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Sterling Continues to be Pounded

Overview: Sterling’s pounding continued in Asia where it was driven to $1.0350, a new record low before stabilizing. UK rates also continued to rise…

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Overview: Sterling’s pounding continued in Asia where it was driven to $1.0350, a new record low before stabilizing. UK rates also continued to rise sharply after the new government promised more tax cuts next year. The right-wing victory in Italy was not surprising but it kept pressure on Italian bonds. China took more action to slow the yuan’s descent The dollar is broadly higher. All the G10 currencies and most emerging market currencies are lower. Risk appetites are practically non-existent today. Many of the largest Asian equity markets, excluding China, were off 1.5%-3% Europe’s Stoxx 600 is off around 0.8% to bring it to new lows for the year. US futures off almost 1% UK’s 10-year Gilt yield is soaring by more than 30 bp, while European benchmark yields are 9-16 bp higher, with Italy’s gains the most following the right-wing election victory. The 10-year US Treasury yield is near 3.78%. Gold slipped through $1627 to record new lows for the year today but has rebounded in the European morning to test previous support, now resistance near $1650. Concerns about demand saw December WTI fall to $76.75, new lows since January. Separately, retail gasoline prices have begun stabilizing after falling for most of Q3. They rose on Saturday for the fifth consecutive daily gain US natgas is off 2.3%, after falling 12% last week (fifth weekly loss) Europe’s benchmark is off 6.3%. It fell nearly 3.5% last week (fourth consecutive weekly decline). Iron ore fell by about 2.25% today It was practically flat last week. December copper is heavy after falling 3.7% before the weekend. It is near three-month lows. December wheat is nearly 1.4% lighter today It fell 3.3% before the weekend to trim last week’s gain to 2.4%. 

Asia Pacific

The Bank of Japan acted on two fronts last week. First, it intervened and bought yen for the first time since 1998. With the yen still confined to the range seen on the intervention day, Japanese officials see the action as successful. Second, rising global yield pressured Japanese government bonds, and the BOJ stepped in for the first time since June to buy 10-year JGBs in an unannounced operation. The BOJ has come to dominate the market that there were two days last week when the 10-year cash bond did not trade. The BOJ stepped in today and bought JPY550 bln (~$3.8 bln) of 5–10-year notes today. It is the third operation for more than the plan of JPY500 bln and it follows an unscheduled purchase of JPY150 bln in the middle of last week. Separately, due to a holiday at the end of last week, Japan's preliminary PMI was reported earlier today. The manufacturing PMI softened to 51.0 from 51.5, but the services PMI rose to 51.9 from 49.5. The saw the composite recover to 50.9 from 49.4, which was its lowest reading since February

Beijing took another step to ease the selling pressure on the yuan. It imposed a 20% reserve requirement on short yuan forward positions Previously there were no requirements. The measure goes into effect Wednesday. The reserve requirement had been eliminated in October 2020 as the yuan strengthened Recall on September 5, Beijing cut the reserve requirement on foreign currency deposits by 2% to 6%. The dollar is allowed to trade in a 2% band around the fix. Most of the time, the greenback trades well within it. However, in recent days, it has approached the limit. Speculation that it may widen the band seems to be confused .A wider band now would accelerate the dollar's rise

Today, the PBOC set the dollar's reference rate at CNY7.0298. The upper band, 2% higher, would give CNY7.17. Today's high has been about CNY7.1685. The offshore yuan (CNH) often respects the onshore band, but today the dollar traded through it to around CNH7.1735. The dollar gapped higher Friday's high was slightly below CNY7.13 Today's lows were near CNY7.1360. The dollar remains in the intervention day range against the Japanese yen (~JPY140.35-JPY145.90. However, it did reach its best level since then and set a high near JPY144.25. Support now is seen in the JPY143.00-25 area. After the weak close before the weekend, the Australian dollar was sold further today, reaching $0.6485, a new two-and-a-half year low. The (61.8%) retracement objective of the rally since the March 2020 low (~$0.5510) comes in near $0.6465, which we have suggested as near-term target. Resistance now is seen around $0.6550. Lastly, we note that South Korean officials have stepped up their rhetoric, expressing displeasure with the won's weakness. There had been some idea that it was defending the KRW1400 level, around where it is stalling in the middle of the month. However, it closed above in the last two sessions last week, and gapped higher today, reaching KRW1435

