By Michael Every of Rabobank

The court of public opinion

Years ago, the start of quantitative easing caused a backlash over concerns that the central banks were prioritizing the asset-rich over the average Joe. It raised questions about mandates and the independence of the monetary authority, particularly in Europe where the ECB was the only actor to prevent a fragmentation of the Eurozone. And it even raised questions of ethics, after some of the FOMC members’ trading activities came to light.

Plus, for years their policy was unable to revive inflationary pressures. But then, due to circumstances outside the control of central banks, inflation did return – with a vengeance. And while some of these supply-driven inflation shocks do not fall within the realm of control of central banks, it is the monetary policymakers who are now being looked at for last year’s erosion of households’ purchasing power.

The number of news articles in mainstream media related to monetary policy has increased with the rise in inflation, and central banks are under the microscope. Their credibility is tarnished, and they are behind in the court of public opinion.

You would therefore expect monetary policymakers to be a bit more cautious, for example when selecting new executives. The recent appointment of Austan Goolsbee to the position of President of the Federal Reserve Bank of Chicago has stirred up quite some dust, though.

First of all, his appointment adds to the concerns that central banks are increasingly becoming politicized, putting the independence of the monetary authorities at risk.

The new head of the Chicago Fed is a prominent Democrat and outspoken critic of the GOP. Now, that of itself shouldn’t be an issue – we all have our political beliefs. And considering that the government picks the national monetary policymakers, that usually results in nominees who are at least to some extent aligned with the political incumbent. This is not just true in the US; the appointment of ECB board members has seen similar horse trading in the highest circles of the EU. And after that pick has been made, it is quite uncommon to see politics in the voting process.

Yet, that is exactly what appears to have happened over the Chicago Fed presidency. Bloomberg News unveiled that the FOMC’s Bowman and Waller, both appointed to the Federal Reserve board by former President Trump, abstained from the confirmation vote. Moreover, the news agency discovered that several of the Chicago Fed directors who nominated Goolsbee to head the institution have been donors to Democratic candidates.

Secondly, and to make matters worse, Bloomberg News followed up on that story yesterday with the news that the executive search consultancy that helped select Goolsbee for the job employs his wife. Responding to the Bloomberg reporters, a spokesperson for the Chicago Fed stated that “members of the search committee, […] were made aware Robin Goolsbee was an employee of the search firm”, and that she didn’t play a role in the selection process. However, none of this information was disclosed during the search or after the choice was made – despite the fact that the regional central bank has been relatively open and transparent about the search process.

Yes, Goolsbee has great papers to lead the institution. And of course, neither of the above may have actually influenced the outcome of the selection process, as the Chicago Fed has stressed too. But the optics sure aren’t great.

The commotion surrounding the appointment of the regional Fed’s executive only adds to President Biden’s headache trying to fill the vacancy left by the departure of Lael Brainard, which is already a contentious pick between inflation (a hawk) and employment (a dove) for the US president. Within his own party, Senator Warren has called for the appointment of a person who will balance some of Powell’s ‘extreme’ rate hikes, to avoid that the Fed’s obsessive inflation fight “puts millions of people out of work”. Keeping politics out of the doors of central banks has become increasingly difficult in the current economic environment.

This more general notion not only holds for the world’s biggest central bank. The ECB, for example, is taking some flak for their insistence that wages are a key risk for the future inflationary process. European central bankers have acknowledged that there should be some wage increases to compensate households for the lost purchasing power, but they have also cautioned labour unions against asking for too much. Last year, the ECB even found itself in a pay dispute with its employees.

While wages, through their impact on inflation, are tied to the bank’s objectives, their recent comments also put the ECB more in the political arena. At a recent retreat, the Governing Council was presented a slide pack detailing how company profit margins have been increasing rather than shrinking, despite the sharp rise in input costs. As the Reuters article summarizes, “the idea that companies have been raising prices in excess of their costs at the expense of consumers and wage earners is likely to anger the general public.” It also implies that the ECB is at risk of overtightening, since profit margins do not have the same self-reinforcing effect on inflation as wages might.

