Exposure to plastics and other chemical hazards of modern life is reducing penis sizes and sperm counts, eroding fertility to the extent that the future of the human race is imperiled, a top epidemiologist claims in her new book.

“Simply put, we’re living in an age of reproductive reckoning that is having reverberating effects across the planet,” Dr Shanna Swan wrote in her book ‘Count Down.’ She added,

“The current state of reproductive affairs can’t continue much longer without threatening human survival.”

Swan is a leading environmental and reproductive epidemiologist who has studied declining sperm counts and the impact of environmental chemicals and pharmaceuticals for more than 20 years. Her book, which was released in late February, is a top seller in several scientific categories.

Swan alleges that phthalates, which are used in plastics manufacturing, and other chemicals have led to such alarming effects as: an increasing number of babies being born with small penises; sharply lower testosterone levels in men; sperm counts in Western countries plunging 59% from 1973 to 2011; and a fertility decline of more than 50% over the past half century.

Female reproductive development and estrogen levels also have been altered. “In some parts of the world, the average twenty-something today is less fertile than her grandmother was at 35,” Swan said.

Reproductive havoc is affecting animals, too, the scientist said, pointing to such findings as unusually small penises in alligators, panthers and mink, as well as more fish, frogs, birds and snapping turtles having “ambiguous genitalia.”

“Unless we take steps to reverse these harmful influences, the planet’s species are in grave danger,” Swan said. She wrote that humans meet three of the five criteria that define whether a species is endangered. Only one of the five has to be met for a species to be endangered.

Falling fertility rates are predicted to halve the populations of 23 countries, including Spain, Japan and Italy, by 2100, according to a University of Washington study. The global fertility rate (the number of children that an average woman gives birth to in her lifetime) is forecast to drop from 2.4 in 2017 – just above the 2.1 level pegged by the UN as necessary to maintain current population levels – to 1.7 in 2100.

Some people are in denial about the alarming fertility trends, Swan said, while others brush it off because they consider the planet to be overpopulated. It may take decades to get the public to take the issue seriously.

“Sweeping modifications” to the kinds and volumes of chemicals that are pumped into the environment are needed to restore reproductivity, she added.

Source: Watts Up With That?

[…] 12,800 years ago, the world abruptly froze. Temperatures plunged back to ice age conditions, and stayed cold for over 1000 years.

In 2009, a group of scientists researching high resolution sediment samples from Lough Monreach, an ancient lake in Ireland, claimed the return to ice age conditions might have occurred over a period of less than a year. In the lead researcher’s words, “It would be like taking Ireland today and moving it up to Svalbard, creating icy conditions in a very short period of time”.

There is nothing unusual about ice ages in our current geological epoch. It is the reprieve from cold temperatures which is unusual, not the glaciation. Most of the last 115,000 years the world was locked in a harsh ice age, with vast ice sheets covering Europe and Canada. The Holocene, our current brief respite from extreme glaciation, only stretches back for the last 12,000 years.

While climate alarmists parade their worthless computer models and shriek that the world is overheating, paleo-climatologists are aware that far from being unusually warm, the world is currently in the grip of the Quaternary Glaciation, a period of unusual cold which has so far lasted 2.6 million years. What we are experiencing right now is the Holocene, a brief respite from the vast ice sheets which define much of the Quaternary.

A return to extreme cold is unlikely to happen in our lifetimes. Noteworthy geological scale events rarely happen on a human timeframe. But a return to glaciation at some point in the future is inevitable. Let us hope our descendants maintain the technological and engineering prowess they will need to hold back the ice, when the ice finally returns to challenge our beautiful home.

Authored by James Rickards via The Daily Reckoning,

By now, you’ve heard of the Green New Deal, an ambitious agenda to decarbonize the economy. The overall Green New Deal calls for ending the use of oil and natural gas, moving to electric vehicles, solar, wind and geothermal power, imposing carbon taxes to reduce C02 emissions and providing government subsidies to non-carbon-based energy technologies.

The U.S. would also seek to embed these policies and priorities in new trade treaties and multilateral agreements. President Biden has already begun this process by rejoining the Paris Climate Accord, which actually doesn’t mean much; it’s mostly for show.

The Paris Accord is also a platform for pursuing the Green New Deal.

But it’s difficult to conceive of any other program that would do more harm to the U.S. economy and give more of a boost to the Chinese, Russians and Iranians.

Biden has temporarily halted all new oil and gas drilling leases and permits on federal lands. He’s moving quickly to make the ban permanent. This ban will kill the fracking industry and help to destroy what’s left of the coal industry. Because of reduced supply, it will raise energy prices globally. New carbon emission taxes will raise prices even further.

