Anything But Normal Times
Doug Nolan
The Nasdaq100 surged 3.7% this week to close at an all-time high.
Powered by Apple 13.3% melt-up, the Bloomberg MAG7 Index surged 5.4% to a record high.
August 6 – New York Times (Luke Broadwater and Tripp Mickle):
“President Trump and Tim Cook, Apple’s chief executive, announced… Apple would devote $100 billion to additional investment in the United States, the company’s latest move to buy more components from U.S. suppliers and avoid the president’s threat of tariffs on iPhones.
The announcement, in the gold-adorned Oval Office, came after Mr. Cook presented Mr. Trump with a 24-karat gold gift and lavished him with praise.
Mr. Cook highlighted the creation of Apple’s American Manufacturing Program, focused on bringing more of the company’s supply chain and advanced manufacturing to the United States.
The president ‘asked us to think about what more we could commit to doing,’ Mr. Cook said…, ‘and Mr. President, we took that challenge very seriously.’”
Add Tim Cook’s $100 billion investment commitment to February’s $500 billion.
At this pace, it could turn into real money.
Last week’s fledgling risk aversion was reversed as fast as you can yell “cover your shorts” and “unwind your hedges.”
High yield CDS dropped 13 bps, reversing just over half of last week’s 22 bps spike.
Investment-grade CDS reversed three of last week’s four bps increase.
The VIX’s 5.2 drop (to 15.2) essentially reversed the previous week’s jump.
August 4 – Axios (Jim VandeHei and Mike Allen):
“AI and its blood and oxygen — chips, data, energy — are producing an economic super-stimulant strong enough to prop up the entire country.
Wall Street and retail investors are enabling and encouraging more... more... more.
More chips, more data centers, more energy, more investment.
The big companies and big investors are the early winners.
A wild cycle is unfolding.
The biggest companies in history are spending a stunning amount of money to fuel the AI revolution, driving demand for more chips, more energy and more capital…
The big (Nvidia, Microsoft, Apple, Alphabet/Google, Amazon and Meta) are getting bigger, and burrowing deeper into direct investment and ownership of the products feeding into their AI.
They’re buying up land, building data centers, sucking up chips, investing in energy sources.
Microsoft and Nvidia together are worth about $2.5 trillion more today than they were a year ago.
Alphabet, Google, Amazon and Meta together will spend nearly $400 billion this year on capital expenditures, largely to build AI infrastructure…”
Even in normal times, I would struggle to turn short-term negative on the U.S. economy, not with financial conditions this loose and markets booming.
But a historic AI arms race is Anything But Normal Times.
Seems we’ve been to this movie before.
One year ago, markets were jolted by a disappointing July 2024 Non-Farm payrolls report.
At 97k, job gains significantly missed the 140k survey forecast.
Worse yet, June’s 136k gain was sharply reduced to only 66k.
The unemployment rate rose two-tenths to a nearly three-year high of 4.3%.
At 3.6%, Average Hourly Earnings were weaker-than-expected and down notably from June’s 3.9%.
Two-year Treasury yields sank 27 bps on the news (sound familiar?).
“Markets began Pricing in the Possibility of a 50-bps Rate Cut in September.”
“Banks Including JPMorgan and Citi Revised Their Forecasts to include two supersized Fed rate cuts.”
Between April and July 2024, the Unemployment Rate rose 0.3 percentage points to 4.2%.
The “Sahm Rule” was thrust into the Wall Street recession narrative, demanding immediate Fed rate cuts.
The inverted Treasury curve was also supposedly signaling recession.
An early-August Reuters headline: “US Recession Scare Fuels Searing Rally in Bonds, Yield Curve Flip in View.”
All the talk of a major Fed policy error quieted after the economy created 868k jobs in 2024’s final four months.
One year later, the economy is deeper into “terminal phase excess.”
The markets, financial system, and economy are today more vulnerable.
April’s episode illuminated latent fragilities and the potential for deleveraging to wreak swift havoc.
Yet financial conditions have loosened further.
The market backdrop is increasingly manic.
Credit is more overheated these days.
High yield CDS is currently 40 bps lower than a year ago, with yields almost 70 bps lower (6.99% vs. 7.68%).
Leveraged loan prices are meaningfully higher.
August 5 – Bloomberg (Ethan M Steinberg):
“A massive wall of debt coming due, an unpredictable US leader and falling yields have compelled corporate borrowers to sell debt this year at the fastest clip since the pandemic debt binge of 2020.
The annual supply of fresh investment-grade bonds surpassed $1 trillion on Tuesday, a day earlier than it did last year.”
