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US Treasury Crushes the Stock Rally 2/10/23

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Ukraine war turns Russia into a nation of gold bugs

Demand for gold bars and coins last year grew faster in Russia than in any other country, rising to nearly five times the level of the previous year, according to data from the World Gold Council.

Despite last year’s surge, Russian demand for gold bars and coins last year was only 2 per cent of the global total, according to World Gold Council data. China, at 19 per cent, remains the world’s biggest buyer, followed by Germany and India.


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Noland on China

Impressive credit growth

February 10 – Bloomberg (Chester Yung): “China’s cash squeeze eased, with a gauge of overnight funding costs dropping the most in a week, after the central bank injected some $150 billion into the financial system over three sessions. The overnight repurchase rate, an indicator of short-term borrowing costs in the interbank market, slumped more than 40 bps to 1.86%.”  Aggregate Financing (China’s key metric of system Credit growth) surged $878 billion during January to a record $51.52 TN, a traditionally huge month for Chinese lending. Growth was almost 11% ahead of estimates, and only 3% below (all-time record) January 2022. This placed 12-month growth at $4.670 TN, or 9.7%. For perspective, one-year growth as of January 2020 was $2.922 TN. In the three years since the pandemic's onset, Aggregate Financing has expanded a staggering $13.888 TN, or 36.9%. Aggregate Financing surged 68% in five years.  Loan growth during January was nothing short of spectacular. At $846 billion, the growth in total Financial Institutions Loans was 46% higher than January 2022 and well ahead of expectations (Bank loans up $720bn). This pushed one-year growth to $3.391 TN, or 11.7%. This was the strongest one-year growth rate since October 2021. Total Loans expanded 24.6% ($6.376 TN) over two years, 40.5% ($9.294 TN) since the start of the pandemic (3 years), and 78.6% ($14.200 TN) in five years. While Q4 data is not yet available, it’s worth noting that Chinese Bank Assets expanded $4.276 TN through three quarters, a 10.9% growth rate.  Corporate Bank Loans expanded a blistering $687 billion during January, surpassing the previous record (Jan. 2022) by 40%. This pushed one-year growth to $2.703 TN, or 14.9%, the highest one-year growth rate in over a decade. For perspective, one-year growth was 44% higher than comparable 2022 growth and 90% above comparable pre-Covid 2020. Outstanding Corporate Loans have surged 28% over two years, 43% since the start of the pandemic (3 years), and 77% over five years.  From a financial stability perspective, the last thing you want is runaway late-cycle loan growth. As part of a desperate Beijing’s efforts to thwart a downward economic spiral, the banking system is being called upon to provide a lifeline to China’s troubled developer sector, while pushing corporate and household loan growth to bolster the general economy. And while the corporate sector borrows aggressively, the household sector is remaining much more cautious.  Consumer (chiefly mortgage) Loans expanded only $38 billion during January, down 69% from January 2022 growth. This lowered one-year growth to $477 billion, or 4.5%, by far the lowest growth rate in data back to 2008. Consumer Loans were expanding at 16% plus to begin 2021. Three-month growth of $101 billion is down 64% and 73% from comparable 2022 ($286bn) and 2021 ($379bn).  Government bonds expanded $60 billion during January, with one-year growth of $1.017 TN, or 12.9%. Government bonds have expanded 30.9% over two years, 57.4% since the start of the pandemic (3 years), and 83% over five years. Government bonds have increased to $8.9 TN from January 2017’s $3.3 TN.  Chinese money supply growth has accelerated markedly. At $1.083 TN, China’s M2 aggregate expanded in January a third more than the previous record from last June ($799bn). This pushed one-year growth to $4.508 TN, or 12.6%, the strongest growth rate since 2016. Three-month M2 growth of $1.838 TN significantly exceeded comparable $1.393 TN from 2022 and $1.137 TN from comparable 2020. China’s M2 has now inflated $10.5 TN, or 35.3%, in three years, and has doubled since November 2015, in one of history’s spectacular inflations of money and Credit.



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Regulators have lost their desire to bailout pension funds and insurance companies. This is going to kill the CLO market. No more printing AAA using bogus mezzanine class risk models. This will also give a bid to U.S. treasuries when we need it most.


US pension funds hold $225 billion of CLOs in the mezzanine class. “Finding replacement capital…could be existential.” “If we lose the CLO market and the CLO bid that’s about 60% of the leveraged loan market in the US.”


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15 minutes ago, SiP said:

Joe Biden's $36 billion for a union pension fund is “the largest private pension bailout in American history.


Seems they were cool with taxpayers bailing out these scams but when happened in the UK showed they would take down the Gilt market with them and that was a wake-up call. 

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he is not Stoolie?

" To get out of the liquidity trap, Mr. Kuroda made Tokyo a global center of experimentation, watched by policy makers in countries including the U.S. His main tactic was purchasing government bonds held by commercial banks. By this year, the Bank of Japan owned the equivalent of more than $4 trillion, just over half the amount of bonds outstanding.

Experience suggests, however, that in the absence of some other factor pushing up demand, such huge purchases generate neither the robust prosperity Mr. Kuroda wanted nor the hyperinflationary meltdown doomsayers foresaw. The BOJ operations simply mean commercial banks sell a government bond and get another type of government asset, a deposit at the central bank. 

“What exactly did you expect to happen? It’s just swapping one asset for the other,” said Stefan Angrick, a Tokyo-based economist at Moody’s Analytics."


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Metals Rally Fueled by China’s Reopening, Tight Supplies. Copper, aluminum and other metals post large gains amid worries about low stockpiles

A basket of industrial metals that trades in London just notched its best January in more than a decade. U.S. copper futures posted their best first month of the year since 2003. Aluminum prices in London have climbed 10% so far this year. Zinc has added 2.4% and tin has gained 11%.

Behind the gains: a faster-than-expected reopening in China, where pandemic lockdowns lowered demand from the world’s largest consumer of commodities. Europe also dodged predictions that sanctions on Russia would lead to winter energy shortages, lifting demand from manufacturers and consumers. And in the U.S., signs of unexpected economic resilience have increased expectations for robust demand. 


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Global liquidity

"We see an increasing discrepancy between the big three Western central banks and trends seen elsewhere. Asia vs. West  The BoE, the ECB, and the Fed  are all still trying to bring down the balance sheet, while the BoJ and the PBoC now actively move in the opposite direction"

Macro pundits in the US spend COUNTLESS hours in USD liquidity forecasting and Fed watching, but as balance sheets of other big central banks have grown substantially more impactful in recent years, we obviously need to track liquidity on a global scale and not on a local.

China and Japan ARE PRINTING money currently and it is worth noting since we are talking about the second- and third biggest economies on the globe.

The combination of PBoC liquidity injections, massive BoJ YCC efforts and the US Treasury drawing down on the TGA has been enough to already TURN THE TIDE on global liquidity. If global liquidity truly bottomed in Nov-22 , it ought to be massive news for asset allocation.




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