Why Kill the Keystone XL Pipeline?

Very significantly, Biden has also canceled the Keystone XL pipeline. This is a pipeline that brings oil from Alberta, in Canada, to the central United States. The pipeline would then go to Nebraska, where there would be a hub and a distribution center.

Killing the pipeline would cost tens of thousands of jobs. And when you count suppliers and subcontractors, it could be at least 100,000 high-paying lost jobs, mostly union jobs with benefits.

But the fact is, the oil is still coming anyway. That oil from Canada is still coming to the United States, except it comes by truck and train. That’s the reason you build a pipeline. It’s faster and cheaper to move the oil by pipeline than it is to move it by truck and train. What we have now is just a pipeline on wheels with one difference…

They release much greater CO2 emissions. All these trucks and all these trains are putting more CO2 into the atmosphere than a pipeline would. Again, that’s why you build a pipeline.

So if you’re doing this for economic reasons, it makes no sense because you destroyed maybe 100,000 high-paying jobs. If you’re doing it for environmental reasons, it makes no sense because you will have more CO2 emissions from the trains and trucks than you would from the pipeline. But they’ve done it anyway.

This is a good example of what I call the triumph of ideology over common sense. Common sense will say, build a pipeline for the reasons I just mentioned. But that doesn’t fit the ideology or their worldview. They’re immune to the facts. They just say pipelines are bad, so get rid of them.

A Propaganda Cover for the Real Objectives

Biden justifies the Green New Deal based on fear of climate change. I don’t want to dive into the climate change debate today. But there’s good science that says CO2 is more or less a harmless trace gas, not the existential threat that many environmentalists would have you believe.

Climate science provides almost no evidence that slight observable temperature changes have anything to do with C02 emissions. It is far more likely that any temperature changes are the result of solar flare cycles and volcanic eruptions. Some data strongly suggests that the earth is slowly cooling, not warming.

Scare tactics about the “costs” of hurricanes have more to do with expensive homes built on exposed barrier islands (subsidized by federal insurance programs) than the intensity of storms, which were actually greater and more frequent in the 1940s.

Climate change is a propaganda cover for the real goals of higher taxes, more regulation, slower growth and favors for tech entrepreneurs. It’s a globalist’s dream.

What About Congress?

When you add it all up, Biden’s proposals will destroy high-paying jobs with benefits in the energy sector, raise energy costs for consumers and help flat-line economic growth.

Still, given the ideological momentum behind the Green New Deal and the imperatives of getting policies enacted quickly, it seems likely that some of these misguided provisions will become law at great cost to consumers and the economy as a whole.

But the prospects of the most radical parts of the Green New Deal becoming law are problematic. The projected adverse economic and geopolitical results will possibly derail the program in Congress. But, there can be no assurance of that. This will be one of the legislative priorities that Biden puts on a fast track because a Republican takeover of the House in 2022 would stop it indefinitely.

But the climate change agenda is seeping into all aspects of policy, including monetary policy. The original role of central banks was to provide a sound currency, which, in turn, facilitated government borrowing.

By the late 19th century, a new mission was added, which was to be a lender of last resort to banks themselves in a financial crisis. It held that in a crisis, the central bank should lend freely to solvent banks against sound collateral at a high rate of interest. That’s been flipped on its head.

Today’s version is to lend freely to anyone without collateral at a zero rate of interest.

From Lender of Last Resort To Climate Savior

After 1934, the Federal Reserve and other central banks were given broad regulatory powers over the banks in their jurisdictions. Finally, in 1978 the Humphrey-Hawkins Act gave the Federal Reserve a dual mandate, which included price stability and job creation.

With the job creation mandate in its portfolio, the Fed was empowered to interfere with almost every aspect of the real economy, including jobs, inflation, interest rates, liquidity and financial regulation.

As if that weren’t enough, economist Barry Eichengreen now calls on central banks, especially the Fed, to use their regulatory powers to control climate change! Part of the agenda would address racial inequality, income inequality and credit access for underprivileged groups.

These may be laudable goals, but it’s a long way from the Fed’s role as lender of last resort.

What’s frightening about this push to expand the Fed’s mandate is not that it can’t work, but that it could. A central bank could require commercial banks to lend money to solar and wind generating companies and deny credit to oil companies.

A central bank could require more loans to disadvantaged neighborhoods and require that no credit be made available to gun manufacturers or gun dealers.

There is no aspect of the economy and business activity that could not be affected positively by mandatory credit or destroyed by the lack of credit and access to the payments system. This is already being done to some extent by cabals of commercial banks. It would be even more powerful if required by central banks.

