Global Stock & Interest Rate Monitor – Sept 16

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Friday CK Chart Fest

Don’t Bank Peak Inflation

Korean Chip Exports

Cry For Argentina

Japan Running Trade Deficits, WTF?

China Growth Turning Up

Sterling Getting Pounded

Working Age Men Lag Return To Labor Market

World Economy Back To Pre-COVID Levels

Is There Enough Copper To Electrify The Transport Sector?

Drought In Treasury Market Liquidity 

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Nonlinear Thinking: Vertical Farms Of The Future

A bankable technology of the future.  All things must change in the coming hard reset.

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Shelter Rocks CPI Report

The economy is still in a Gimme Shelter feedback loop, which we warned about last May in the following repost of that post.  

The monthly payment increases as mortgage rates rise faster than housing prices fall, which, in our opinion, has an increasingly more significant impact on the psychology of homeowners and landlords. And don’t underestimate the Airbnb impact on the survey that the BLS conducts with homeowners to calculate Owners Equivalent Rents,

“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?” – BLS

What a horrendous way to measure 25 percent of the CPI inflation. 

Housing contributes 42 percent of the CPI basket, of which Owners’ equivalent rent (OER) makes up about 24 percent of the CPI basket and rents 0.8 percent of the basket. Both measures rose 0.7 percent in August, rocking this morning’s CPI release.  

Give it a few days until we hear market analysts’ cries about how OER is a distorted measure of housing inflation.  We have been beating that dead horse for years, if you haven’t noticied

Here’s a whimsical piece we posted in 2019 on core inflation, a chart that we were buying.

Political Impact

Ironically, today’s inflation report is likely a net positive for the Administration as gas prices were way down, -10.4 percent. Gas prices impact 100 percent of the population, and OER inflation, a phantom price, affects none.  The rise in food prices of 0.8 percent, 11.4 percent year-on-year?  Not so good.

Finally, see our piece, Gimme Shelter, to illustrate how moves in housing prices impact CPI with a long lag.  

CPI Inflation’s Big Problem: Housing

Originally Posted on  by macromon

Updated:  Post-CPI release @ 9:12 pm PT,  May 11, 2022 

But the Fed seems to be learning lessons from its 2021 experience. – NY Times

The Fed is under a lot of heat for letting inflation get out of control, which is now generating super hawkishness even among the most gentle of monetary doves.  The scorching is illustrated in the above NY Times headline.  

We are reposting our piece from last April 2021, Just In Case, You Think The Fed Has A Clue, in which we questioned the Fed’s economic sanity to keep buying mortgages while the housing market was in a massive bubble. 

Bond yields are now spiking, and the stock market suffers because of the monetary authorities’ ineptitude as the economy contemplates a bond and stock market without central banks. The major buyers of Treasury securities since the beginning of the century have now morphed into net sellers in aggregate.

Nevertheless, making monetary policy is difficult, especially in the last few years, so we grant policymakers considerable grace. 

Valuations and multiples have to come down as interest rates rise. 

Given the FOMC’s latest statement on balance sheet reduction, we estimate the Fed will be extracting almost $1.5 trillion from the economy throughout 2023, approximately $972 billion from the Treasury market, and a maximum of just over $500 billion in mortgages. 

Inflation As The End Game

However, we doubt the Fed and the American body politic have that high of a pain threshold for the subsequent economic and financial pain such a monetary tightening will bring.  We, therefore, expect inflation will be the end game but only after, at the very least,  a few deflation scares.  When the going gets tough, the Fed will default to the mantra of most central banks and monetary authorities throughout history, 

Print [debase], baby, print [debase]! 

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Housing Is Now The Problem, And Its Measurement Is Fatally Flawed

We estimate the Fed bought over $525 billion in mortgages between March 2021 and March 2022.  During this period, the housing market was in Fuego with FOMO panic buying, driving up the National Price Index by 18 percent during the same period. 

Moreover, the 30-year fixed-rate mortgage rate was up 150 bps, or 47.3 percent, driving up the cost of the monthly mortgage payment on the average house price in the United States by almost 75 percent.  Let’s repeat that, folks,  our best approximation of the cost of a monthly 30-year fixed-rate mortgage payment is up 75-100 percent in the past year. 

The official measure for owners’ residential home inflation in the CPI basket is up a relatively measly 4.5 percent year-on-year as measured by Owners Equivalent Rent (OER), 24 percent of the CPI basket.  What a complete joke. 

Watch this space in tomorrow’s CPI release. [OER came in today up 4.8 percent y/y, which kept the overall number hotter than expected.]

The spike in mortgage payments has priced out most first-time buyers, forcing them into the rental market (7.4 percent of the CPI), raising rents by over 4 percent in the past year. 

