/2023/04/29/28-year-old-pays-62-a-month-to-live-in-a-dumpster-he-built-for-5000-in-london-take-a-look-inside.html
Fantastic intelligence. Great time to save money and and live in desirable areas without theowing your money away. No doubt this kid will be well off grid in nature in a superbly design abode by the time shit hits the fan … when the renters are quite literally trapped and the landlords and gnashing their teeth tho some apparently are already doing so for whatever reason
It’s a death trap. The entrance/exit meets the OHSA criteria for a confined space – in a workplace a monitor would be required to attend while you enter. Imagine what that dumpster fire would look like.
My gut feeling is that the USD will lose reserve status soon. When that happens, those overseas dollars will come home and drive up prices of everything. I think those overseas dollar holders will buy up our real estate and ownership in our domestic businesses. This said, I see a scenario where stock prices will hold up or rise and real estate prices will only rise. Heaven help that domestic first time homebuyer who will always get outbid on very limited choices.
I also see stagflation happening where prices rise but small businesses that rely on domestic buyers go bankrupt as consumers get squeezed with job losses and rising prices.
Be prepared by holding income producing assets. I would have a small portion in precious metals in your possession. Forget gold and silver etfs which may not have the metal. Most of all, get your spiritual house in line with Jesus Christ. There will be tough and unusual economic times ahead.
Inflation is here to stay until a new currency is introduced like the CBDC.
There goes #112, Petrus Romanus, again. The final Pope is spewing his globalist position for the New World Order and doing the work of his father, the devil.
Don’t shut door on foreigners, migrants, Pope Francis says in Hungary
https://www.reuters.com/world/europe/dont-shut-door-foreigners-migrants-pope-francis-says-hungary-2023-04-30/
Isaiah 26:20-21
Go, my people, enter your rooms
and shut the doors behind you;
hide yourselves for a little while
until his wrath has passed by.
See, the Lord is coming out of his dwelling
to punish the people of the earth for their sins.
The earth will disclose the blood shed on it;
the earth will conceal its slain no longer.
2027, the year the prophecy of the Popes will be fulfilled.
Inflation is not the powerful central government’s nor central bank’s fault, it’s “greedflation”. 🤣🤣🤣
ECB Wakes Up to Greedflation as Key Culprit in Price Struggle
•Profit margins outpacing wages as inflation driver since 2021
•‘Tit-for-tat’ dynamic risks stoking second-round effects
https://www.bloomberg.com/news/articles/2023-04-27/ecb-wakes-up-to-greedflation-as-key-culprit-in-price-struggle
(Bloomberg) — The European Central Bank is catching up to an inflation risk that’s proving far more powerful than the wage-price spiral that policymakers have been worrying about.
Officials speaking this month increasingly highlight the importance of surging profits in the euro zone’s most severe spell of inflation, with President Christine Lagarde warning in late March of a “tit-for-tat” dynamic where widening corporate margins propel salaries and prices ever higher.
So-called greedflation is threatening to complicate efforts to rein in consumer-price growth, meaning the ECB may have to do more to hit its 2% target — just as officials flag that the end of their most aggressive cycle of interest-rate hikes is approaching.
“There are clear risks for the inflation decline to be slower than previously anticipated due to rising corporate margins,” said Piet Christiansen, chief strategist at Danske Bank in Copenhagen.
This plus Andreis comment is exactly wha i said would happen after living in south africa for 20 years. I said it’s always the retailers pushing it, anticipation the next figures and making out like bandits. Also yes makes sense that the D will repatriate, destroying developing world currencies in the process bonus mind you, fueling inflation boom bust style. Puts into perspective yapping about brics and yuan too, and the short term stabilization this may help provide plus seamless PR mind you, as the tricky goal of one world digital currency looms. One ring to rule them all!
