Weekly Report
Artem Karida
Educator | C-suite advisor | business strategy, innovation, and marketing expert
Week 14. April 3 - April 9, 2023
INDEX
Macroeconomic indicators
Analytics
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Macroeconomic indicators
That is, formally, the transition to a sustainable industrial decline has not yet occurred, and then a negative trend is clearly taking place.
Let's not close our eyes and bury our heads in the sand: virtually every major economy in the world is in a severe industrial crisis.
Recall that the data of US labour statistics are most strongly distorted (no one denies this) and, often, have nothing to do with reality at all. However, in this case, there are reasons to take them seriously: the indicator of the average length of the working week, which is practically not falsified (because no one looks at it) and is very stable, has decreased from 34.5 hours to 34.4.
Analytics
Credit growth in the American banking system is declining
The three-month credit impulse in the American banking sector is visibly slowing.
The three-month growth in the volume of loans on American banks' balance sheets was 3.8% in June 2022 (the highest in 15 years), then 2-2.2% in November-December 2022, then 1.8-1.9% in January 2023, approximately 1.7% in February, and a sudden drop to 1.2-1.4% in March.
The volume of loans has declined for the first time since October 2021 (excluding the end of 2022, when lending volatility remains high), and the volume of lending has remained unchanged over the last month.
Taking current trends into account, there is every reason to think that the rate decrease will continue, and there are all risks of a shift to a continuously negative area closer to June.
Why is it significant?
Bank lending served as a critical stabilizing link in the corporate sector in the face of a lack of demand for new bond placements and the absolute failure of high-yield/junk bond placements.
Zombie businesses did not go bankrupt in droves. when financial conditions were bleak, they discovered a funding avenue through banks (rates deviating significantly from the Fed rate, and high lending capacity of banks).
Currently, lending rules are tightening, and loan rates are beginning to rise noticeably. Why are loan rates rising?
Banks now have alternative funding channels with weighted average rates above 5% (interbank + Fed), and the share of this form of funding has been actively expanding since March, reaching multi-year highs.
Deposit funding is still lagging; the weighted average rate for the fourth quarter was only 0.95%.
In the presence of surplus liquidity, cheap funding through deposits was conceivable, but this excess is being reduced, particularly in small and medium-sized banks. When competition for customers increases, banks will begin to raise deposit rates while reducing lending rates (to normalize the interest margin).
Increasing interest rates = collapse in loan demand, with all of the ramifications.
OPEC+ has decided to reduce oil production
OPEC +'s eight top members have agreed to cut oil production by 1.6 million barrels per day from May to December.
Saudi Arabia and Russia will cut 500,000 barrels per day, while Iraq will drop 211,000, the UAE 144,000, Kuwait 128,000, Kazakhstan 78,000, Algeria 48,000, and Oman 40,000.
The production reduction mechanism is quite fair and distributes an average of 4.7-4.8% of the February output level to all participants.
The OPEC members' oil production has been constant over the last year. An average of 28.6 million barrels per day were produced in the second quarter of 2022, and 28.9 million barrels per day were produced in the first quarter of 2023.
What would the new OPEC accord mean for you?
It will not change anything, but it provides some leeway. In reality, by the third quarter of 2022, OPEC+ was producing about 3.4 million barrels less than it might have under quota.
To combat the drop in oil prices, OPEC resolved to reduce quotas by 2 million barrels in early October, compensating for the enormous difference between actual production and permissible output in compliance with quotas.
What was the end result?
Prices fell another 20%, with a real reduction of only 0.5 million barrels per day from Q3 2022 to Q1 2023. (from 29.4 million to 28.9 million barrels per day).
This occurred in the backdrop of an ongoing oil oversupply on the market. The average daily global deficit in 2021 was 1.55 million barrels, a deficit of 0.22 million barrels in Q1 2022, a surplus of 0.49 million barrels in Q2, a surplus of 1.13 million barrels in Q3, a surplus of 0.28 million barrels in Q4, and a surplus of 0.43 million barrels on average per day in 2022, according to the results.