Europe

Sterling slumped to $1.0350 in early Asian turnover as the market continued to react to the government's "mini-budget". The government seems undaunted by the criticism of economists and investors Chancellor of the Exchequer Kwarteng signaled more tax cuts were planned for next year. The main focus of the criticisms, leaving aside the regressive nature of many of the initiatives, has been on the risk to the twin deficits To attract funds, prices are being marked down, which is to say higher yields and weaker sterling. There is also the fear that the government's plans will be inflationary. The 10-year breakeven is around 4.30%, up from less than 4.10% a week ago. The market is rife with speculation of an emergency Bank of England meeting this week that would ostensibly hike rates. The swaps market is pricing in 110 bp increase in the policy rate by early November The BOE meets on November 3. This is up from around 75 bp after last week's BOE meeting. The 10-year yield was near 3.50% after the BOE meeting and surged to 3.85% before the weekend and traded to almost 4.20% today before steadying

As widely expected, a right-wing coalition won handily in Italy. It will take a little time to sort things out President Mattarella is expected to recognize the election results and allow the Brothers of Italy to put together the new government. Ministerial appointments are focus Still, it does not look as if the right secured a sufficient majority to enact constitutional reforms. The 10-year Italian bond yield has jumped about 15 bp to 4.47% and the premium over Germany has risen around six basis points on top of the 11 before the weekend to approach 240 bp, the upper end of this year's range. The two-year premium near 116 bp. That is roughly a 20 bp increase over the past two sessions

The German IFO survey worsened in September. The current assessment fell to 94.5 from 97.5. The expectations component stumbled to 75.2 from 80.5. The in the early days of the pandemic was a little below 72.0. This left the overall assessment of the business climate at 84.3, down from 88.6, where it had been in July and August. The pandemic low was 86.8. Germany is on the verge of a contraction that will likely carry into at least the first part of next year. 

The euro fell to about $0.9550 in Asia and quickly bounced back to $0.9650. It is little changed on the day in late morning turnover in Europe as it hovers a little below $0.9700. The upside may be limited in North America as the intraday momentum indicator is getting stretched. The session high was recorded in early Asian turnover near $0.9710. It may take a move above $0.9750 to stabilize the tone. The lower Bollinger Band (two standard deviation below the 20-day moving average) is around $0.9730. Sterling was pounded to $1.0350 in early Asian turnover and has gradually climbed back to approach $1.08. That effort has also stretched the intraday momentum indicators, even though sterling remains well below its lower Bollinger Band (~$1.0965). The three-standard deviation (from the 20-day moving average) is near $1.0740

America

Since the FOMC meeting, the market shifted toward a later (Q2 23) and higher (4.50%-5.0%) peak in the Fed funds rate. This shift is not smooth (non-linear) and has injected volatility as the adjustment is made. Meanwhile, a fiscal drama playing out could lead to a shutdown of the Federal government. To ensure passage of the Inflation Protection Act, Senate leader Schumer cut a deal with Manchin to include his bill that changes the approval process for government energy projects in a "must-pass bill."  Schumer chose the continuing resolution bill that needs to be approved this week to keep the government funded. Most Republicans and at least a few Democrats are opposed to Manchin's bill and have threatened to vote against the continuing resolution bill

As the Fed pursues its most aggressive tightening since Volcker and the dollar soars, the fancies of many otherwise grounded observers turn to the possibility of a Plaza-like accord. A similar, or at least parallel argument is that the tightening of the US monetary policy in response to the highest inflation in a generation is a "reverse currency war". While exchange rates, of course, can impact domestic price pressures, the rise in energy and food prices is playing a more significant role. Making the dollar the key driver in the narrative does not do justice to other drivers, including terms-of-trade shock, which helps explain the general outperformance of Latam currencies. 

The major industrialized countries, and yes, despite the trash talk of the UK being an emerging (or submerging, as the FT saw fit to quote Summers' schadenfreude on the front page over the weekend) it is still in this group, did not intervene during the Great Financial Crisis and the Pandemic. The thinking has evolved from defining the problem in terms of price to one of access (hence the swap lines). While Treasury Secretary Yellen does not repeat what had once been the strong dollar mantra, the policy is alive and well and the Fed. There can be no Plaza-like agreement to drive the dollar lower because it is a channel through which financial conditions are tightening. Contrary to allusions to the US "responsibility" for countries that borrow dollars, the Federal Reserve is not the world's central bank. Pursuing a purposeful weaker dollar would contradict the Fed's monetary policy.

