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Are We In A “New Normal”?

Are We In A "New Normal"?

Tyler Durden

Tue, 12/08/2020 – 16:27

Authored by Tuomas Malinen via GnSEconomics.com,

The past two years have been especially brutal to so-called equity ‘bears’. Against all odds, and despite all the…

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3 years ago

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Are We In A "New Normal"? Tyler Durden Tue, 12/08/2020 - 16:27

Authored by Tuomas Malinen via GnSEconomics.com,

The past two years have been especially brutal to so-called equity ‘bears’. Against all odds, and despite all the shocks, global capital markets—if not the real economy they are supposed to represent—have continued to climb to new heights. After the onset of the coronavirus catastrophe, the relentless rise of the asset markets, particularly in the U.S., has completely baffled many.

But it should not.  We are in the midst of an asset market mania—perhaps the biggest of all time.

All the while we have been warning about the possibility of collapse of the world economy, beginning in March 2017, when we issued our first-ever warning of global crash. Then we wrote:

The crisis of 2007 – 2008 reversed the trend of financial globalization, which has undermined global growth. The pull-back in financial globalization has been masked by central bank-induced liquidity and continuous stimulus from governments which have created an artificial recovery and pushed different asset valuations to unsustainable levels. This implies that we live in a “central bankers’ bubble”.

We have noted in several times this year how central banks and especially the Federal Reserve (or the “Fed”) has been acting as the ‘de facto’ market-loss back-stopper, successfully pushing asset markets to new heights. However, it is obvious that the central bankers are only following the script they had written before.  This is no ‘New Normal’.

So, let’s take a tour of the bailouts over the past 11 years.

Starting with a bang

In the depths of the Global Financial Crisis at the end of 2008, standard monetary policy tools became ineffective. After slashing the Fed funds rate below one percent in October 2008, the Federal Open Market Committee (FOMC) decided that more drastic action was needed.

Fed officials came up with the idea (not a new one, actually) to start buying assets from the secondary market. Probably to make such a measure sound like a sophisticated component of an up-to-date arsenal of monetary policy, it was called quantitative easing, or “QE”.

The Fed, when beginning the current cycle of QE-programs (the Bank of Japan ran a similar program from March 2001 till March 2006; more on that later), linked QE tightly to the ability of a central bank to lower short-term interest rates to the ‘zero lower bound’, where short-term rates are zero (the Fed has less control over longer-term rates, though it can affect them, too.)

During the first round of QE, enacted on November 25, 2008, the Fed bought marketable securities issued by U.S. Government Sponsored Enterprises (GSE) and mortgage-backed securities (MBS). In March 2009, the program was extended to include purchases of U.S. Treasury debt.

China to the rescue

When the financial crash of 2008 resulted in a burgeoning global recession, Chinese leaders enacted USD multi-trillion infrastructure programs that powered the world economy out of a deep ditch into a renewed upward trajectory. These programs were financed by credit issued by state-controlled banks, which Beijing can essentially compel to lend.  As Beijing ordered banks to ramp-up lending, the banks responded by doubling the volume of loans on a year-over-year basis—a truly fantastic level of stimulus.

Between 2007 and 2015, 63% of all new money created globally came from China, and most of this increase was created by Chinese commercial banks. Such colossal credit stimulus pushed the world economy, and especially Europe, into a fast recovery, and without it, the story after the GFC would almost certainly have been completely different. 

And the bailouts kept on coming…

But the Chinese were not the only players on the field.  To get a sense of the consistency and extent of these coordinated interventions, let us review the main bailout operations of the past ten years:

  • In October 2010, the Bank of Japan started to buy Exchange Traded Funds (ETFs) linked to the Japanese stock market. It became customary that the BoJ would begin to buy whenever the Topix stock market index fell more than a 0.2 percentage points by midday.

  • In August 2012, the European Central Bank enacted the Outright Monetary Transactions (OMT) program to halt the rise in sovereign yields in the Eurozone.

  • In 2015, the Chinese economy started to roll over again. Authorities directed funds for investment through the shadow banking sector which led to an unprecedented credit spree.

  • Also in 2015, in an effort to devalue the Swiss Franc, the Swiss National Bank started to “invest” in foreign assets, including U.S. equities including many of the top technology names. In many cases, such purchases by the SNB coincided with episodes of increased market turbulence, as during the first rate-hike cycle of the Fed in 2016-2017.