There was a 0.2-0.3 million barrel surplus in the first quarter of 2023.
Even with current oil production, OPEC was still approximately 1.2-1.4 million barrels short of the quotas, therefore the quota reduction is merely a normalization of existing consumption and is permitted.
The deal does not imply that 1.6 million barrels would leave the market; rather, it is more likely that 0.5-0.7 million barrels will leave the market, balancing the oil market in the second quarter and no more.
Given the possibility of a reduction in OECD oil demand and the uncertainty in China, this is entirely justified.
How strong is socialism in the United States?
How socially conscious is the US government? How large is state assistance in comparison to population income?
We frequently use the phrase "helicopter money." This is defined as the state's excess net social support - all sorts of targeted state assistance programs in favour of the population minus population social contributions in favour of the state.
Pensions, Medicare and Medicaid, unemployment insurance payments, veterans support, and any grants, monetized benefits, and benefits directly paid by the federal and municipal governments, including covid cheques, are examples of targeted assistance programs.
It excludes social infrastructure development and any other government investment in economic, social, and cultural development.
Hence, during the current period of covid craziness, net social support amounted to up to 55% of American workers' pay and bonuses. From 2013 to 2019, the norm was 15%; prior to the 2009 financial crisis, 9-10% was considered the norm from 2002 to 2008.
Its figure reached 28% from April 2020 to September 2021 (helicopter money scatter era), up from 16.2% from September 2008 to December 2011 (high 17.9%) in response to the financial and economic crisis.
As a result, the size of assistance measures in reaction to the 2020 crisis was 1.7-1.8 times stronger in relative terms than the response to the 2009 crisis, and more than THREE times stronger at its peak.
This is where the "helicopter money" and all the accumulated imbalances come from skewed savings, excess money supply, labour market degradation, supply and demand imbalance, and inflated public debt.
Today, the above ratio has reverted to 16%, which is higher than the 15% considered the standard from 2013 to 2019, although it is difficult to remove all support.
There are too many dependents, but the demographic structure and natural ageing must also be considered.
The profile of net social support in terms of national income is comparable. Currently 10% versus the norm of 9.2%. State incentives have been lowered, although they remain very large by historical standards.
Organic growth resources have been depleted
Although household income and spending in the United States remain consistent, it is critical to understand the structure of income creation and the triggers that keep expenditure sustainable.
National disposable income (after deducting all taxes and levies) increased by 2.3% year over year,
which may appear to be an unusual turn of events. Where does the growth come from while the crisis "spreads its tentacles"?
To begin, income in real terms has not changed in comparison to the pre-Covid February 2020 (for exactly three years) - a poor result by historical standards. The last time this happened was during the 1982 inflationary crisis.
Yet, prior to that, in 2020-2021, income in real terms climbed by 30%, indicating that there is no compensation for the unsecured income rise caused by "helicopter money."
Second, over the year, taxes and fees accounted for about 90% of the rise in real disposable income, or 2.07 percentage points out of 2.32% growth, implying that growth is close to zero in the absence of fiscal policy.
This can be observed in the net government support from American households' disposable income, which increased from minus 5.6% in 2022 to minus 3.7% by February 2023.
Net state support differs from net social support in that it includes all other taxes and fees. If the coefficient is negative, the government takes more from the people than it gives them.
The 2% increase in income incentives has resulted in a 2.3% increase in national income year on year. This occurred at the expense of a 10% reduction in income taxes at par.
The state is once again active in supporting the population's income.
In terms of expenditures, there is a 1.5% increase for the year, and a 5.3% increase over three years (from pre-Covid February 2020), which is less than the 8-10% growth in real expenditures that occurs during the economic growth phase.
Unfunded spending is constrained by diminishing savings (3.7% on average every year - a near-historic low) and credit expansion (slowing down sharply).
