Dr. Bernanke has referred to the understanding of the forces behind the Great Depression as the “Holy Grail of Economics.” But was the Great Depression chiefly the consequence of post-crash policy mistakes, as conventional thinking has come profess? Was it really a case of the Federal Reserve having grossly failed in its responsibility to expand the money supply? Or did the previous “Roaring Twenties” Bubble sow the seeds of a major down-cycle and collapse?
Having in the past carefully read through Bernanke’s writings on the twenties and subsequent depression, it was clear his analysis had a fundamental flaw: it disregarded momentous market dynamics that unfolded following the creation of the Federal Reserve system and recovery after the first world war.
The unprecedented buildup of speculative leverage throughout the twenties boom played an instrumental role in systemic liquidity abundance that fueled both financial distortions and economic maladjustment. Confidence in the Federal Reserve’s capacity to sustain marketplace liquidity was instrumental in bolstering a progressively speculative market environment that culminated in the 1927 to 1929 speculative blow-off.
There are those who believe the Federal Reserve should have acted even more aggressively when subprime cracked in mid-2007. More aggressive stimulus measures (why not QE in 2007?) and a Lehman bailout would have averted the “worst financial crisis since the Great Depression,” they believe.
As the late Dr. Kurt Richebacher would often repeat, “the only cure for a Bubble is to not let it inflate.” Certainly, the longer Bubbles expand the greater the underlying fragilities – ensuring timid central bankers unwilling to risk reining in excess. This was the problem in the late-twenties and in 2006/2007. I would argue this has been a fundamental dilemma for central bankers persistently now for going on a decade. Especially after the Bernanke Fed targeted risk assets as the key system reflationary mechanism, central banks have been loath to do anything that might risk upsetting the markets. Recall the 2011 “exit strategy” – promptly scrapped in favor of another doubling of the Fed’s balance sheet to $4.5 TN (by 2014).
From my analytical perspective, things have followed the worst-case scenario now for over three decades. Alan Greenspan’s assurances and loose monetary policy after the 1987 crash spurred “decade of greed” excesses that culminated with Bubbles in junk bonds, M&A and coastal real estate. The response to severe early-nineties bank impairment and recession was aggressive monetary stimulus and the active promotion of Wall Street finance (GSEs, MBS, ABS, derivatives, hedge funds, proprietary trading, etc.).
Once the boom in highly speculative market-based Credit took hold, there was no turning back. The 1994 bond bust ensured the Fed was done with the type of rate increases that might actually impinge speculation and tighten financial conditions. The Mexican bailout guaranteed fledgling Bubbles would run wild in Southeast Asia and elsewhere. The LTCM/Russia market “bailout” ensured Bubble Dynamics turned absolutely Crazy in technology stocks and U.S. corporate Credit. Things took a turn for the worse following the “tech” Bubble collapse. With Wall Street cheering on, the Federal Reserve fatefully targeted mortgage Credit as the key mechanism for system reflation. A doubling of mortgage debt in just over six years was one of history’s more reckless monetary inflations. The panicked response to the collapsing mortgage finance Bubble fomented by far the greatest monetary inflation the world has ever experienced: China; EM; Japan; Treasury debt; central bank Credit; speculative leverage everywhere…
The “global government finance Bubble” saw egregious excess break out at the foundation of finance – central bank Credit and sovereign debt. It was a “slippery slope”; no turning back. The sordid history of inflationism has been replayed: once monetary inflation commences it becomes virtually impossible to stop. There was barely a pause following the ECB’s $2.6 TN QE program before the electronic “printing presses” were fired up again. The Fed’s balance sheet inflated from less than $1.0 TN pre-crisis to $4.5 TN. After contracting to $3.7 TN this past August, it’s now quickly back above $4.0 TN. The Bank of Japan hasn’t even attempted to rein in QE, with assets at a record $5.3 TN – up from the pre-crisis $1.0 TN.
Believing “THE” Bubble had burst in 2000, the Fed saw no basis for not aggressively “reflating.” The Fed and global central bankers were convinced “THE” Bubble collapsed in 2008. It would be reckless not to proceed with history’s greatest concerted monetary inflation. “Whatever it takes” was necessary to save the euro and European integration. Globally, the scourge of deflation has apparently been lurking around every corner – for a decade. It was imperative for the Bank of Japan to demonstrate absolute resolve.
Things got completely away from Beijing. Having studied the Japanese experience, they failed to grasp the necessity of quashing Bubble excess early. Over time, GDP targets, global power dynamics and the fear of bursting Bubbles took precedence. As it turned out, the greater their Bubble inflated the more heated the U.S./China rivalry. In theory, it seemed reasonable to let air out of the Bubble gently. In reality, powerful Bubbles only scoff. As conspicuous as debt excesses and economic maladjustment became, “structural reform” took a backseat to negotiations with Donald Trump. A key Credit Bubble adage comes to mind: There’s never a convenient time to deflate a Bubble.
My view is that Chinese financial and economic fragilities were a major contributor to this past year’s historic global yield collapse. Present a highly speculative marketplace a high probability of aggressive monetary stimulus and you’re asking for a destabilizing “blow-off.” And in this strange world in which we live, wild speculative Credit market excess (i.e. collapsing yields) is viewed by nervous central bankers as a signal to employ aggressive monetary stimulus.
November non-farm payrolls jumped 266,000, much stronger-than-expected and the largest job growth since January (41.3k returning GM workers). The jobless rate declined to 3.5% (matching low since 1969), as average hourly earnings gained 3.1% from November ’18. For a fourth consecutive month of gains, preliminary December University of Michigan Consumer Confidence jumped to (an above estimates) 99.2, the strongest reading since May (and only 2pts from the strongest reading going back to 2004). At 115.2, the reading on Current Conditions (up 10 points since August) jumped to a one-year-high.
The Fed erred in cutting rates three times this year. It was arguably a crucial policy blunder, though in all likelihood the exact opposite will be argued in the future: The Fed should have stimulated more aggressively. We can anticipate the assertion the Fed flubbed last year in raising rates. Heck, the Federal Reserve should have gone full Japanese: zero rates and QE indefinitely. The S&P500 ended the week with a year-to-date gain of 25.5%, lagging Nasdaq’s 30.5%. The Nasdaq Computer Index has jumped 43.8%, with the Semiconductors (SOX) surging 49.3%. The Banks (BKX) have enjoyed 2019 gains of 29.3%.