That is particularly true if the ECB continues to point to wages as the main risk for the inflation outlook – which have increasingly become the subject of Lagarde’s press conferences. This assessment not entirely fair, though. The accounts of the October meeting already mentioned an “unusual resilience of profits and profit margins in the light of deteriorating cyclical conditions”   and the accounts of the February ECB meeting released yesterday do note that “developments in profits and mark-up warranted constant monitoring and further analysis on an equal footing with developments in wages.”

For now, though, the ECB’s focus remains very much on wages: “until a few months ago wage growth had remained moderate, but now there was a clear acceleration, which had to be taken into account in the outlook for core inflation.” The Council added that the labour market remains tight despite the slowdown in activity. “Therefore, while there was wide agreement that there were no signs of a wage-price spiral, it was argued that current wage growth was clearly not consistent with a 2% inflation target.”

This is the ECB suggesting that they may need to do more to lean against wage developments and a tight labor market – which comes down to depressing demand: “a better than expected growth outlook would contribute to continued inflationary pressures, which were unlikely to abate by themselves without further significant policy tightening.”

Indeed, yesterday’s inflation data for February, which saw core HICP accelerating to 5.6% unexpectedly, may dash some of the doves’ hopes that “the recent dynamics of core inflation showed that there had been a levelling-off of momentum.” That increases the upside risks for the ECB’s policy rate.

Following recent snubs, The Wall Street Journal reports a growing rift between two of OPEC’s largest producers – Saudi Arabia and the United Arab Emirates.

Still formally allies, Saudi Arabia and the U.A.E. have diverged on several fronts, competing for foreign investment and influence in global oil markets and clashing on the direction of the Yemen war.

The disagreements once unfolded behind closed doors but are increasingly spilling out into the open, threatening to reorder alliances in the energy-rich Persian Gulf at a time when Iran is trying to exert more sway across the region and Russia’s war in Ukraine has raised crude prices and roiled OPEC decision-making.

Crude prices tumbled on the news as fears of a crack in OPEC’s production promises may lead to more supply…

Crucially, within OPEC, the U.A.E. is obligated to pump much less than it is capable of, hurting its oil revenue.

It has long pushed to pump more oil, but the Saudis have said no, OPEC delegates have said.

Now, some Emirati officials say, the U.A.E. is having an internal debate about leaving OPEC, a decision that would shake the cartel and undermine its power in global oil markets.

And most recently, the Emiratis clashed with the Saudis last October when OPEC+ decided to dramatically reduce oil production to prop up crude prices.

“Up until a few years ago, this sort of division and openly pursuing objectives that are counter to what their brothers are pursuing was unheard of,” said Dina Esfandiary, senior adviser for the Middle East and North Africa at the International Crisis Group.

“Now it’s becoming increasingly normal.”

The Emiratis are “worried about a Saudi that works against their interests,” said Ms. Esfandiary. She said the Saudis are concerned the U.A.E. poses a threat to Saudi dominance in the Gulf.

As a reminder, this is not all that unusual, as UAE seems to want to rattle their oil sabre every few years…

O/U on the UAE denial is 90/120 mins.

Consumers face increasing financial difficulties due to high inflation, rising interest rates, maxed-out credit cards, lack of personal savings, and nearly two years of negative real wage growth, resulting in an emerging distress cycle for subprime auto loans.

According to S&P Global, more than 6% of subprime auto loans were at least 60 days overdue in December, a more significant percentage than during the 2008-09 GFC. 

Bloomberg reported that auto dealers had noticed an alarming rise in customers who trade in their vehicles with negative equity of $10,000. 

“As trade-in values begin to cool, each month more and more consumers will find themselves falling from positive to negative equity.

“Unless American car shoppers break their habit of buying again too soon, we’ll see the negative equity tide continue to rise,” Ivan Drury, director of insights at auto-market researcher Edmunds, said. 