This is exactly the outcome that has been warned about for centuries by philosophers and political scientists. It is exactly the reason Americans abolished two U.S. central banks in the 19th century.

Any party that controls money can control the world. One solution is to abolish the Fed. Another solution is to abandon the money and move to something the Fed cannot control — gold.

by Simon Black via Sovereign Man

Nearly 186 years ago to the day, on January 8, 1835, US President Andrew Jackson accomplished what no other American president has done before, or since: he paid off the national debt.

Jackson was a staunch fiscal conservative. He despised banks, and, according to his biographer, he considered central banking “black magic”, and the national debt a “moral failing”.

So he paid it all off– roughly $5 million.

That was the first and only time that the US national debt was zero. By the end of 1835, the debt had increased to a trivial $33,733. Within three years it was 100x that amount at $3.3 million. And by 1847 it had increased another 10x to $33 million.

The trajectory continued; the national debt crossed $1 billion for the first time during the Civil War. Then $10 billion for the first time during World War I. Then $100 billion for the first time during World War II.

It crossed $1 trillion for the first time during the peak of the Cold War in the early 1980s.

And it crossed $10 trillion for the first time in 2008 after years of war in Iraq and Afghanistan, followed by the Global Financial Crisis.

The national debt is now nearly $28 trillion– 40% larger than the entire US economy. And the debt will most certainly hit $30 trillion over the next several months.

Last year alone the debt grew by $4.5 trillion due to all the Covid stimulus.

This matters. Because, sooner or later, that debt is going to mature and will need to be repaid.

Now, traditionally, whenever government bonds mature, many investors simply reinvest their proceeds into a brand new bond.

In this way, the government doesn’t actually have to pay anyone back; they just keep refinancing and kicking the can down the road farther out into the future.

And the Treasury Department is praying that bondholders will continue this practice forever.

Unfortunately that’s probably not going to happen.

For starters, foreign governments like China and Japan (which are among of the biggest owners of US government debt) have already started reducing their holdings.

Back in February, just prior to Covid gripping the world, foreigners owned $7.23 trillion worth of US government bonds– approximately 30% of the total national debt.

By October (which is the most recent data available from the Treasury Department), the total amount had fallen slightly to $7.07 trillion. But as a percentage, foreigner ownership had dropped to about 25% of the total national debt.

This isn’t a earth-shattering decline. But it shows a clear unwillingness from foreign governments to buy more US government debt; and also that some of them would like to be repaid when their existing bonds mature.

Just look at China. After years of rising tensions, China has gradually reduced its holdings of US debt, from a peak of $1.32 trillion in November 2013, to $1.07 trillion in October 2020.

And it’s unlikely that China will suddenly have a fit of generosity and choose to extend their US Treasury holdings.

Aside from foreign governments, another major holder of US government debt is the Social Security program; in other words– US citizens.

Social Security built up enormous cash reserves over the years in its various trust funds, and those trust funds are 100% invested in US government bonds.

Traditionally, Social Security always buys new bonds whenever its existing bonds mature. So they keep refinancing the debt for the US government.

But now Social Security has a huge problem: the trust funds are rapidly running out of money. Prior to Covid, the Treasury Secretary estimated that Social Security’s trust funds would be fully depleted by 2034.

But Covid has ravaged Social Security’s finances.

Unemployment surged, countless businesses closed, and payroll taxes were suspended. In other words, there was no money being paid into the trust funds.

At the same time, Social Security payments increased; even more people have retired and started collecting benefits. So while Social Security inflows went to zero, the outflows jumped.

And some analysts (like the Bipartisan Policy Center) now estimate that the program’s trust funds could be fully depleted as early as 2029 because of the adverse Covid impact.

So, needless to say, Social Security will need to be paid back when its Treasury bonds mature in the coming years.

As it turns out (according to Bloomberg) $8 TRILLION worth of government debt in the US will mature THIS YEAR alone.

Plus, the Congressional Budget Office expects another $2+ trillion deficit this year due more Covid stimulus.

So that’s potentially $10+ trillion worth of government debt that will need to be placed this year. That’s $300,000 per second.

The only way they’ll realistically accomplish this is if the Federal Reserve ‘prints’ trillions of dollars of new money.

The Fed did this last year; in January 2020, the Fed owned $2.3 trillion worth of US government debt. Today they own $4.7 trillion, plus trillions more in other bonds, for a total balance sheet of $7 trillion.

This is the ‘black magic’ of central banking; the Fed conjured money out of thin air and expanded the money supply by roughly 25% last year. Then they used that money to buy US government bonds.

They’ll have to do it again this year and create trillions of dollars more.

