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Wolf Richter

Wolf Richter

Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

Articles by Wolf Richter

Who Bought the $1.36 Trillion of New US National Debt over the Past 12 Months?

11 hours ago

Russia, Japan, and the Fed dumped, China hung in there…. But who bought?
“Official” foreign investors – this would be central banks, governments, etc. – and private-sector foreign investors held $6.21 trillion of US Treasury Securities at the end of June, up by $61 billion from a year earlier, according to the Treasury Department’s TIC data released Wednesday afternoon.
But over the same period, the US gross national debt, fired up by a stupendous spending binge, soared by a breath-taking $1.36 trillion. So who bought this $1.36 trillion in new debt?
The largest holder of marketable Treasury securities remains China, whose holdings in June fell by $4.4 billion from May to $1.18 trillion, within the same range since August 2017, despite escalating threats and counter-threats over

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Rise of US Dollar Haunts Emerging Market Debt

2 days ago

A vicious cycle, kicked off by cheap debt that’s suddenly not cheap, after 8 years of experimental monetary policies.
The dollar has risen nearly 2% since Thursday last week. Since April 17, when this move started, the dollar has surged over 8%, based on the WSJ Dollar Index, which tracks the dollar against the currencies of 16 key trading partners, including Mexico and China. From its low on February 16, the dollar has now risen 9.3% to the highest level since May 10, 2017:

The narrower Dollar Index (DXY), which tracks the dollar against six other currencies but not the Mexican peso and the renminbi, rose to 96.73, the highest since June 2017.
Not included in the two dollar indices are the Turkish lira and the Argentine peso, both of which have collapsed, with the lira down 43%

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The Price of Cheap Dollar/Euro Debts: Local Currencies Come Unglued, Debt Crises Ensue

2 days ago

Grand Collapse in Turkey; to avoid the same fate, Argentina hikes rate to 45%.
On Monday, Argentina’s central bank responded to the currency chaos in Turkey and other sections of the Emerging Markets, including the ongoing collapse of the Argentine peso: It raised its policy rate by five percentage points to 45%.
Argentina’s annual rate of inflation in June surged to nearly 30%, and indications are that this is getting worse. The central bank (the BCRA) is part of the Ministry of Finance, has no independence, and has been tasked over the decades to fund government spending. But at least the current government publishes inflation data. The prior government made inflation a secret and made independent publication of inflation data illegal.
To soothe everyone’s nerves apparently, the

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Anatomy of the Housing-Market Inflection Point in the Bay Area’s Sonoma County: Insider View

3 days ago

The inflection point was in June. This is how inflection points show up at the subcutaneous level in all housing markets.
The first obvious sign that something was up, that something wasn’t going the right way, came on June 6, 2017, when the housing market in Sonoma County was still booming, according to the data. Sonoma County is a little north of San Francisco, between the Pacific and Napa County. It’s wine and craft-brew country, sprinkled with beautiful cities and towns. And it’s pricy.
“I haven’t seen this one before,” Thomas Stone, a broker in Sonoma County, told me at the time. “Food and booze yes. But $1,000 cash seems qualitatively different.” He’d received the offer of a $1000 cash raffle by Sotheby’s for a broker’s tour of four homes in the city of Novato that Sotheby’s

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Saudi Arabia’s PIF and SoftBank Not Interested in Tesla Buyout

4 days ago

Two often-cited suspects are axed. So where’s the “secured” funding supposed to come from?
The whole scheme kicked off when Tesla CEO Elon Musk tweeted during trading hours that he was “considering” taking Tesla private, “Funding secured,” which caused the already ludicrously overvalued shares to spike. Later he added, “Investor support is confirmed.” But no details, no names, no tidbits, not even a tease. Two days earlier, he’d tweeted that “even Hitler was shorting Tesla stock.”
We can brush off the Hitler tweet as just one more Musk idiocy gone awry, but “Funding secured” and “Investor support is confirmed” are big-ass phrases for a public-company CEO discussing a buyout that would be valued at $72 billion.
Now some folks, including those at the SEC’s San Francisco office, are

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Rate Hike Ammo, Even Without Food & Energy

6 days ago

Core CPI jumps the most year-over-year since 2008.
The Fed doesn’t actually need more ammo to justify “normalizing” its monetary policy. But it got it anyway.
Inflation as measured by the Consumer Price Index for all Urban Consumers in July rose 2.9% from a year ago (not seasonally adjusted), the fastest rate since February 2012, according to the Bureau of Labor Statistics this morning.