About one month ago, when discussing the “perfect storm” hitting the US auto market, we showed that according to Fitch, “More Americans Can’t Afford Their Car Payments Than During The Peak Of Financial Crisis“…

… which was to be expected: after all, the latest consumer credit report from the Fed revealed an exponential spike in the number of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record) to $40,155 (a new record).

And purchasing a new car has become less feasible for the average person. Approximately two out of every 13 individuals are making monthly car payments of $1,000 or more. The average loan rate for new car loans just hit a 13-year high and will soon rise even higher. 

Yet a giant wave of auto loan defaults among subprime Americans has yet to hit. Perhaps the negative-equity surge is the tipping point. Edmunds data shows average negative equity on trade-ins is approaching pandemic highs of $5,500. 

“Because these car loans are generally unaffordable at the outset, that means that every month, borrowers are getting closer to the financial edge,” said Kathleen Engel, a law professor at Suffolk University.

Pete Kesterson, the general manager of a car dealership in Falls Church, Virginia, warned:

“It’s going to come, and it’s going to bite us,” referring to negative equity, which he believes will worsen.

“Now, we’re selling the cars for so much more, and financing for longer, at a much higher interest rate. There are some challenges coming down the pike.”

The rising delinquency rates for subprime auto loans are unexpectedly happening at the current record-low unemployment rates. Too many borrowers with low credit scores took on too much auto debt during Covid. Now the payback period has arrived. 

Authored by Simon White, Bloomberg macro strategist,

At least one key segment of the Treasuries yield curve suggests the US economy will enter a recession as early as June.

The spread between 3-month and 30-year yields — typically the first part of the curve to steepen before a recession — continues to widen.

This is a warning sign because inverted yield curves precede recessions, but it’s the re-steepening that signals the downturn is going to hit sooner rather than later.

Historically it is the 3m30y yield curve that has started steepening first before a recession, beginning to rise about five months before its onset. It began in mid-January, which would put a downturn starting as early as June. The spread between 3-month and 30-year yields is about minus 84 basis points, versus the January low of minus 115 basis points.

This time around, the rise in long-term yields is particularly troublesome because it suggests the bond market is beginning to price in structurally high inflation.

The closely watched 2s10s curve is still inverting, recently hitting a new low. But as the chart shows, 2s10s along with most other yield-curve segments, only begin to steepen just before the recession begins.

The US State Department Rewards for Justice Program has announced a reward offer of up to $10 million for any information which leads to the disruption of financial mechanisms of Lebanon’s Hezbollah.

“Mohammad Bazzi’s been arrested, but Hezbollah is still collecting revenue through people like him. So you may be eligible for a reward if you submit information about Hezbollah’s financial network,” Rewards for Justice said in a tweet.

The call for information and promotion of the $10 million reward possibility came on the heels of the arrest of an alleged top Hezbollah financier, 58-year old Mohammad Bazzi on Friday in Bucharest, Romania. It’s unclear whether a tip alerted US and allied security services to his whereabouts.

The State Dept-run program described on its website, “Hizballah relies on financing and facilitation networks to sustain operations and launch attacks globally.”

“Hizballah earns almost one billion dollars annually through direct financial support from Iran, international businesses and investments, donor networks, corruption, and money laundering activities,” it added.

Previously the same amount, $10 million, had been offered for information regarding the whereabouts of Bazzi, previously dubbed by the US a “global terrorist”. 

Rewards for Justice this week said it will continuing offering these huge reward payments for further information which uncovers and thwarts revenue sources for Hezbollah and its donors, as well as financial institutions it uses for transactions. 

Mohammad Ibrahim Bazzi was labeled a “global terrorist” by the United States in 2018.https://t.co/OnbjjukmmJ

— Radio Free Europe/Radio Liberty (@RFERL) February 25, 2023

Likely the large reward offering is also due to the fact that Hezbollah as an organization is well-known to be highly secretive. Even in Lebanon, where the paramilitary group is deeply involved in local politics and even runs charitable and community organizations, its supporters are known for staying tight-lipped on Hezbollah’s operations and hideouts of top commanders. Its local and regional popularity also is due to it periodically going to war against Israel.