Signs Are Mounting That a Debt Crunch is Looming
2 hours ago
(Bloomberg) — Just when it seemed the US regional banking strains were starting to ease, First Republic Bank has leaped back into headlines, reigniting concerns of rising pain in the lending system.
Banks increased emergency borrowing from the Federal Reserve for the second week in a row in a sign of the ongoing stress in the system. Last week, the New York Fed reported that financial conditions in its region had deteriorated sharply.
The trouble is rekindling concern that a credit crunch is underway. And it further complicates the plan for next week’s Fed policy meeting, where officials have to figure out how to balance the risks of tighter borrowing conditions against stubbornly high inflation.
Lending Contraction
“Lending from U.S. banks is poised to contract over the next few quarters,” Amanda Lynam, head of macro credit research at BlackRock Financial Management wrote in a note on Thursday. Headwinds to profitability including higher deposit costs have seen bank spreads underperform relative to non-financials, she wrote.
Money Supply
The blow to credit availability comes as the money supply shrinks, a sign that the spike in interest rates by the Fed is causing money to exit the banking system, shrinking the availability of loans. That could slow the economy, with monetarist economists suggesting it could herald a crash and deflation.
The Dallas Fed and the San Francisco Fed last week reported pressure on funding in their geographic regions, with projects being canceled and nonperforming loans expected to increase.
Consumer Headwinds
Banks that posted quarterly results this month said they boosted provisions on bad consumer loans to levels not seen since the early days of the pandemic. For example, Capital One Financial Corp. increased its provision for credit card losses by more than 300% to $2.26 billion compared with a year earlier. The firms have generally said the rising provisions are just consumers returning to pre-pandemic norms.
Office Woes
Capital One also set aside more money to cover souring office loans, as vacancies rise and many workers choose to work from home. Morgan Stanley has previously estimated that office property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults.
Another emerging source of stress in credit is the leveraged loan market as corporate borrowers with floating-rate debt struggle to keep pace with higher borrowing costs.
Higher Defaults
The amount of loans trading at distressed prices, defined as below 80% of face value, has jumped 26% to about $127 billion since the end of February, according to data compiled by Bloomberg. That compares with a 10% increase for bonds to about $488 billion.
“We believe the loan market, which has historically had a lower default rate than the high yield bond market, will record a higher rate during this cycle,” Armen Panossian and Danielle Poli, managing directors at Oaktree Capital Management LP, wrote in a memo last week. “This is due to the covenant-lite nature of most loans and the rising prevalence of loan-only capital structures.”
Credit Chatter
Company executives worldwide, meanwhile, are talking about credit on conference calls at the highest rate since the pandemic hit, according to data compiled by Bloomberg News. Some mentions include Evercore Inc.’s Chief Executive Officer John Weinberg noting an increase in restructuring and liability management business and Peabody Energy Corp. investor relations vice president Karla Kimrey saying the company has positioned itself to avoid uncertain credit markets.
CJ, this is why I’m on the fence about purchasing more Treasuries. The dollar is the least rotten apple in the barrel, but what if sentiment overrides this logic? Billions of people hate the dollar and if they can abandon it they will.
This is what I’m watching.
The consensus is that inflation and overnight rates in the states are running lower eventually, and perhaps soon.
At the same time European and British bond yields have sailed much higher relatively over the past 12 months than US, JPG, or other Commonwealth yields. Hence the strength of the Euro and British pound over the USD. Inflation and monetary policy in Europe is currently stronger and tighter than in NA. It’s all about energy prices and resources.
With that said. I think any crisis in the USD means a crisis in all currencies. For UST holdings, I still prefer shorter duration ones over the longest ones.
What happens if there’s another “unexpected” crisis? The market is expecting lower bond yields in the states and the differences between Europe and here have narrowed a lot.
ZeroHedge pro-Russian Twitter feed propaganda really running hot today.
People who take sides in this Hegelian conflict and listen to the pro-Russian propaganda lose big as they make poor financial and investment choices.
Don’t take any side. Stay detached.