The organic growth resource has been depleted.
Europe's inflation is out of control
In Europe, the issue of inflation is plainly out of control.
Notwithstanding the fact that the overall CPI is falling at a quick rate in annual price change rates (from 10.6% in October 2022 to 6.8% in March 2023), the devil is in the details.
The entire slowing effect is related to the energy component, which accounts for more than 10% of the CPI structure.
From March to October 2022, energy consumer inflation averaged 38-44% per year, accounting for more than 4 percentage points in Europe's inflation structure, and deflation was recorded in March 2023 for the first time since February 2021.
Deflation is currently minor, but it will rise until September-November 2023 (a 15-20% price drop is perfectly acceptable), owing to both the collapse of wholesale prices for fuel, electricity, and gas, as well as energy subsidies.
This distorts the impression of the inflationary picture because the energy component earlier generated over 4 p.p. in general inflation and can "take away" up to 2 p.p. differential over 6 p.p. in the middle of the year.
It is critical to pay attention to services, which are expanding at 5% year on year and show no signs of slowing down, and services account for over 44% of the CPI. Services varied from 1 to 2% (average of 1.3% each year) from 2010 to 2021, which is now four times greater than normal.
Non-energy commodities are expanding at a rate of 6.6-6.8% year on year, which is 15-20 times faster than the typical of 0.3-0.5% year on year!
The most visible increase is in food inflation, which continues to rise at a rapid pace, reaching growth rates of 15-16% y / y, which is ten times the usual.
Due to the base effect and the energy component, the overall consumer price index in the Eurozone may decrease to 4% year on year in mid-2023, which may be interpreted as a success over inflation, but it is not.
With the upward trend in non-energy services and product prices, inflationary stability remains a long way off, restricting the ECB's options in the face of growing debt and financial crises.
Is the European stock market approaching a historical high?
The European stock market has nearly hit its all-time high, having overcome the effects of the March banking panic.
The majority of growth is concentrated in well-capitalized firms. The EU50 is 1.5% behind its all-time high, the Euronext 100 is 2%, and the Euronext 500 is 6.5% below its all-time high. At the same time, present capitalization greatly outnumbers weighted average capitalization (by 3-4%) prior to the acute phase of the inflationary and debt crises (October-December 2021).
The 6-month rise from October 2022 has become one of the biggest in European market history, with cumulative gains ranging from 22-30% depending on the European country and an average of 23-25% for the pan-European index.
Given that the euro has risen by 12% throughout this timeframe, the dollar growth (almost 40%!) is practically similar to the post-COVID recovery in 2020 and is second only to 2009, i.e. in second place for the entire duration of modern Europe.
The strongest recovery among technology firms in the United States. The NASDAQ Index is up more than 23% year to date, the third-fastest increase in 25 years behind gains of 40-44% in 2009 and 2020.
Except for tech companies that were heavily affected in 2022, the global equity market has recovered more than 80% of the losses it experienced in 2022 - in fact, it is at all-time highs, with the European market having the greatest issues. Absurd, insane? Everything was the same as usual.
The procedures that are currently taking place in industrialized countries' world markets are pro-inflationary.
A flight from money is destroying trust in fiat currencies and central banks. These processes are more pronounced in the United States, but they are also spreading to Europe and Japan.
The banking crisis compounded the decline in confidence. Liquidity in financial assets can take three fundamental aggregate forms:
Any intermediate states (for example, mutual funds or money market funds) are derivatives of the three mentioned above.
If liquidity moves out of monetary assets (and March likely saw the largest flight from dollar deposits), it gets redistributed into bonds or equities. Real-world capital investment opportunities include current consumption (the accumulation of durable items), real estate, luxury and art, and precious metals (gold, silver, platinum).
Those who are poorer increase current spending, raising inflationary pressure (about 80% of the population in industrialized countries), while the rest invest in real estate, gold, stocks, and/or bonds.