Different Housing Market Than The GFC 

Of course, the housing market is in a much different condition than it was at the onslaught of the Great Financial Crisis (GFC), as all cash payments — an acute reflection of too much “money” in the system — have replaced the funky, highly levered subprime mortgages. 

The result should be the reverse of the GFC, where housing prices collapsed almost overnight.   This time, we expect a slow and chronic leak in housing prices with fewer forced bankruptcies, and less sensitivity to mortgage rates as they continue to climb until the Fed gets rolling in draining the excess money from the economy.  

OER Starting To Track Real Housing Costs

Let us beat this dead horse one more time. 

The above chart also illustrates that  OER is starting to track the monthly mortgage payment for the first time, which is not a positive for the Fed or inflation. 

The reason for this apparent disconnect is that most homeowners and renters did not move in 2021. They thus did not have to pay the spot price for shelter as it rose rapidly. Instead, many had to pay the rate that they signed for earlier in the year or the rate they signed for years earlier that had been modified slightly by their landlord or bank. These prices should tend to converge to the market price, but the lag time may be significant and the convergence incomplete. – VOX.eu

If homeowners have changed their perfunctory answer to the BLS survey question used to calculate 24 percent of the CPI

“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?” – BLS

to one where homeowners perceive themselves as real renters that track real mortgage costs, or if they get the Airbnb bug, the measured inflation rate for shelter will continue to rise.  This may or may not be happening but keep it on the radar. 

If it does, expect the Washington bureaucrats to start tinkering with the cost of shelter in the CPI as they did in 1983.  See our post, Today’s Inflation Rate And Nolan Ryan’s Fastball.

Best & Worst Time To Purchase A House

We feel for first-time homebuyers caught up in the FOMO bubble of the past year. We concede they may have some inside knowledge of a potential spooky inflation to come, but stretching to buy a starter home on a limited budget when interest rates are at artificial and historic lows, and prices at record highs can, and most likely, will be a toxic cocktail. Of course, we are not talking about the properties or “LifeStyles Of The Rich And Famous.”

Just In Case You Think The Fed Has A Clue

Originally Posted on April 29, 2021 by macromon

This should dispel the notion.

Can’t wait to hear the Chairman justify zero rate policy and deficit monetization with inflation roaring at > 5 percent. It would be entertaining if it weren’t so damaging.

Where To Inflation?

Here’s a pretty good theoretical model (follow the entire thread) estimating that U.S. inflation may reach double digits by Q1 2022. One of the premises is that monetary authorities have no way out of this rabbit hole and are constrained by the risk of severely disrupting financial markets in an asset dependent economy.

Recall our view that deflation/inflation is a corner solution and Wall Street’s “Goldilocks” scenario is still just a marketing gimmick. Deflation as markets try to move back to mean valuations – a lot lower – or inflation, and lots of it.

h/t CG

Anyone with a better model, lay it on the table. Stop with the “fake news” or “don’t worry” nonsense. CPI prints > 4 percent in May and you heard it here first.

GMM’s Health Wars

CK and I are battling some serious health issues. Mine, an acute skirmish, which I am now recovering.

CK’s, a three-front protracted war. Her courage to get up and fight everyday has been such an inspiration during my little battle. She also saved my life by forcing me to “ignore my primary doctor’s diagnosis of “all is well” and aggressively pursue my symptoms.” If not for that, the Grim Reaper would have liquidated my position and GMM would be no more. Thanks, CK.

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Larry Summers On Dollar Strength

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My 9/11 Story — The Day History Changed

It’s hard to believe it’s been twenty-one years.  If you haven’t journaled your story, what are you waiting for?

Repost of a Repost of a Post

Posted on

It was early August 2001 when I asked my wife if we should fly into Washington, D.C. a few days early before my best friend’s wedding.  He was planning to marry his sweetheart on September 16, 2001, at St. John’s Episcopal Church.  My 6 and 3-year-old daughters and I were in the wedding party.

I wanted some extra time for the girls to see the great sites of the Capitol City, where I had attended graduate school and began my career several years earlier.

I secured some VIP passes from our congressman for tours of the White House and the U.S. Capitol.   The passes came in the mail around mid-August with the date for the Capitol tour scheduled at 8:30 am, September 11, 2001.

Just another day.  It was before history changed.

Sep11_Congress

We also planned a trip to New York after the wedding as my girls wanted to visit their birthplace.  The oldest specifically requested a trip to the top of the World Trade Center’s (WTC)  Windows on the World.

Their last night in New York before moving to California was spent at the Marriott World Trade Center,  South Tower.

We booked our flights.

The return flight from New York was familiar. I had flown it at least a hundred times — United Flight #93, Newark to San Francisco.

Just another routine United flight.  It was before history changed.

Sep11_Flights

Washington, D.C.

We arrived at Dulles airport on Sunday night, September 9th, and it felt good to be back in Washington.

