FOMC Talking Points, a Looming Fiscal Cliff, and Preventing a ‘Lehman Moment’

The housing market at large cooled slightly in August, but rental inflation is soaring in a development that’s sure to have been a topic of conversation at this month’s FOMC meeting. Other likely talking points? An approaching “X date” to raise the debt ceiling, historic government spending, QE tapering, and a looming fiscal cliff. And the Fed isn’t the only central bank laying the groundwork for a taper; how much of global GDP is dependent on stimulus spending and what kind of fiscal drag could be sparked by its withdrawal? Meanwhile, as iron ore futures find support and meat grows ever-more expensive, equities have leveled off slightly as the PBoC pushes liquidity into the system and helps keep the Evergrande collapse from turning into another “Lehman moment.” China still has to grapple with a climbing yuan and increased government regulation, but for the time being equity valuations seem to have escaped relatively unscathed.

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1. As part of the normalization process, rents are surging. This should be visible in CPI in the months ahead. Will this inflation spook the FED into acting earlier?

Source: The Daily Shot, from 9/21/21

?2. We have expressed concerns in the past.?Our government officials aren’t speaking to the other side, we have a debt ceiling limit set to be reached in October, a $1 trillion budget deficit, an additional $1.7 infrastructure and another $3.5 trillion social package on the table.?The FED is buying up to 50% of the new Treasury bonds issued.?Now the FED is going to taper?!?If the social package passes with the massive tax increases, the economy’s recovery continues to slow, Covid is still rampant and getting worse in many states, and the Fed is preparing to taper. Rates will likely rise, the budget deficit will leap in response, and the economy, already weak, should feel the consequences.?Perhaps the enormity of all this can be set off by a large Chinese lender nearing default.

?Source: Bloomberg, from 9/22/21

?3. And the QE is not just in the U.S.; the BOE, BOJ, ECB, PBOC will all likely taper at the same time, flooding the bond markets with supply…

Source: The Daily Shot, from 9/22/21

?4. There are plenty of open warnings that crypto regulation may be on the horizon:

?Source: The Daily Shot, from 9/21/21

?5.?Similar to lumber, we believe iron ore has completed the normalization process:

?Source: The Daily Shot, from 9/21/21

6. These seem light compared to a trip to a local market:

Source: The Daily Shot, from 9/22/21

7. The Chinese currency continues to strengthen, which causes a headwind for growth in China. It also should, all else remaining the same, improve the U.S. trade deficit:

Source: Bloomberg, from 9/21/21

?8. Despite the government “crackdowns” and slowing manufacturing and consumer sectors, China’s stock markets are still rich:

?Source: BCA Research, from 9/22/21

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