The greater the gap between deposit rates and alternative points of capital investment in the financial market (stocks, bonds), the greater the outflow from deposits and the higher the resulting inflationary pressure (asset bubble for 20% of the population, acceleration of current consumption for 80% of the population).
As a result, stock prices have skyrocketed and inflation has remained high. Simultaneously, issues in the banking system are multiplying. There is a deposit flight, a liquidity gap, and an attempt to compensate for rising deposit rates - a drop in the interest margin.
Compensate for an increase in interest rates on loans -> reduced demand for new loans, increased delinquency, increased costs of credit write-offs -> new losses for banks.
With the system's size and cumulative imbalances, it will surely burst. The gaps are excessively large.
Trump's investigation: reasons for it and its effects
Trump was charged with 34 charges, all of which boil down to one thing: a $130,000 bribe disguised as legal services to cover up an affair in 2006 so that the girl would avoid any reference to Trump's connections with her during and after the campaign.
Trump was not detained, but the investigation was initiated and then halted until December. Everything concluded in a routine and somewhat dull manner - there was no assault on the New York police department, no large protests, and even a court in Lower Manhattan received nothing.
The scale of the bribe is preposterous by US standards, as is the case itself. Understanding the erratic Trump's playboy past makes no sense. Another intriguing aspect of this story is the motivations and repercussions.
Members of the political elite in any country have one property: you can make up a truckload of different criminal charges for everyone because everyone is involved in dubious activities in some manner. If there is an order, anyone can be imprisoned here.
There was an unspoken rule in the United States: do not target the top echelons of the political class. At least in the United States, ex-presidents have not been accused in a criminal case, but not this time.
Trump is notable for his ability to sour ties with practically everyone, particularly with members of the media, but also with the entire "progressive public," which is now shaping the agenda.
Greens, Wall Street, the technology sector, Hollywood, African American, Mexicans, LGBT, and others oppose Trump. Take anyone from Forbes and 8 out of 10 people oppose Trump.
Trump's supporters include "traditionalists," conservatives, nationalists, industrialists, oil and gas executives, and primarily representatives of working professions, the elderly (the "baby boomers"), and ... the middle class.
This is not to imply that Trump is without supporters. He enjoys the backing of 40 to 45% of the US electorate, but he is a non-systemic disgusting "madcap," portraying the aspirations of classic America from the past - the America that is long gone - in a seductive manner. Of course, he was able to gain the support of the appropriate sectors of the people for this.
On the other hand, 8 out of 10 members of the existing business elite oppose Trump, and it is they who create the "deep state," pulling the levers and designing modern American architecture.
The Trump attack is politically driven and directly tied to the election in 2024.
Criminal proceedings are tying Trump and his team's hands in the nomination, and the presidential campaign has begun. The case "regarding the Capitol storming" or "work with classified documents that violate the rules" can be added to the existing processes.
In the United States, there are no independent presidents.
Each is supported by a team and a well-defined political and corporate elite. With the status of Biden, who is losing trust and authority in the face of the economic crisis and inflation, and the Republican Party's lack of a strong candidate, Trump had a chance to slip through. Also, Ron De Santis, who is not the strongest contender, opposes him.
It's only that the Democrats, who organized the "judicial carnage," currently wield the lion's share of power.
This is not an attack on Trump; rather, it is an attack on the "collective Republicans" who permitted this to happen. The Democrats remain dominant. Trump's chances of receiving a prison sentence are slim, and they might jeopardize the presidential election.
Will this cause a political crisis in the United States? Most likely not, at least not at this time. The US checks and balances system is the best in the world and works far too well. On the other hand, the economic crisis could spark a political crisis - a more plausible possibility.
The American capital market is not operating effectively
Initial placements (IPOs) have nearly ceased to exist; on average over the previous six months, $0.6 billion have been placed each month, 20–25 times less than during the investment bubble of 2021.