Complimenting booming investment-grade and junk bond markets, “private Credit” Bubble inflation has intensified.
And I really doubt we can overstate ramifications for the historic AI arms race, teaming with an epic “private Credit” high-risk lending boom.
August 8 – Bloomberg (Carmen Arroyo and Olivia Fishlow):
“The heavy hitters of private credit have been waiting for this moment for years.
Major lenders, which often cater to companies with dented credit, talk endlessly about the opportunities in investment-grade debt and in financing the breakneck growth of artificial intelligence.
They’ve done smaller deals, but this week they caught the biggest fish yet: a $29 billion financing package for Meta Platforms Inc.’s massive data center in Louisiana…
‘Private credit has been itching to get into this space,’ said John Medina, senior vice president on the global project and infrastructure finance team at Moody’s Ratings.
‘This deal is one of the first of its kind for private credit and if it is successful, we would expect to see more.’
The biggest technology companies are in an AI arms race now, and they need cash to win.”
August 8 – Bloomberg (Rachel Graf):
“The recent mania in the US leveraged-loan market cooled somewhat this week, as launches slowed and two offerings were postponed.
A record-tying three-week run of launches topping $50 billion ended with about $38 billion of transactions hitting the market since Monday…”
It’s worth noting that Money Market Fund Assets (MMFA) surged $76 billion last week to a record $7.153 TN.
MMFA have ballooned $1.018 TN, or 16.6%, over the past year.
After last Friday’s 27 bps downdraft, two-year Treasury yields reversed eight bps higher this week to 3.76%.
Sinking 18 bps last week, market pricing for the December policy rate inched four bps higher to 3.75% (58bps of rate reduction).
Ten-year yields rose seven bps this week – after dropping 17 bps last week – to 4.28%.
Interestingly, a key market gauge of inflation expectations – the five-year “breakeven rate” – jumped five bps this week, reversing most of last week’s seven bps drop.
The rise in the ISM Services Prices subindex didn’t help.
At a stronger-than-expected 69.9, Prices rose about 2.5 points to the high back to October 2022.
Bloomberg: “Trump Eases Way for Lower Rates as Stagflation Talk Picks Up.”
The administration’s determined, methodical, and far-reaching power grab this week turned its sights on U.S. finance.
President Trump will nominate the head of his Council of Economic Advisers, Stephen Miran, to serve out Fed Governor Adriana Kugler’s term.
Retaining flexibility, it’s designated a “temporary” position until Kugler’s term ends at the end of January.
August 8 – Wall Street Journal (Nick Timiraos):
“Stephen Miran… would add a voice inside the central bank that is explicitly critical of the conventional wisdom around how tariffs might affect inflation and economic growth.
Many Fed officials are worried that tariffs will weaken the economy while raising prices, creating a difficult trade-off between cutting rates to support the economy or holding them steady to contain inflation.
Miran says this is backward: that the economy will benefit from tariffs with no noticeable impact on prices, allowing the Fed to resume rate cuts…
Beyond policy disagreements, though, Miran has questioned the Fed’s institutional legitimacy itself.
He has accused central bank officials who frame their decisions as apolitical of being politically motivated, and lambasted Fed policymakers for what he calls ‘tariff derangement syndrome.’
In a paper last year, he argued that all of the Fed’s top officials should be subject to at-will dismissal by the White House…
What began as technical disagreements about monetary-policy transmission evolved into sweeping charges about democratic accountability.
Last fall, he railed against the Fed’s decision to begin lowering interest rates from a two-decade high, saying that Fed officials were unserious about bringing inflation down to their 2% goal.
‘I can’t think of anything more ‘Deep State’ and corrosive of our democracy than democratically unremovable officials at the Federal Reserve tacitly accepting permanently higher inflation in spite of Congress’ delegated instructions for ‘stable prices,’’ he wrote…
Now, with Trump pushing for lower rates, Miran has said he doesn’t think inflation is likely to be a problem.”
From Forbes’ Shawn Tully:
“As my sources told me, Miran is a rarity, a highly trained economist who knows all the jargon, has absorbed the peer studies, brings intellectual heft, and makes a logical-sounding case for Trump’s stunningly contrarian game plan.
‘To say the least, it’s a relatively small pool of PhD economists who are economic nationalists.
That’s a blinding reality.
But Steve is one,’ says someone outside the administration who knows him.”
President Trump:
“He has been with me from the beginning of my Second Term, and his expertise in the World of Economics is unparalleled — He will do an outstanding job.”