There are US economic data every day this week, and with the FOMC meeting behind us, the Federal Reserve officials also are speaking every day. Today's data, the Chicago Fed's national activity index and the Dallas Fed's manufacturing survey are not typically market movers. Tomorrow features durable goods orders, house prices and the Conference Board's measure of consumer confidence. Among Fed officials, Collings, Bostic, Logan, and Mester speak. Tomorrow, Powell (on a panel on digital currencies) speaks, as will Evans, Bullard, Kashkari, and Daly The data highlight in Canada is the July GDP on Thursday. A small contraction is expected Mexico reports its economic surveys today, employment and trade figures will be released before Thursday's central bank meeting, where a 75 bp hike (to 9.25%) is widely expected. Brazil reports its July current account today and inflation readings, but the focus is on the first round of the presidential election October 2. A run-off is expected, and it will be held on October 30

The Canadian dollar remains under pressure. It fell 2.4% last week, its largest weekly loss in three months. The US dollar so far today has reached slightly below CAD1.3640 The (61.8%) retracement of the greenback's decline from the 2020 high (~CAD1.4670) is found near CAD1.3650. A move above there were initially target the CAD1.3700-20 area, but the risk extends toward CAD1.40. The continued losses in US equities are a considerable drag. The Mexican peso succumbed to the dollar's strength in the last two sessions. The dollar has rallied from around MXN19.9060 to MXN20.2620 before the weekend and today has stretched of almost MXN20.37. The greenback has not been this high since August 8 Near-term potential extended toward MXN20.42-MXN20.45

 

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The War Between Knowledge And Stupidity

The War Between Knowledge And Stupidity

Authored by Bert Olivier via The Brownstone Institute,

Bernard Stiegler was, until his premature…

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The War Between Knowledge And Stupidity

Authored by Bert Olivier via The Brownstone Institute,

Bernard Stiegler was, until his premature death, probably the most important philosopher of technology of the present. His work on technology has shown us that, far from being exclusively a danger to human existence, it is a pharmakon – a poison as well as a cure – and that, as long as we approach technology as a means to ‘critical intensification,’ it could assist us in promoting the causes of enlightenment and freedom.

It is no exaggeration to say that making believable information and credible analysis available to citizens at present is probably indispensable for resisting the behemoth of lies and betrayal confronting us. This has never been more necessary than it is today, given that we face what is probably the greatest crisis in the history of humanity, with nothing less than our freedom, let alone our lives, at stake. 

To be able to secure this freedom against the inhuman forces threatening to shackle it today, one could do no better than to take heed of what Stiegler argues in States of Shock: Stupidity and Knowledge in the 21st Century (2015). Considering what he writes here it is hard to believe that it was not written today (p. 15): 

The impression that humanity has fallen under the domination of unreason or madness [déraison] overwhelms our spirit, confronted as we are with systemic collapses, major technological accidents, medical or pharmaceutical scandals, shocking revelations, the unleashing of the drives, and acts of madness of every kind and in every social milieu – not to mention the extreme misery and poverty that now afflict citizens and neighbours both near and far.

While these words are certainly as applicable to our current situation as it was almost 10 years ago, Stiegler was in fact engaged in an interpretive analysis of the role of banks and other institutions – aided and abetted by certain academics – in the establishment of what he terms a ‘literally suicidal financial system’ (p. 1). (Anyone who doubts this can merely view the award-winning documentary film of 2010, Inside Job, by Charles Ferguson, which Stiegler also mentions on p.1.) He explains further as follows (p. 2): 

Western universities are in the grip of a deep malaise, and a number of them have found themselves, through some of their faculty, giving consent to – and sometimes considerably compromised by – the implementation of a financial system that, with the establishment of hyper-consumerist, drive-based and ‘addictogenic’ society, leads to economic and political ruin on a global scale. If this has occurred, it is because their goals, their organizations and their means have been put entirely at the service of the destruction of sovereignty. That is, they have been placed in the service of the destruction of sovereignty as conceived by the philosophers of what we call the Enlightenment…

In short, Stiegler was writing about the way in which the world was being prepared, across the board – including the highest levels of education – for what has become far more conspicuous since the advent of the so-called ‘pandemic’ in 2020, namely an all-out attempt to cause the collapse of civilisation as we knew it, at all levels, with the thinly disguised goal in mind of installing a neo-fascist, technocratic, global regime which would exercise power through AI-controlled regimes of obedience. The latter would centre on ubiquitous facial recognition technology, digital identification, and CBDCs (which would replace money in the usual sense). 