With the component of compounded inflation and the quantity of liquidity taken into consideration, the average monthly volume of placements is thought to be over $4 billion, or approximately $80 billion annually (now 10 times less).
When secondary and other placements are taken into consideration, the average monthly amount for the last six months is $7.5 billion (the situation in March did not change - $9.5 billion).
This is 3.5 times less in relation to the volume of liquidity and 5 times less than the average monthly rate in 2021. It is also 2.5 times less than the norm.
This volume of placement is the lowest for the entirety of the statistical period when market capitalization and the dollar system are taken into consideration (since 1987).
The capital market's accessibility is correlated with the market's organic growth, i.e., the investment cycle in placements always follows the expansion of the US market capitalization. A "fictitious" or unstable growth is therefore indicated if the market expands without a rise in the number of placements.
IPO and SPO are extremely reliable indicators of the economy, the investment environment, and investor confidence. Cycles of investment in the real economy reflect the accessibility of the capital market.
As a result, placements that are close to zero, which are extremely rare in contemporary history, are a certain sign of "investment paralysis". In theory, with a lag of six months, this is reflected in the business's capital investments, which typically decline.
The capital market is harmed, and the company can no longer successfully raise money by issuing shares and bonds. In these circumstances, discussing market expansion is useless.
Regarding the ambassador from China to the EU's remarks
The Chinese ambassador to the EU (Fu Cong) made a statement that "boundless friendship with Russia is a rhetorical device"
that China has never recognized and does not recognize Russia's territorial claims in Ukraine, including the status of Crimea. This statement drew a lot of conflicting reactions from people around the world.
What is to be made of this?
Outside of the US syndicate of major allies, Russia is China's most significant commercial and geostrategic partner. The current trade volume between China and Russia is $185 billion.
When excluding other nations, trade turnover between the US and EU surpasses $1.5 trillion. These partners control more than 95% of all technology used worldwide outside of China, and the United States either directly or indirectly controls the majority of sophisticated civilian innovations (in the science-intensive sector).
Although the trend towards technological independence was established in the early 2000s and significantly strengthened in 2018, trade and technological cooperation between China and the US and the EU remains a key component of China's foreign economic policy, which determines its high-quality multi-vector and deep development.
At the same time, Russia is the most combat-ready nation among all the allies of China and a crucial link in China's energy balance (overland transit).
The backing of Russia is crucial for China because it allows for the establishment of an anti-Western alliance presence there.
Russia is a long-term player in a plan to create a northern flank between China and Europe as China continues its journey towards a bipolar world (the US vs. China). Chinese borders now extend to the north (Russia), south (Iran), and east (DPRK). Increasing domination in ASEAN, Africa, and the Middle East at the same time. Russia is only a small but highly important element of China's multi-level long-term combo.
Since Russia controls the whole northern frontier, China values a Russia with pro-Chinese attitudes. Without "friendship" with the "Celestial Empire," Russia runs the possibility of turning against China, which would considerably weaken its geostrategic positions and greatly increase the likelihood of the energy balance becoming unstable.
Nonetheless, it is important to recognize that China does not have a "pro-Russian" viewpoint. There is only one pro-Chinese viewpoint, according to which the interests of China and Russia may coincide at some point in the future under specific circumstances.
While the US and Europe's conflict with Russia financially damages Europe in particular (!)
China benefits from the existing arrangement. Compared to the typical spending between 2018 and 2021, excess energy spending, including subsidies, for the energy crisis in 2022 was more than 700 billion euros for all of Europe.
In addition, Ukraine will receive over 150 billion euros in financial, humanitarian, and military aid in 2022–2023, taking Ukrainian refugee issues into consideration. Increased costs result in a decline in the European economy's marginality, which in turn results in a decline in investment and industrial potential and an increase in the proportion of Chinese businesses operating in Europe.