It is rather interesting that Janet Yellen is the incoming Secretary of the Treasury; she used to be Fed chair, and during her tenure she oversaw unprecedented money printing programs.

So there will likely be plenty of cooperation between the Fed and Treasury to print absurd quantities of money this year.

Certainly there will be some bondholders who extend their securities. But most likely the Fed will need to print another $3+ trillion, pushing its balance sheet beyond the $10 trillion mark.

And if they really go down this destructive path– $30 trillion national debt, a $10 trillion Fed balance sheet– then 2021 may be the year that the world finally loses confidence in the US dollar.

Authored by Bill Blain via MorningPorridge.com,

Let’s consider Wind Power.

If you believe in Wind-power then don’t – whatever you do – read The Costs of Offshore Wind Power: Blindness and Insight. Although it was written way back in Sept 2020, the report might make you quite unhappy about the current direction and prospects for the Green Economy. The authors describe how costs are escalating rather than declining as promised. Operating and maintenance costs have risen even faster than they were anticipated to fall! Gas prices will look impossibly cheap compared to renewables if the true facts are ever revealed.

How about this for a quote from the report:

“This leads to the prospect of what is not so much a car crash as a motorway pile up in the fog of ignorance.”

The report suggests the narrative that “Wind power is getting cheaper and more efficient all the time” is complete nonsense. The majority of the 350 odd UK wind farms will need a bail out. The government’s approach to green power completely underestimates the long terms O&M costs and drop-off which means most wind projects are massively overpriced, and we’re still years away from carbon neutral.

If author Professor Gordon Hughes is correct – and I see no reason not to believe him – then the UK will be in serious crisis over it carbon neutral green energy costs. The knock on in terms of future decarbonisation efforts will be huge, it will change the maths for a “green hydrogen” powered future, and change the pricing and timing outlook for gas and even coal-fired power.

I’ve done my own digging, and wind investments just don’t perform like promised in the fancy brochures.

If you maintain a very traditional windmill very, very carefully it might last a couple of hundred years. If you build them quick out of plastics, keep them light and pump them out vast numbers, then you are going to spend lots of time and money maintaining them… Checking and replacing bearings gets more and more difficult the bigger they get. You need to check for hairline stress fractures on the blades. Because of the rotational movement, they put additional pressure on the foundations and sink into the bottom. And all these things get much, much more difficult if you stick the thing in the middle of the English Channel, North Sea or Atlantic approaches where salt-water literally eats them.

The brutal reality is off-shore wind is far less efficient than promised and requires much more expensive maintenance. They break down, sink into their foundations and don’t generate anything like the power expected. For all the due-diligence, they simply won’t ever make any money unless the price at which they sell energy is dramatically increased – at which point they make zero sense.

This will feel very familiar to many investors who’ve seen all the blithe assumption about O&M costs on all kinds of technological green marvels fail to meet expectations. Biowaste generators, Biomass, thermal pellets – you name it, and the rosy assumptions failed to materialise because the difficulties in making them work and keeping them working were glossed over by the promoters.

Most of the smart money already knew that about renewables and is deeply sceptical. The not-so-smart money still laps the deals up! Sadly, renewables is likely to become another charming but flawed investment thesis. I am no stranger to investment madness… three times I’ve invested in Airships and lost my dosh every time…

The problem is: we really do need to address climate change… which means energy prices have to rise to keep the inefficient windfarms working… meaning a less efficient economy.

And its not just renewables that are attracting big bids because someone else is assumed to have done the work to check they work. There are a host of other Green assumptions that are unlikely to stand up to rigorous testing. Whatever you believe about recycling Lithium batteries, its challenging. They are toxic to mine, toxic to process and toxic to dispose of. As the surveys now show, if you diligently use your EV for 300k miles it will achieve carbon neutrality – as long as you don’t worry about how the electricity is made or how the batteries will be recycled.

POSTED BY SRSROCCO IN ENERGY

It’s Official. The collapse of U.S. shale oil production has begun. The mighty Shale Oil BOOM has now finally turned into a BUST. While the pandemic shutdowns sped up the process, the collapse of the U.S. shale industry was going to occur, regardless. According to the U.S. Energy Information Agency, shale oil production will continue to decline below 7.5 million barrels per day in January.

At the peak last year, the top five shale oil fields combined production reached nearly 9.2 million barrels per day. Since the shutdowns during March-April, many of the companies curtailed shale oil production. However, all of these wells have now been brought online, but the massive decline rate is kicking in due to a lack of drilling and completion activity.

As we can see in the chart below, shale oil production in these five fields fell from 9.16 million barrels per day during the peak in 2019 to 7.27 million barrels per day forecasted next month (January).