Given the fact that all of this is happening around us, albeit in a disguised fashion, it is astonishing that relatively few people are conscious of the unfolding catastrophe, let alone being critically engaged in disclosing it to others who still inhabit the land where ignorance is bliss. Not that this is easy. Some of my relatives are still resistant to the idea that the ‘democratic carpet’ is about to be pulled from under their feet. Is this merely a matter of ‘stupidity?’ Stiegler writes about stupidity (p.33):

…knowledge cannot be separated from stupidity. But in my view: (1) this is a pharmacological situation; (2) stupidity is the law of the pharmakon; and (3) the pharmakon is the law of knowledge, and hence a pharmacology for our age must think the pharmakon that I am also calling, today, the shadow. 

In my previous post I wrote about the media as pharmaka (plural of pharmakon), showing how, on the one hand, there are (mainstream) media which function as ‘poison,’ while on the other there are (alternative) media that play the role of ‘cure.’ Here, by linking the pharmakon with stupidity, Stiegler alerts one to the (metaphorically speaking) ‘pharmacological’ situation, that knowledge is inseparable from stupidity: where there is knowledge, the possibility of stupidity always asserts itself, and vice versa. Or in terms of what he calls ‘the shadow,’ knowledge always casts a shadow, that of stupidity. 

Anyone who doubts this may only cast their glance at those ‘stupid’ people who still believe that the Covid ‘vaccines’ are ‘safe and effective,’ or that wearing a mask would protect them against infection by ‘the virus.’ Or, more currently, think of those – the vast majority in America – who routinely fall for the Biden administration’s (lack of an) explanation of its reasons for allowing thousands of people to cross the southern – and more recently also the northern – border. Several alternative sources of news and analysis have lifted the veil on this, revealing that the influx is not only a way of destabilising the fabric of society, but possibly a preparation for civil war in the United States. 

There is a different way of explaining this widespread ‘stupidity,’ of course – one that I have used before to explain why most philosophers have failed humanity miserably, by failing to notice the unfolding attempt at a global coup d’etat, or at least, assuming that they did notice it, to speak up against it. These ‘philosophers’ include all the other members of the philosophy department where I work, with the honourable exception of the departmental assistant, who is, to her credit, wide awake to what has been occurring in the world. They also include someone who used to be among my philosophical heroes, to wit, Slavoj Žižek, who fell for the hoax hook, line, and sinker.

In brief, this explanation of philosophers’ stupidity – and by extension that of other people – is twofold. First there is ‘repression’ in the psychoanalytic sense of the term (explained at length in both the papers linked in the previous paragraph), and secondly there is something I did not elaborate on in those papers, namely what is known as ‘cognitive dissonance.’ The latter phenomenon manifests itself in the unease that people exhibit when they are confronted by information and arguments that are not commensurate, or conflict, with what they believe, or which explicitly challenge those beliefs. The usual response is to find standard, or mainstream-approved responses to this disruptive information, brush it under the carpet, and life goes on as usual.

‘Cognitive dissonance’ is actually related to something more fundamental, which is not mentioned in the usual psychological accounts of this unsettling experience. Not many psychologists deign to adduce repression in their explanation of disruptive psychological conditions or problems encountered by their clients these days, and yet it is as relevant as when Freud first employed the concept to account for phenomena such as hysteria or neurosis, recognising, however, that it plays a role in normal psychology too. What is repression? 

In The Language of Psychoanalysis (p. 390), Jean Laplanche and Jean-Bertrand Pontalis describe ‘repression’ as follows: 

Strictly speaking, an operation whereby the subject attempts to repel, or to confine to the unconscious, representations (thoughts, images, memories) which are bound to an instinct. Repression occurs when to satisfy an instinct – though likely to be pleasurable in itself – would incur the risk of provoking unpleasure because of other requirements. 

 …It may be looked upon as a universal mental process to so far as it lies at the root of the constitution of the unconscious as a domain separate from the rest of the psyche. 

In the case of the majority of philosophers, referred to earlier, who have studiously avoided engaging critically with others on the subject of the (non-)‘pandemic’ and related matters, it is more than likely that repression occurred to satisfy the instinct of self-preservation, regarded by Freud as being equally fundamental as the sexual instinct. Here, the representations (linked to self-preservation) that are confined to the unconscious through repression are those of death and suffering associated with the coronavirus that supposedly causes Covid-19, which are repressed because of being intolerable. The repression of (the satisfaction of) an instinct, mentioned in the second sentence of the first quoted paragraph, above, obviously applies to the sexual instinct, which is subject to certain societal prohibitions. Cognitive dissonance is therefore symptomatic of repression, which is primary. 

