This is not one of those posts that one can absorb by reading very easily. So I am going to pull Doug’s salient data out and print it up front. I am always amazed.
Total Equities-to-GDP at Market Peaks: 115% (2000), 104% (2007), 181% (March 2021). Note: Market needs to fall 37% to hit the 2000 tech bubble *top* valuation to GDP.
Nuts! …because it lost 60% from there by 2009.
Now how did we get to such ridiculous levels of mania?
Non-financial debt-to-GDP near Market Peaks: 184% (1999), 227% (2007 housing bubble), 281% today during the everything bubble. Peaks.
And how is our govt doing to rein in its debt?
Treasuries-to-GDP: 58% (1979), 63% (1989), 59% (1999), 76% (2009), surged 26% in 2020 to 109% (2021) and this does not count gov’t backed debt or the monetized debt sitting on the Fed’s balance sheet.
I can’t help thinking of all the whining about debt in the 1980s & 90s and how they rigged COLAs to slow govt spending to people and raised payroll taxes to manage the debt. And instead we blew out debt anyway thanks to wall street.
Meanwhile, closer to the stock market…
…the Broker/Dealer lending business boom rages on. Loans expanded $90 billion, or 67% annualized, during Q1 to a record $629 billion. Loans surged $255 billion, or 68%, over the past three quarters.
Sounds like the makings of a massive terminal phase melt up… which is behind us, I hope. What next?
Doug’s conclusion: “It’s right there in the data: one of history’s most spectacular Monetary Inflations and asset Bubbles. May Consumer Prices were up 5.0% y-o-y, the strongest consumer inflation since 2008. Ten-year Treasury yields dropped 10 bps this week to a three-month low of 1.45%. Markets are broken – and there will be more on this subject next week.”
There is one piece Doug did not report on because it is too new. The Federal Reserve has absorbed $600 billion in something called reverse-repos in a couple of months. From $0 to $600 billion in 2 months in what I see as a central bank checking account for large banks, hedge funds, money market funds, etc. I expect it to continue to balloon because there is NO WHERE to park all the money printing the Fed has pumped into the system.
What this last data point means is that while the Fed is effectively printing money and pumping it into the system with one hand, the other hand is taking that money back and more. And curiously since the net effect of their policy turned to zero a couple of months ago, the stock market stopped its rise and has traded sideways.
No one worries when initially their boats rise with the tide in the harbor. But when your cars and homes rise and start floating…
The monetary bathtub is full and all the liquidity is overflowing with bubbles rising and popping all around us in our distorted financial system. So my more simple conclusion:
Our financial system is FUBAR. Thanks Fed with your over-paid academic PhD geniuses who know better what interest rates should be than the market.
Historic Monetary Inflation: Q1 2021 Z.1
by Doug Noland
Total Non-Financial Debt (NFD) expanded $879 billion during Q1 to a record $62.032 TN. NFD expanded an unprecedented $7.671 TN, or 14.1%, over the past five quarters. And with Financial Sector Debt increasing $236 billion and Foreign US borrowings gaining $95 billion, Total Debt increased $1.210 TN during the quarter to a record $84.7 TN. Total Debt expanded $9.199 TN, or 12.2%, over five quarters.
On a Seasonally Adjusted and Annualized (SAAR) basis, NFD expanded $3.521 TN during Q1. For perspective, annual NFD growth averaged $1.829 TN during the period 2009 through 2019. NFD surged $6.792 TN during 2020 and inflated $7.671 TN over five quarters. NFD as a percent of GDP slipped to 281% – yet compares to 227% at year-end 2007 and 184% to end the nineties.
Washington remains the insatiable debt glutton. Treasury Securities rose $342 billion during Q1 to a record $23.943 TN. While this was the weakest growth since Q2 2019, overall spending was supported by the Treasury’s significant draw down of its cash balance held at the Fed. The Federal Reserve Liability, “Due to Federal Government – Treasury Cash Holdings,” dropped $607 billion during the quarter (to $1.122 TN).
Over the past five quarters, outstanding Treasuries surged an incredible $4.924 TN, or almost 26%. In just 15 months, the ratio of Treasuries-to-GDP inflated from 87% to 109%. Treasury Securities-to-GDP ended the seventies at 57.8%, the eighties at 63.0%, and the nineties at 58.7%. This ratio had jumped to 76.1% to close out 2009 and 85.4% to conclude 2010. It’s now gone parabolic.