Markets have virtually no concern the Fed might actually reassess its policy course and reverse rate cuts (what happened to “mid-cycle adjustment”?). Markets see only a 1.7% probability of a rate increase by the June 2020 FOMC meeting, while the probability of another cut sits at 42.9%. Curiously, the bond market took Friday’s robust economic data calmly. Ten-year Treasury yields rose only three bps Friday to 1.84% (up 6bps for the week). A delayed reaction wouldn’t be surprising. Perhaps bonds are holding out hope for negative trade headlines. But an asymmetrical Fed policy bias (no rate increase at least through next November’s elections) seems for now to work for both stocks and bonds.
It’s difficult to define “Crazy”. I suppose you know it when you see it. It’s a central facet of Bubble Analysis that things get Crazy at the end of cycles. Arguing that we’re in the throes of the history’s greatest global Bubble, we shouldn’t underestimate Craziness Extremis. Bear markets and recessions have been rescinded. Stocks always go up. Debt and deficits don’t matter. The Beijing meritocracy is up to any challenge. Global central bankers have things well under control.
I’ve been thinking a lot lately about a key unheeded lesson from the mortgage finance Bubble experience: prolonged market distortions come with grave consequences. The belief that the Fed and Treasury wouldn’t tolerate a housing crisis was instrumental in the mispricing of finance that saw yields drop (prices rise) in the face of a doubling of total mortgage debt. The perception of government-imposed safety abrogated the market pricing mechanism. Supply and demand no longer dictated the price of mortgage Credit. The market became unhinged.
Over the years, I’ve described how a Bubble in high-risk junk bonds would pose limited systemic risk. If things heated up – if issuance got out of hand, the market would howl, “No More Junk!” Market discipline would essentially bring the boom to a conclusion prior to prolonged excess and the onset of deep structural maladjustment.
A Bubble financed by “money” is perilous. There is, after all, essentially unlimited demand for instruments perceived as safe and liquid stores of (nominal) value. Implied federal guarantees of GSE debt and assurance of aggressive Federal Reserve reflationary measures in the event of instability bestowed the precious attribute of moneyness to mortgage-related debt during that fateful Bubble period (“Moneyness of Credit”).
More than a decade ago I warned of the “Moneyness of Risk Assets” – with Bernanke’s reflationary measures having lavished the perception of safety and liquidity upon equities, corporate Credit and derivatives.
November 30 – Financial Times (Chris Flood): “Global assets held by exchange traded funds have climbed to a record $6tn, doubling in less than four years… The sector’s explosive growth has attracted heightened scrutiny by regulators who are concerned about the influence of ETFs as they spread deeper and wider into financial markets worldwide. ‘Passing the $6tn milestone is a historic moment but we are still in a relatively early stage of the industry’s development as ETF adoption rates across Europe and Asia are well below those seen in the US,’ said Deborah Fuhr, co-founder of ETFGI…”
And if the incredible flows into perceived safe and liquid ETF shares weren’t enough… Is this the time to run to – or away from – the bond market?
December 1 – Financial Times (Chris Flood): “Exchange traded funds linked to bond markets have attracted higher investor inflows than equivalent equity products this year in a highly unusual development in the history of the ETF industry. Bond ETFs have traditionally accounted for a fraction of the new cash entering the $5.9tn segment of the asset management world… But this pattern has reversed in 2019 for the first time. Investors have ploughed $191bn into fixed income ETFs in the first 10 months, compared with less than $158bn in new cash gathered by equity ETFs, according to ETFGI… ‘Adoption rates have accelerated noticeably as more investors have realised that fixed income ETFs can provide efficient solutions to some of the liquidity challenges of cash bond markets,’ said Deborah Fuhr, co-founder of ETFGI.”
The mortgage finance Bubble finally got into serious trouble when the “blow-off” subprime mania had driven home prices to unsustainable levels. Speculators turned cautious, financial conditions tightened, the marginal subprime buyer lost access to Credit, home prices reversed, the Bubble faltered, and the fringe of mortgage Credit lost its “moneyness.” Those highly levered in mortgage securities lost access to funding and crisis erupted. Market and economic structures having become addicted to Credit and liquidity excess were suddenly starved of both.
In a replay of the previous Bubble, government distortions have ensured a complete breakdown in market pricing mechanisms. Yields have declined (securities prices inflated) in the face of a tripling of Federal debt. And with central bank Credit and government debt fueling the Bubble, markets breathe easily. What could go wrong? There’s no subprime and home price dynamic that could bring the party to a bitter end. And as the Italian debt market has demonstrated, market concern for the quantity, quality and liquidity of sovereign debt can be alleviated through the expansion of central bank Credit (“money”).
So how might this all come to an end? Where is the current Bubble’s soft underbelly – the area of potentially acute fragility?
December 2 – Bloomberg (Yalman Onaran): “Flare-ups in the repo market could still cause worries across the global banking system, more than two months after chaos subsided in this vital corner of finance. Of particular concern: U.S. Treasuries, the world’s biggest bond market and the place where the federal government funds its escalating deficit. If repo rates become jumpy again — and many are girding for that to happen in the middle and end of this month — some of those leveraged investors may have to unwind Treasury holdings, potentially increasing the U.S. government’s interest costs at a time of record borrowing. ‘If repos were much harder to get at reasonable rates, Treasury prices would drop,’ said Darrell Duffie, a Stanford University finance professor who’s co-authored research on repo with Federal Reserve staffers. ‘The cost to taxpayers for funding the national debt would therefore rise.’”
Global securities funding markets could well prove a critical weak link. Over recent months, instability has erupted in China’s money markets. There have been indications of vulnerability in global dollar funding markets. And, of course, there were September’s “repo” market convulsions here at home.
The Bloomberg article noted above included the following: “As U.S. government debt rose by $1 trillion in the 12 months through March, more than 80% of it was absorbed by ‘other investors,’ a category in the U.S. Treasury Department’s latest available database that includes broker-dealers and hedge funds. In the same period, holdings by primary dealers… increased by only about $100 billion.” Another Bloomberg article (see “China Watch”) discussed China’s $4.7 TN market in local government financing vehicles (LGFV), much of this market offering relatively high interest rates. A third Bloomberg article (see “Leveraged Speculation Watch”) noted “China’s crowded market of close to 9,000 hedge funds.” These are serious problems.