This includes a 3.5% year-over-year increase for the costs of “shelter,” which includes rent and “owners equivalent rent.” This is the biggie because it weighs about one-third in the overall index — though for many consumers, it weighs well over half of their budget.
It also includes a 4% year-over-year increase in the costs in “transportation services” – we’ve seen the surging costs in trucking and

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What’s Going On in the Used Car & Truck Market?

7 days ago

As “affordability challenges” hit new vehicles, consumers switch to used, prices spike to record, inflation psychology sets in.
For a brain-twisting phenomenon, amuse yourself for a moment with the Consumer Price Index for used cars and trucks. It shows that there has been 0% inflation since 1994 in used cars and trucks, despite actual prices having soared. So, yes, the CPI for used vehicles in June, as reported by the Bureau of Labor Statistics, fell 0.7% from June a year ago and is where it had been in April 1994:

This absurdity of 0% inflation since 1994 is caused largely by the BLS’s relentless and passionate application “hedonic quality adjustments,” which adjust prices for the costs of a model’s new equipment and quality improvements, such as, to quote: reliability,

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The State of the American Debt Slaves, Q2 2018

8 days ago

Let the good times roll.
Total consumer credit – or less soothingly, consumer debt – rose 4.8% in the second quarter from a year earlier, or by $176 billion, to $3.87 trillion (not seasonally adjusted), the highest ever, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. Given how passionate Americans normally are in spending money they don’t have – that 4.8% increase is moderate: In 2011, increases exceeded 11%.
The chart below shows the progression of consumer debt since 2006. After the seasonal hangover in Q1, following the spend-and-borrow party in Q4, consumer debt set a new record in Q2:

To put this 4.8% increase in perspective: In Q2, the economy as measured by real GDP grew 2.8% year-over-year, and

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Cyclical Heavy-Truck Industry Soars to Cloud 9

8 days ago

“It’s a bizarre occurrence and it will not be resolved soon.”
Orders for Class 8 trucks in July jumped 187% from a year ago to 52,250 units, the highest number of monthly orders ever. These are the heavy trucks that haul a significant part of the goods-based economy across the US. For the first seven months this year, order volume of Class 8 trucks doubled from the same period a year ago:

FTR Transportation Intelligence, which provided the data, explained: “Fleets are desperate to get new trucks, but supply is limited. Because fleets are frustrated by the current situation and are uncertain when they can receive trucks, they are placing a large volume of orders in hopes of getting some deliveries at some point in the future.”
The chart below shows the percentage change of Class 8

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This is Precisely Why I’ve Been Saying: Don’t Short Tesla or Anything in This Crazy Market

9 days ago

CEO goes nuts, spaghetti-code algos & consensually hallucinating humans lap it up.
“Am considering taking Tesla private at $420. Funding secured,” tweeted Tesla CEO Elon Musk this morning.
Anyone can tweet anything, as we have seen. Even Musk. Two days ago, as part of his personal battle with short sellers, he’d tweeted, “Dang, turns out even Hitler was shorting Tesla stock.”
Tesla has lost money every single year over its decade-plus existence. The more it sells, the more money it loses. It has successfully proven this maxim over and over again. In Q2, total revenues surged 43% from a year ago, but the net loss skyrocketed 113% to an all-time record of $718 million.
Tesla’s global market share in Q2 was 0.2%. This is practically nothing. It gets lost as a rounding error. Tesla is a

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Mattress Firm Considers Bankruptcy to Get Out of its Real Estate Scams

9 days ago

This is so thick it’s hard to believe. It’s far beyond just a Brick & Mortar Meltdown.
“I recently sold a small strip center with my last Mattress Firm,” a relieved real estate developer told me earlier this year. “It traded at a 7.1% cap rate, which is just astonishing to me. During due diligence, the buyer’s lawyers focused on every minute risk and mentioned nothing about their parent company once. So crazy.”
Mattress Firm’s parent company is Steinhoff, now a familiar name in the Enron lexicon.
“Mattress Firm’s strategy is to have multiple stores on the same intersection in every town,” this developer had told me last fall. “This was accomplished by design and not just mergers. As a developer, I was literally asked to find sites across the street from existing stores in almost

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It Just Doesn’t Let Up with Wells Fargo

10 days ago

A Friday-afternoon-in-August disclosure. Here’s its rap sheet of ongoing official scandals.
Friday afternoon, when no one was supposed to pay attention, Wells Fargo filed its 10-Q quarterly report with the SEC. It’s under “Note 13: Legal Actions,” which starts on page 122 and drags on for four small-print pages. “Note 13” contains Wells Fargo’s long rap sheet of disclosed ongoing government investigations and law suits in alphabetical order. The new item is on page 123:
Various unnamed government agencies – it didn’t disclose how many agencies or which agencies – are probing a new matter related to how the bank does business, this time its use of low-income housing tax credits (LIHTC), which is a multi-billion-dollar business for Wells Fargo.
Wells Fargo was exceedingly parsimonious

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Housing Bubbles Are Dangerous, That’s Why Canada is Finally Trying to Tamp Down on Them. And the US?