In a little more than a year, the combined shale production from these five fields declined by 1.9 million barrels. The data in the chart above is shown in thousand barrels per day. According to Shaleprofile.com, these five fields add more than 11,000 new wells in 2019. In looking at the new well trend data for Jan-Oct 2020, I would be surprised to see more than a total of about 5,000 wells added this year.

While the Permian suffered the highest decline in shale oil production, the biggest loser in percentage terms was the Anadarko Field. Oil production from the Anadarko declined from 603,000 barrels per day (b/d) at the peak last year to a forecasted 363,000 bd in January. That’s a stunning 40% decline in a little more than a year.

The Niobrara in Colorado reported the next largest decline at 34%, followed by the Eagle Ford (-30%), Bakken (-22%), and Permian (-18%). The average percentage of production decline from the fields since the peak last year was 21%.

Oil Geologist Art Berman produced this chart showing where he forecasts U.S. oil production by September 2021.

Art believes total U.S. oil production will decline to 7.7 million barrels per day by September 2021. However, I don’t believe this forecast will happen because his chart shows total U.S. oil production will be approximately 10.2 million barrels per day by January 2021. The EIA reports that U.S. oil production is 11.0 million barrels per day on Dec 11th.

It’s probably more realistic to forecast a decline to 9.5-10 million barrels per day by September 2021. We will see. Regardless, the mightily U.S. shale oil Boom has now turned into a Bust. While it will take 5-10 years to collapse by 75%, it’s not ever coming back.

by Wolf Richter via Wolf Street

The Incredibly Spiking US National Debt has soared by $3.75 trillion since March 1, powered by stimulus and bailouts, and by $4.2 trillion over the past 12 months, to $27.3 trillion, after having already spiked by $1.4 trillion in the final 12 months of the Good Times. Trillions are zooming by so fast it’s hard to even see them. But these are all Treasury securities, and someone had to buy them:

With the Treasury Department’s Treasury International Capital data through September 30, released Tuesday afternoon, Fed’s balance sheet data released weekly by the Fed, bank balance-sheet data also released by the Fed, and the Treasury Department’s data on Treasury securities held by US government entities, we can piece together who bought those trillions of dollars in Treasury Securities over the past 12 months.

The share of foreign holders is waning:

Foreign central banks, foreign government entities, and foreign private-sector entities (companies, banks, bond funds, individuals, etc.) increased their holdings in the third quarter by $32 billion from the second quarter, which brought their holdings to $7.07 trillion.

Compared to Q3 last year, this total was up by $147 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt at the end of Q3 declined to 26.2%, the lowest since 2008 (red line, right scale):

Diminishing importance of Japan and China: Japan, the largest foreign creditor of the US, increased its holdings in Q3 by $15 billion, to a total of $1.28 trillion. Over the 12 months, its holdings increased by $130 billion (blue line).

China (red line) continued to whittle down its holdings in Q3 by $13 billion, and over the 12-month period, by $40 billion, to $1.06 trillion, following the trend since 2015,with exception of its capital-flight phase:

Over the past five years, Japan’s and China’s combined holdings of US Treasuries has been roughly stable, with some variation in between. At the end of September, their combined holdings amounted to $2.34 trillion, down just a tad from their holdings at the end of 2015 of $2.37 trillion. But their combined share of the of the Incredibly Spiking US Debt fell to 8.7%, the lowest share in many years:

Next 10 largest foreign holders in September. This list is top-heavy with tax havens and financial centers, including those where US corporations have legal entities that hold US Treasuries, such as Apple in Ireland. In others words, some of these “foreign” holders are US entities, such as Apple, that are holding Treasuries registered in their foreign mailbox entities (the amounts in parenthesis indicate their holdings a year earlier):

1. UK (“City of London” financial center): $425 billion ($413 billion)
2. Ireland: $315 billion ($274 billion)
3. Brazil: $265 billion ($303 billion)
4. Luxembourg: $262 billion ($252 billion)
5. Switzerland: $255 billion ($231 billion)
6. Hong Kong: $246 billion ($242 billion)
7. Cayman Islands: $232 billion ($250 billion)
8. Belgium: $218 billion ($215 billion)
9. Taiwan: $213 billion ($189 billion)
10. India: $213 billion ($161 billion)

Germany and Mexico, among the countries with which the US has the biggest trade deficits, are much further down the list: Germany in 20th place, and Mexico in 24th place.

Diminishing importance of US government funds.

US government funds – the Social Security Trust Fund, pension funds for federal civilian employees and the US military, and other government funds – added $16 billion in Q3 compared to the prior quarter and $22 billion over the 12-month period, to $5.92 trillion.