Evidence and anecdotes continue to support the thesis of unprecedented global leverage having accumulated throughout this most protracted boom cycle. People’s Bank of China liquidity injections stabilized China’s money market. Federal Reserve Credit expanded $293 billion in 12 weeks, pacifying U.S. overnight “repo” funding markets. But there’s a major problem: distorted markets and central bank backstops have afforded blank checkbooks to governments around the world. The U.S. Treasury is poised to run Trillion dollar deficits as far as the eye can see. And so long as markets are fearing trade wars, recession and deflation, downward pressure on bond yields keeps the game chugging along.
Yet the possibility of a trade agreement, economic expansion and some inflationary pressures could prove problematic. Rising bond yields would put pressure on highly leveraged and vulnerable markets. In all the discussion of “repo” market issues and challenges, the key point is somehow missed: Accommodating and promoting a market that finances speculative leveraging virtually guarantees problematic Bubbles. How could this lesson not have been learned in 2008? Now it’s a global Bubble, with all the issues of financial fragility, economic maladjustment, and wealth redistribution on an unprecedented scale.
For the Week:
The S&P500 added 0.2% (up 25.5% y-t-d), while the Dow was little changed (up 20.1%). The Utilities increased 0.3% (up 19.4%). The Banks jumped 1.1% (up 29.3%), while the Broker/Dealers were unchanged (up 21.7%). The Transports fell 1.4% (up 16.8%). The S&P 400 Midcaps rose 0.6% (up 21.6%), and the small cap Russell 2000 gained 0.6% (up 21.2%). The Nasdaq100 was little changed (up 32.7%). The Semiconductors added 0.4% (up 49.3%). The Biotechs rose 1.5% (up 20.3%). With bullion rallying $16, the HUI gold index gained 1.2% (up 35.3%).
Three-month Treasury bill rates ended the week at 1.475%. Two-year government yields were little changed at 1.62% (down 87bps y-t-d). Five-year T-note yields gained four bps to 1.66% (down 85bps). Ten-year Treasury yields rose six bps to 1.84% (down 85bps). Long bond yields jumped seven bps to 2.28% (down 74bps). Benchmark Fannie Mae MBS yields gained three bps to 2.73% (down 76bps).
Greek 10-year yields rose six bps to 1.49% (down 291bps y-t-d). Ten-year Portuguese yields increased two bps 0.42% (down 130bps). Italian 10-year yields surged 12 bps to 1.35% (down 139bps). Spain’s 10-year yields jumped eight bps to 0.49% (down 92bps). German bund yields gained seven bps to negative 0.29% (down 53bps). French yields jumped eight bps to 0.03% (down 68bps). The French to German 10-year bond spread widened one to 32 bps. U.K. 10-year gilt yields rose eight bps to 0.77% (down 51bps). U.K.’s FTSE equities index dropped 1.5% (up 7.6% y-t-d).
Japan’s Nikkei Equities Index added 0.3% (up 16.7% y-t-d). Japanese 10-year “JGB” yields jumped seven to negative 0.01% (down 7bps y-t-d). France’s CAC40 dipped 0.6% (up 24.1%). The German DAX equities index declined 0.5% (up 24.7%). Spain’s IBEX 35 equities index added 0.3% (up 9.9%). Italy’s FTSE MIB index slipped 0.3% (up 26.5%). EM equities were mixed. Brazil’s Bovespa index rallied 2.7% (up 22.1%), while Mexico’s Bolsa dropped 2.1% (up 0.7%). South Korea’s Kospi index declined 0.3% (up 2.0%). India’s Sensex equities index fell 0.9% (up 12.1%). China’s Shanghai Exchange rose 1.4% (up 16.8%). Turkey’s Borsa Istanbul National 100 index gained 1.8% (up 19.3%). Russia’s MICEX equities index slipped 0.2% (up 23.6%).
Investment-grade bond funds saw inflows of $2.233 billion, while junk bond funds posted outflows of $154 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates were unchanged at 3.68% (down 107bps y-o-y). Fifteen-year rates slipped a basis point to 3.14% (down 107bps). Five-year hybrid ARM rates fell four bps to 3.39% (down 68bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down ten bps to 3.92% (down 79bps).
Federal Reserve Credit last week increased $17.5bn to $4.019 TN, with a 12-week gain of $293 billion. Over the past year, Fed Credit contracted $28.5bn, or 0.7%. Fed Credit inflated $1.208 Trillion, or 43%, over the past 369 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $2.0 billion last week to $3.417 TN. “Custody holdings” were up $13 billion, or 0.4% y-o-y.
M2 (narrow) “money” supply jumped $38.5 billion last week to a record $15.364 TN. “Narrow money” rose $1.085 TN, or 7.6%, over the past year. For the week, Currency increased $2.0bn. Total Checkable Deposits jumped $37.3bn, and Savings Deposits gained $17.8bn. Small Time Deposits dipped $3.0bn. Retail Money Funds fell $15.7bn.
Total money market fund assets added $2.4bn to $3.579 TN. Money Funds gained $635bn y-o-y, or 21.6%.
Total Commercial Paper declined $2.7bn to $1.136 TN. CP was up $60bn, or 5.6% year-over-year.
The U.S. dollar index declined 0.6% to 97.70 (up 1.6% y-t-d). For the week on the upside, the Brazilian real increased 2.4%, the New Zealand dollar 2.2%, the British pound 1.7%, the Mexican peso 1.2%, the Australian dollar 1.2%, the Norwegian krone 1.0%, the Swiss franc 0.9%, the Japanese yen 0.8%, the Swedish krona 0.8%, the Singapore dollar 0.5%, the euro 0.4%, the South African rand 0.3%, and the Canadian dollar 0.2%. On the downside, the South Korean won declined 0.7%. The Chinese renminbi declined 0.04% versus the dollar this week (down 2.22% y-t-d).
The Bloomberg Commodities Index rallied 1.5% this week (up 1.6% y-t-d). Spot Gold recovered 1.1% to $1,460 (up 13.9%). Silver dropped 3.0% to $16.596 (up 6.8%). WTI crude surged $4.03 to $59.20 (up 30%). Gasoline rallied 3.5% (up 25%), and Natural Gas gained 2.3% (down 21%). Copper jumped 2.4% (up 4%). Wheat sank 3.2% (up 4%). Corn fell 1.2% (up 1%).
