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Loose monetary policy is today’s biggest market risk: Explosive growth in debt has severely curtailed central banks’ freedom of action

“There are no two ways about it, argues Jeremy Grantham: “The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble”.

“The co-founder of Boston-based-based fund manager GMO says: “Featuring extreme overvaluation, explosive price increases, frenzied issuance and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.””

https://www.ft.com/content/edcaecb2-5f83-4909-9d96-cb4daa0f0401


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The US budget deficit climbed to a record $1.7 trillion last month after stimulus spending in March lifted the shortfall.

“The government spent roughly $927 billion as the first half of the fiscal year came to a close, the Treasury Department said Monday. Much of the surge was linked to Democrats’ $1.9 trillion stimulus package…”

https://www.businessinsider.com/budget-deficit-march-record-stimulus-spending-infrastructure-federal-debt-taxes-2021-4?r=US&IR=T


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How are stimulus checks being spent? Two-thirds of recipients say they use them for groceries, monthly bills

“”For all the talk of revenge spending and pent-up demand for travel… just 13 percent of stimulus check recipients plan to spend the money on discretionary activities or nonessential items,” said one analyst.”

https://www.nbcnews.com/business/business-news/how-are-stimulus-checks-being-spent-two-thirds-recipients-say-n1264035


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Continued US trade war with China could stoke inflation

“War is always inflationary; a war with our largest goods supplier would be an inflation nightmare.”

https://www.hellenicshippingnews.com/continued-us-trade-war-with-china-could-stoke-inflation/


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Big Beef: Australia’s cattle industry is in crisis thanks to trade war with China – as shoppers face a huge price spike at the supermarket checkouts.

“Low cattle supplies, higher prices, an appreciating Australian dollar and trade tensions with China continue to create headwinds for the national beef industry, an agribusiness banking specialist says.”

https://www.dailymail.co.uk/news/article-9466543/Australias-cattle-industry-crisis-trade-war-China-shoppers-face-price-hike.html


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China’s Very Bad Bank: Inside the Huarong Debt Debacle

“Will the Chinese government stand behind $23.2 billion that Lai borrowed on overseas markets — or will international bond investors have to swallow losses? Are key state-owned enterprises like Huarong still too big to fail, as global finance has long assumed – or will these companies be allowed to stumble, just like anyone else?”

https://www.bloomberg.com/news/articles/2021-04-15/china-s-very-bad-bank-inside-the-huarong-debt-debacle


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Surprise drop in Japan machinery orders stokes recovery fears:

“Japan’s core machinery orders unexpectedly fell the most in about a year in February, government data showed, dashing hopes for a pick-up in capital expenditure needed for a private sector-led recovery from the coronavirus-induced slump.”

https://www.reuters.com/article/us-japan-economy-orders-idUSKBN2C107M


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Halifax: UK house prices near ‘pre-financial crash levels’… The lender said that the affordability of houses was “close to pre-financial crisis levels”, as house prices remained historically high at an average of £252,765.

“The difference between the 2007 financial crash and today, is that mortgage rates are considerably lower.”

[Better hope we can keep them low then!]

https://www.cityam.com/uk-house-prices-hit-record-high-despite-mortgage-rates-cushion/


Austria, Spain follow Italy with long-dated debt sales: A 50-year bond sale from Austria on Tuesday will further test investor appetite for ultra-long dated debt after high demand for a similar sale from Italy last week, while Spain will sell 15-year paper.”

https://www.reuters.com/article/eurozone-bonds-idUSL8N2M61ED


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India’s banks fear second wave of defaults as curbs bite:

“Bankers fear the lockdown-like curbs, including curfews, travel restrictions and mall shutdowns, are likely to hurt borrowers, triggering a second wave of defaults. Without a repayment moratorium like the one announced by the RBI last year, the defaults are likely to pinch banks harder.”

https://www.livemint.com/industry/banking/banks-fear-second-wave-of-defaults-as-curbs-begin-to-bite-11618338330216.html


