2023年1—11月份中国房地产市场基本情况

Source : 国家统计局

Humour: News in Cartoon

Infographic: How Hydrogen Could Fuel a Net-Zero Future

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Source : Visual Capitalist

The Reckoning Begins…

James Rickards wrote . . . . . . . . .

Are gold prices and interest rates joined at the hip? Based on recent market action, it would appear the answer is: yes.

A major rally in gold is now underway. Gold moved from $1,831 per ounce on Oct. 6 to $2,091 per ounce on Dec. 1, a 14.1% rally in just eight weeks and a new all-time high price for gold.

Gold has pulled back to $2,037 as of today, but that’s not surprising given its previous surge. Like every other asset, gold can sometimes get ahead of itself and experience a pullback. Importantly, it’s still holding firm above $2,000.

This rally correlated almost perfectly with the rally in 10-year Treasury notes that occurred at the same time. Treasury note rates plunged from 5.00% on Oct. 19 to 4.17% as of today. That 83-basis point drop may seem small but it’s not.

That’s like an earthquake in the world of Treasury notes. As explained below, market signs indicate that these dual rallies and close correlations will continue for months to come.

This dual rally gives investors a double-barreled opportunity to make huge gains.

DVO1: A Quirk of Bond Math

As interest rates drop, the market value of Treasury notes goes up. That’s bond math 101. Yet there’s a quirk in the bond math that many investors (and even financial advisers) don’t appreciate.

When interest rates drop, bond prices go up. But the rate at which they go up relative to each drop in rates (measured in basis points or 0.01%) isn’t constant.

The dollar value of the capital gain for each basis point drop in rates rises as interest rates hit lower levels. (The technical name for this is DVO1 for “dollar value of one basis point.” You don’t need to be expert on this; it’s just useful to understand the concept).

Put differently, if interest rates drop from 7.0% to 6.5%, notes have a capital gain. If rates drop from 4.0% to 3.5%, they also have a capital gain. In both cases, the rate drop is 0.50%. But the capital gain in the second case is materially larger than in the first case.

Right now, we’re in that zone where rates are low and going lower, which means the capital gains are getting larger. That’s a big win for investors on a security with almost no credit risk.

What Explains the Gold Rally?

What accounts for the rally in gold prices? There are numerous factors that affect the gold price, but certain factors dominate at certain times. Right now, the key factor is interest rates. Rates are going down at a rapid pace and gold is going up in a kind of synchronicity. Why?

The simplest explanation for the correlation is that Treasury notes and gold are both high-quality assets that compete for investor allocations. Gold does not have a yield (although it can produce significant capital gains).

When yields on Treasuries drop, the zero yield on gold is relatively more attractive compared with the note yield and gold prices start to rally.

The key questions for investors are: Will rates continue to drop? And will gold continue to rally in sync with falling rates?

To forecast rates, we have to look at economic fundamentals. (By the way, the Federal Reserve is almost irrelevant for this purpose. The Fed controls the short end of the yield curve only and has almost no impact on longer-term rates including the 10-year Treasury note rate we are considering here.)

One conundrum of recent U.S. economic performance is that GDP has remained robust while signs of a recession and possible a financial crisis keep accumulating.

The Trend Isn’t the Economy’s Friend

U.S. GDP was 2.2% in the first quarter of 2023, 2.1% in the second quarter and a strong 4.9% in the third quarter. The best estimate for fourth-quarter growth from the Atlanta Fed is currently 1.2%, a substantial drop from the third quarter.

If that Q4 figure holds, growth for the entire year of 2023 will come in around 2.5%. That’s not too shabby, and it’s slightly better than the 2.2% average annual growth from 2009–2019 in the 10-year period between the global financial crisis and the pandemic.

In any case, it’s a far cry from a recession.

Still, a focus on full-year growth of around 2.5% ignores the trend. When growth goes from 4.9% in the third quarter to 1.2% in the fourth quarter, something extreme happened. It’s almost certainly the case that consumers slammed on the brakes in October.

Recession signs are real and growing worse. These include credit contraction, rising bad debts, increasing jobless claims, collapsing commercial real estate markets, contracting world trade, inverted yield curves and many other reliable technical indicators.

How can the economy be headed into recession after such strong growth recently?

The Credit Crunch Reckoning Begins

The riddle is solved by the fact that the economy has been propped up by the consumer. That explains the growth. But the consumer has been on a non-sustainable path. That explains the warning signs.

The consumer came out of the pandemic with a head of steam provided by handouts from Trump ($1,800 per adult), and Biden (also about $1,400 per adult) between April 2020 and March 2021. That was supplemented by $900 billion of Paycheck Protection Program loans, which were forgiven one year later.

Student loan payments were suspended from 2020–2023. The Federal Reserve held interest rates at zero from 2020–2022. Then the misnamed Inflation Reduction Act of August 2022 handed $1 trillion of taxpayer money to Green New Scam businesses and other pet projects.

With that money, Americans were able to pay down credit card balances and build up savings. It was a powerful double-dose of fiscal and monetary stimulus. Much of this operates with a lag so the growth momentum carried over into 2023.

Now it’s all gone. Short-term interest rates are over 5%. Mortgage rates are over 7%. Student loan repayments have started again. There are no more pandemic handouts. Americans’ savings are depleted, and their credit cards are tapped out.

Now the reckoning begins. In fact, the recession may already be here.

Bad Omens

Interest rates do not typically peak at the start of a recession; they peak somewhat after the recession begins. Businesses see revenues decline and turn to lines of credit to help with cash flow.

Only later, when unemployment goes up and credit losses accumulate, do banks rein in credit and then interest rates start to decline. We may already be at that stage. The fact that interest rates are already in sharp decline suggests the recession has already begun.

