Tag Archives: credit

Bulletin: It’s a Credit Bubble!

By Biiwii

As posted at NFTRH.com

You may have caught the title’s little inside joke.

Sometimes you (well, I anyway) can look at a graph representing data that is a culmination of history (i.e. reality) and just let it settle in for some perspective and even some conclusions.

Whether these conclusions are right or wrong is subjective and open to debate. But what I see here when viewing the Prime Rate historical is summed up after the graph (graphs courtesy of Economagic, mark ups mine).

prime.loan

In the pre-Greenspan era, every rise in Prime rates was eventually corrected through recession. This makes sense as the Federal reserve would, through its Funds Rate, make borrowing by banks more expensive during economic up cycles and hence, this was passed on to the borrowing public by the spread between FFR and Prime.

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Around the Web

By Biiwii

Financial news & analysis from around the web

 

Next Credit Bubble Casualties: France & Italy

By Elliott Wave International

France and Italy are the Next Casualties of the Credit Bubble

Editor’s note: This article is excerpted from The State of the Global Markets Report — 2015 Edition, a publication of Elliott Wave International, the world’s largest financial forecasting firm. Data is updated to December 2014. You can download the full, 53-page report here.

Workforce is still shrinking

These two charts depict two imminent casualties of the credit bubble — France and Italy — where sentiment has decoupled from reality.

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The Unavoidable Peril of Financial Sphere Bubbles

Guest Post by Doug Noland

EM contagion gathering momentum.

Let’s begin with a brief update on the worsening travails at the Periphery. The Russian ruble sank another 6.5% this week, increasing y-t-d losses to 37.9%. Russian yields surged higher. Russian (ruble) 10-year yields jumped another 146 bps this week to 12.07%, with a nine-session jump of 188 bps. Russian yields are now up 425 bps in 2014 to the highest level since 2009.

Increasingly, EM contagion is enveloping Latin America. The Mexican peso was hit for 1.6% Friday, boosting this EM darling’s loss for the week to a notable 3.0%. This week saw the Colombian peso hit for 4.3%, the Peruvian new sol 1.1%, the Brazilian real 0.9% and the Chilean peso 0.6%. Venezuela CDS (Credit default swaps) surged 425 bps to a record 2,717 bps. Venezuela CDS traded near 1,000 in August. On the bond front, 10-year yields jumped 30 bps this week in Brazil, 24 bps in Mexico and 24 bps in Colombia. Brazilian stocks were slammed for 5% this week and Mexican equities fell 2.2%.

Eastern European currencies were also under pressure. The Ukrainian kryvnia dropped 2.9%, the Romanian leu 1.5%, the Bulgarian lev 1.3%, the Czech koruna 1.3%, the Hungarian forint 1.1% and the Polish zloty 0.7%. The Turkish lira was hit for 1.9%, as 10-year yields jumped 33 bps to 7.91%. The South African rand dropped 2.6% to a six-year low. In Asia, the Malaysian ringgit dropped 2.5%, the Singapore dollar fell 1.4% and the Indonesian rupiah declined 0.8%.

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Setting the Stage for the Next Collapse

Guest Post by Steve Saville

When the central bank pumps money into the economy and suppresses interest rates it creates incentives to speculate and invest in ways that would not otherwise be viable. At a superficial level the central bank’s strategy will often seem valid, because the increased speculating and investing prompted by the monetary stimulus will temporarily boost economic activity and could lead to lower unemployment. The problem is that the diversion of resources into projects and other investments that are only justified by the stream of new money and artificially low interest rates will destroy wealth at the same time as it is boosting activity. In effect, the central bank’s efforts cause the economy to feast on its seed corn, temporarily creating full bellies while setting the stage for severe hunger in the future.

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Credit Allocation

Guest Post by Doug Noland

Signs of an upside dislocation

Total (financial and non-financial) Credit jumped $484bn during Q1 to a record $59.399 TN, or 347% of GDP. Although economic growth faltered during the period, Q1 2014 Total Non-Financial Debt (NFD) expanded at a 5.0% rate. Corporate borrowings grew at a robust 9.3% pace, up from Q4’s 7.7% and Q1 2013’s 7.2%. Federal government debt mounted at a 7.1% rate, down from Q4’s 11.6% and Q1 2013’s 10.1%. Consumer Credit accelerated from Q4’s 5.3% rate to 6.6% – the strongest increase in borrowings since Q2 2012. Consumer Credit expanded 4.1% in 2011, 6.2% in 2012 and 5.9% in 2013. If Q1 consumer borrowing is sustained, 2014 will post the strongest consumer (non-mortgage) debt growth since 2001 (8.6%).

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Serial Booms and Busts

Guest Post by Doug Noland

[ed:  Once again, much like with Prechter’s gold-bearish stance last decade, I must disagree with another influence of mine, Doug Noland, in his assertion that Ukraine is material to the US financial markets.  But there is much more to Noland’s views that I find of value.]

How long can the markets ignore Ukraine, Russia and China?

After beginning 1987 near 104, the U.S. dollar index dropped almost 10% in nine months. From 7.5% in late-March 1987, 30-year Treasury yields surged more than 270 bps in seven months to trade as high as 10.22% in early October. During this period of currency and bond market instability, stocks set off on a fateful speculative run. At record highs in late-August 1987, the S&P500 enjoyed a year-to-date gain of 39%. This spectacular rise was more than wiped out over a two-week self-off that culminated on “Black Monday,” October 19, 1987.

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Money and Credit and the Current Backdrop

Guest Post by Doug Noland

Trouble brewing.

Over the years, money and the “moneyness” of Credit have remained focal points of my Macro Credit Analytical Framework. From my perspective, money is fundamentally defined by perceptions. “Money” is a financial claim perceived as a safe and a liquid store of nominal value. Understandably, this definition is troubling to monetary purists. Yet in the spirit of Ludwig von Mises and his notion of broad money/“fiduciary media,” my view of contemporary “money” is focused on an array of financial claims and their functionality.

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US Monetary Inflation Slowdown

Guest Post by Steve Saville

Below is an excerpt  from a commentary originally posted at www.speculative-investor.com on 13th April 2014.

On the US monetary inflation front, the news is that there isn’t much in the way of news. As depicted below, the year-over-year rate of TMS (True Money Supply) growth hit a 5-year low of around 7% at the end of last year and has since edged a little higher.

saville1

There are only two ways that money can be added to the US money supply. The first is via Fed asset monetisation, which is how most new US dollars have come into existence since September of 2008 and how almost all new US dollars came into existence last year. The second is via commercial-bank credit expansion. This is how almost all new US dollars came into existence for decades prior to September of 2008.

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Financial Stability

Guest Post by Doug Noland

Selling is starting to get serious.

“Each Spring, thousands of government officials, journalists, civil society organizations, and invited participants from the academia and private sectors, gather in Washington, DC for the Spring Meetings of the IMF and the World Bank Group. At the heart of the gathering are meetings of the IMF’s International Monetary and Financial Committee and the joint World Bank-IMF Development Committee…”

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Household Debt Shrinking

Guest Post by Tom McClellan

Household debt versus income
April 11, 2014

Debt is bad, at least for you and me.  But debt held by others can be a wonderful thing, as long as it is increasing. Debt is only a problem at the point somebody decides to do something about it.

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