Market Instability Watch:
December 4 – CNBC (Fred Imbert): “The stock market’s poor start to December halted in its tracks the kind of euphoric rally that has marked the end of past bull markets, a so-called blow-off top. Between mid-August and late November, the Dow Jones Industrial Average was up 10.5% in a 74-day sprint that seemed to be immune from negative headlines. According to Ned Davis Research, the Dow has posted a median gain of 13.4% during blow-off tops dating to 1901. The median rally length was 61 days. ‘Given the high valuations I see, plus these divergences between many different indices, I am aware that many bull markets have ended with a rally similar to what we have seen since August,’ firm founder Ned Davis said…”
December 4 – Bloomberg (Vivien Lou Chen): “DoubleLine Capital… agrees with the International Monetary Fund that U.S. dollar loans made by foreign banks are creating a risk for the global financial system. Banks based outside the U.S. can’t get enough dollars to satisfy demand for loans denominated in the American currency. Unlike their U.S. counterparts, they don’t have a stable base of dollar deposits so they use foreign-currency swaps, which the IMF says are expensive and occasionally unreliable, to meet borrowers’ needs as a last resort. The trouble, according to DoubleLine, is that hiccups in this complicated arrangement — say, increased volatility that causes sources of dollar funding to dry up — could harm the global economy.”
December 2 – Yahoo Finance (Julie La Roche): “Influential bond investor Jeffrey Gundlach… sees a scenario where U.S. stocks get crushed in the next recession — and likely won’t recover for quite some time to come. Even with Wall Street benchmarks just days removed from new record highs, the bearish investor declared that ‘the pattern of the United States outperforming the rest the world has already come to an end.’ …Gundlach noted that 2019 was one of the ‘easiest’ years ever for investors in ‘just about anything… Just throw a dart, and you’re up 15-20%, not just the United States, but global stocks as well.’”
December 4 – Bloomberg (Elena Popina): “An unusual sense of tranquility has descended on China’s financial markets. The country’s stocks and government bonds have slowed to a crawl. The Shanghai Composite Index reached lows in volatility unseen in nearly two years, while the benchmark 10-year bond yield is moving in the narrowest range since 2012. And despite some drama for the yuan this week, implied volatility remains near the lowest since August. That everything should go quiet while markets elsewhere in the world swing on each new development in the trade war is especially surprising to China watchers. Some have started to question whether Beijing is acting to limit volatility in its markets, something authorities have a history of doing. While there’s no clear evidence of direct intervention in equities or the yuan, state media has recently come out in support of the stock market.”
Trump Administration Watch:
December 3 – Wall Street Journal (Bob Davis and Lingling Wei): “President Trump said he was willing to wait until after next year’s presidential election to strike a limited trade deal with China, sending stock prices down and casting doubt on whether the two sides will find enough common ground to head off new tariffs. ‘In some ways, I think it’s better to wait until after the election, you want to know the truth,’ Mr. Trump said… Mr. Trump’s remarks probably indicated an effort to gain leverage during the last two weeks before a Dec. 15 deadline for new tariffs on consumer goods to take effect, rather than signaling a fundamental breakdown in talks, said U.S. officials and close allies of Mr. Trump.”
December 4 – Reuters (Steve Holland, Costas Pitas and James Davey): “U.S. President Donald Trump said… that trade talks with China were going ‘very well,’ sounding more positive than on Tuesday when he said a trade deal might have to wait until after the 2020 U.S. presidential election. ‘Discussions are going very well and we’ll see what happens,’ Trump told reporters…”
December 3 – Reuters (David Shepardson): “U.S. Commerce Secretary Wilbur Ross said… the Trump administration has not ruled out imposing tariffs on imported autos, after letting a review period end in November with no action.”
December 3 – Bloomberg (Daniel Flatley): “The U.S. House of Representatives overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible retaliation just as the world’s two largest economies seek to close a trade deal.”
December 3 – Financial Times (Editorial Board): “Donald Trump has opened two new fronts against supposed allies in his trade war. He announced on Monday that Brazil and Argentina would lose exemptions from higher tariffs on steel and aluminium. Most worrying, however, is the disclosure that France could face 100% tariffs over its digital services tax, which aims to ensure tech companies — often American — pay their fair share of corporation tax.”
December 2 – Reuters (Andrea Shalal and Gabriel Stargardter): “U.S. President Donald Trump ambushed Brazil and Argentina…, announcing tariffs on U.S. steel and aluminum imports from the two countries in a measure that shocked South American officials and left them scrambling for answers. In an early morning tweet, Trump said the tariffs, ‘effective immediately,’ were necessary because ‘Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers.’”
December 2 – Reuters (Michel Rose and Estelle Shirbon): “U.S. President Donald Trump and French leader Emmanuel Macron clashed over the future of NATO on Tuesday before a summit intended to celebrate the 70th anniversary of the Western military alliance… In sharp exchanges underlining discord in a transatlantic bloc hailed by backers as the most successful military pact in history, Trump demanded that Europe pay more for its collective defense and make concessions to U.S. interests on trade.”
December 3 – Reuters (Alexandra Alper): “The Trump administration considered banning China’s Huawei from the U.S. financial system earlier this year as part of a host of policy options to thwart the blacklisted telecoms equipment giant, according to three people… The plan, which was ultimately shelved, called for placing Huawei Technologies Co Ltd, the world’s second largest smartphone producer, on the Treasury Department’s Specially Designated Nationals (SDN) list.”
December 1 – The Hill (Albert Hunt): “In the old days, a decade or so ago, Democrats would have assailed Donald Trump’s failure on federal deficits; instead of eliminating it, as promised, the deficit has doubled to a trillion dollars as far as the eye can see. Republicans would be in full fury over the spending schemes of Democratic presidential candidates; even the mainstream moderates propose huge increases for health care, education and the social safety net for the disadvantaged. Yet deficits, as a political issue, are dead.”
Federal Reserve Watch:
December 1 – Financial Times (Brendan Greeley): “The Federal Reserve is considering introducing a rule that would let inflation run above its 2% target, a potentially significant shift in its interest rate policy. The Fed’s year-long review of its monetary policy tools is due to conclude next year and… the central bank is considering a promise that when it misses its inflation target, it will then temporarily raise that target, to make up for lost inflation. The idea would be to avoid entrenching low US price growth which has consistently undershot its goal. If the Fed adopts this so-called ‘make-up strategy’, it would mark the biggest shift in how it carries out its interest rate policy since it began to target 2% inflation in 2012.”