The current setup is advantageous for China because it keeps the US from focusing on the Taiwan case and hinders its ability to successfully pursue two fronts. Any foreign escalation in Taiwan is off the table as long as Ukraine exists, providing China with the time and chance to diversify and build its own economy.
Just as the US uses Ukraine against Russia, China is pragmatically utilizing Russia as a punching bag against the West. In this sense, Russia's economic assistance may be unconditional but conditional, and it can be largely focused on Chinese interests without harming China.
China has important economic interests, thus it has no desire to intensify the battle with the entire West. No neutral nation can provide China with what the West as a whole can: sales markets, expertise, and technology (not directly, but indirectly). China urgently needs this for its prosperity.
Creating a new, pro-Chinese world is crucial for China because it gives the country access to resources (neutral nations can only supply it with cheap labour) and allows it to form an anti-Western alliance with a distinct set of geostrategic balances.
No nation or group of nations should rely solely on China since this state thinks in terms of civilizations (at the moment, probably the only one). They most definitely do not seek to address the issues of others.
The world as seen through Russian eyes
It's always vital to evaluate a situation from all angles, therefore let's attempt to do so by peering out from the Kremlin walls.
Unquestionably, the weight and significance of "unfriendly nations" (as listed on the Kremlin's official list) are continuously decreasing with respect to Russia.
Unfriendly nations made for 59% of the world's GDP in purchasing power parity after the fall of the USSR, and this percentage remained mostly steady until the start of the twenty-first century.
It took the globe ten years to "grope" new balances and put together a setup for organic outpacing growth. The percentage of hostile nations in the global GDP fell significantly from 58% to 47% between the end of 1999 and 2010. A rate of almost 1 p.p. per year is quite high.
Over the course of these ten to eleven years, African nations increased their share of global GDP by 0.62 percentage points, Middle Eastern nations, including Pakistan, increased their share by 0.67 percentage points, and Russia and the CIS nations, including Ukraine and Georgia, increased their share by 0.9 percentage points, all of which were largely driven by the absurdly low base of 1999. (the bottom of the ten-year crisis).
Latin America, including Mexico, decreased its share by 0.67 percentage points, and "Asian giants," comprising China, India, Indonesia, the Philippines, Malaysia, Thailand, and Vietnam, grew their importance by 9 percentage points (!).
An artificial "Arab Spring" that took place in 2011 sparked several analogous processes for many years. Africa and the Middle East have thus lost a lot of impetus.
Africa's contribution decreased by 0.17 percentage points between 2010 and 2022, and even then it was attributable to population growth since the quality of development dramatically declined. Russian and CIS nations lost 0.7 percentage points, the Middle East and South America lost 1.3 percentage points, while Asian giants gained 7 percentage points (!)
The post-crisis recovery and fragmentation of the Middle East, Africa, and Eastern Europe following a series of political destabilization events, sanctions, and limitations on technological cooperation with Western countries make it curious that hostile countries retained their importance in the global economy from 2012 to 2018.
Now, hostile nations account for 43% of the global economy, but they are losing ground to Asia, especially China, which is developing quickly.
Global GDP
Since 1998, Russia's proportion of global GDP has decreased to 2.87%; in 2023, however, due to a projected decline in GDP, the percentage might fall to 2.8%, marking Russia's lowest economic weight since the fall of the USSR.
The RSFSR held a 5.1% stake in 1990. They began to increase from 3% in 2000, recovered to 3.7% in 2008, were at 3.5% before Crimea, and were between 3% and 3.1% prior to the war.
Brazil, Mexico, and South Africa are among the major emerging nations to experience 30-year lows. While at 30-year lows, Saudi Arabia and Iran are in the stabilizing phase.
Since 2012, Iran has seen a sharp decline in its GDP share in the world, from 1.5 to 0.9-1%. This contraction has lasted for seven years. COVID and the energy crisis have helped Iran to stabilize its economic condition in relation to the global economy.
