This year, the dog days of summer might turn out to be like a Michael Bay film, with The Lovin’ Spoonful’s iconic “Summer in the City” as the soundtrack. America, and perhaps even the rest of the world, could be in for quite a ride if early indicators are to be believed. Heat waves, bond yields, energy commodities, inflation, the coronavirus pandemic, and so much more – summer 2021 might become as iconic as Woodstock 1969. And many people would likely need some psychedelics – or Pepto Bismol, at the very least – to endure what lies ahead, man.
America Feeling the Heat
The Farmers’ Almanac revealed its summer 2021 prediction, and it is going to be an uncomfortable season at best, no matter where you live. Muggy, showery, and thundery are the adjectives used to describe the weather patterns throughout the U.S., but one thing is in common: sizzling temperatures. It is not only the century-old institution expecting these conditions as many other weather entities are forecasting oppressive heat. Indeed, it seems everyone will soon agree that the air-conditioner is the greatest invention of all-time.
Inflation Is Just Heating Up?
Financial markets were abuzz following the Bureau of Labor Statistics (BLS) inflation reading for March. Last month, the annual inflation rate surged to 2.6%, the highest level since August 2018. On a monthly basis, consumer prices climbed 0.6%, the quickest pace since 2012. Energy prices soared 13.2%, used cars spiked 9.4%, and measurements of grocery store indexes (meats, fish, poultry, and eggs) spiked 5.3%.
This comes one week after producer prices skyrocketed 4.2% year-over-year in March, driven by higher movements in diesel fuel, residential electric power, industrial chemicals, and steel mill products.
Consumer inflation expectations, monitored by the Federal Reserve Bank of New York, has topped 3% for four consecutive months. It is evidence of mounting inflation, buoyed by monetary easing, supply chain interruptions, strengthening global demand, and falling inventories. As Liberty Nation recently reported, the food sector is going through higher inflation, shrinkflation, and shortages, so trips to the supermarket could be quite the experience this summer.
A Summer of Taper Tantrums?
Is the Federal Reserve getting ready to pull a taper tantrum in the coming months? Speaking in an interview with Bloomberg TV, James Bullard, president of the St. Louis Federal Reserve, revealed that achieving a vaccination rate of 75% would be a signal that the coronavirus pandemic is fading to black. This, he says, would serve as a metric for the central bank to begin considering tapering its ultra-aggressive bond-buying program:
“It’s too early to talk about changing monetary policy. We want to stay with our very easy monetary policy while we are still in the pandemic tunnel. If we get to the end of the tunnel, it will be time to start assessing where we want to go next.
When you start to get to 75% vaccinated, 80% vaccinated and CDC starts to give more hopeful messages that we are bringing this under better control and starts relaxing some of their guidelines, then I think the whole economy will gain confidence from that.”
It is estimated that the U.S. could achieve that three-quarters figure by June. Although it is unlikely that the Eccles Building would pull the trigger on a rate hike or unwinding its extraordinary quantitative easing efforts this summer, Chair Jerome Powell and his merry band of central planners could initiate the process with a target of early 2022.
The SPAC Party Over?
Are federal regulators turning off the lights at the party of special purpose acquisition companies (SPACs)? For the last several months, the blank-check company craze has been epic, with dozens of businesses going public through these transactions. Many industry observers warned that the punch bowl was running out, and they may have been right after all.
The Securities and Exchange Commission (SEC) has been sending some hints on Twitter that something was brewing. The regulatory body tweeted on April 7 that “it is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it.” Later, John Coates, acting director of the SEC’s corporate-finance division, dismissed the notion that going public through a SPAC merger protects the company from lawsuits. Bloomberg then dropped a bombshell of a story: Warrants, which let traders purchase common stock at a fixed price until a future date, may not be deemed equity instruments, which was effectively confirmed by the SEC in a news release.
These developments may have spooked the market as there were only three SPACs listed in the week of April 5. For most of 2021, there have been about 20 deals per week.
Big Trouble in Little China?
It is not surprising that the Chinese stock market is correcting after soaring to a four-year high. The Shanghai Composite Index has slumped as much as 6% since peaking in February. But it is not the equities market that is capturing international business headlines. It might be the bond market, especially after it was slammed following reports that Huarong, China’s largest state-controlled bad-debt asset manager, could be facing bankruptcy. The rumors sent multiple Chinese bonds lower.
Is this the beginning of a market rout? Liberty Nation has reported about the growing number of state-owned enterprises (SOEs) underwater, reneging on more than $12 billion of local bonds last year. Huarong was systemically crucial to the economy, but as confidence continues to weaken throughout the Chinese bond market, it could be a contagion event during the third quarter.
Do Not Go Gentle Into That Good Night
“Awake, chaos: we have napped,” wrote American poet E.E. Cummings. If you think the last 12 months or so have been chaotic, crazy, and crippling, perhaps you ain’t seen nothin’ yet. Summer 2021 may have lasting consequences for everyone, making the back of their necks get dirty and gritty. Society could throw a few riots into the mix, like what is currently unfolding in Minnesota, and it could be a season for the ages. Fasten your seatbelts, it is going to be a bumpy summer.
Read more from Andrew Moran.