11 days ago

Wolf Richter with Jim Goddard on This Week in Money:
The underlying dynamics are similar, but the approach is different.
[embedded content]
Home prices experience a historic spike in Seattle, and sharp increases in other metros, but prices of condos in New York fall. Read…  The Most Splendid Housing Bubbles in America  
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Have Rising Gas Prices & Uber’s Serial Fiascos Impacted the Desire to Become an Uber Driver?

12 days ago

But there’s a bottom for everything.
Uber drivers are on the hook for their own social security and Medicare taxes, plus the costs of the vehicle, vehicle maintenance, insurance, and fuel. Gasoline prices have surged since mid-2016. Uber has no fuel surcharge, and the drivers eat the additional costs. Has this impacted interest in becoming an Uber driver? And the disclosures of misconduct by Uber, starting in late 2016 – have they impacted interest in becoming an Uber driver?
One way to measure the possibly changing interest by the public in becoming an Uber driver is to look at the search results for “become an Uber driver.” SEMrush, a marketing data provider, sorted through the data and correlated it to gasoline prices and to Uber’s fiasco disclosures. Here is what they found –

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The Fed Accelerates its QE Unwind

13 days ago

Mopping up liquidity.
The Fed’s QE Unwind – “balance sheet normalization,” as it calls this – is accelerating toward cruising speed. The first 12 months of the QE unwind, which started in October 2017, are the ramp-up period – just like there was the “Taper” during the final 12 months of QE. The plan calls for shedding up to $420 billion in securities in 2018 and up to $600 billion a year in each of the following years until the balance sheet is sufficiently “normalized” – or until something big breaks.
Treasuries
In July, the QE Unwind accelerated sharply. According to the plan, the Fed was supposed to shed up to $24 billion in Treasury Securities in July, up from $18 billion a month in the prior three months. And? The Fed released its weekly balance sheet Thursday afternoon. Over

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Update on the Rental Bubbles & Crashes in US Cities

14 days ago

Asking rents spiral down in Chicago & Honolulu, come unglued in Washington DC, drift lower in New York City, but see double-digit surges in Southern California and many less expensive markets.
Let’s start with Chicago and then swing to Southern California to get a flair for the drama on the ground that gets averaged out in the national figures.
Chicago rents peaked in the fall of 2015 and have since spiraled lower. In July, the median 1-BR asking rent dropped 5% from a year ago, to $1,510, and is down 26% from the peak in October 2015. For a 2-BR, median asking rent plunged 13.6% year-over-year and is down 30% from the peak.
Like other cities, Chicago has an apartment construction boom. In the Chicago-Naperville-Elgin metro area, 10,700 apartments are expected to be delivered in

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Tesla Discloses Worst Quarterly Loss Ever, But Where Are the 17,000 Model 3 Cars it “Produced” But Didn’t “Deliver”?

14 days ago

SEC, are you checking into this?
Tesla never ceases to astound with its hype and promises and with its results that are just mindboggling, including today when it reported its Q2 “earnings” – meaning a net loss of $718 million, its largest net loss ever in its loss-drenched history spanning over a decade. It was more than double its record loss a year ago:

The small solitary green bump in Q3 2016 wasn’t actually some kind of operational genius that suddenly set in for a brief period. No, Tesla sold $139 million in taxpayer-funded pollution credits to other companies, which allowed it to show a profit of $22 million.
Tesla adheres strictly to a business model that is much appreciated by the stock market: The more it sells, the more money it loses.
Total revenues – automotive and

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A Housing Bubble Pops: Update on Australia

15 days ago

It is rare that a housing market makes such a beautifully defined U-turn, after a long hard surge.
In Sydney, Australia’s largest housing market and one of the world’s biggest housing bubbles, prices of homes of all types fell 5.4% in July compared to a year ago, and 5.5% from the peak in September. Prices of single-family houses dropped 7.0%, and prices of condos (“units”) fell 1.6%, according to CoreLogic’s Daily Home Value Index:

The most expensive quarter of the market got hit the hardest, with prices down 8.0% in July compared to a year ago. Across the so-called “most affordable quarter of the market” – “least unaffordable” would be more appropriate – prices fell by 1.8%.
And supply in Sydney is starting to come out of the woodwork: Total number of homes listed for sale, based