Q1 Federal Receipts were up 3% y-o-y to an annualized $3.866 TN. Meanwhile, Expenditures inflated 67% y-o-y to an annualized $8.171 TN. State & Local Receipts rose 11% y-o-y to an annualized $3.090 TN, while Expenditures increased 2% to annualized $3.053 TN.
The U.S. Department of the Treasury is not the only Washington institution ballooning its balance sheet. GSE (government-sponsored enterprises) Assets rose another $150 billion during the quarter to a record $7.879 TN. Over five quarters, GSE Assets inflated an unprecedented $749 billion, or 10.5%. Total Agency Securities (debt and MBS) rose $140 billion during Q1 to a record $10.226 TN, with three-year growth of $1.354 TN (15%).
Bank (“Private Depository Institutions”) Assets jumped $767 billion during the quarter to a record $24.215 TN, though $678 billion of this increase is explained by a jump in Reserve Assets at the Federal Reserve. Loans (Assets) declined $72.7 billion during Q1 to $12.023 TN. Bank Loans contracted $278 billion, or 2.3%, over the past year.
The banking system continues to load up on securities. Debt Securities holdings jumped $408 billion during the quarter to a record $6.199 TN, with Agency/MBS rising $230 billion (to a record $3.606 TN); Corporate Bonds gaining $115 billion (to a record $802bn); and Treasuries increasing $60 billion (to a record $1.263 TN). With momentous effects throughout the securities markets, banking system Debt Securities holdings surged $1.551 TN over the past five quarters. Agency/MBS holdings jumped $972 billion in 15 months, with Treasuries up $384 billion, and Corporate Bonds increasing $147 billion.
Meanwhile, on the Bank Liability side, Bank Total Deposits surged $844 billion during Q1 to a record $19.707 TN. Over five quarters, Total Deposits inflated an incredible $4.175 TN, or 27%, reflecting one of history’s most spectacular Monetary Inflations. Total Deposits doubled over the past decade. Total Bank Deposits-to-GDP ended the quarter at 89%, up from 71% to end 2019, 63% to conclude 2010, 55% to end 2005, and 47% to wrap up the nineties.
Securities Broker & Dealer Assets declined $93 billion during Q1 to $3.608 TN (down $149bn, or 4%, y-o-y). Treasury holdings sank a notable $182 billion to $19 billion, with a one-year contraction of $247 billion. Meanwhile, the Broker/Dealer lending business boom rages on. Loans expanded $90 billion, or 67% annualized, during Q1 to a record $629 billion. Loans surged $255 billion, or 68%, over the past three quarters.
Some smaller sectors posted notable growth. Credit Union Assets expanded another $116 billion (25% annualized) to a record $1.940 TN, with unprecedented one-year growth of $335 billion, or 20.9% (up $405bn in five quarters). Money Market Funds gained $164 billion, or 15% annualized, to $4.500 TN. “Other Financial Business” (the old Wall Street “Funding Corps”) jumped $177 billion, or 37% annualized, to a decade-high $2.080 TN (up $562bn in five quarters). Total Mortgage debt rose $177 billion during Q1 to a record $16.958 TN. The year-over-year increase of $780 billion (4.8%) was the strongest mortgage lending since 2007.
Fed Funds & Repurchase Agreements dropped $166 billion during the quarter and $716 billion for the year (to $4.063 TN). Meanwhile, Exchange-Traded Funds (ETFs) jumped $460 billion during Q1 to a record $5.910 TN, with one-year growth of $1.924 TN, or 62.4%. ETF Assets were up 174% in five years. Over this period, Equities ETFs surged 186% (to $3.544 TN) and Taxable Bond ETFs jumped 179% (to $1.000 TN).
Federal Reserve Assets expanded $112 billion during the quarter to a record $7.769 TN, with one-year growth of $1.589 TN. Over seven quarters, Fed Assets have swelled an incredible $3.759 TN, or 94%. Over this period, holdings of Treasuries surged $2.958 TN (to $5.273 TN) and Agency Securities jumped $690 billion (to $2.275 TN).