Returning to Stiegler’s thesis concerning stupidity, it is noteworthy that the manifestations of such inanity are not merely noticeable among the upper echelons of society; worse – there seems to be, by and large, a correlation between those in the upper classes, with college degrees, and stupidity.

In other words, it is not related to intelligence per se. This is apparent, not only in light of the initially surprising phenomenon pertaining to philosophers’ failure to speak up in the face of the evidence, that humanity is under attack, discussed above in terms of repression. 

Dr Reiner Fuellmich, one of the first individuals to realise that this was the case, and subsequently brought together a large group of international lawyers and scientists to testify in the ‘court of public opinion’ (see 29 min. 30 sec. into the video) on various aspects of the currently perpetrated ‘crime against humanity,’ has drawn attention to the difference between the taxi drivers he talks to about the globalists’ brazen attempt to enslave humanity, and his learned legal colleagues as far as awareness of this ongoing attempt is concerned. In contrast with the former, who are wide awake in this respect, the latter – ostensibly more intellectually qualified and ‘informed’ – individuals are blissfully unaware that their freedom is slipping away by the day, probably because of cognitive dissonance, and behind that, repression of this scarcely digestible truth.

This is stupidity, or the ‘shadow’ of knowledge, which is recognisable in the sustained effort by those afflicted with it, when confronted with the shocking truth of what is occurring worldwide, to ‘rationalise’ their denial by repeating spurious assurances issued by agencies such as the CDC, that the Covid ‘vaccines’ are ‘safe and effective,’ and that this is backed up by ‘the science.’ 

Here a lesson from discourse theory is called for. Whether one refers to natural science or to social science in the context of some particular scientific claim – for example, Einstein’s familiar theory of special relativity (e=mc2) under the umbrella of the former, or David Riesman’s sociological theory of ‘inner-’ as opposed to ‘other-directedness’ in social science – one never talks about ‘the science,’ and for good reason. Science is science. The moment one appeals to ‘the science,’ a discourse theorist would smell the proverbial rat.

Why? Because the definite article, ‘the,’ singles out a specific, probably dubious, version of science compared to science as such, which does not need being elevated to special status. In fact, when this is done through the use of ‘the,’ you can bet your bottom dollar it is no longer science in the humble, hard-working, ‘belonging-to-every-person’ sense. If one’s sceptical antennae do not immediately start buzzing when one of the commissars of the CDC starts pontificating about ‘the science,’ one is probably similarly smitten by the stupidity that’s in the air. 

Earlier I mentioned the sociologist David Riesman and his distinction between ‘inner-directed’ and ‘other-directed’ people. It takes no genius to realise that, to navigate one’s course through life relatively unscathed by peddlers of corruption, it is preferable to take one’s bearings from ‘inner direction’ by a set of values which promotes honesty and eschews mendacity, than from the ‘direction by others.’ Under present circumstances such other-directedness applies to the maze of lies and misinformation emanating from various government agencies as well as from certain peer groups, which today mostly comprise the vociferously self-righteous purveyors of the mainstream version of events. Inner-directness in the above sense, when constantly renewed, could be an effective guardian against stupidity. 

Recall that Stiegler warned against the ‘deep malaise’ at contemporary universities in the context of what he called an ‘addictogenic’ society – that is, a society that engenders addictions of various kinds. Judging by the popularity of the video platform TikTok at schools and colleges, its use had already reached addiction levels by 2019, which raises the question, whether it should be appropriated by teachers as a ‘teaching tool,’ or whether it should, as some people think, be outlawed completely in the classroom.

Recall that, as an instance of video technology, TikTok is an exemplary embodiment of the pharmakon, and that, as Stiegler has emphasised, stupidity is the law of the pharmakon, which is, in turn, the law of knowledge. This is a somewhat confusing way of saying that knowledge and stupidity cannot be separated; where knowledge is encountered, its other, stupidity, lurks in the shadows. 

Reflecting on the last sentence, above, it is not difficult to realise that, parallel to Freud’s insight concerning Eros and Thanatos, it is humanly impossible for knowledge to overcome stupidity once and for all. At certain times the one will appear to be dominant, while on different occasions the reverse will apply. Judging by the fight between knowledge and stupidity today, the latter ostensibly still has the upper hand, but as more people are awakening to the titanic struggle between the two, knowledge is in the ascendant. It is up to us to tip the scales in its favour – as long as we realise that it is a never-ending battle. 