  • During 2017 central banks across the globe forced over $2 trillion worth of artificial central bank liquidity into the global markets, mostly through their aggressive asset purchase programs.

  • In December 2018, the People’s Bank of China started to support the domestic banking sector by injecting hundreds of U.S. billions worth of liquidity into the system to stop a run on the weaker banks in the system.

The ‘pivot’ of the Fed

On January 4, 2019, following a three-month long market rout which escalated in early January, the Fed pivoted from its firm assurances of several interest rate rises in 2019 and automated balance sheet run-off that would be like “watching paint dry.”

Between January and March 2019, the Federal Reserve made a complete U-turn. In early December 2018, Chairman Powell was still anticipating several interest rate rises for 2019, but by March they had reverted to possible cuts and ending the balance sheet normalization program altogether.

The Fed cut interest rates for the second time for the year in August 2019, and the ECB pushed rates further into negative territory and restarted its QE-program in September. The majority of central banks globally dutifully followed suit.

Despite these desperate efforts, the repurchase agreement (“repo”) markets blew up in September 2019, forcing the Fed to intervene in this market for the first time since 2009. This was also the likely starting point for a resumption of the ongoing global financial crisis.

And then the coronavirus pandemic struck.

In comes the Corona shock

On March 16th, 2020, rates on the U.S. short-term bonds, on which cities and states often rely for their short-term financing needs, exploded higher. Liquidity and buyers evaporated from several key parts of the U.S. capital markets, including corporate fixed-income and even Treasury markets.

There was an immediate sense of panic in the stock markets. On the March 16th, 2020, the “implied volatility index” or “VIX”, of the U.S. stock markets reached 82.69, the highest on record, ever. The DJIA plunged by 2,997 points, or 12.9 percent, the worst point drop on record. And then, the authorities stepped in.

On the 16th, the New York Fed announced that it would add $500 billion in overnight loans to the repo-market. On Tuesday, the 17th, the Fed announced that it would use $1 trillion to mop-up corporate paper from issuers. On Wednesday, the 18th, the ECB announced that it would buy 750 billion euros worth of bonds and securities. On the 19th, the Fed announced that it would create a lending facility to support money-market mutual funds. Other central banks across the global launched similar support operations.

And now, we are here.

Figure. The combined balance sheet of the BoJ, ECB, Fed and PBoC. Source: GnS Economics, BoJ, ECB, Fed, PBoC

Is this the ‘New Normal’? (No)

Many seem to be under the impression that this sort of thing can go on forever. In all fairness, judging from the past, their case seems to be supported by facts. If central banks have been able to keep everything from falling apart up to this point, why couldn’t they simply keep on going indefinitely?

We outlined the ways central banks can fail—or become obsolete—in Q-Review 3/2019. Effectively, it always requires a political decision to either audit or dismantle a central bank, or to not recapitalize in the case of overwhelming capital loss. However, there is an additional ‘neutron bomb’ to consider, a factor the central banks cannot control: the banking system.

If confidence between large financial institutions in the all-important “interbank market” is broken, there is practically nothing a central bank can do to fix it. It can provide cheap loans to banks, but they are just loans.

If, for example, there is a risk of sudden re-emergence of foreign exchange risk, and a redenomination of outstanding loans in that currency, banks will reprice this risk in the interbank markets, which may then freeze-up.  This is a real risk in the Eurozone with the possibility of various national “exits”, and the likely reason why the ECB is pushing so hard for the acceptance of the “recovery fund”. We have detailed the specifics of this kind of financial crisis in this blog.

So, there are, in fact, several ways central banks can lose control of the today’s highly-levered and highly-speculative financial systems. And, when that happens, look out below!

*  *  *

December issue of our Q-Review will deal with the Aftermath -scenarios of the coronavirus pandemic. Check out our year-end offer for Annual Q-Review Subscriptions from GnS Store. Stay informed how the world economy and the global economic crisis through our Q-Review reports and Deprcon Service.

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International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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5 hours ago

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March 8, 2024

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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International

Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

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5 hours ago

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March 8, 2024

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It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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Government

President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…

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March 8, 2024

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President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps. 

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

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