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The Most Splendid Housing Bubbles in America

16 days ago

Historic spike in Seattle. Sharp increases in other metros. New York condos fall.
Homes prices in the US surged 6.4% in May compared to May a year ago (not seasonally-adjusted), and 1.1% from April, according to the S&P CoreLogic Case-Shiller National Home Price Index, released this morning. The index is now 10% above the crazy peak in July 2006 of “Housing Bubble 1” in this millennium — a phenomenon that after its collapse everyone had called “bubble” and “unsustainable,” but which by now has become the new-normal rock-solid base upon which to build a solid housing market, apparently. The index is now 51% above the bottom of “Housing Bust 1”:

Real estate may be local but prices are impacted by national and global factors, such as monetary policies and offshore investors for whom

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“Hidden Debt Loophole Could be Widespread”: Fitch

16 days ago

Use of this financial instrument has ballooned. No one knows to what extent because there’s no disclosure. But it was a “key contributor” to the sudden collapse of outsourcing giant Carillion.
As regulators and stiffed creditors were poking through the debris of collapsed outsourcing giant Carillion – once employing 43,000 people worldwide – they found that the UK company had hidden much of its debts. And Fitch Ratings warned that this “technique” – a “debt loophole” – may be “widespread” in the US and Europe.
Carillion provided services to governments. It didn’t manufacture anything, didn’t have a lot of assets, and didn’t have a lot of debt – at least not disclosed on its books. Net debt on its balance sheet amounted to £219 million. But Fitch estimates that it had an

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Numbers are in: Uber, Lyft v. Rental Cars & Taxis in the US in Q2

18 days ago

The ugly market-share battle in reimbursed ground transportation.
Rideshare companies are shaking up the rental-car industry and the taxi industry in the US. In at least one segment that we can track – company-reimbursed ground transportation – the rental-car and taxi industries, both, are getting crushed.
Facing these rideshare startups are, after decades of consolidation, three rental-car companies that now control 95% of the $28.6-billion-a year US rental car market, each with a number of national brands.
Hertz Global Holdings (HTZ) which owns Hertz, Thrifty, and Dollar Rent A Car
Avis Budget Group (CAR) which owns Avis, Budget, Payless Car Rental, and Zipcar
Enterprise Holdings (privately held) which owns Enterprise, National Car Rental, Alamo, and Enterprise CarShare.
The total

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The Big Adjustments in “Real” GDP

20 days ago

A $1-trillion job.
What the Bureau of Economic Analysis released today as part of its GDP report was a huge pile of revisions and adjustments going back years. It included an adjustment to the tune of nearly $1 trillion in “real” GDP. And it lowered further its already low measure of inflation.
Based on this revised data, second-quarter “real” GDP (adjusted for inflation) increased at a seasonally adjusted annual rate of 4.1% from the prior quarter. Annual rate means that if GDP continues to increase for four quarters in a row at the current rate, the 12-month GDP growth would be 4.1%. This was the highest growth rate since Q3 2014:

The above measure of “real” GDP – the change from prior quarter, but at an annualized rate – is the most volatile measure, producing the

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Carmageddon in Detroit

21 days ago

Suddenly it gets ugly – but these are still the good times.
It’s confession time among the Detroit automakers: GM, Fiat Chrysler, and Ford all got ugly, in unison, in one day, something we haven’t seen since the Financial Crisis.
Back at the end of May, GM shares (GM) were trading at $38 when it announced that SoftBank, the Japanese company that is blowing borrowed billions left and right, would invest $2.25 billion in GM’s self-driving car unit Cruise. By June 11, GM shares had shot up to $45. But this morning they’re at $37.16. That’s a 17% plunge from June 11, including the 5% drop Wednesday and today.
In its earnings report Wednesday morning, it lowered its profit outlook for 2018 by 5% to 9%, as its operating profits in its North America business plunged 23% in the quarter.

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Oops, Facebook’s Market Cap Plunges by $143 Billion

21 days ago

Throughout the scandals, Facebook was clad in Teflon and nothing mattered. But today, it mattered.
Facebook shares plunged 23% to $169 in late trading today, after successfully dodging the impact of various scandals the company has been embroiled in recently over its horrendous privacy practices, including disclosures that political analytics firm Cambridge Analytica, now defunct, had improperly accessed data from about 87 million Facebook users. This led to the world being served up the spectacle of CEO Mark Zuckerberg testifying before Congress in early April.
Facebook was clad in Teflon at the time, and none of this mattered [Then Why Is Anyone STILL on Facebook?]. But today, it mattered.
Wall Street wasn’t happy with revenues that, at $13.2 billion, were a tad weaker than