December 2 – Wall Street Journal (Michael S. Derby): “The Federal Reserve Bank of New York again saw very strong demand for liquidity aimed at helping financial markets navigate the turn of the year. The demand once again arrived as the Fed added temporary liquidity to financial markets Monday. All together the central bank pumped in $97.9 billion in two parts. One was via overnight repurchase agreements, or repos, that totaled $72.9 billion. The other was via 42-day repos.”
December 4 – Bloomberg (Jesse Hamilton): “The repo turmoil that put traders on edge in September has prompted a full scale review by regulators, who identified disruptions to short-term funding markets as a potential risk to the U.S. financial system. The Financial Stability Oversight Council is calling for federal agencies to collect data and scrutinize cleared repurchase transactions to determine what prompted rates to spike three months ago… The group, led by Treasury Secretary Steven Mnuchin, highlighted the examination in its annual report… Since the disruption, bankers have complained that excessive regulation might be a factor. JPMorgan… Chief Executive Officer Jamie Dimon said Oct. 15 that his bank had the money and inclination to step in, but was prevented from doing so by liquidity rules.”
December 4 – Financial Times (Kiran Stacey and Laura Noonan): “Stress tests designed to make banks more stable might have exacerbated a spike in short-term borrowing costs that forced the Federal Reserve to step in to calm markets earlier this year, according to the lead banking regulator in the US. Randal Quarles, the vice-chair of the Fed, said… that banks’ own internal stress testing may have led them to hoard cash rather than lending it in the overnight repurchase — or repo — market. He listed these liquidity stress tests, typically carried out under the supervision of regulators stationed at the banks, as one potential cause of the crunch in September, when overnight interest rates suddenly soared.”
U.S. Bubble Watch:
December 6 – Bloomberg (Katia Dmitrieva): “U.S. job gains roared back in November as unemployment matched a half-century low and wages topped estimates, giving the Federal Reserve more reason to hold interest rates steady after three straight cuts. Payrolls jumped 266,000, the most since January, after an upwardly revised 156,000 advance the prior month, according to a Labor Department release Friday that topped all estimates in a Bloomberg survey calling for 180,000 jobs.”
December 5 – Financial Times (Lauren Fedor and Billy Ehrenberg-Shannon): “Nearly two-thirds of Americans say this year’s record-setting Wall Street rally has had little or no impact on their personal finances… A poll of likely voters for the Financial Times and the Peter G Peterson Foundation found 61% of Americans said stock market movements had little or no effect on their financial wellbeing. Thirty-nine per cent said stock market performance had a ‘very strong’ or ‘somewhat strong’ impact. The survey suggested most Americans are not aware of market movements, with just 40% of respondents correctly saying the stock market had increased in value in 2019.”
December 3 – Bloomberg (Spencer Soper): “U.S. shoppers spent $9.4 billion online on Cyber Monday — up almost 20% from a year ago and a record — boosting an already robust holiday shopping season. Adobe Inc., which tracks transactions across 80 of the top 100 U.S. online retailers, said almost a third of Cyber Monday sales happened on smartphones.”
December 4 – Wall Street Journal (Akane Otani): “Investors who have shrugged off tepid earnings growth this year have leaned on the argument that the majority of S&P 500 companies have wound up beating analysts’ expectations. Morgan Stanley’s wealth-management unit isn’t sold on that argument. The money manager found in an analysis of earnings that more than a third of S&P 500 companies have posted a year-over-year decline in earnings in 2019. The last times the share of companies posting contracting earnings was that high: 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline.”
December 2 – Bloomberg (Lu Wang): “Wall Street analysts are slashing projections for fourth-quarter earnings at a furious pace, making it more likely that a profit recession will hit Corporate America for the first time in almost four years. Two months into the quarter, analysts have shaved 4% off their estimates to $41.12 a share, a drop of almost 1% compared with a year ago after a 1.3% decline last quarter. While they almost always lower expectations as a period progresses the current pace has been exceeded only twice since 2015.”
December 2 – Bloomberg (Anchalee Worrachate and John Gittelsohn): “Investors plowing cash into private assets may recall the words of Wall Street legend Barton Biggs: There’s no asset class that too much money can’t spoil. One of the most fertile grounds for funds harvesting returns in a world of negative-yielding bonds and expensive public companies — private equity — is being swamped. Historically high valuations for leveraged buyouts has the likes of Morgan Stanley Wealth Management saying the industry has hit its peak after generating a decade of double-digit returns. That’s put the managers of vast pots of Californian retirement savings in a quandary. ‘Returns are coming down,” said Elliot Hentov, head of policy research at State Street Global Advisors. ‘A lot of money is going into that space and we are seeing excess returns shrinking.’”
December 1 – Wall Street Journal (Miriam Gottfried): “U.S. private-equity firms, armed with a record amount of cash, are struggling to find ways to spend it. A year ago, fears of an economic slowdown and worries about trade tensions with China sent a tremor through markets and put some leveraged buyouts on hold. But while stocks rebounded in the new year, buyout activity never fully recovered. The aggregate value of U.S. buyouts fell 25% year to date through October, compared with the same period a year earlier, according to… Preqin. Deals totaled $155.2 billion during the first 10 months of the year—the lowest since 2014.”
December 2 – Bloomberg (David Wethe and Kevin Crowley): “The throttling back of fracking in the world’s biggest shale patch is hitting the unemployment line in Texas… Employment in the Permian Basin of West Texas has fallen by 400 through the first 10 months of the year, a massive change from the 16,700 jobs added in the same period last year, according to… the Federal Reserve Bank of Dallas. Permian Basin frack crews, who are brought in to complete the final stage for creating a new oil well, have dropped 21% so far this year…”
December 4 – Reuters (Karen Pierog): “Illinois’ growing unfunded pension liability, which increased by $3.8 billion to $137.3 billion at the end of fiscal 2019, underscores the need for state action to boost funding or cut costs, analysts said… The increase was fueled by actuarially insufficient state contributions and lower-than-expected investment returns… Illinois has the lowest credit ratings among U.S. states at a notch or two above the junk level due to its huge unfunded pension liability and chronic structural budget deficit.”
