Tag Archives: credit

Credit Bubble Bulletin

By Doug Noland

Credit Bubble Bulletin: New World Disorder

The Federal Reserve is flailing and global currency markets are in disarray. Notably, the Brazilian real dropped more than 10% in five sessions, before Thursday’s sharp recovery reversed much of the week’s loss. This week the Colombian peso dropped 3.0%, and the Chilean peso fell 3.1%. The Mexican peso dropped 1.9%. The Malaysian ringgit sank 4.5% for the week, with the South Korean won down 2.7% and the Indonesia rupiah losing 2.2%. The Singapore dollar fell 1.8%. The South African rand sank 4.4% and the Turkish lira fell 1.4%. Notably, market dislocation was not limited to EM. The Norwegian krone was hit for 4.4%, and the Swedish krona lost 2.0%. The British pound declined 2.3%. The Australian dollar also lost 2.3%.

Apparently alarmed by the market’s poor reaction to last week’s no hike decision, the Ultra-Dovish Fed this week attempted to slip on a little hawk attire. It’s looking really awkward. On Thursday evening, chair Yellen did her best to backtrack from last week’s FOMC statement with its focus on global issues. The markets are doing their best not to panic.

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Now What?

By Doug Noland

Credit Bubble Bulletin

September 18 – Reuters: “The world’s leading central banks are facing the risk that their massive efforts to revive economic growth could be dragged down again, with some officials arguing for bold new ideas to counter the threat of slow growth for years to come. A day after the U.S. Federal Reserve kept interest rates at zero, citing risks in the global economy, the Bank of England’s chief economist said central banks had to accept that interest rates might get stuck at rock bottom. In Japan, where interest rates have been at zero for more than 20 years, policymakers are already tossing around ideas for overhauling the Bank of Japan’s huge monetary stimulus program as they worry that it will be unsustainable in the future, according to sources familiar with its thinking. Separately a top European Central Bank official said the ECB’s bond-buying program might need to be rethought if low inflation becomes entrenched.”

Most just scoff at the notion that there has been a historic global Bubble, let alone that this Bubble has over recent months begun to burst. Talk of an EM and global crisis is viewed as wackoism. Except that the Federal Reserve clearly sees something pernicious in the world that requires shelving, after seven years, even the cutest little baby step move in the direction of policy normalization.

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Credit Bubble Bulletin

By Doug Noland

Carry Trades and Trend Following Strategies

The week commenced with yet another “flash crash.” The August 2015 version was notable for its ferocity and impressive global scope. Then there was the Dow’s 1,200 point “buy the dip” (and rip the bears’ faces off) rally from Monday’s lows. At Wednesday’s low point, the Shanghai Composite had sunk 18.7% from last Friday’s close, before a 13.4% rally left the index down 7.9% for the week. Currency markets, especially EM, were chaotic. From my perspective, the systemic nature of market dislocations provided decisive confirmation of the Global Financial Fragility Thesis.

Before diving into the present, let’s set the tone by reminding readers of an important but commonly unappreciated aspect of the Fed’s previous failed reflationary episode: Cheered on by “Keynesian” inflationist doctrine, the Fed specifically targeted mortgage Credit as the primary mechanism for post-tech Bubble system reflationary measures. In what was too surreptitious, government-directed mortgage Credit was unleashed to overpower deflation risks.

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It’s Always Worse Than You Think

By Doug Noland

Credit Bubble Bulletin

August 17 – Reuters Breakingviews (Edward Chancellor): “Financial markets, like religions, are faith-based networks. The complex structures of assets and liabilities that comprise markets are held together by a set of underlying beliefs. Unlike religions, however, financial dogmas are occasionally shown to be false. We experienced such a moment last week, when the Chinese authorities chose to devalue their currency.”

Contemporary global finance is a complex “system” of interwoven (electronic) “faith-based networks.” As the bursting of the global Bubble unfolds, myriad “financial dogmas” will be exposed as bogus. Too many have been little more than chicanery.

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Money and Spheres

By Doug Noland

Credit Bubble Bulletin

In a tiny subsection of the analytical world, analysis is becoming more pointed and poignant. I appreciate Bill Gross’s August commentary, where he concluded: “Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.”

I’ll include the names Russell Napier, Albert Edwards and David Stockman as serious analysts whose views are especially pertinent. I presume each will exert minimal effect on “the establishment.”

Back to Bill Gross: “The BIS emphatically avers that there are substantial medium term costs of ‘persistent ultra-low interest rates’. Such rates they claim, ‘sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.’ ‘…The reason [the Fed will commence rate increases] will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history.”

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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).


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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