Tag Archives: debt

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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US’s Debt Not Such a Big Deal –Mr. Gold

[edit]  Mr. Gold’s last paragraph is the tell on his bias, as he is unwilling or unable to conceal the contempt he has for people who were absolutely right for 10 years+ and are now suffering a bear market, both to their asset of choice and in sound monetary thinking.

“The vastly improved fiscal situation may last only a few years, but it’s a big plus for U.S. markets and the U.S. dollar — and another nail in the coffin for the gold bugs and doom-and-gloomers who can add one more item to the long list of things they got really, really wrong.”

Why the US’s Debt is No Longer Such a Big Deal  –Howard Gold writing at MarketWatch

Before we find out about Howard’s thoughts on the debt situation (I am only going by the headline right now) let’s divide the GDP by the Federal Debt.  This is a view of a deluded nation going right down a sink hole in service to greed and denial.

gdp.feddebt

Now let’s see what Mr. Gold (not the discredited and now strangely silent ‘gold bug’ Mr. Gold) has to say in regard to “the US debt is no longer such a big deal”.

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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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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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HFT, Rigged Markets and the Man

Guest Post by Doug Noland

Initial indications of greed giving way to fear.

April 3 – Bloomberg (Silla Brush): “The U.S. Commodity Futures Trading Commission is reviewing futures markets to ensure high-speed trading isn’t violating the law, acting CFTC Chairman Mark P. Wetjen told reporters… ‘I don’t have the impression at the moment that futures markets are rigged,’ Wetjen said… He was responding to comments by Michael Lewis, author of the book ‘Flash Boys,’ that investors are being robbed by traders using advanced computers to jump ahead of their trades.”

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Q4 2013 “Flow of Funds” & Geopolitical

Guest Post by Doug Noland

Ominous geopolitical meets exuberant markets.

During Q4 2013, Total System Credit increased (nominal) $840bn to a record $58.991 TN, or 345% of GDP. On a percentage basis, total Credit expanded at a 5.8% rate during the quarter, up from Q3’s 3.8% but still below Q4 2012’s 6.2% pace. For all of 2013, system Credit expanded $2.139 TN, compared to 2012’s $1.613 TN increase. Total Corporate debt expanded $915bn, or 7.2%, to $13.622 TN. Non-financial Corporate debt expanded $783bn, or 9.0%, second only to 2007’s $856bn.

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Stock Market: It’s Bullish While it’s Bullish

A point I have been trying to make since the beginning, which in my case for public writing was 2004, is “but it is what it is” (biiwii).  The name of the website was a direct (and bullish) response to my own bearish bias (which endures to this day because I have seen no improvement in monetary policy making) as the Greenspan era credit fueled cyclical bull market was getting ramped up.  In other words, it is what it is; don’t fight it.  It was bullish.

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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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Transitions

Guest Post by Doug Noland

“Risk on” strikes a comeback.

Representative Frank Lucas: “…When we undo quantitative easing, what is the effect going to be on things like farm land prices or stock market prices or, for that matter, equities?”

Federal Reserve chair Janet Yellen: “I would agree that one of the channels by which monetary policy works is asset prices, and we have been trying to push down interest rates, particularly longer term interest rates. Those rates do matter to the valuation of all assets, both stocks, houses, and land prices. And so I think it is fair to say that our monetary policy has had an effect of boosting asset prices. We have tried to look carefully at whether or not broad classes of asset prices suggest Bubble-like activity. I’ve not seen that in stocks generally speaking. Land prices I would say suggest a greater degree of overvaluation.”

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