Tag Archives: debt

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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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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EM, Hedge Funds & Corporate Debt

Guest Post by Doug Noland

A particularly unsettled week for U.S. and global markets.

Global markets have turned highly unsettled. The S&P500 opened the week at about 1,783, sank to an intraday low of 1,738 on Wednesday before rallying to close the week at 1,797. The Goldman Sachs Most Short index sank 4.0% Monday, was little changed Tuesday, fell 1.6% Wednesday, jumped 1.7% Thursday and then surged 3.3% Friday. High-profile hedge fund short positions have turned wildly volatile. Green Mountain Coffee surged 33.0% this week.

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Credit is Gold #1 and Icebergs

Guest Post by Doug Noland

The evolving EM crisis took a turn for the worse.

Backdrops conductive to crises can drag on for so long – sometimes seemingly forever – as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.

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