WASHINGTON, Aug. 1, 2019 — Photo taken on July 31, 2019 shows U.S. dollar banknotes in Washington … [+] D.C., the United States. U.S. Federal Reserve on Wednesday lowered interest rates for the first time since the 2008 global financial crisis, amid rising concerns over trade tensions, a slowing global economy and muted inflation pressures. The Federal Open Market Committee, the Fed’s rate-setting body, trimmed the target for the federal funds rate by 25 basis points to a range of 2 percent to 2.25 percent after concluding its two-day policy meeting, in line with market expectation.(Photo by Liu Jie/Xinhua via Getty) (Xinhua/Liu Jie via Getty Images)
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Last week, interest rates moved slightly lower, with the 10-year T-Note falling about 7 basis points from 0.71% to 0.64%, a retracement of 37% toward the 0.51% August 4 low. Like its brethren, the 30-year T-Bond fell 10 basis points from 1.45% to 1.35%, a 38% retracement to the 1.19% low (also August 4). Some of the up-move had to do with the “Inflation Scare” discussed in last week’s blog. But most of the up-move was the result of the sheer volume of new debt coming to market. When a Treasury auction doesn’t go so well (Reuters Headline: “U.S. sells $25 bln 20-year bonds to tepid demand”), rates naturally rise. So, why the re-emergence of the downtrend?
Some of it may be related to the growing recognition that we have yet to see the worst of the Recession, and when we do, the Fed will have little choice but to print more money. The chart below, which shows retail sales making a new high (with 28 million people still unemployed) is all you really need to know. The April $1,200 stimulus checks and the extra $600/week of unemployment benefits actually grew personal income (PI) at a $2.2 trillion annual rate (12% annualized growth). And, as I write, we are still awaiting the next installment from Congress.
Retail Sales
U.S. Census Bureau
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At the same time as retail sales and PI were smashing records, the savings rate established some new records of its own, currently standing at 19% of PI. Consumers haven’t taken any vacations lately. Nor have they gone to many restaurants. In fact, most leisure activities have been curtailed. Thus, the rise in the savings rate. What we do see, however, is a significant rise in spending on home improvements (look at HD, and LOW revenues and earnings). And the one sector of the economy that is doing well is new home construction, especially in the suburbs (Housing Starts +22.6% in July!).
There have been discussions in the economics blogosphere about where the Fed’s balance sheet will get to when the real bite of the Recession is felt. As of August 19, the size of that balance sheet is $7.01 trillion. For context, it was $3.76 trillion a year ago on August 21, 2019 (which was still bloated from the ’08-’09 Recession). That’s an 86% ($3.25 trillion) expansion. It appears that the Fed will re-double that effort when the chips are down. Some of the bloggers say that the balance sheet will have to top $10 trillion, i.e., $3 trillion more. Doing the math, for every $1 trillion added to the money supply (Fed’s balance sheet), the annual growth in M2 rises about 7 percentage points. As of August 19, the Y/Y growth in M2 was 22.4%. Adding another $1 trillion puts that growth rate near 29%, and $1 trillion after that puts it at 36%. A third $1 trillion ramps it up to more than 42%! The table below, from my blog of two weeks ago, shows the rate of money growth in the world’s more important economies. None of these economies show money growth even close to the U.S.’s, much less what it may turn out to be when the Fed expands its balance sheet to cope with the real, but belated, Recession impacts.
Rate of money growth in the economies
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Gold price vs Dollar
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Gold is priced in dollars. There is a very strong relationship between its value and the value of the dollar (see chart). Imagine how fast the value of the dollar will fall and the (dollar) value of gold rise if the U.S. money stock grew 42% while the rest of the world continued to expand their money stocks at the rates shown in the table. The scariest issue here is the possibility that the world no longer uses the dollar as the reserve currency!
What’s the Fed Thinking?
In the minutes of the recently held Fed meetings (July), the Fed chiefs indicated that it would continue to expand its balance sheet, as needed. This was no surprise. Discussed at the meeting was a strategy of pegging the Treasury yield curve (i.e., pegging rates for the 1, 2, 5, 10, 20 and 30-year securities). In the minutes, the Fed indicated that it was not going to implement this strategy at this time. When that was revealed last Wednesday, there was a brief back-up in yields.
But, the real kicker was the Fed’s view on the economic outlook. The Fed gave two scenarios, both of which are given an equal probability. In all of my many years of Fed watching, I have never seen them gravitate toward a pessimistic scenario or come off as a worried bunch. But they did in July. In this scenario, the virus has a second wave, more businesses close, GDP falls again, unemployment rises, and deflation prevails.
And their view on the recent upward move in the CPI (i.e., the “Inflation Scare”) is that the negative impact of the pandemic on aggregate demand more than offsets upward price pressures due to supply issues. Well, at least for now. (My comment: The money creation, supply issues and some demand improvement will eventually lead to inflation.)
The Economy
Recent data show some slight improvements in the high frequency data. For example, OpenTable restaurant bookings are slightly higher in mid-August than they were in mid-July (but, still, down more than -50% from their February levels), and TSA passenger counts are up, as are the retail sales and housing starts alluded to earlier. But, as explained, we are still living on the sugar high of free money, and it appears more is on its way. The real economic consequences come when the helicopter money stops.
Employment
As expected, August showed some deterioration in the weekly state Initial Claims (IC) data (week of August 15). IC rose +53k (not seasonally adjusted- NSA) from +839k to +892k, as businesses, now well past any PPP requirements and realizing that the nascent recovery has flattened, continue to lay workers off. These ICs must fall toward their more normal 100k-200k levels for the economy to regain its swagger.
But there was some good news on the employment front, albeit not covered by the business news media! State Continuing Claims (CC) data (week ended August 8) fell -936k (NSA) from 15.201 million to 14.265 million, as some businesses were allowed to re-open. Despite the fall, this number is still mind-bogglingly high! For context, a year ago, this number was 1.619 million (about 11% of the current level).
Unlike the state numbers, the Pandemic Unemployment Assistance (PUA) (the supplemental program created by the CARES Act to aid the self-employed and independent contractors not eligible for the state unemployment programs) new weekly Initial Claims (IC) (week ended August 15) rose +53k from 490k to 543k. The PUA Continuing Claims (CC) data has a 2-week lag, so the latest data there are for the last week of July (week ended August 1). In that week, PUA CC rose +502k, from 10.723 million to 11.225 million. The combined state and PUA data (lagged back to August 1) still shows 28.1 million people unemployed.
The conclusion here is that employment is still a mixed bag. The mid-August state data does show hope. As seen in the chart, the downtrend in the unemployment levels continues.
The unemployment picture
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Bankruptcies (BKs)
Below is an update to the weekly BK chart that I have included in this blog for the past few months. The annual BK rate reached 275 in mid-August (publicly traded companies from the Bloomberg database). As of August 20, the annual rate stood at 273. For context, in 2019 there were 139 BKs of publicly traded companies, and there were 118 in 2018. I expect this rate to accelerate when the helicopter funding ends.
Annual Bankruptcies
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Conclusions
The economy remains on a free-money induced sugar high;
The consequences of the Recession are still “down the road;”
When those consequences do present themselves (rising BKs, stubborn unemployment, foreclosures, loan losses, evictions…), the Fed will have no choice but to print more money;
The result is that the intermediate term prospect is for continued dollar weakness vis-á-vis other currencies;
That means rising gold prices and ultra-low interest rates.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