December 3 – Wall Street Journal (Konrad Putzier): “When it comes to real estate, the Second City sits at the bottom of the table. The value of Chicago property has been mixed in recent years, while values in New York, Boston and San Francisco have been steadily rising thanks to strong economies and job growth. Prices of office buildings, apartment properties, retail centers and industrial real estate in Chicago fell by 4.1% over the past year, according to… Real Capital Analytics. That was the worst performance among major metropolitan areas analyzed by the company, behind even crisis-stricken Hong Kong, where prices fell 2.6%.”
December 2 – Wall Street Journal (Ben Eisen): “Credit unions, long seen as a humdrum corner of consumer finance, are going toe-to-toe with the biggest financial institutions. Credit unions’ assets have grown at nearly twice the pace of banks’ over the past decade, and the cooperatives are buying small banks in record numbers. One recently partnered with Google on its plans to create a checking account.”
December 4 – Reuters (Gabriel Crossley and Yawen Chen): “Tariffs must be cut if China and the United States are to reach an interim agreement on trade, the Chinese commerce ministry said…, sticking to its stance that some U.S. tariffs must be rolled back for a phase one deal. ‘The Chinese side believes that if the two sides reach a phase one deal, tariffs should be lowered accordingly,’ ministry spokesman Gao Feng told reporters, adding that both sides were maintaining close communication.”
December 4 – Bloomberg (Jenny Leonard and Shuping Niu): “The U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said. The people… said that U.S. President Donald Trump’s comments Tuesday downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff. Recent U.S. legislation seeking to sanction Chinese officials over human-rights issues in Hong Kong and Xinjiang are unlikely to impact the talks, one person familiar with Beijing’s thinking said.”
December 3 – Reuters (Se Young Lee and David Brunnstrom): “China warned on Wednesday that U.S. legislation calling for a tougher response to Beijing’s treatment of its Uighur Muslim minority will affect bilateral cooperation, clouding prospects for a near-term deal to end a trade war.”
December 1 – Reuters (Cate Cadell, Idrees Ali, David Brunnstrom and Matt Spetalnick): “China… banned U.S. military ships and aircraft from visiting Hong Kong and slapped sanctions on several U.S. non-government organizations for allegedly encouraging anti-government protesters in the city to commit violent acts. The measures were a response to U.S. legislation passed last week supporting the protests which have rocked the Asian financial hub for six months… ‘We urge the U.S. to correct the mistakes and stop interfering in our internal affairs. China will take further steps if necessary to uphold Hong Kong’s stability and prosperity and China’s sovereignty,’ Chinese Foreign Ministry spokeswoman Hua Chunying said…”
November 30 – Bloomberg: “China’s central bank governor sounded a cautious tone on the health of the global economy, while signaling that the nation’s monetary policy makers will continue to refrain from large-scale easing steps. Policy should be prepared for a ‘mid- and long-distance race’ and stick to a conventional approach as long as possible, according to the article by Governor Yi Gang… ‘The world’s economic downturn will likely stay for a long time,’ Yi wrote. ‘We should stay focused and targeted, while not competitively lowering interest rates to zero or engaging in quantitative easing’… In Sunday’s article, Yi extensively reviewed the history of global monetary policy since the Great Depression. He said overly loose policy can harm long-term development, because it delays necessary reforms and fuels bubbles.”
December 3 – Bloomberg (Hong Shen and Molly Dai): “China is hurtling toward another record year of onshore bond defaults, testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to cope with unprecedented levels of debt. At least 15 defaults since the start of November have pushed this year’s total to 120.4 billion yuan ($17.1bn), within a hair’s breadth of the 121.9 billion yuan annual record in 2018…”
December 5 – Financial Times (Sun Yu and Xinning Liu): “Chinese private companies are defaulting on their debt obligations even after receiving government bailouts, raising questions over Beijing’s efforts to rescue listed groups using public funds. Beijing last year launched one of the largest state-led campaigns to save troubled private sector businesses after falling stock prices hit so-called equity pledge financing, which enables companies to borrow using their own shares as collateral. Of 339 listed private companies that have received government funding since the rescue campaign began in August 2018, 75 later reneged on payments…”
December 2 – Bloomberg (Shen Hong and Tongjian Dong): “Two Chinese companies failed to repay bonds worth a combined half a billion dollars on Monday, underscoring rising debt risks in the highly leveraged nation as the economy slows. Peking University Founder Group was unable to secure sufficient funding to repay a 270-day, 2 billion yuan ($285 million) bond… Tunghsu Optoelectronic Technology Co. failed to deliver repayment on both interest and principal on a 1.7 billion yuan bond… The quickening speed of bond defaults in China, especially among ailing private firms, highlights the growing financial strain triggered by the country’s worst economic slowdown in three decades”
December 1 – Bloomberg: “The latest bond default by a Chinese industrial group at the epicenter of a regional debt storm is escalating concerns about a cluster of private firms entangled in risky financing. Shandong-based Xiwang Group Co., which failed to make good on a delayed repayment on a local bond, is scrambling to refinance and avoid deeper trouble after triggering cross-default clauses on other bonds.”
December 5 – Bloomberg: “One corner of China’s bond market is offering yields that seem too good to be true. And, indeed, it’s permeated with ‘fakes.’ Since 2009, off-balance-sheet shell companies set up by Chinese municipalities have been selling debt to fund infrastructure projects. Called local government financing vehicles, or LGFVs, they were initially intended to supplement the stimulus Beijing launched to rescue China’s economy after the 2008 credit crisis. In the past 10 years these vehicles have amassed a huge pile of debt: 33 trillion yuan ($4.7 trillion), according to S&P Global Ratings. Of that, about 8.3 trillion yuan, or $1.2 trillion, is in bonds… The average coupon of outstanding LGFV notes was 3.9% in October, while the average for yuan-denominated corporate bonds was 3.0%… Of China’s 3.6 trillion yuan of bonds that paid more than 6% at the end of September, about 45% was issued by LGFVs.”