Tyler Durden Fri, 03/15/2024 - 23:00

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“I Can’t Even Save”: Americans Are Getting Absolutely Crushed Under Enormous Debt Load

"I Can’t Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great…

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"I Can't Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great - suggesting in his State of the Union Address last week that "our economy is the envy of the world," Americans are being absolutely crushed by inflation (which the Biden admin blames on 'shrinkflation' and 'corporate greed'), and of course - crippling debt.

The signs are obvious. Last week we noted that banks' charge-offs are accelerating, and are now above pre-pandemic levels.

...and leading this increase are credit card loans - with delinquencies that haven't been this high since Q3 2011.

On top of that, while credit cards and nonfarm, nonresidential commercial real estate loans drove the quarterly increase in the noncurrent rate, residential mortgages drove the quarterly increase in the share of loans 30-89 days past due.

And while Biden and crew can spin all they want, an average of polls from RealClear Politics shows that just 40% of people approve of Biden's handling of the economy.

Crushed

On Friday, Bloomberg dug deeper into the effects of Biden's "envious" economy on Americans - specifically, how massive debt loads (credit cards and auto loans especially) are absolutely crushing people.

Two years after the Federal Reserve began hiking interest rates to tame prices, delinquency rates on credit cards and auto loans are the highest in more than a decade. For the first time on record, interest payments on those and other non-mortgage debts are as big a financial burden for US households as mortgage interest payments.

According to the report, this presents a difficult reality for millions of consumers who drive the US economy - "The era of high borrowing costs — however necessary to slow price increases — has a sting of its own that many families may feel for years to come, especially the ones that haven’t locked in cheap home loans."

The Fed, meanwhile, doesn't appear poised to cut rates until later this year.

According to a February paper from IMF and Harvard, the recent high cost of borrowing - something which isn't reflected in inflation figures, is at the heart of lackluster consumer sentiment despite inflation having moderated and a job market which has recovered (thanks to job gains almost entirely enjoyed by immigrants).

In short, the debt burden has made life under President Biden a constant struggle throughout America.

"I’m making the most money I've ever made, and I’m still living paycheck to paycheck," 40-year-old Denver resident Nikki Cimino told Bloomberg. Cimino is carrying a monthly mortgage of $1,650, and has $4,000 in credit card debt following a 2020 divorce.

Nikki CiminoPhotographer: Rachel Woolf/Bloomberg

"There's this wild disconnect between what people are experiencing and what economists are experiencing."

What's more, according to Wells Fargo, families have taken on debt at a comparatively fast rate - no doubt to sustain the same lifestyle as low rates and pandemic-era stimmies provided. In fact, it only took four years for households to set a record new debt level after paying down borrowings in 2021 when interest rates were near zero. 

Meanwhile, that increased debt load is exacerbated by credit card interest rates that have climbed to a record 22%, according to the Fed.

[P]art of the reason some Americans were able to take on a substantial load of non-mortgage debt is because they’d locked in home loans at ultra-low rates, leaving room on their balance sheets for other types of borrowing. The effective rate of interest on US mortgage debt was just 3.8% at the end of last year.

Yet the loans and interest payments can be a significant strain that shapes families’ spending choices. -Bloomberg

And of course, the highest-interest debt (credit cards) is hurting lower-income households the most, as tends to be the case.

The lowest earners also understandably had the biggest increase in credit card delinquencies.

"Many consumers are levered to the hilt — maxed out on debt and barely keeping their heads above water," Allan Schweitzer, a portfolio manager at credit-focused investment firm Beach Point Capital Management told Bloomberg. "They can dog paddle, if you will, but any uptick in unemployment or worsening of the economy could drive a pretty significant spike in defaults."

"We had more money when Trump was president," said Denise Nierzwicki, 69. She and her 72-year-old husband Paul have around $20,000 in debt spread across multiple cards - all of which have interest rates above 20%.

Denise and Paul Nierzwicki blame Biden for what they see as a gloomy economy and plan to vote for the Republican candidate in November.
Photographer: Jon Cherry/Bloomberg

During the pandemic, Denise lost her job and a business deal for a bar they owned in their hometown of Lexington, Kentucky. While they applied for Social Security to ease the pain, Denise is now working 50 hours a week at a restaurant. Despite this, they're barely scraping enough money together to service their debt.

The couple blames Biden for what they see as a gloomy economy and plans to vote for the Republican candidate in November. Denise routinely voted for Democrats up until about 2010, when she grew dissatisfied with Barack Obama’s economic stances, she said. Now, she supports Donald Trump because he lowered taxes and because of his policies on immigration. -Bloomberg

Meanwhile there's student loans - which are not able to be discharged in bankruptcy.