The importance of this for investors is that interest rate declines have much further to go (probably down to the level of 2% or lower over the next six months), which means gold prices have further to rise (perhaps to the $2,300 per ounce level or higher).

With both trends in place and a positive feedback loop between them, this is a once-in-a-decade opportunity for investors.

It really doesn’t get much better than that!

Source : Daily Reckoning

Chart: The Countries With the Best Healthcare Coverage

Source : Statista

The Money Supply in the U.S. Continues its Biggest Collapse Since the Great Depression

Ryan McMaken wrote . . . . . . . . .

Money supply growth fell again in October, remaining deep in negative territory after turning negative in November 2022 for the first time in twenty-eight years. October’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.

Since April 2021, money supply growth has slowed quickly, and since November, we’ve been seeing the money supply repeatedly contract year over year. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.

Money-supply growth has now been negative for twelve months in a row. During October 2023, the downturn continued as YOY growth in the money supply was at –9.33 percent. That’s up slightly from September’s rate decline which was of –10.49 percent, and was far below October 2022’s rate of 2.14 percent. With negative growth now falling near or below –10 percent for the eighth month in a row, money-supply contraction is the largest we’ve seen since the Great Depression. Prior to this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.

The money supply metric used here—the “true,” or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. (The Mises Institute now offers regular updates on this metric and its growth.)

In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In October 2023, the M2 growth rate was –3.35 percent. That’s down from September’s growth rate of –3.35 percent. October 2023’s growth rate was also well down from October 2022’s rate of 1.42 percent.

Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.

It should be noted that the money supply does not need to actually contract to signal a recession and the boom-bust cycle. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth. But the drop into negative territory we’ve seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.

The fact that the money supply is shrinking at all is remarkable because the money supply in modern times almost never gets smaller. The money supply has now fallen by $2.8 trillion (or 13.1 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we’ve seen since the Depression. (Rothbard estimates that in the lead-up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)

In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $3 trillion or so—or 15 percent—down to a total below $15 trillion. Moreover, as of October, total money supply was still up 32 percent (or $4.6 trillion) since January 2020.

Since 2009, the TMS money supply is now up by nearly 186 percent. (M2 has grown by 141 percent in that period.) Out of the current money supply of $18.9 trillion, $4.6 trillion—or 24 percent—of that has been created since January 2020. Since 2009, $12.2 trillion of the current money supply has been created. In other words, nearly two-thirds of the total existing money supply have been created just in the past thirteen years.

With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after eighteen months of slowing money-supply growth, we are only now starting to see a slowdown in the labor market. (For example, job openings have fallen 22 percent over the past year, but have not yet returned to pre-covid levels.) The inflationary boom has not yet ended.

Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed’s manufacturing index is in recession territory. The Leading Indicators index keeps looking worse. The yield curve points to recession. Temp jobs were down, year-over-year, which often indicates approaching recession. Default rates are rising.

Money Supply and Rising Interest Rates

An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of early December, the Fed has allowed the federal funds rate to rise to 5.50 percent, the highest since 2001. This has meant short-term interest rates overall have risen as well. In October, for example, the yield on 3-month Treasurys reached 5.6 percent, the highest level measured since December 2000.

Without ongoing access to easy money at near-zero rates, banks are less enthusiastic about making loans, and many marginal companies will no longer be able to stave off financial trouble by refinancing or taking out new loans. Commercial bankruptcy filings increased sizably during 2023, and continue to surge into the last quarter of the year. As reported by Monitor Daily:

The bankruptcy filing by WeWork in November propelled November commercial Chapter 11 filings to 842, an increase of 141% compared with the 349 filings registered in November 2022, according to data provided by Epiq Bankruptcy.

The case filed by WeWork on Nov. 6 included 517 related filings, according to analysis from the American Bankruptcy Institute, representing the third-most related filings in a case since the U.S. Bankruptcy Code became effective in 1979.

Overall commercial filings increased 21% to 2,252 in November, up from the 1,864 commercial filings registered in November 2022. Small business filings, captured as Subchapter V elections within Chapter 11, increased 79% to 181 in November, up from 101 in November 2022.

There were 37,860 total bankruptcy filings in November, a 21% increase from the November 2022 total of 31,187. Individual bankruptcy filings also registered a 21% year-over-year increase, as the 35,608 in November represented an increase over the 29,323 filings in November 2022. There were 20,250 individual Chapter 7 filings in November, a 23% increase compared with the 16,421 filings recorded in November 2022, and there were 15,280 individual Chapter 13 filings in November, a 19% increase compared with the 12,862 filings last November.

Lending for private consumption is getting more expensive also. In October, the average 30-year mortgage rate rose to 7.62 percent, the highest point reached since November 2000.

These factors all point toward a bubble that is in the process of popping. The situation is unsustainable, yet the Fed cannot change course without reigniting a new surge in price inflation. Although some professional economists insist that price inflation has all but disappeared, the sentiment on the ground is clearly one in which most workers believe their wages are not keeping up with rising prices. Any surge in prices would be especially problematic given the rising cost of living. Ordinary Americans face a similar problem with home prices. According to the Atlanta Fed, the housing affordability index is now the worst it’s been since 2006, in the midst of the Housing Bubble.

If the Fed reverses course now, and embraces a new flood of new money, prices will only spiral upward. It didn’t have to be this way, but ordinary people are now paying the price for a decade of easy money cheered by Wall Street and the profligates in Washington. The only way to put the economy on a more stable long-term path is for the Fed to stop pumping new money into the economy. That means a falling money supply and popping economic bubbles. But it also lays the groundwork for a real economy—i.e., an economy not built on endless bubbles—built by saving and investment rather than spending made possible by artificially low interest rates and easy money.

Source : Mises Institute