Over the past few months interest rates and the value of the dollar have risen sharply, and monetary policy’s quantitative indicators have contracted. These monetary restrictions have worsened the structural impediments to U.S. economic growth that existed before the election and continue today...
74-year-old bond guru Lacy Hunt is among a rare breed in finance today: people who actually traded during a period when bonds continuously lost value. Today, as hints of inflation start to bubble and calling the next bear market becomes the industry’s favorite pastime, Hunt says no, "I’m still long bonds, especially the long-end."
"The news conference was a far cry from the market friendly, pro-growth "presidential" comments that Trump delivered at his acceptance speech," wrote analysts at Westpac, adding it left a "veritable laundry list" of questions unanswered.
"From a growth rate perspective, the speed of credit expansion is alarming. The current pace of credit growth in China is realistically in a range between 19% and 20%, well above the reported official TSF growth of 12.4% and new loan growth of 13.0% in September. Relative to GDP, China’s credit-to-GDP ratio currently in a range from 260% to 275% of GDP as of September 2016" - Barclays
China’s smaller banks have never been more reliant on each other for funding, prompting rating companies to warn of contagion risks in any crisis. "Contagion risks are definitely rising," according to S&P: "The pace of the development is concerning. If this isn’t stopped in time, the central bank will lose some control and flexibility of its monetary policy."
When one month ago China announced that it had created just Rmb 488 billion in new credit as per its broadest credit aggregation metric, Total Social Financing, there was broad concern that the PBOC had again hit the brakes on the country's rampant credit expansion. Those concerns were more than allayed, however, overnight, when the PBOC released its latest August new credit data, which saw total credit grow by well over Rmb 1 trillion.
The outlook for the US economy is deteriorating, yet the Fed is trying to raise overnight rates to keep unseen inflation from rising. Success in its strategy could force consumption lower, unemployment higher, and exacerbate real output contraction. The market, however, should not underestimate the Fed’s power based on its apparent incompetence.
On a 1-year moving average, nearly 40% of China's "economic growth" is the result of new credit creation, or in other words, new loans. What this really means, is that China's debt/GDP, estimated most recently by the IIF at 300%.
The last few months have seen trillions of dollars of fresh credit puked into existence in China to enable goal-seeked growth numbers to creep lower (as opposed to utterly collapse). The problem is... the Chinese are hoarding that cash at the fastest pace since Lehman as liquidity concerns flood through the nation.
One day after all three US indexes hit record highs for the first time since December 31, 1999, US equity index futures, European stocks and Asian equities are little changed after the Nikkei jumped on the back of a Yen weakness, while China reported disappointing economic data and the PBOC suggested that the flood of new debt is slowing which pushed Chinese stocks higher by 1.6% on hopes of more stimulus.