Total Debt Securities (TDS) increased $656 billion during the quarter to a record $54.563 TN, with one-year growth of $6.193 TN, or 12.8%. Over seven quarters, TDS inflated $8.818 TN, or 19.3%. At 247%, TDS-to-GDP declined slightly during the quarter to 247% – although it rose significantly from Q4’s 2019’s 218%. This ratio ended 2009 at 223%, the nineties at 158%, and the eighties at 124%. Corporate Bonds jumped $119 billion during the quarter to a record $15.401 TN, with one-year growth of $1.280 TN, or 9.1% (fastest expansion since 2007).
Total Equities jumped $4.784 TN during Q1 to a record $69.991 TN, with a one-year surge of $26.941, or 62.6%. Total Equities-to-GDP ended March at a record 317%, up from previous cycle peaks 188% (Q3 2007) and 210% (Q1 2000). Total (Debt & Equities) Securities jumped $5.440 TN during the quarter to a record $124.554 TN – with stunning one-year growth of $33.134 TN, or 36.4%. Total Securities have now inflated $77.227 TN, or 163%, since 2008. Total Securities-to-GDP ended March at a record 565% (up from March 2019’s 449%) and compares to previous cycle peaks 387% (Q3 2007) and 368% (Q1 2000).
The Household (and Non-Profits) Sector balance sheet continues to be a Bubble Analysis focal point. Household Assets inflated $5.184 TN, or almost 14% annualized, during Q1 to a record $154.161 TN. Over nine quarters, Household Assets have ballooned $32.749 TN, or 27%. Household Assets-to-GDP ended the quarter at a record 699% of GDP – up 100 percentage points in 14 quarters.
With Household Liabilities increasing $188 billion during Q1 (to $17.244 TN), Household Net Worth (Assets less Liabilities) surged $4.997 TN during the quarter to a record $136.917 TN. For perspective, growth in Net Worth averaged $830 billion quarterly over the 20-year period prior to 2019. Net Worth inflated $31.399 TN over five quarters, or 29.8%. Household Net Worth ended March at a record 621% of GDP. This was up from previous cycle peaks 491% (Q1 2007) and 445% (Q1 2000).
The value of Household Real Estate holdings jumped $968 billion (second only to Q4 ‘20’s $1.017 TN) to a record $37.558 TN. Real Estate was up $3.335 TN, or 9.7%, y-o-y. Real Estate-to-GDP ended the quarter at 170%, only somewhat lagging the cycle peak 190% from Q3 2006.
Household holdings of Financial Assets jumped $4.027 TN (15.3% annualized) during the quarter to a record $109.562 TN, with one-year growth of $22.395 TN, or 25.7%. The ratio of Household Financial Assets-to-GDP ended Q1 at a record 497% of GDP. This was up from cycle trough 325% during Q1 2009 – and compares to cycle peaks 374% (Q3 2007) and 354% (Q1 2000).
Total (Equities and Mutual Funds) Equities jumped $2.832 TN to end Q1 at a record $39.946 TN. Total Equities jumped $15.535 TN, or 63.6%, y-o-y. Total Equities-to-GDP ended March at a record 181%. This was up from Q1 2009’s cycle trough 54%, while significantly surpassing previous cycle peaks 104% (Q2 2007) and 115% (Q1 2000).
Rest of World (ROW) holdings of U.S. Financial Assets rose $1.274 TN, or 12.8%, during Q1, with one-year growth of $8.892 TN, or 27.6%. In only nine quarters, ROW Assets have inflated $11.168 TN, or 37.3%. ROW Assets have now almost tripled since the end of 2008. Total U.S. Equities holdings jumped $724 billion, or 25%, to a record $12.276 TN, with a one-year gain of $4.758 TN, or 63.3%. Foreign Direct Investment rose $738 billion during Q1 to a record $11.540 TN. Debt Securities holding contracted $253 billion during the quarter to $12.618 TN, though they were up $427 billion, or 3.5%, y-o-y. ROW holdings of U.S. Financial Assets ended the quarter at a record 186% of GDP. This was up from Q4 2008’s 95%, 2007’s 108%, 1999’s 74%, 1996’s 51%, and 1990’s 30%.
It’s right there in the data: one of history’s most spectacular Monetary Inflations and asset Bubbles. May Consumer Prices were up 5.0% y-o-y, the strongest consumer inflation since 2008. Ten-year Treasury yields dropped 10 bps this week to a three-month low of 1.45%. Markets are broken – and there will be more on this subject next week.
Original Post 12 June 2021
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Categories: Doug Noland