Thailand is in a challenging condition, with the GDP contracting to 0.9%, a 30-year low, as a result of the post-COVID impact.
Nigeria has been in a "compression" phase since 2015, and population growth has little bearing on this since it is so inexcusably dependent on the petroleum industry.
Everything about China is transparent: from 4% in the early 1990s to 19% by 2022, with the first notable slowdown in economic pace occurring in that year. India, on the other hand, is accelerating its expansion and expanding its influence in the world economy.
Turkey, Indonesia, the Philippines, and Vietnam in particular, which are developing in accordance with the "China model," are success stories. The labour-intensive industry is migrating to Vietnam as China's labour force becomes too costly and unproductive.
Malaysia has a strong position in the world economy and is doing well; the country is developing at the same rate as the global economy without outpacing it.
In preparation for the US financial crisis' second stage
The need for emergency lending is decreasing, which is caused by the structural characteristics of loans and their high cost since it is unprofitable for banks to maintain liabilities at 5%. This indicates that the first phase of the US financial crisis is stabilizing. This only makes sense in the context of the idea of using emergency measures to close gaps in the balance sheet.
The following modifications have occurred in the previous four weeks:
The following numbers sum up all loan programs: $307.6, $403.7, $387.7, and $363.3 billion.
The peak was in the second week, loan programs are falling by $20 billion on average a week, and the only segment of the banking sector that is seeing growth is the small and medium-sized banks, where issues are still present. As lending cannot serve as a resource for dangerous market operations owing to urgency, the requirement to freeze collateral, and high cost, the tendency is anticipated and was previously outlined.
The Fed's balance sheet has undergone an intriguing move.
On April 5, the market received the most amount of securities ever released under the balance reduction program, which ran from June 1 to $ 49 billion, with all sales being handled by treasuries.
Previous to this, the Fed had essentially no transactions for four weeks; at that time, sales totalled $22 billion in 28 days, while $89 to $90 billion in sales were required in four weeks.
The execution plan is 93% for Treasury securities, 37% for mortgage-backed securities, and 72% overall with a $229 billion deficit.
The Fed does not execute operations while the market is unstable; in June and September, this was the case.
Why sell now?
Money market funds deposited liquidity in treasuries, creating a buffer into which the Fed dropped $50 billion in treasuries, and received almost $200 billion in three weeks (the second-highest inflow on record after April 2020).
The banking crisis is about to enter its second phase.
Working in the USA
Although there are hints of a slowdown in economic activity, American employment growth is still solid. An astounding 4.14 million jobs were created in March 2023, a growth of 236 thousand (the poorest figure in two years).
An increase in employment of 345 thousand people per month is expected in Q1 2023, compared to 284 thousand in Q4 2022, 423 thousand in Q3, 329 thousand in Q2, and 561 thousand in Q1.
According to the 2010-2019 trend, there is a 3.8 million-person gap between trend employment and the gap in employment from a year ago in March, meaning job growth rates are 150–160 thousand greater than the average monthly rise in 2010–2019. (about 190 thousand per month).
Nonetheless, the United States still has a fundamental mismatch between supply and demand, which is exacerbated by dwindling worker productivity, excessive savings, and unbalances in the labour market where low-skill employment incentives are insufficient.
The rise in employment between March 2023 and pre-Covid February 2020 is 2.1%, although there are five industries where employment has not recovered:
One-third of all jobs are in the aforementioned five industries, and the service industry in particular is where the majority of the labour shortfall resides. The labour deficit is 7 million individuals if we compare the number of available positions, the present demand for products and services, with the number of employees and their productivity (minimum)
Thus, salaries are rising (7.2% vs 12% growth in the salary fund for non-managerial staff).
The following factors can be used to offset this labour shortage:
Although the Fed is attempting to affect demand, lowering it does not enhance labour productivity or address structural imbalances in the labour force.
The threat of a US banking catastrophe is still present.