December 3 – Reuters (Gaurav Dogra and Brenda Goh): “Capital investment by Chinese firms has ground to its slowest pace in three years, as a weakening economy, tight credit and prolonged trade war with the United States dent sales growth and cash reserves, a Reuters analysis showed. Companies are also spending more days to turn inventory into sales and eking out smaller profit gains…, with many analysts expecting the slowdown to intensify… Chinese firms raised capital spending by 1.6% in the three months through September versus the same period a year prior…”
December 1 – Reuters (Yawen Chen and Kevin Yao): “China’s factory activity showed surprising signs of improvement in November, with growth picking up to a near three-year high, a private sector survey showed on Monday, reinforcing upbeat government data released over the weekend.”
December 3 – Reuters (Gabriel Crossley): “Activity in China’s services sector accelerated to a seven-month high in November, as new business, especially new export business, picked up, a private survey showed… Beijing has been counting on the services sector, which accounts for more than half of China’s economy, to partly offset sluggish domestic and global demand for manufactured products as a prolonged trade war with the United States drags on. The Caixin/Markit services purchasing managers’ index (PMI) rose to 53.5 last month, the quickest pace since April, from 51.1 in October.”
December 3 – Financial Times (Kate Youde): “House price growth in China is expected to slow next year to its lowest rate in five years. Ten property analysts and economists, surveyed by Reuters, estimated prices would rise 3.1% in the 12 months to December 2020, the slowest growth since the 1.8% increase recorded in 2015. The volume of sales was predicted to fall 3% next year.”
December 4 – Bloomberg: “A Chinese stock closed below its listing price on debut for the first time in seven years, showing how weak investor sentiment has become. Luoyang Jianlong Micro-Nano New Materials Co. fell 2.2% on Shanghai’s Star board Wednesday, the first mainland listing to flop on opening day since Haixin Foods Co. plunged 8% in October 2012…”
December 3 – Reuters (Cheng Leng and Engen Tham): “Postal Savings Bank of China said investors had opted out of paying for 3% of shares on offer in its Shanghai listing – a rare development that underscores growing concerns over problems in China’s banking system.”
Central Banking Watch:
December 3 – Bloomberg (Jana Randow and Alexander Weber): “The European Central Bank just received a hint that traditional German views on monetary policy will continue to feature prominently in its internal debate. Isabel Schnabel, the country’s nominee for a seat on the ECB’s Executive Board, said at her confirmation hearing in Brussels that she would probably have opposed restarting quantitative easing had she been a policy maker in September. That decision was one of the most contentious taken under former President Mario Draghi, with opposition from officials covering more than half the euro-area economy.”
December 4 – Financial Times (Jonathan Wheatley): “An old fear is again stalking emerging markets — contagion. Unlike the Russian and Asian crises that engulfed the emerging world in the 1990s, contagion this time is not primarily a financial market phenomenon. Instead, it has spread through street protests in Latin America that have spooked investors. The trouble started in Brazil on November 6… This gave some investors the excuse they wanted to sell the Brazilian real, with rising risk aversion brought on by weakness across EMs… In the background, however, a bigger crisis was brewing. Street protests had been building in Chile since late October. A popular uprising in Bolivia was growing. Social and political unrest had been stirring elsewhere, in Ecuador, Peru, Brazil and Central America, not to mention crisis-stricken Venezuela. Things came to a head in the second week of November, when Chile’s protests turned increasingly violent. On November 11, Evo Morales, Bolivia’s leftwing president for almost 14 years, stood down.”
December 6 – Associated Press (Angela Charlton and Mstyslav Chernov): “Frustrated travelers are meeting transportation chaos around France for a second day on Friday, as unions dig in for what they hope is a protracted strike against President Emmanuel Macron’s plans to redesign the national retirement system. Most French trains were at a halt – including Paris subways – and traffic jams multiplied around the country.”
December 1 – Reuters (Holger Hansen and Andreas Rinke): “The future of Germany’s ruling coalition looked shaky after the election of new leaders of the Social Democrats (SPD) who are demanding a shift in policies, and several senior conservatives on Sunday ruled out talks to renegotiate a governing agreement. Two strong leftist critics of the coalition with Chancellor Angela Merkel’s conservatives – Norbert Walter-Borjans and Saskia Esken – won a vote for leadership of the Social Democrats on Saturday, possibly putting the country… at a political crossroads.”
December 3 – Wall Street Journal (Tom Fairless and Patricia Kowsmann): “On a recent morning in the spa town of Baden-Baden, children clutching piggy banks and bags stuffed with coins flooded into the local savings bank, or Sparkasse, for a lesson in frugality. The ritual has taken place across Germany every year since the International Savings Banks Institute launched World Thrift Day in 1924 to promote basic financial literacy, starting with the central tenet: Don’t ever spend more than you earn. Today, saving is viewed in Germany as a tradition and a virtue. This goes for consumers, who are stashing cash in mattresses and checking accounts…”
Global Bubble Watch:
November 29 – Bloomberg (Finbarr Flynn): “An unprecedented frenzy of debt sales around the world is threatening to cool this year’s hot returns on corporate bonds. Companies have sold a record $2.44 trillion so far this year across currencies, surpassing previous full-year records. Investors rushed to snap up all this debt because they were desperate for yield as central banks cut rates. That has pushed up valuations.”
November 29 – Bloomberg (Michael Hytha): “A surge of global deals in the past week has helped put mergers and acquisitions on track to approach and perhaps even top last year’s totals. Globally, 2019 is already the sixth-best year of the past 20… The 26,321 pending and completed transactions announced this year total $2.73 trillion, compared with 30,225 amounting to $3.07 trillion in 2018… Cross-border acquisitions of U.S. targets are down, with the total value of deals so far this year shrinking 23% to $334 billion from the same period in 2018…”
December 5 – Bloomberg (Stefania Spezzati): “Moody’s… downgraded its outlook for global banks, citing slowing growth, low interest rates and volatile operating conditions. The ratings firm changed its outlook on the sector to negative from stable… Trade tensions between the U.S. and China ‘appear entrenched, with negative consequences for banks in those countries as well as in other export-oriented economies and for banks funding trade,’ Moody’s said. Moody’s said a rising recession risk in the U.S. and Europe, along with slowing growth in Asia Pacific and emerging markets, ‘will lead to deteriorating loan quality and higher loan-loss provisioning costs for banks.’ Political risk will also be a significant source of uncertainty, it added.”