Like many, I had not heard of Stephen Miran before his “A User’s Guide to Restructuring the Global Trading System” and his so-called “Mar-a-Lago Accord” took Wall Street by storm.
I’m not in the least impressed with his analytical framework.
Future historians will surely be less polite.
That said, Miran is the perfect administration choice.
It’s hard to believe he will say or do (vote) anything at odds with the President’s wishes.
He has quickly risen the ranks to top White House advisor and soon Fed governor only because of loyalty to President Trump.
This week, the administration’s assault on Fed independence became tangible.
Rising roughshod over the prestigious universities and law firms, the President has set his sights on the big banks and corporate CEOs not toeing the line – not to mention his political enemies.
August 7 – Wall Street Journal (Dylan Tokar and Miriam Gottfried):
“A pair of executive orders President Trump is expected to sign Thursday shows how he is beginning to reshape the world of banking and high finance—some in ways Wall Street likes, and others it fears.
One order would make it easier for everyday Americans to invest their retirement savings in assets that lie outside public markets, such as private equity, cryptocurrency and private real estate.
The move would fulfill a long-sought goal of Wall Street hedge funds and private-equity firms, which for years have wanted to tap in to the giant pool of money in 401(k) and other defined-contribution plans.
It is a different story for big banks.
A second order directs regulators to look into whether banks discriminate on political or religious grounds, and take disciplinary action against those found to have done so.”
August 6 – New York Times (Rob Copeland):
“President Trump said… he was a victim of discrimination by two of the nation’s largest banks, and suggested that his personal experience was fueling his animus with Wall Street.
Mr. Trump… said both JPMorgan… and Bank of America refused to accept more than $1 billion in deposits from the Trump Organization after his first term.
He said he had made personal appeals to the chief executives of both banks but had been rejected…
The president’s commentary… carries significant weight on Wall Street because his administration has been preparing a crackdown, in the form of an executive order and other proposed regulatory changes, on so-called debanking practices.
Many right-leaning organizations have claimed that the financial system has locked them out because of their political positions.”
August 7 – Bloomberg (Jennifer A Dlouhy and Allison McNeely):
“President Donald Trump will sign an executive order Thursday that aims to allow private equity, real estate, cryptocurrency and other alternative assets in 401(k)s, a major victory for industries looking to tap some of the roughly $12.5 trillion held in those retirement accounts.
The order will direct the Labor Department to reevaluate guidance around alternative asset investments in retirement plans subject to the Employee Retirement Income Security Act of 1974…
The department will also be tasked with clarifying the government’s position on the fiduciary responsibilities associated with offering asset allocation funds that include alternative holdings.
Trump will also direct Labor Secretary Lori Chavez-DeRemer to work with counterparts at the Treasury Department, Securities and Exchange Commission, and other federal regulators to determine whether rule changes should be made to assist in the effort.”
August 7 – Axios (Ben Berkowitz):
“President Trump… demanded Intel CEO Lip-Bu Tan resign, following concerns about his reported ties to Chinese companies.
Tan is in the middle of trying to turn Intel around at a time when the government is pushing to bolster the U.S. chip industry.
It was only six months ago that the Trump administration was reportedly trying to broker a deal with Taiwan’s TSMC to run Intel’s factories.
‘The CEO of INTEL is highly CONFLICTED and must resign, immediately.
There is no other solution to this problem,’ Trump posted on Truth Social.”
It could be the proverbial “frog in the pot.”
Or perhaps it’s just that speculative markets are so enamored with the scope of Trump’s pro-growth, pro-Bubble agenda that they’re willing to cut the administration a lot of slack.
A whole lot.
And so long as markets accommodate, the President’s great power play will power ahead without bounds.
The bond bears were run over last week. Ample good reasons to get off the pavement and regroup.
Miran on the FOMC, ongoing tariff madness, and booming markets should have the attention of the bond vigilantes.
August 7 – Axios (Ben Berkowitz):
“As of Thursday, sweeping new global tariffs are in place.
Sort of.
Probably.
With exceptions?
Anyone who thought President Trump’s firm deadline to impose tariffs was the final word on the trade war is about to learn a very hard lesson.
Unlike in decades past, trade negotiations are not a process that has a start and a finish, the goal being an agreement that will stand the test of time.
Rather, they are an ongoing process, in which the U.S. can implement tariffs on any country, at any time, for any reason — regardless of any preexisting treaties or handshake deals.”
