Trade theorist Paul Krugman, imperious in his Nobel crown; Christine Lagarde of the International Monetary Fund; some 370 economists including 19 Nobel Laureates; and even David Stockman, formerly of the Reagan White House, all agree: President Donald Trump is a menace to world trade and prosperity. As a free-trading supply sider, I once shared these fears. However, I was wrong. I underestimated the significance of the chaos of currency trading.
Since the 2008 crash, neither Democrats nor Republicans have been interested in creating a sturdier economy. Instead, they’ve built up another bubble, this time in the car and SUV industry. How? The same way: cheap debt. In 2010, Americans owed $809 billion on their cars (after adjusting for inflation). Today, they owe nearly $1.2 trillion, according to the New York Fed. And the rate of growth has been accelerating: Last year alone, Americans borrowed $93 billion to buy cars (after accounting for people who repaid such debt); 2016 was “the highest auto loan . . . year in the 18-year history of the data,” Fed researchers said, not entirely enthusiastically. People with great credit have been buying new SUVs because interest rates have been at record lows. As interest rates rise, they’ll pull back, but perhaps not that much. By definition, they can afford to pay a little more….
While largely a “controlled” tightening, meant to contain China’s out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.…..These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.
Falling volumes and spiraling costs are pushing trading firms out of U.S. options, raising concerns about fragility in a market that investors rely on to protect portfolios. Trading has dwindled in most areas of the market, and investors and traders are grappling with increasing fragmentation. Liquidity, the crucial ability to do trades without significantly moving prices, has deteriorated, according to interviews with market participants and data reviewed by The Wall Street Journal. Options on key indexes, exchange-traded funds and high-volume stocks dominate trading. Meanwhile, there is less activity in the rest of the listed U.S. options world.
More concering was the continued drop in demand for C&I loans among small, medium and large corporations, with “inquiries for C&I lines of credit remained basically unchanged” staying at a modestly depressed rate. This helps explain, once and for all, the recent collapse in Y/Y commercial bank loan creation, both total and C&I, and indicated that contrary to Goldman’s take, the steep drop has nothing to do with calendarization or a base effect, and everything to do with declining demand for the product among America’s businesses, a concerning deterioration in an economy that is reportedly improving, and where companies would be willing to take out new credit to fund expansion.
But inside the White House, the McMaster pick has not gone over well with the one man who matters most. White House officials tell me Trump himself has clashed with McMaster in front of his staff. On policy, the faction of the White House loyal to senior strategist Steve Bannon is convinced McMaster is trying to trick the president into the kind of nation building that Trump campaigned against. Meanwhile the White House chief of staff, Reince Priebus, is blocking McMaster on a key appointment.
By almost any measure last week was a bad one for commodities, as practically every part of the market lost value. West Texas Intermediate crude oil fell under $44 per barrel, Brent crude broke below $50 per barrel and copper tested $5,500 per metric ton. In China, coal and iron ore tumbled. Gold, the supposed ultimate haven, dropped to almost $1,225 per ounce. Last week’s purge capped a steady decline in prices since mid-April and, more broadly, since February based on the Bloomberg Commodities Index. Although much of the blame is being tied to rather high and growing inventory levels, a lack of real demand shouldn’t be discounted. The market is experiencing something greater than a technical correction or speculative positioning. It is signaling something ominous about the state of the global economy. So while Friday saw a small recovery, it appears to be merely a “dead cat bounce” rather than a sign of any market bottom.
Following the US Treasury’s update of April tax receipts, our friend Mac mailed us a few charts showing the trend in corporate tax payments. Not surprisingly, corporate tax payments and refunds mirror the many signs of a slowing economy that have recently emerged……The next chart shows the underlying trend in the form of the 12-month rolling change in net corporate tax receipts. This shows actually a quite noteworthy development: the 12 month rolling change has just crossed into negative territory to the greatest extent since late 2007 (there was a very tiny dip below the zero line in 2011 as well, during the peak of the euro area debt crisis).
Sen. Rand Paul, the former Republican presidential candidate and vocal champion of civil liberties, has received allegations that the Obama administration sought intercepted intelligence from the National Security Agency on him and other members of Congress and has asked President Donald Trump to conduct a formal investigation, Circa has learned. Paul quietly asked for the probe nearly a month ago in a letter to Trump that was obtained by Circa.
The Taliban have expanded their military fight against Afghanistan’s government into a drive to govern villages across the country, deepening the formidable challenge U.S.-backed forces face in trying to uproot the insurgency. The insurgents, once focused on waging guerrilla war from strongholds in opium-rich provinces like Helmand, are now emerging in a swath of districts to fill a governance vacuum left as foreign troops depart. As a result, millions of Afghans are once again having to adapt to life under Taliban rule.