As we were disembarking, my 3-year-old noticed the overhead air blowers were still on and blowing hard.  She shouted at me, “dad, they are wasting energy.”

The plane burst out in laughter.  California was in the middle of an energy crisis and experiencing brownouts on a daily basis throughout that summer.

September 10, 2001

The following morning we had some downtime, and because the White House was only a few blocks from our Georgetown hotel, I took the girls down to see the president’s house.  We arrived at the front gate, and I noticed the secret service on top of the White House with high-powered binoculars looking into the sky.

I hadn’t seen this since the day after the U.S. bombed Libya in 1986 in retaliation for Gaddafi’s bombing of a Berlin disco, which killed some American soldiers.   I had an interview the next day at the Council of Economic Advisers (CEA) in the Old Executive Office Building.   I recalled how tight security was, specifically, the sharpshooters on top of the White House.

Just for context,  I hadn’t been in Washington in five years before our September 11, 2001 visit, and, no doubt, security had ramped up considerably.   Put away those conspiracy theories.

Video Tape

I began filming the White House on the day before history changed, specifically the secret service with their high-powered eyes trained on the sky above the White House.

I mentioned to my family there must be “some sort of terrorist alert.”  My bright, analytical 3-year-old immediately chimed in, “dad, they are trying to hurt the president.”

After thinking another minute, she asked, “dad, do they [the secret service] know we are good guys?”  It was somewhat hilarious, at least, at the time.  We have it all on tape.

Lafayette Park

It was hot and humid in Washington on September 10, 2011, the day before history changed.  I took the family across the street, sat them on a bench in Lafayette Park, and went to fetch them some water from a street vendor.

Before leaving on the water run, I noticed a middle eastern looking man sitting on the bench next to my daughters.  He was fiddling with his cell phone and rapidly thumbing through a stack of ATM receipts.  I recall some were from Bank of America.

What struck me most was his fidgety and nervous demeanor.

He was casually dressed in nice khaki slacks, an olive-green button-down shirt, and sandal-like full-toed shoes.  He smelled of cheap European cologne.  I will never forget his face.

During my search for water, for some reason, I had a bad feeling.  I began to think the man on the bench fit the profile of a terrorist.  I seriously thought about walking back across Pennsylvania Avenue to report the suspicious character to the uniform secret service officers at the White House north gate.  I am sure they would have laughed and dismissed me as some kook.

When I got back to the park, the man was gone.  I asked my wife, “what happened to the guy sitting on the bench?  He reminded me of a terrorist.”   True story.

Racial profiling?  Do you really think I gave a shit?

I had a strong feeling based on his actions and my experience being so close to the first 1993 bombing of the World Trade Center when I worked on Wall Street.

September 11, 2001

At about 8:00 am, my wife woke us in a panic.   We had overslept and needed to hurry to get to the Capitol building.

I knew we wouldn’t make it on time and, reluctantly, put the kibosh on our trip up to the Hill.   She and the oldest went down to the lobby to grab some breakfast.   My youngest, still suffering from jet lag, was sound asleep.

I was reading the Washington Post when they returned to the room in horror and said to turn on the television as a plane had crashed into the World Trade Center.

For the next few hours, I watched in shock and was on the phone constantly to my friend, the bridegroom,  who had a view of the WTC from his Greenwich Village apartment.

When American #77 went into the Pentagon about an hour later, it was only a few minutes before the F-14s buzzed over our Georgetown hotel.

I went outside, saw people hustling up the sidewalk, and noticed the military had come out on the street.  A military Humvee stationed at every corner in Georgetown.   This doesn’t happen in America.

Get Out Of Washington

I began to fear for the safety of my family and decided it was time to get out of Washington.  I told my wife, “if these people have chemical or nuclear weapons, we are smack in the middle of their target.”

As I was going out the door to rent a car, my oldest shouted, “dad, get a purple car.”  Yeah, right,  I thought.

I arrived at Hertz in Georgetown, and the clerk said I was lucky as there was one car left.  They pulled the car up to the office.  A purple Volvo!

Charlottesville  

On our way to Charlottesville, I was overcome with the incredible grief that all of America was suffering,  especially thinking about my friends in the WTC.   I felt sick.

It was the end of American exceptionalism.  These things just don’t happen in America.

Seeing the American flags draped over the freeway overpasses on our drive to southern Virginia, I thought, as many others did on that day that changed history, this is my generation’s Pearl Harbor.

September 12

The next day at Jefferson’s Monticello, a busload of senior Japanese tourists pulled up to our third president’s home.  They were soon smitten with my 3-year-old.  She was one helluva of a cute baby with a unique and very friendly persona.

The Japanese tourists asked to take pictures with her.   I warmly agreed and thought how surreal, the day after our own Pearl Harbor.  Surely some of these people were alive, and on the other side, on December 7, 1941.