August 7 – Financial Times (Harry Dempsey and David Keohane):
“Japan’s lead trade negotiator has said that the US has promised to fix an ‘extremely regrettable’ oversight to ensure that the country’s biggest companies do not face tariffs in excess of those agreed between the sides last month.
Ryosei Akazawa said that the US had promised to avoid ‘stacking’ the tariffs — which would add the 15% levy agreed between Washington and Tokyo on top of existing charges — and refunding companies that had already been overcharged…
‘It is extremely regrettable that… an order inconsistent with the US-Japan agreement was issued and put into effect,’ Akazawa said following talks in Washington… with US commerce secretary Howard Lutnick and Treasury secretary Scott Bessent.”
August 3 – Bloomberg (Sakura Murakami and Yoshiaki Nohara):
“The trade deal reached last month between the US and Japan was ‘win-win’ for both countries, but implementing the terms of the pact may be a bigger challenge than reaching the deal, Japanese Prime Minister Shigeru Ishiba said.
‘Some say that carrying the trade deal out is harder than agreeing on it.
I humbly seek your continued support on this,’ Ishiba said… in response to questions in parliament.
At the same session of parliament, Japan’s chief trade negotiator Ryosei Akazawa acknowledged criticism over the lack of having anything in writing.
‘It’s my understanding having something on paper would be helpful,’ Akazawa said, adding that there’s also nothing in writing related to Washington’s deals with the EU and South Korea.”
One would think having trade deals in writing might indeed be helpful.
Certainly not my only “what the…” moment this week.
August 5 – Wall Street Journal (Nick Timiraos and Brian Schwartz):
“In the chess game over bending the Federal Reserve to his will and sidelining Chair Jerome Powell, a significant piece just fell into President Trump’s hands.
Fed governor Adriana Kugler said unexpectedly last week that she will leave the central bank this Friday, about six months before her term was set to end.
That gives the president the chance to install his own pick on the rate-setting committee earlier than he had expected, adding pressure on Powell with a new ally who can push for interest-rate cuts…
Among the people Trump has talked to for their opinion: Fox News anchor Sean Hannity, Newsmax Chief Executive Chris Ruddy and former Trump White House chief-strategist-turned-talk-show-host Steve Bannon…”
Consulting Hannity, Ruddy and Bannon on Fed appointments?
August 7 – Bloomberg (Saleha Mohsin):
“Federal Reserve Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair among President Donald Trump’s advisers as they look for a replacement for Jerome Powell…
Trump advisers are impressed with Waller’s willingness to move on policy based on forecasting, rather than current data, and his deep knowledge of the Fed system as a whole, the people said.
Waller has met with the president’s team about the role, but has yet to meet with Trump himself…
Kevin Warsh, a former Fed official, and Kevin Hassett, currently Trump’s National Economic Council director, also remain in contention for the job…”
I’ll be surprised if Waller is the next Fed chair.
He’s not MAGA enough.
Thursday’s signal that Waller is the leading candidate seemed timed to ease the shock of a Fed governor Miran.
With market angst a no-show, there was a new narrative by Friday (James Bullard and Marc Sumerlin added to the Fed Chair list).
Markets might not give a hoot, but I’m waiting for the announcement of the new head of the BLS.
August 6 – Bloomberg (Molly Smith and Skylar Woodhouse):
“Steve Bannon, a senior adviser to President Donald Trump in his first term and an influential voice in conservative circles, is pushing for EJ Antoni to lead the Bureau of Labor Statistics.
‘EJ Antoni as the new head of Bureau of Labor Statistics — that’s what we’re pushing,’ Bannon said…
‘He’s the guy that almost single-handedly took it down by going through their numbers.’
Antoni, chief economist at the conservative Heritage Foundation, came on Bannon’s podcast Friday shortly after a BLS report showed weak job growth in July and substantial downward revisions to the prior two months.
Bannon asked Antoni if there was a ‘MAGA Republican’ in charge of BLS. Antoni responded, ‘No, unfortunately.’”
August 4 – Axios (Neil Irwin):
“This is what the alarmists — the people who have worried that President Trump may seek to undermine the collection of economic data — feared.
The president’s abrupt firing of the Bureau of Labor Statistics commissioner… makes clear that any federal data collector who delivers unwelcome news could lose their job in an instant.
Economists of all stripes fear a chilling impact. The removal ‘presents risks to the conduct of monetary policy, to financial stability, and to the economic outlook,’ wrote JPMorgan chief U.S. economist Michael Feroli…
‘These revisions reflect the commitment of statistical agencies to accuracy, transparency, and methodological rigor—not failure or bias,’ leaders of the American Economic Association said…”
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