December 1 – Financial Times (Jennifer Thompson): “More than a decade of ultra-loose monetary policy has damaged the prospects of a safe retirement for millions and is sowing the seeds of the next financial crisis, according to new research. Quantitative easing… has ‘inexorably inflated’ global debt, according to almost four in five pension funds surveyed by consultancy Create Research and Amundi Asset Management. More than half (55%) of the 153 European pension plans with €1.9tn in assets surveyed believe it will be a factor in the next financial crisis.”
December 1 – Bloomberg (Emily Cadman): “Australia’s property frenzy is back in full swing, with home prices surging the most in 16 years in November. National property values jumped 1.7% last month, the largest gain since 2003, according to… CoreLogic… Sydney and Melbourne continued to lead the rebound, with prices up 2.7% and 2.2% respectively. Annualized gains over the past three months in both cities are tracking in the mid-20% range… At that rate, home values will recoup all their losses from the recent downturn and be back at record highs early next year.”
December 5 – Bloomberg (Toru Fujioka, Yoshiaki Nohara, and Takashi Hirokawa): “Japan’s Prime Minister Shinzo Abe announced stimulus measures to support growth in an economy contending with an export slump, natural disasters and the fallout from a recent sales tax increase. The total stimulus package amounts to around 26 trillion yen ($239bn) spread over the coming years… The stimulus will boost growth in the economy by about 1.4 percentage point, the document said.”
Fixed-Income Bubble Watch:
November 29 – Washington Post (David Lynch): “Little more than a decade after consumers binged on inexpensive mortgages that helped bring on a global financial crisis, a new debt surge – this time by major corporations – threatens to unleash fresh turmoil. A decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. corporate debt to nearly $10 trillion, or a record 47% of the overall economy. In recent weeks, the Federal Reserve, the International Monetary Fund and major institutional investors such as BlackRock and American Funds all have sounded the alarm about the mounting corporate obligations.”
Leveraged Speculation Watch:
December 3 – Bloomberg (Charlotte Ryan): “The euro is encroaching on the dollar’s territory as the world’s currency of global borrowing, but that doesn’t mean anyone wants to keep hold of it. ‘No one wants to hold euro cash as an asset anymore but everyone wants it as a liability,’ George Saravelos, Deutsche Bank AG’s global head of currency research, wrote… As a result, the euro zone ‘is emerging as the new global provider of liquidity to the international financial system, slowly replacing the dollar,’ he said. The common currency is increasingly being used in international borrowing, inter-bank funding and cross-border carry trades. This helps subdue the euro during periods of risk appetite, but could contribute to volatility and a rise in the currency when risk aversion returns. The carry trade involves borrowing in a low-yielding currency and putting the money into others with higher interest rates, or other assets with stronger returns. It works well when volatility is low.”
November 29 – Bloomberg: “Three years after China opened its 2.5 trillion yuan ($355bn) hedge fund market to global asset managers, the industry is discovering just how hard it is to win over the country’s investors. BlackRock Inc., Man Group Plc and 20 other foreign firms licensed to run Chinese hedge funds… amassed around 5.8 billion yuan of assets as a group till August, according to… Shenzhen PaiPaiWang Investment & Management Co. The meager haul — amounting to 0.2% of hedge fund assets in China — reflects a host of challenges. International names like BlackRock don’t resonate much in China’s crowded market of close to 9,000 hedge funds, which has its own set of local stars.”
December 5 – Reuters (James Mackenzie): “World food prices rose strongly in November, lifted by big jumps in prices of meat and vegetable oils, despite slightly lower cereals prices, the United Nations food agency said… The Food and Agriculture Organization (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar hit a 26-month high in November, averaging 177.2 points, up 2.7% on the previous month and up 9.5% year-on-year.”
December 4 – Reuters (Andrea Shalal): “China’s envoy to the United States… said the two countries were trying to resolve their differences over trade, but he warned of forces that he said were trying to drive a wedge between the two… Ambassador Cui Tiankai, speaking at a dinner hosted by the US-China Business Council, said U.S.-Chinese ties were at a critical crossroads due to trade frictions, but it was possible to return to a better path. ‘At the same time, we must be alert that some destructive forces are taking advantage of the ongoing trade friction (through) extreme rhetoric such as ‘decoupling,’ the ‘new Cold War,’ and ‘clash of civilizations,’’ Cui said.”
December 1 – Wall Street Journal (Georgi Kantchev): “An 1,800-mile pipeline is set to begin delivering Russian natural gas to China on Monday. The $55 billion channel is a feat of energy infrastructure—and political engineering. Russia’s most significant energy project since the collapse of the Soviet Union, the Power of Siberia pipeline is a physical bond strengthening a new era of cooperation between two world powers that have separately challenged the U.S. Beijing and Moscow, after years of rivalry and mutual suspicion, are expanding an economic and strategic partnership influencing global politics, trade and energy markets. At the same time, Beijing is fighting a trade war with Washington, and Russia’s relations with the West grow colder. ‘China and Russia joining forces sends a message that there are alternatives to the U.S.-led global order,’ said Erica Downs, a Columbia University fellow and former CIA energy analyst.”
December 3 – Reuters (Robin Emmott and Andreas Rinke): “NATO leaders set aside public insults ranging from ‘delinquent’ to ‘brain dead’ and ‘two-faced’ on Wednesday, declaring at a 70th anniversary summit they would stand together against a common threat from Russia and prepare for China’s rise. Officials insisted the summit was a success… But the meeting began and ended in acrimony startling even for the era of U.S. President Donald Trump, who arrived declaring the French president ‘nasty’ and left calling Canada’s prime minister ‘two-faced’ for mocking him on a hot mic.”
December 4 – Reuters (Phil Stewart and Robin Emmott): “Seventy years since its Cold War-era founding as a transatlantic alliance focused on Moscow, NATO is expanding its gaze toward the increasingly muscular challenge posed by China. But it is unclear, even to diplomats within the 29-member military alliance, whether NATO is up to the task – especially at a time of intense internal divisions and acrimony that were on full display heading into this week’s summit.”
December 1 – Reuters (Ben Blanchard): “Taiwan plans to invite U.S. military experts to visit to provide advice on bolstering the island’s defenses, the defense ministry said…, in the face of what Taipei views as a growing threat from its giant neighbor China… Taiwan’s Defense Ministry said it plans to use the ‘arms purchase contract model to invite a U.S. expert group to come to Taiwan’.”