"I can't even save, I don't have a savings account," said 29-year-old in Columbus, Ohio resident Brittany Walling - who has around $80,000 in federal student loans, $20,000 in private debt from her undergraduate and graduate degrees, and $6,000 in credit card debt she accumulated over a six-month stretch in 2022 while she was unemployed.

"I just know that a lot of people are struggling, and things need to change," she told the outlet.

The only silver lining of note, according to Bloomberg, is that broad wage gains resulting in large paychecks has made it easier for people to throw money at credit card bills.

Yet, according to Wells Fargo economist Shannon Grein, "As rates rose in 2023, we avoided a slowdown due to spending that was very much tied to easy access to credit ... Now, credit has become harder to come by and more expensive."

According to Grein, the change has posed "a significant headwind to consumption."

Then there's the election

"Maybe the Fed is done hiking, but as long as rates stay on hold, you still have a passive tightening effect flowing down to the consumer and being exerted on the economy," she continued. "Those household dynamics are going to be a factor in the election this year."

Meanwhile, swing-state voters in a February Bloomberg/Morning Consult poll said they trust Trump more than Biden on interest rates and personal debt.

Reverberations

These 'headwinds' have M3 Partners' Moshin Meghji concerned.

"Any tightening there immediately hits the top line of companies," he said, noting that for heavily indebted companies that took on debt during years of easy borrowing, "there's no easy fix."

Tyler Durden Fri, 03/15/2024 - 18:00

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Copper Soars, Iron Ore Tumbles As Goldman Says “Copper’s Time Is Now”

Copper Soars, Iron Ore Tumbles As Goldman Says "Copper’s Time Is Now"

After languishing for the past two years in a tight range despite recurring…

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Copper Soars, Iron Ore Tumbles As Goldman Says "Copper's Time Is Now"

After languishing for the past two years in a tight range despite recurring speculation about declining global supply, copper has finally broken out, surging to the highest price in the past year, just shy of $9,000 a ton as supply cuts hit the market; At the same time the price of the world's "other" most important mined commodity has diverged, as iron ore has tumbled amid growing demand headwinds out of China's comatose housing sector where not even ghost cities are being built any more.

Copper surged almost 5% this week, ending a months-long spell of inertia, as investors focused on risks to supply at various global mines and smelters. As Bloomberg adds, traders also warmed to the idea that the worst of a global downturn is in the past, particularly for metals like copper that are increasingly used in electric vehicles and renewables.

Yet the commodity crash of recent years is hardly over, as signs of the headwinds in traditional industrial sectors are still all too obvious in the iron ore market, where futures fell below $100 a ton for the first time in seven months on Friday as investors bet that China’s years-long property crisis will run through 2024, keeping a lid on demand.

Indeed, while the mood surrounding copper has turned almost euphoric, sentiment on iron ore has soured since the conclusion of the latest National People’s Congress in Beijing, where the CCP set a 5% goal for economic growth, but offered few new measures that would boost infrastructure or other construction-intensive sectors.

As a result, the main steelmaking ingredient has shed more than 30% since early January as hopes of a meaningful revival in construction activity faded. Loss-making steel mills are buying less ore, and stockpiles are piling up at Chinese ports. The latest drop will embolden those who believe that the effects of President Xi Jinping’s property crackdown still have significant room to run, and that last year’s rally in iron ore may have been a false dawn.

Meanwhile, as Bloomberg notes, on Friday there were fresh signs that weakness in China’s industrial economy is hitting the copper market too, with stockpiles tracked by the Shanghai Futures Exchange surging to the highest level since the early days of the pandemic. The hope is that headwinds in traditional industrial areas will be offset by an ongoing surge in usage in electric vehicles and renewables.

And while industrial conditions in Europe and the US also look soft, there’s growing optimism about copper usage in India, where rising investment has helped fuel blowout growth rates of more than 8% — making it the fastest-growing major economy.

In any case, with the demand side of the equation still questionable, the main catalyst behind copper’s powerful rally is an unexpected tightening in global mine supplies, driven mainly by last year’s closure of a giant mine in Panama (discussed here), but there are also growing worries about output in Zambia, which is facing an El Niño-induced power crisis.

On Wednesday, copper prices jumped on huge volumes after smelters in China held a crisis meeting on how to cope with a sharp drop in processing fees following disruptions to supplies of mined ore. The group stopped short of coordinated production cuts, but pledged to re-arrange maintenance work, reduce runs and delay the startup of new projects. In the coming weeks investors will be watching Shanghai exchange inventories closely to gauge both the strength of demand and the extent of any capacity curtailments.

