T-bills Targeted Target

This time, this morning, it was sustained bids all the way from Asia through Europe into the US open. It shouldn’t have been surprising given the strains of illiquid-ness all over global markets yesterday. To give you a sense of the difference, I’ll include a chart from a scramble from last year, one that I called a “really good” example.

I’d call it a much bigger problem.

Fragile, as we’ve been documenting all along. The fact that T-bill rates have been so low to begin with, the 4-week so far down under RRP and IOER, and then going lower, the problem of tight collateral supply and redistribution has itself become the baseline case – only made worse on days like yesterday.

Pile a (more than) realistic recession threat into this deflationary money mix and it all gets very dangerous very quickly. The more deflationary money restrains normal financial function, the more it will add to the downside supply shock tendencies, merely confirming risk aversion in deflationary money-makers leading to more deflationary money constraints. And so on.

What management for the two largest retailers both admitted in their quarterly numbers and presentations, the same quarter when, remember, GDP went negative (and then the Household Survey on employment did, too, by April), was pure demand destruction. They just came out and said it; consumers are being hard hit by prices and are now actively cutting back on (higher margin) discretionary purchases.

Worse, for the retail sector, higher costs are also hitting retailers hard, too, because contrary to all previous talk about companies finally having achieved pricing power, neither Target nor Walmart was able, or forecasts either will be able, to pass higher input costs (including shipping) along to their already-harmed and desperate customers.

This was never inflation.

Think forward about the consequences. The glut of goods which has arrived this year, a glut much of which is still coming.

Just when consumers are now seriously scaling down, it is the absolute worst timing – yet entirely predictable since markets have been warning about this for a very long time already. Euro$ #5 dates to last May.

Overseas, the Japanese are facing more recessionary prospects. GDP there suggests output has been uncertain at best, slightly negative then slightly positive, alternating between each for the past five quarters (with Q1 2022 to the downside like in America).

And those were achieved when the price illusion hadn’t yet turned so dark.