Authored by Paul Joseph Watson via Summit News,

UK health authorities considered ordering the euthanization of all pet cats in the country during the first COVID outbreak, it has been revealed.

Ex-Deputy Health Minister Lord James Bethell made the admission while trying to argue that governments were caught unawares in how to respond to the virus, remarking, “We shouldn’t forget… how little we understood about this disease.”

“There was a moment we were very unclear about whether domestic pets could transmit the disease,” he said.

“In fact, there was an idea at one moment that we might have to ask the public to exterminate all the cats in Britain. Can you imagine what would have happened if we had wanted to do that?”

Bethell claimed that “for a moment” there was “a bit of evidence around” the idea after a Siamese cat became the first in Britain to contract COVID-19, but that the plan was “closed down” fairly quickly.

Cat owners were told not to kiss their pets and to observe “observe very careful hygiene” around them while keeping them indoors if a member of the household caught COVID.

“There was an idea at one moment that we may have to ask the public to exterminate all the cats in Britain.”

Former Health Minister Lord Bethell discusses the early government response to the Covid pandemic. pic.twitter.com/YWyp32zPML

— Channel 4 News (@Channel4News) March 1, 2023

Denmark subsequently ordered a cull of its mink population thought to be carrying the virus, although Prime Minister Mette Frederiksen subsequently had to apologize for the order, admitting it was illegal.

Bethell made the comments in light of the leak of tens of thousands of WhatsApp messages which shed light on the government’s botched response, which included the failure to carry out tests on all residents entering care homes.

Mandating people to kill their beloved pets would have almost certainly failed as a policy given that vast numbers of people would have refused to do so.

Killing pet cats was just one of numerous horrors almost visited on the British public in pursuit of a lockdown that went on to have a devastating impact and caused more harm than good.

As we previously highlighted, another proposal was to separate children from their parents and hold them in quarantine camps if they were infected with the virus.

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. I need you to sign up for my free newsletter here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Get early access, exclusive content and behind the scenes stuff by following me on Locals.

Authored by Tsvetana Paraskova via OilPrice.com,

• North African countries are buying significantly more Russian fuel following the EU ban.

• Signs are emerging that some of those products could be headed for re-export to Europe.

• Morocco saw imports of 2 million barrels of Russian diesel in January, compared to just 600,000 barrels for the whole year 2021.

North Africa has become a key export outlet of Russia’s diesel and other petroleum products after the EU embargo on imports of Russian fuels took effect in early February.    

African countries on the Mediterranean, as well as Turkey, had started taking in more Russian fuels even before the Western ban. Now signs are emerging that some of those products could be headed for re-export to Europe, analysts say. But they also note that even if this were the case, it’s difficult to ascertain the true origin of a cargo blended with other products.  

And the EU may not be too strict in looking to remove every possible Russian barrel of oil product from its market, considering the major dislocation in global oil trade and the goal of the Western nations to punish Putin but keep his oil flowing around the world. 

The EU banned—effective February 5—seaborne imports of Russian refined oil products and around 1 million barrels per day (bpd) of Russian diesel, naphtha, and other fuels need to find a home elsewhere if Moscow wants to continue getting money for those products. The flow of Russian fuels to third countries is also regulated by price caps, similar to the cap on Russian crude, if the trade is carried out through Western insurers. The cap on Russian diesel is $100 per barrel, while the cap on lower-cost petroleum products is set at $45 a barrel. 

Europe is on track to import this month the highest volumes of diesel from the Middle East and Asia in seven years as the EU turns to alternative supply after the ban on imports of Russian diesel and other fuels took effect.

At the same time, Russian oil product flows to North Africa are surging. Morocco, for example, saw imports of 2 million barrels of Russian diesel in January, compared to just 600,000 barrels for the whole year 2021, according to Kpler data cited by The Wall Street Journal. Tunisia has also seen a surge in imports of Russian petroleum products – to 2.8 million barrels in January and another estimated 3.1 million barrels in February, after negligible volumes imported prior to the Russian invasion of Ukraine.  