Total failure in terms of the deposit base. By March 29, the total amount of deposits leaving the US banking system (US banks plus foreign bank branches) had reached a record $473 billion in just 4 weeks!
To appreciate the size of this. The sum of deposits that were lost from December 31, 2022, to February 28, 2023, was "just" $135 billion. The total outflow from March 1, 2022, to December 31, 2022, was $331 billion; hence, from March 1, 2022, to March 1, 2023 (exactly for a year), the total outflow was $466 billion.
A similar sum to what was removed 11 months before the financial crisis has been taken out within the last 4 weeks!
Due to the rapid outflow of depositors, these data have been seasonally adjusted, and there is reason to suspect that the Fed has erroneously calculated seasonal coefficients. Without seasonal smoothing, the outflow for the year was $677 billion versus $940 billion, but the trends have remained consistent - March broke a historical anti-record.
This is NOT the whole money supply, but Simply deposits in American banks! Between March 1, 2020, and March 1, 2022 (a period of extreme monetary frenzy), US bank deposits climbed by $4.7 trillion, and by $5.7 trillion ten years earlier.
Currently, 20% of the deposits that had accrued during the monetary frenzy have been used (withdrawn into other assets) for the year, which is, in relative terms, the greatest flight since the Great Depression.
The usual growth rate of deposits is $700–$750 billion annually, after accounting for compounded inflation and other banking system components.
Even with such a remarkable withdrawal of deposits, there is still a $2 trillion gap from trend growth (2010-2019) that must be filled by inflation or more deposit flight in order to stabilize the money market and eliminate the "surplus," excess liquidity.
More than $300 billion worth of the deposits were sent to money market funds and similar institutions, supporting the demand for bonds and enabling the Fed to begin sales.
Bank issues still exist; everything is just getting started!
The banking crisis has been going on for more than a month now
Due to the "freezing" of the informational background, it may appear as though the worst is behind us.
US banks sold $277 billion worth of securities between February 22 and March 29, resulting in a record loss that should be recorded in the first quarter's financial accounts. In the structure of sales, MBS accounted for $169 billion, $67 billion in treasuries and $41 billion in other securities.
Throughout the history of the American financial system, no other significant sales occurred over the course of five weeks.
The last comparable event occurred during the 2008 financial crisis when $133 billion in securities were sold by November 26. According to preliminary estimates, money market funds were the biggest recipients of liquidity, intercepting $250–350 billion and distributing the ensuing liquidity to treasuries and MBS in equal distribution, keeping the debt market steady.
But, there is another factor at play here: Banks boosted their investments in securities by $2 trillion (from $3.8 to $5.8 trillion) between May 2020 and March 2022, and the total amount of these assets is currently estimated to be $5.2 trillion. The predicted change in assets from the weighted average purchase prices from May 2020 to March 2022 is minus 10% since banks purchased bonds during the period of zero interest rates (due to rising rates).
The realized loss might be between $25 and $30 billion, or up to half of the possible profit for the first quarter of 2023 for the whole banking system, given the size of the sales. However, the majority of the reset occurred in small and medium-sized banks, where losses as a percentage of total profits might be higher.
Another significant tendency is a dramatic slowdown, or perhaps a drop, in lending.
For the first time since July 2021, overall bank lending of all kinds fell by 0.3% during the previous four weeks, favouring people and legal companies.
From a high of 4% in mid-2022 and 2% in early 2023, the three-month rate dropped to 0.7% at the end of March 2023.
The credit impulse started to increase in July 2021 and culminated with all the related effects after adding $ 1.8 trillion in loans.
Now, evidently, everything is completed with all the implications.
THE END OF THE REPORT
Stay tuned.?
Regards, Negorbis.
The key info about the financial and banking crisis can be found in three issues dedicated to this subject:
Part I "Falling Bank Chronicles"
Part II "Crisis of confidence & regionalization"
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