It was the first few days of the grave new crisis, and the nation was grieving and in complete shock, just as the Pearl Harbor generation was on that dark December day, which changed history 60 years earlier.   And there was my child chumming it up, the pearl in the eyes of these beautiful Japanese seniors, who were once considered the enemy of the “greatest generation” just a little over a half-century prior.

It gave me a glimmer of hope that the country would make it through the dark days.

The Japanese are now one of our closest allies, which could never have happened without forgiveness.  No peace without justice,  no justice without forgiveness.

Whenever I have a chance and feel it’s safe or not inappropriate, I ask my Japanese friends if they forgive the U.S. for bombing Hiroshima and Nagasaki.   I have never received an unequivocal answer.  Not once.

It seems the official position is to sweep it under the rug,

In 2007, during Shinzo Abe’s first term as prime minister, Defense Minister Fumio Kyuma referred to the bombing of Hiroshima and Nagasaki as “something that couldn’t be helped.” – LA Times,  April 2016

The FBI

Nevertheless, the day after the September 11th attacks, I began to think about that man I encountered in Lafayette Park the day before.

I contacted the FBI to report the incident.

At first, they seemed to mock me.  Asking how he was dressed, probably thinking I would reply,  “in Arab garb,” such as thobe and a ghutra and egal.

I spoke with the FBI several times after that.  They always remained aloof and never provided information.

Enter Bob Woodward

I then contacted the Washington Post’s Bob Woodward, who put me in touch with his research assistant.  We had about an ½ hour conversation in which he told me that Al-Qaeda liked to scout their targets just before hitting them.

Was the White House a target?

Several reports specifically identified Capitol Hill and the White House as targets on Sept. 11. One said a bin Laden associate — erroneously — “gave thanks for the explosion in the Congress building.”

A key figure in the bin Laden financing organization called Wafa initially claimed “the White House has been destroyed,” before having to correct himself. – Washington Post, January 28, 2002

I can’t remember if the FBI or Woodward’s guy confirmed that the 9/11 terrorists were emptying their bank accounts just before the attack and transferring the cash back to the UAE.

From September 5 through September 10, 2001, the hijackers consolidated their unused funds and sent them to Hawsawi in the UAE – National Commission on Terrorist Attacks

The ATM receipts were convincing enough, but my suspicions about the man in the park were confirmed when the FBI released the photos of the 9/11 hijackers,

Sep11_Khalid

I will never forget that face.

I had sat my daughters down on a park bench across the street from the White House on the day before September 11, 2001, with one of the hijackers.  Khalid Al Mihdhar was a senior Al-Qaeda operative who crashed American Airlines Flight #77 into the Pentagon.

How twisted was it that on September 10, 2001, secret service agents were on top of the White House combing the sky for potential terrorists, and one of the Al-Qaeda hijackers was sitting just under their nose, less than 1,000 feet away?

The Wedding

My friends bravely decided not to cancel their wedding the following Sunday, and we participated and shared with them their joy under highly stressful conditions.

The church was located just across the street from Lafayette Park, a stone’s throw from the White House, where presidents-elect traditionally attend their pre-inaugural church service.

During the middle of the wedding, with the country and all of us still nervous and on pins and needles, an army of sirens began to blare.  It seemed like it lasted for an hour.  Almost certainly, everyone in the church thought another attack might be underway.

I thought the presbyter was going to stop the wedding.   We got through it.

Back Home

When the government lifted the ban on air travel, we caught one of the first flights out of Dulles back to the west coast.  That was one nervous flight.

One of our flight attendants freaked out when a passenger refused to sit down.  I have no doubt our plane was crawling with air marshals.

We Made It

We did get through it.  The nation got through it.

The world is much different now.

September 11th was way too close to my family, and we were fortunate to escape the ultimate tragedy.

Not so for many of our friends, fellow Americans, and good citizens from other countries who lost their lives on that day that changed history.

I miss my friends who lost their lives that day.

Please, God, bless their families and all those who lost loved ones, the brave Americans who have made the ultimate sacrifice protecting us,  and the many who still work to keep us safe.

Everyone Has A Story

Every person remembers precisely where they were, and what they were doing on the day that changed history.

I have wanted to write this story down for 17 years but just couldn’t do it.  Now my children will have it to pass on to their children.

Everyone has a 9/11 story.  Write it down.  It’s cathartic.

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Global Stock & Interest Rate Monitor

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QOTD: Voltaire’s Lifeboat

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Friday CK ChartFest

Rapidly Rising Global Interest Rates

U.K. Leads Global Inflation Spike

Real Interest Rates Rising 

Industrial Metals Price Correction

U.S. Luxury Vehicle Sales Outpacing Non-Luxury 

Euro Inflation Accelerates 

Global Shipping Rates Trending Lower

ECB Deposit Rate 

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Double Rainbow Appears At Buckingham Palace As Queen Elizabeth Dies

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