Tag Archives: credit bubble

The Adjustment Cycle

By Doug Noland

Credit Bubble Bulletin: The Adjustment Cycle

Crude has rallied about 5% off of last month’s low. The Brazilian real closed Friday at 3.90, having posted a decent rally from the January closing low of 4.16 to the dollar. Brazilian equities have bounced about 10%. This week saw Brazil’s currency rally 2.4%. In general, EM currencies and equities have somewhat stabilized, notably outperforming this week. Stocks posted gains in Brazil, Turkey and China. From Bloomberg: “Yuan in Longest Weekly Rally Since 2014 as China Raises Rhetoric.” The dollar index this week dropped 2.6%, which most would have expected to lend some market support.

If crude, commodities, EM, the strong dollar and the weak yuan were weighing on global market confidence, why is it that global financial stocks have of late taken such a disconcerting turn for the worse?

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$7 Million Woman: A Bubble Within the Student Loan Debt Crisis

There is an ongoing student loan debt crisis and it is simply one more manifestation of the overall bubble in credit that has created stock market wealth for asset owners.  In not allowing the college tuition bubble to burst the government has created the 7 Million Dollar Woman and 35 other private college heads making over $1,000,000 per year.

36 private-university presidents clear $1 million bar — led by RPI’s $7 million woman

We have been in a phase where uncritical people (many mainstream financial services and economists) have held sway because look… the stock market is going up… the economy is going up… outlandish compensation (what the market will bear) is justified!

It’s bullshit; you (a critical independent thinker) and I both know it.  But how do you argue with the black and white fact that the economy is strong, the markets are strong and some college president deserves 7 million bucks even though more and more students have reached for their dreams on debt, with diminishing prospects for gainful employment (and debt-paydown) after graduation?

You don’t, or at least you don’t get taken seriously, until the bubble bursts and we doom and gloomers, cranks and non-conformists one day get to once again say ‘see… ?’

No Bubble?

Guest Post by Doug Noland

Fed hawks are beginning to make some noise.

Earlier in the week BlackRock’s Larry Fink commented on CNBC: “A Bubble is predicated on leverage.” Fink was implying that he didn’t see the type of leverage that fueled the previous Bubble.

As part of my Bubble analysis framework, I have posited that the more conspicuous a Bubble the less likely it is to be systemic. The “tech” Bubble was conspicuous, though gross excesses impacted only a relatively narrow segment of asset prices and a subsection of the real economy.

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How the Euro Was (Really) Saved

Guest Post by Doug Noland

The short squeeze was back.

“To the astonishment of almost everyone in the room, Angela Merkel began to cry. ‘Das ist nicht fair.’ That is not fair, the German chancellor said angrily, tears welling in her eyes. ‘Ich bringe mich nicht selbst um.’ I am not going to commit suicide. For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking enough to watch Europe’s most powerful and emotionally controlled leader brought to tears. But the scene was even more remarkable, those present said, for the two objects of her ire: the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama. It would be the low point in a brutal, recrimination-filled night, one many participants would recall as the nadir of the three-year eurozone crisis. Mr Sarkozy had hoped his leadership of the Group of 20 summit would cement his standing on the global stage en route to re-election. Instead, everything was falling apart. Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone’s ‘firewall’ – the ‘big bazooka’ or ‘all of money’ they believed had to grow dramatically to fend off attacks by panicking bond traders.”

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Curriencies, Carry Trades, Fat Pigs and Pythons

Guest Post by Doug Noland

Equities are right back to near record highs – yet something just doesn’t feel right.

February 17 – Bloomberg: “Record new credit in China in January will help the economy maintain momentum while highlighting challenges for officials trying to limit the risk of financial turbulence from defaults and bad loans. Aggregate financing, the broadest measure of credit, was 2.58 trillion yuan ($425bn), the People’s Bank of China said… New local-currency lending was 1.32 trillion yuan, the highest level since 2010. Trust loans, under scrutiny because of default risks, were about half the level of a year earlier. The data add to better-than-forecast trade numbers, suggesting that China can limit the scale of any slowdown from last year’s 7.7% expansion in gross domestic product. At the same time, the figures contrast with a central bank call in mid-January for lenders to control surging loans and highlight diminishing economic returns from credit growth.”

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Guest – Pertinent Bubble Insights From the Roaring 20’s

By Doug Noland

Another week another record high.

“To understand the Great Depression is the Holy Grail of macroeconomics. Not only did the Depression give birth to macroeconomics as a distinct field of study, but also—to an extent that is not always fully appreciated—the experience of the 1930s continues to influence macroeconomists’ beliefs, policy recommendations, and research agendas. And, practicalities aside, finding an explanation for the worldwide economic collapse of the 1930s remains a fascinating intellectual challenge.” Ben. S Bernanke, Essays on the Great Depression, 2000

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