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Biggest Apartment-Construction Boom-Towns Are Not What You May Think

22 days ago

No, it’s not Seattle. Denver is by far #1. New York isn’t even in the top 25. And it explains why rents in Chicago are collapsing.
We’re going to shake up the status quo of apartment construction reporting. First, we’re going to lay out the status quo – the classic way of looking at this, the way you typically see it, where the New York metro comes out invariably as #1.
And then we’re going to look at it by population size of the metro, for metros with over one million people. And boy, do we get surprises.
For the past few years, there has been a multi-family construction boom across the US. About 283,000 new apartments are expected to be completed by the end of 2018, just a bit below last year when apartment deliveries hit a 20-year record of 317,872 units.
Over the three years

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Results Are In: How Americans Faced the Equifax Hack where Personal Data of 45% of US Adults Were Stolen

23 days ago

Now, 10 months later, do they even know about it? Don’t laugh….
Consumer credit bureau Equifax disclosed very belatedly last September that it had been hacked, and that the crown jewels of personal data – including social security numbers – of 145.5 million Americans had been stolen. This is about 45% of the adult US population. Armed with this data, hackers could then embark on a binge of identity theft and loan fraud for years to come.
I covered this in a series of articles, emphasizing what consumers can do to protect themselves – put a “security freeze” on their accounts at the three major credit bureaus, Equifax, Transunion, and Experian. Numerous commenters shared their experiences and frustrations with the site that Equifax had set up to find out if they were affected and

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10 Down-to-Earth Things Powell Said about Cryptocurrencies

23 days ago

Go find someone else to regulate them.
Fed Chairman Jerome Powell, during his testimony before the House of Representatives Committee on Financial Services, was asked by representatives Patrick McHenry (R, North Carolina) and Juan Carlos Vargas (D, California) about the Fed’s thinking on cryptocurrencies. Instead of pussyfooting around the issues, as Fed chairs used to do, he refreshingly stepped right into it, with both boots on the ground, so to speak.
McHenry, “Could you outline your thinking on cryptocurrencies?” Powell:
1. No serious financial stability threat yet: “I think the question I was asked that you’re referring to was, ‘Do cryptocurrencies currently (strong emphasis) represent a serious financial stability threat.’ And my answer was, ‘They’re not big enough to do that

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“Desperate” Tesla Asks Suppliers for Cash Back Retroactively to 2016

24 days ago

The request is “essential to Tesla’s continued operation.”
Tesla burned $1.1 billion in cash in Q1 and likely more in Q2 – we’ll find out on August 1. It cut its workforce by 9% in June and promised to cut other spending. CEO Musk told the entire world in a bizarre earnings call that he didn’t “want to” raise new capital in 2018, though Tesla had only $2.7 billion in cash at the end of last quarter. No one can figure out how the math is supposed to work out…. Well things are getting pretty tight, it seems, and the year is only half-over.
In a memo that a global supply manager at Tesla (TSLA) sent to some suppliers last week, the company has asked the suppliers to refund what it called a meaningful amount of money of what it had already paid these suppliers since 2016; the purpose of

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Is the US Economy Really Going to Pop 4.5% in Q2?

25 days ago

At least one of them is very wrong: Atlanta Fed GDPNow v. New York Fed Nowcast.
On July 27, the Bureau of Economic Analysis (BEA) will release its “advance estimate” of GDP growth for the second quarter. Based on preliminary and incomplete data, this number is what everyone puts under the microscope.
On August 29, the BEA will release its “second estimate” for Q2 GDP growth, which will include more data. On September 27, the BEA will release its “third estimate.” In future years, it will further revise GDP growth as more data becomes available or gets revised. Only China releases a GDP growth rate that is perfect on day one, is always very high, comes out before the US release, and never needs to be revised.
But in the US, even as the revised numbers get more accurate, the least

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Which Yield Curve “Inverts” First? US, Japan, Germany, or China?

27 days ago

How the “Yield Curves” Stack Up in central-bank manipulated bond markets.
So we had a little bond-market upheaval this morning. After President Trump successfully manipulated bond yields down yesterday and today by griping about the Fed’s rate hikes, an inveterate Fed dove (who has also been griping about the Fed rate hikes) responded by brushing him off, and suddenly all kinds of things happened, with the 10-year yield jumping and the yield curve steepening a tad within minutes.
St. Louis Fed President James Bullard, for whom every rate hike is a mistake, told reporters this morning in Glasgow, Kentucky, that the FOMC will remain unaffected by Trump’s comments on monetary policy:
“The committee has a mandate to keep inflation low and stable and obtain maximum employment for the

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