Seven charts to explain, why the U.S. is heading into a #recession (which is unlikely to be "mild"). 🧵
Let's start with the most problematic one: the yield curves. Many read these like the Bible, and they rarely have gotten it wrong. However, this time there's a problem.
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Our first-ever U.S. #recession call, in March 2019, predicting the beginning of an U.S. recession in early 2020, was based on the inversion of the yields of the Treasuries with 10-year and 3-month maturities.
This is depicted in the strange divergence of the 10y/3mo and 10y/2y spreads in early 2022 shown in the figure above. I explained this in detail in my @EpochOpinion piece in May.
I summarized the situation as:
"In any case, because of the quantitative easing (QE) and QT, the whole bond market is a mess, and all signals from it should be interpreted with a heavy grain of salt."
Yet, we can argue that because the inversion is so large now, it probably holds true, but we need some information outside the bond markets to verify this.
Such verifications can be found from bank, more precisely on bank lending standards, and debt data. 5/
The share of banks tightening lending standards has been a reliable #recession indicator. It gave a warning even right before the artificial 2020 recession caused by the lockdowns.
So, here are the three main bank lending charts all showing the same thing. 6/
They show than #banks are tightening standards in all their lending activities for corporations and for credit cards. However, this is not enough to guarantee the arrival of a #recession , by itself.
Corporations, for example can seek funding from the bond markets.
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However, first note that U.S. corporations are more indebted than ever in total terms, but also when compared to their income base (gross domestic product). Firms are effectively "swimming" in #debt .
How are their interest payments (yields) behaving then? 8/
Unsurprisingly, not good. Interest rate hikes and QT of the #FederalReserve have pushed yields of corporate bonds considerably higher in practically all credit-rated classes.
Alas, the ability of U.S. firms to borrow more is becoming gravely limited. 9/
Moreover, some corporations are likely to face problems of maintaining their debt sustainability (interest payments + the principal).
This concerns especially the so-called zombie corporations. Mass bankruptcies loom. 10/ theepochtimes.com/zombie-corpora…
So, because firms are more indebted than ever, banks are tightening lending standards on their loans and because yields of their bonds are their 13-year peak, corporations will be forced to cut spending, and some (mostly 'zombies') are likely to fail.
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This implies layoffs, possible on a massive scale, less investment spending and less corporate consumption.
These will eat further into the income of, rather heavily indebted, households who are already suffering from high interest rates and tightening lending standards. 12/
Alas, the U.S. is, almost certainly, heading into a #recession during the first two quarters of next year.
In the worst-case, we will see a very destructive loop of falling household consumption, wide-spread bankruptcies and mass layoffs feeding falling consumption.
It would lead to existential banking problems and to an outright economic collapse. 🥶
/End mtmalinen.substack.com/p/enter-the-pe…
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So, I've now used most of the day to read the news, blogs and rumors on #WagnerCoup . Here's my five cents.
The attempt was real supported, probably, by West-leaning Olicarchs. West at least knew that something is about to go down, and CIA, etc., may have played a role. 1/6
In Rostov, it became clear to #Prigozhin, and probably to Putin also, that the coup will be unsuccessful. Many Wagner troops were lured into the attempt by false premises (tends to happen in coups) and they turned back.
Local governors and people also sided with Putin. 2/
At this point there was no point of further bloodshed, and thus no need for a strong response.
As a last ditch effort, and to gain a bargaining chip, Prigozhin sent a small group to a speedy march to Moscow, while negotiations to de-escalate were commenced through Lukashenka. 3/
After being single for 3 1/2 years, and after meeting a lot of women, I have arrived to the conclusion that a vast majority of modern women are nothing more than an hindrance.
We should be talking about 'toxic femininity'. 1/8
I would give two 'diagnostic criteria' for a "toxic" woman:
1. She builds an attractive public profile to seek validation from other women and attention from men. 2. She uses 'ghosting', victimization, public outcries and accusations to deal with difficult emotional issues. 2/.
I would say that our out-going PM @MarinSanna is a prime example of this. She and her team have very skillfully build her image as a strong young woman striving to improve the world.
This is for the simple reason that we do not want to feed the panic or cause a bank run.
We are also naturally highly committed of bringing the most accurate and timely information to our clients, where our allegiance lay.
2/
That is why we will guide them through this crisis with the best of our ability, which starts from explaining what happened letting them know where their money is at highest risk.
Some comparisons between GFC 1.0 (2007-08) vs. GFC 2.0 (now).🧵
2006, July: The S&P Case-Shiller national home price index peaks and starts its long decline.
2021, April: U.S. CPI grows by a shocking 4.2% (Y-o-Y) starting its long acceleration and aggressive rate hikes.
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2007, 13 September: BBC reveals that the BoE has secretly given £21 billion liquidity support to mortgage lender Northern Rock leading to run on the bank the next day (first bank run in the U.K. since 1830).
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2022, 28 September: The BoE steps (back) in the gilts market to stop a massive margin call of British Pension funds.
Later that week the BoE notes that fire sales of the assets of the $3+ trillion industry were "few hours away".
3/
There are signs of escalation everywhere you look.
It seems that Russia used hypersonic missiles in its early-morning raid for the first time. Marked as retaliation, but could also be the beginning of new phase in #UkraineRussiaWar️ .
🧵1/5
Poland and others are sending more tanks, on which first ones should be in operation in Ukraine in this month. Bakhmut, on the other hand, is falling to Russian hands (to the Wagner group).
The war is not going as we in the west have been told. 2/
The buildup of Russian troops to Donbass region has been massive, according to many reports.
The reason for this is unclear, but large troop buildups rarely occur just as a "show of force".
3/