While the dollar amount has been increasing gradually (blue line, left scale), their share of the Incredibly Spiking US National Debt has declined from over 45% in 2008, to just 22%, the lowest since dirt was young (red line, right scale):

The Federal Reserve became a huge factor.

In Q3, the Fed added $240 billion to its Treasury holdings, bringing the pile to $4.44 trillion (blue line, left scale), a record of 16.5% of the Incredibly Spiking US National Debt (red line, right scale). This is the portion of the US debt that the Fed has monetized. Over the 12-month period, the Fed added $2.4 trillion in Treasuries to its holdings, most of it since March, doubling its pile,and increasing its share of the US debt from 9.3% in Q1 to 16.5% in Q3:

US Commercial Banks pile it on.

US commercial banks piled $116 billion in Treasury securities in Q3 onto their balance sheets, and $269 billion over the 12-month period, bringing the total to $1.19 trillion, according to the Federal Reserve’s data release on bank balance sheets. This amounted to 4.4% of the total US debt:

Other US entities & individuals

The holders of the remaining Treasuries – after all foreign holders, US government funds, the Fed, and US banks – are by definition US individuals and institutions such as bond funds, pension funds, insurers, cash-rich corporations, hedge funds that use Treasuries in complex trades, private equity firms that are sitting on cash, etc. During the chaos earlier this year, they piled into Treasuries, adding $800 billion in Q2. But this settled down in Q3, when they added only $95 billion, bringing their pile to $8.31 trillion, which amounted to 30.9% of the Incredibly Spiking US National Debt:

And here they are, this monstrous pile of Treasury securities, all combined into one incredibly spiking chart, by category of holder as of September 30:

via Zerohedge

One of the most challenging questions traders have faced over the past 11 years, ever since the Fed’s first QE, has been what is the fair value of stocks without the Fed’s chronic intervention in capital markets via trillions in spontaneously appearing liquidity used to prop up risk assets.

Today, in an attempt to answer this $64 trillion question, SocGen strategists Sophie Huynh and Charles de Boissezon calculate that nearly half of the U.S. benchmark’s current level is due to quantitative easing, while claiming that the impact of QE on the Nasdaq was even higher at 57%, with small cap less affected.

First, some background.

As part of their analysis, the socgen strategists find that the acceleration of the secular trend for bond yields since 2009 has triggered a shift in the causality between equity and bonds.

Specifically, before QE, US equities were more often the driver of US bonds, as investors would add either more or fewer bonds to their portfolios in response to the risk-on/off signals provided by the equity complex. However, this causality has totally changed since QE: US equities have been increasingly driven by US bond yields.

With that in mind, we move on the core of the analysis, namely what is the impact of QE on different equity indices.

SocGen find that for all US equity indices – from large, mid and small caps to the more tech-focused Nasdaq 100 – the US bond yield has played an increasing role in equity returns. Since 2009 until today, bonds have driven the S&P 500 32% of the time (on daily data), S&P 400 Midcaps 38% of the time, the Russell 2000 36% of the time and the Nasdaq 100 25% of the time. “All in all, the causality relationship of bonds driving equities was approximately two times more frequent than in the pre-2009 period”, according to SocGen.

While frequency is one aspect which gives perspective on how the low interest rate environment pushed investors into the equity complex by default, given the more attractive combined yield – dividend and buyback yield – to US government bonds ever-declining coupons, what about the scale of the impact? SocGen tries to quantify the impact of QE on the different US equity indices through the discount rate.

To do that, the bank uses its proprietary Equity Risk Premium framework, applying a dividend discount model to the equity market, and considering the whole market as a company paying a dividend each year. Therefore, the present value of the equity market (as reflected by the index price) is equal to the discounted value of future dividend flows. The first step would be to quantify the impact of QE on the UST 10y bond yield – which we use as the risk-free rate in our framework.

1. Quantifying the impact of QE on UST 10y bond yield

SocGen uses a simple regression to estimate the impact of QE. Since 2009, the cumulative impact of the different waves of QE on UST 10y bond yield was approximately 180bp. In other words, without QE, 10Y Yields would have been around 2.8%, a number which many would claim is unthinkable in the current environment.

2. Quantifying the impact of QE on the different US equity indices

Using the bank’s equity risk premium framework and work on the impact of QE on UST 10y allows it to understand how the different US equity indices have been impacted since 2009: there is a huge dispersion among the equity indices under review: the Nasdaq 100 has been the most impacted – and even more so this year – versus the S&P 600 Small Caps, which has been the least impacted. As of Oct-2020, the Nasdaq 100 price level was 57% explained by QE.