“The increase in SHFE stockpiles has been bigger than we’d anticipated, but we expect to see them coming down over the next few weeks,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “If the pace of the inventory builds doesn’t start to slow, investors will start to question whether smelters are actually cutting and whether the impact of weak construction activity is starting to weigh more heavily on the market.”

* * *

Few have been as happy with the recent surge in copper prices as Goldman's commodity team, where copper has long been a preferred trade (even if it may have cost the former team head Jeff Currie his job due to his unbridled enthusiasm for copper in the past two years which saw many hedge fund clients suffer major losses).

As Goldman's Nicholas Snowdon writes in a note titled "Copper's time is now" (available to pro subscribers in the usual place)...

... there has been a "turn in the industrial cycle." Specifically according to the Goldman analyst, after a prolonged downturn, "incremental evidence now points to a bottoming out in the industrial cycle, with the global manufacturing PMI in expansion for the first time since September 2022." As a result, Goldman now expects copper to rise to $10,000/t by year-end and then $12,000/t by end of Q1-25.’

Here are the details:

Previous inflexions in global manufacturing cycles have been associated with subsequent sustained industrial metals upside, with copper and aluminium rising on average 25% and 9% over the next 12 months. Whilst seasonal surpluses have so far limited a tightening alignment at a micro level, we expect deficit inflexions to play out from quarter end, particularly for metals with severe supply binds. Supplemented by the influence of anticipated Fed easing ahead in a non-recessionary growth setting, another historically positive performance factor for metals, this should support further upside ahead with copper the headline act in this regard.

Goldman then turns to what it calls China's "green policy put":

Much of the recent focus on the “Two Sessions” event centred on the lack of significant broad stimulus, and in particular the limited property support. In our view it would be wrong – just as in 2022 and 2023 – to assume that this will result in weak onshore metals demand. Beijing’s emphasis on rapid growth in the metals intensive green economy, as an offset to property declines, continues to act as a policy put for green metals demand. After last year’s strong trends, evidence year-to-date is again supportive with aluminium and copper apparent demand rising 17% and 12% y/y respectively. Moreover, the potential for a ‘cash for clunkers’ initiative could provide meaningful right tail risk to that healthy demand base case. Yet there are also clear metal losers in this divergent policy setting, with ongoing pressure on property related steel demand generating recent sharp iron ore downside.

Meanwhile, Snowdon believes that the driver behind Goldman's long-running bullish view on copper - a global supply shock - continues:

Copper’s supply shock progresses. The metal with most significant upside potential is copper, in our view. The supply shock which began with aggressive concentrate destocking and then sharp mine supply downgrades last year, has now advanced to an increasing bind on metal production, as reflected in this week's China smelter supply rationing signal. With continued positive momentum in China's copper demand, a healthy refined import trend should generate a substantial ex-China refined deficit this year. With LME stocks having halved from Q4 peak, China’s imminent seasonal demand inflection should accelerate a path into extreme tightness by H2. Structural supply underinvestment, best reflected in peak mine supply we expect next year, implies that demand destruction will need to be the persistent solver on scarcity, an effect requiring substantially higher pricing than current, in our view. In this context, we maintain our view that the copper price will surge into next year (GSe 2025 $15,000/t average), expecting copper to rise to $10,000/t by year-end and then $12,000/t by end of Q1-25’

Another reason why Goldman is doubling down on its bullish copper outlook: gold.

The sharp rally in gold price since the beginning of March has ended the period of consolidation that had been present since late December. Whilst the initial catalyst for the break higher came from a (gold) supportive turn in US data and real rates, the move has been significantly amplified by short term systematic buying, which suggests less sticky upside. In this context, we expect gold to consolidate for now, with our economists near term view on rates and the dollar suggesting limited near-term catalysts for further upside momentum. Yet, a substantive retracement lower will also likely be limited by resilience in physical buying channels. Nonetheless, in the midterm we continue to hold a constructive view on gold underpinned by persistent strength in EM demand as well as eventual Fed easing, which should crucially reactivate the largely for now dormant ETF buying channel. In this context, we increase our average gold price forecast for 2024 from $2,090/toz to $2,180/toz, targeting a move to $2,300/toz by year-end.

Much more in the full Goldman note available to pro subs.

Tyler Durden Fri, 03/15/2024 - 14:25

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