According to analysts, those countries will not be consuming all the Russian oil products. North Africa isn’t boosting its refining processing, either. This leaves one plausible explanation for the jump in imports of Russian fuels—re-export to other countries, including Europe, after blending with products of non-Russian origin. 

“Trust me, we are not witnessing some renaissance in Maghrebi refining,” Viktor Katona, a senior oil analyst with Kpler, told the Journal. A part of the Russian oil products will end up in Europe, according to Katona. 

There has been a recent surge in Russian clean petroleum products (CPP) on water, according to Vortexa. 

Currently 87 vessels carrying Russian diesel are on the water, Ioannis Papadimitriou, Senior Freight Analyst at Vortexa, wrote on Friday. Of those, 63 vessels carrying 18 million barrels are currently signaling non-European/non-Mediterranean destinations, or Mediterranean waypoints or ship to ship (STS) transfer zones.  

“The remainder are mainly signalling the Mediterranean, a trend that was starting to appear prior to the ban, with the ultimate destinations being North Africa and to a greater extent Turkey – an opportunistic post-war buyer of Russian oil and gas,” Vortexa’s Papadimitriou said. 

“Vessels do not reflect idle or a ‘wait-and-see’ behavior at great scale, and hence do not display an enormous challenge in finding a buyer in non-traditional markets.”

Analysts and market observers will now have to see how long it would take for STS cargoes to find and reach their final destinations, and if potential major logistics delays could threaten the pace of Russian oil product exports, according to Papadimitriou.  

“Hence, in answering the question whether Russia is finding a way to maintain CPP exports in this new reality, the answer lies closer to a yes than a no.”  

Authored by John Cody via Remix News,

Sweden is now looking to follow in the footsteps of Denmark, which has enticed hundreds of migrants home with financial incentives…

Once seen as the most accepting country in the world for refugees, the right-wing Swedish government, elected on a promise to curb immigration, is now enacting reforms to encourage migrants to return to their country of origin.

To accomplish this, the government in Stockholm, together with the Swedish Democrats who support the coalition but are not formally part of the government, is increasing the financial support migrants can receive if they return home voluntarily.

“We are targeting the large number of groups that arrived in the past decades and failed to integrate,” said the migration minister of the Moderate Party, Maria Malmer, to Swedish newspaper Dagens Nyheter.

Malmer said that they will make sure that everyone who wants support to leave Sweden permanently will get the financial means to make this possible.

In the Scandinavian country, it was already possible for migrants to apply for repatriation support if they decided to return to their home country. However, the program was not popular. In the last 10 years, a total of only 46 immigrants asked the immigration office for money to return to their country of origin, and eight of them have since returned to Sweden. 

Currently, a family with a residence permit and protection status who wants to return to their country, if all conditions are met, can receive a “travel” grant of up to 40,000 Swedish kronor (€3,500). The government is now looking to substantially increase this amount to encourage more migrants to sign up.

The plan came about after the Swedish immigration office was given the task of analyzing how to get more people to voluntarily move back to their home country. Sweden’s plan is not unique, as Denmark, known for its restrictive approach to immigration, is already applying the model — so far with more success. In the last 10 years, 300 to 500 migrants have left Denmark every year, receiving a significant amount of financial support for this purpose.

The question now is whether increased financial incentives will encourage more migrants to leave Sweden. A substantial challenge may be due to the fact that Sweden offers extraordinarily generous benefits to migrants, even those subject to deportation orders, which decreases the incentive to leave the country.

Stockholm’s new government is, nevertheless, attempting to follow the example of the Visegrád countries and Austria: and the government is signaling it wants to pursue a policy designed to curb immigration.

As Remix News has previously reported, Swedes have conducted a sharp U-turn on the question of immigration in recent years due to soaring crime, cultural clashes, and fears over changing demographics.