Here are the stunning findings: without QE the Nasdaq 100 should be closer to 5,000 than 11,000, while the S&P 500 should be closer to 1,800 rather than 3,300.

Clearly, large caps have benefited the most from the ever-lower interest rate environment resulting from QE. The sensitivity to bond yield can also be explained by the low payout and higher price-to-book ratios of Nasdaq 100 companies versus peers. Growth companies are overall less focused on dividends, but rather more on share buybacks as a way of neutralizing the impact of restricted share units. Small and mid caps, on a relative basis, given their higher payout and lower price-to-book value ratios, are less sensitive to swings in bond yields.

* * *

Having quantified the past, SocGen next looks at the future, and says that it expects 10-year Treasury yield to reach 1% by year-end and 1.2% by mid-2021 on less Fed intervention, increasing the need for earnings to deliver to justify valuations. For S&P 500 to “weather” a 10-year yield of 1%, expected EPS growth in 2021 would need to be at least 38% vs current expectation of 24%; more ominously, for the Nasdaq 100, a doubling of the 2021 EPS growth would not be sufficient to absorb a UST 10y yield of 1%. In the case of mid and small caps, it would be considerably less. Needless to say, this suggests that if yields do indeed rise even modestly, there will be lots of pain for growth/tech/momentum names.

In conclusion, SocGen warns that the focus on the feedback loop between equities and bonds has already started in the US:

With the UST 10y breaching the 50-80bp range in October and with the US election newsflow, the underperformance of Nasdaq 100 has been quite noticeable.

Meanwhile, the rotation into cyclical sectors, which have lagged the more defensive and growth sectors since the start of the bear market rally combined with a preference for value versus growth, were a reflection of the bond sell-off. The undecided outcome of the US election has triggered an unwinding of these positions for now.

Going forward, SocGen believes that currently causality order will hold and US Treasuries should continue to drive US equities, which is bad news for those who believe a continued rise in yields will not impact stocks: according to SocGen the impact will be very pronounced unless companies succeed in boosting their EPS well beyond current consensus estimates.

This is why, as SocGen ominously warns, “there will be a breaking point where a bond sell-off will impact the highly leveraged corporates which typically benefit from a higher yield environment as being of a shorter duration.” All in all, the bank’s suggestion is to go long S&P 400 MidCaps versus the Nasdaq 100 “as this could offer good leverage on the higher US yield environment, while taking into account the leverage dimension.”

Finally, and aside from SocGen’s analysis which may be off by a few percentage points but is directionally accurate, the fact that Fed, through, QE now holds trillions in equity value hostage is also who Powell and his successors will never again dare to tighten financial conditions as the resulting asset price crash would have catastrophic consequences for both capital markets and US household net worth, which is roughly 70% in the form of stocks, bonds, financial assets, and other non-tangibles.

Little foreign taste for the inflato-dollar. The Fed had to buy nearly half of it outright

by Wolf Richter

Remember the ridiculous and quaint charade around the “Debt Ceiling” in Congress and the White House? Me neither. But those were the Good Times. So what we now have is the Pandemic Economy with the Incredibly Spiking US Gross National Debt, which spiked incredibly by $4.45 trillion over the past 12 months, to $26.5 trillion. WHOOSH go the trillions, flying by.

But here is the thing: These are all Treasury Securities – and someone had to buy them, every single one of them. But who?

With today’s release by the Treasury Department’s Treasury International Capital (TIC) data through June 30, and with other data released by the Federal Reserve, we can piece together the puzzle who bought those $4.45 trillion in Treasury Securities over the past 12 months.

Foreign investors: nibbling on it.

Foreign central banks, governments, companies, commercial banks, bond funds, other funds, and individuals, all combined added $90 billion to their holdings in June compared to May. Over the 12-month period through June, they added $413 billion. They now hold a total of $7.04 trillion, a huge record pile.

But given the incredibly spiking US Treasury debt ($26.45 trillion on June 30), their share of this debt plunged to just 26.6% — the lowest since 2008. The quarterly chart shows foreign holdings in billion dollars (blue line, left scale); and the percentage of total US debt (red line, right scale):

Japan and China, the two largest foreign creditors of the US, combined held 8.8% of the US debt, the lowest share going back many years. Back at the end of 2015, their combined holdings were still 12.8% of the total US debt.

Japan maintained its holdings in June for the third month in a row at $1.26 trillion, but over the 12-month period increased its holdings by $138 billion.