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Food parcels arrive in Brazil’s favelas as pandemic sparks wave of hunger:

“Brazil is one of the world’s most important agricultural producers, but millions of people in Latin America’s biggest country are struggling to put food on the table as the COVID-19 outbreak wreaks havoc on the economy.”

https://www.reuters.com/article/us-health-coronavirus-brazil-food/food-parcels-arrive-in-brazils-favelas-as-pandemic-sparks-wave-of-hunger-idUSKBN2C12TH?il=0


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Argentine town bears scars of poverty as pandemic sharpens economic crisis:

“In a run-down part of Manzanares, on the outskirts of Buenos Aires, the scars of poverty are clear. People cook with firewood. Some have no electricity, gas or running water. Children play barefoot with old toys next to rudimentary homes.”

https://www.reuters.com/article/us-health-coronavirus-argentina-poverty-idUSKBN2C01B2


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In Venezuela Bond Market, Gunmen and Bags of Cash Are Required:

“In what is perhaps the tiniest and almost certainly the most primitive bond market in the world, default isn’t the greatest risk that investors face.

Mugging is.”

https://www.bloomberg.com/news/articles/2021-04-13/in-venezuela-bond-market-gunmen-and-bags-of-cash-are-required


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‘My four children died’: Afghanistan’s young starve as Covid pushes families further into poverty

““The economic situation has deteriorated, which means parents can’t afford food. Fighting has also increased. Due to the pandemic, some health services in the provinces are limited, meaning that families have to travel long distances to see a doctor.””

https://www.telegraph.co.uk/global-health/climate-and-people/four-children-died-afghanistans-young-starve-covid-pushes-families/


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NATO allies on Wednesday agreed to wind down their operations in Afghanistan, after President Joe Biden’s administration announced all US troops would leave the country by September 11.

“The US invaded Afghanistan in 2001 following the 9/11 attacks by jihadist organization al-Qaida, with other NATO countries also deploying military forces to the South Asian country.”

https://www.dw.com/en/nato-allies-agree-to-leave-afghanistan-following-us-move/a-57206514


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Archegos collapse ripples through banks’ lucrative hedge fund units

“…the collapse of Archegos, the family office of former hedge fund trader Bill Hwang, has underscored the risks banks are taking with these clients, even when their loans are secured by collateral.”

https://www.straitstimes.com/business/banking/archegos-collapse-ripples-through-banks-lucrative-hedge-fund-units


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Greensill: the collapse threatens to kill off a form of financing that is vital to global economy

“…one major question getting less attention concerns the future of supply chain finance (SCF), an important tool in the financial arrangements between suppliers and their customers. Greensill was closely associated with this financing and has potentially rendered it unviable.”

https://theconversation.com/greensill-the-collapse-threatens-to-kill-off-a-form-of-financing-that-is-vital-to-global-economy-158970


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Stagflationary forces are building, Roubini warns

“Make no mistake: inflation’s return would have severe economic and financial consequences. We would have gone from the “Great Moderation” to a new period of macro instability. The secular bull market in bonds would finally end, and rising nominal and real bond yields would make today’s debts unsustainable, crashing global equity markets.”

https://www.marketwatch.com/story/stagflationary-forces-are-building-roubini-warns-11618420459


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Unsustainable corporate and government debt racked up during the coronavirus pandemic is emerging as a major credit risk to the global economy and trade.

“Marsh, one of the world’s biggest insurance brokers, says its annual political risk map has tracked the largest ever increases in economic risk for 2021…”

https://www.gtreview.com/news/global/insurers-warn-of-zombie-company-debt-time-bomb/


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Surging inflows into ETFs hit $1tn in record-breaking 12-month streak:

“A trillion dollars in new cash has surged into exchange traded funds over the past 12 months in a powerful demonstration of growing confidence in the global economy’s recovery from the coronavirus pandemic.”

https://www.ft.com/content/37147f34-d34d-4f8d-9ba2-3bb0b9f30bb3


You can read the previous ‘Economic’ thread here. I’ll be back tomorrow with a “Climate” thread.

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