China cut its holdings in June by $9 billion, to $1.07 trillion, and over the 12-month period by $38 billion, which follows the trend since 2015, with exception of the V-shaped plunge during peak-capital flight, and the recovery afterwards:

The next 10 largest foreign holders include many tax havens and financial centers, such as the UK (City of London financial center), Belgium (home to Euroclear), Ireland, the fertile breeding ground of mailbox-entities of many US corporations established there to dodge US taxes. The Treasuries that US corporations hold in those mail-box accounts established in Ireland count as Irish holdings. In parenthesis are Treasury holdings as of June 2019:

1. UK (“City of London” financial center): $446 billion ($341 billion)
2. Ireland: $330 billion ($261 billion)
3. Luxembourg: $268 billion ($230 billion)
4. Hong Kong: $266 billion ($217 billion)
5. Brazil: $264 billion ($312 billion)
6. Switzerland: $247 billion ($232 billion)
7. Cayman Islands: $222 billion ($225 billion)
8. Belgium: $219 billion ($200 billion)
9. Taiwan: $205 billion ($175 billion)
10. India: $183 billion ($163 billion)

Despite the mega-trade deficits that the US has with Mexico and Germany, their holdings of US Treasury securities are relatively small: Germany held $80 billion and Mexico $47 billion.

US government funds

The Social Security Trust Fund, pension funds for federal civilian employees, pension funds for the US military, and other government funds added $50 billion in June and $112 billion over the 12-month period to their holdings, which reached $5.95 trillion, or about 22.5% of total US debt.

These Treasury securities, often called “debt held internally,” represent assets that belong to the beneficiaries of those funds. They’re a true debt of the US, and they don’t go away – “it doesn’t count because we owe this to ourselves,” the silly line goes – just because American beneficiaries are indirectly the holders of these assets.

The Federal Reserve loads up.

In June, the Fed added just $95 billion to its pile of Treasuries, having already cut back its purchases, after having added $1.6 trillion from March 11 through the end of May, bringing its total holdings at the end of June to $4.2 trillion. It holds about 15.9% of the US debt.

Over the 12-month period, the Fed added $2.1 trillion in Treasuries to its holdings, about doubling its pile over the period (weekly chart through August 12, here’s my analysis of the Fed’s latest asset purchases):

US Commercial Banks load up too.

Just over the month of June, US commercial banksadded $121 billion in Treasury securities, to a total of $1.07 trillion, according to the Federal Reserve’s data release on bank balance sheets. This brought the 12-month increase to $220 billion. They hold about 4.0% of the total US debt.

Other US entities & individuals

That’s everything that is not included in the above: US institutional investors, US bond funds, pension funds, insurers, individuals directly or indirectly, cash-rich US corporations, private equity firms, and highly leveraged hedge funds engaging in complex trades – such as long cash Treasuries and short Treasury futures, which blew up in March and which were bailed out by the Fed, as was confirmed in an editorial by William Dudley, former president of the New York Fed.

They all piled on Treasury securities, possibly in panic,possibly hoping to be able to sell them at even lower yields and even higher prices to the Primary Dealers to sell to the Fed.

By the end of June, over the course of the tumultuous second quarter, these US entities added $1.6 trillion, after having been big sellers of Treasuries in prior quarters. This brought their total holdings to a mega-record of $8.13 trillion – about 31% of the total US debt.

The chart shows Treasury holdings by holder. US banks and other US entities are combined into the yellow field, which, along with the Fed, bought the majority of the Incredibly Spiking US Debt in Q2:

Source: Wolf Street

“$187 billion increase in consumer debt in 2019 amounted to nearly a quarter of the $849 billion increase in nominal GDP over the same period.”

I would argue that the $187B may have created all of the GDP growth. When someone borrows to spend, for example, dining out, that money gets spent again by the restaurant. They pay the employees, the food distributers, the list goes on. The employees spend their money, the food distributors pay their employees, etc. The dollars keep getting recycled. And I don’t think anyone really knows how GDP is calculated.

Now, if we add the Federal Government ~$1.1Trillion in deficit spending, how did GDP increase by a lower amount?

Well the GDP calculation is flawed. Like the story where two friends, exchange 1 dollar between each other, both of them has the same amount of money. However, they exchanged 100 times. Then GDP is $100.

GDP is more a measure of “activity” than it is a measure of increased wealth.

Any counterproductive policy or gvt spending will be counted as an increase in GDP – regardless if it is likely to result in a multiplied decline in GDP in the future.

DC could pay the unemployed to burn down every structure in the US…and GDP would increase by that amount – and be doubled when the structures are rebuilt.

Keynes knew this (and preferred it to “stasis”/”suboptimal” “growth”) – he used the example of digging and filling in holes.

But in doing so he really just put an intellectual veneer on the fiscal (and other) totalitarian instincts of the kind of people attracted to “government”.