Probable credit cycle peak [Archive]

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bart

05-23-08, 03:45 PM

Although its far from certain, here's the actual amounts in billions and the annual rate of change of bank credit since early March:

<table x:str="" style="border-collapse: collapse; table-layout: fixed; width: 200pt;" border="0" cellpadding="0" cellspacing="0" width="267"><tbody><tr style="height: 13.2pt;" height="18"><td class="xl24" style="height: 13.2pt;" x:num="39512" align="right" height="18">3/5/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9428" align="right">$9,428</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11845305178243071" x:fmla="=($C2/#REF!)-1" align="right">11.8%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39519" align="right" height="18">3/12/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9492.6" align="right">$9,493</td> <td class="xl26">
</td> <td class="xl25" x:num="0.14043033747011546" x:fmla="=($C3/#REF!)-1" align="right">14.0%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39526" align="right" height="18">3/19/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9565.2" align="right">$9,565</td> <td class="xl26">
</td> <td class="xl25" x:num="0.14741552007485348" x:fmla="=($C4/#REF!)-1" align="right">14.7%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39533" align="right" height="18">3/26/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9535.6" align="right">$9,536</td> <td class="xl26">
</td> <td class="xl25" x:num="0.14204273258599209" x:fmla="=($C5/#REF!)-1" align="right">14.2%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39540" align="right" height="18">4/2/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9437" align="right">$9,437</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11551100498829769" x:fmla="=($C6/#REF!)-1" align="right">11.6%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39547" align="right" height="18">4/9/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9442" align="right">$9,442</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11640555719775358" x:fmla="=($C7/#REF!)-1" align="right">11.6%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39554" align="right" height="18">4/16/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9408" align="right">$9,408</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11312249316721679" x:fmla="=($C8/#REF!)-1" align="right">11.3%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39561" align="right" height="18">4/23/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9407.4" align="right">$9,407</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11119773210489003" x:fmla="=($C9/#REF!)-1" align="right">11.1%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39568" align="right" height="18">4/30/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9415" align="right">$9,415</td> <td class="xl26">
</td> <td class="xl25" x:num="0.11042966492504735" x:fmla="=($C10/#REF!)-1" align="right">11.0%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39575" align="right" height="18">5/7/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9407.2" align="right">$9,407</td> <td class="xl26">
</td> <td class="xl25" x:num="0.10260437422349344" x:fmla="=($C11/#REF!)-1" align="right">10.3%</td> </tr> <tr style="height: 13.2pt;" height="18"> <td class="xl24" style="height: 13.2pt;" x:num="39582" align="right" height="18">5/14/08</td> <td class="xl24">
</td> <td class="xl26" x:num="9386.3" align="right">$9,386</td> <td class="xl26">
</td> <td class="xl25" x:num="0.10034817063878165" x:fmla="=($C12/#REF!)-1" align="right">10.0%</td></tr></tbody></table>

Here's a full picture of annual rates of change on all credit types, the red line being the grand total:

http://www.nowandfutures.com/images/credit_types_roc_short_term.png

A similar picture shows in both M3 and MZM:

http://www.nowandfutures.com/images/m3b_mzm.png

And for my last trick, here's a picture of gold from 1966 through 1979, and showing gold since late 1999. For math aficionados, the correlation is over .91.

http://www.nowandfutures.com/images/gold1966-1980and_now.png
http://www.nowandfutures.com/d2/gold_dow_cycle1966-1980.png

"History doesn't repeat itself, but it does rhyme."
-- Mark Twain

(edited to add in the link to the gold chart)

Sapiens

05-23-08, 03:52 PM

Bravo!!!! Great Job, Bart!!!

http://datadepository.googlepages.com/totbkcr.png

05-23-08, 05:02 PM

bart, do you interpret this [if it continues] to mean that we're approaching our next deflation scare?

bart

05-23-08, 05:22 PM

bart, do you interpret this [if it continues] to mean that we're approaching our next deflation scare?

Could be, but my money is still on actual relative stagflation for at least another 3-9 months. Look out below on most stock markets too, although I expect miners & juniors to be in a broad trading range.

There's just plain been too much money created around the world the last year or two. And it's not just the Fed.
World M3 and world credit have grown at over 13% during the period by my calculations, excluding derivatives growth.

metalman

05-23-08, 05:23 PM

bart, do you interpret this [if it continues] to mean that we're approaching our next deflation scare?

great charts! killer analysis!

now... what's a 'deflation scare'?

GRG55

05-23-08, 06:44 PM

Look at that credit card and consumer credit buck the trend. So far...

http://www.nowandfutures.com/images/credit_types_roc_short_term.png

metalman

05-23-08, 08:45 PM

Look at that credit card and consumer credit buck the trend. So far...

http://www.nowandfutures.com/images/credit_types_roc_short_term.png

credit tanks then deflation. is that the msg here?

STILL can't figure out how you pull off deflation with a weak currency. has it ever happened?

bart

05-23-08, 08:57 PM

Look at that credit card and consumer credit buck the trend. So far...

http://www.nowandfutures.com/images/credit_types_roc_short_term.png

During 4 out of the last 5 recessions, credit card growth rates didn't peak until about half way into the recession. That should help gauge the length of the current one.

Another "fun" one - real estate loans actually peaked right around July/August 2005 when both EJ & I called the peak... and for fans of TA (technical analysis), there's actually a head & shoulders formation of real estate loans with the left shoulder in early 2005 and the right shoulder in late 2006/early 2007. It forecasts that real estate loans will bottom at an annual change rate of 2-3%.

bart

05-23-08, 10:03 PM

Thought for the day:

I am waiting for the day when Moody's and Standard and Poor's merge to become Moody and Poor.

Finster

05-24-08, 12:48 PM

credit tanks then deflation. is that the msg here?

STILL can't figure out how you pull off deflation with a weak currency. has it ever happened?

My guess is Bart refers here to credit deflation, not monetary deflation. EJ has also written of credit deflation, but does not expect appreciating currency and falling prices. In the 1970s, as now, credit deflation was countered with monetary inflation, which weakens the currency and raises prices.

GRG55

05-24-08, 01:40 PM

Thought for the day:

One could have a lot of fun in the coming years given the potential for many of Wall Street's historic firms to seek salvation in the arms of others (other than the SWFs I mean).

I happened to be on a road show in NY in 1997 on the morning the Smith Barney merger with Salomon Brothers news was released.

Still can't understand why they chose the cumbersome Salomon Smith Barney handle for the merged company when Barney Brothers would have been so much more unique and memorable...

bart

05-24-08, 04:21 PM

One could have a lot of fun in the coming years given the potential for many of Wall Street's historic firms to seek salvation in the arms of others (other than the SWFs I mean).

I happened to be on a road show in NY in 1997 on the morning the Smith Barney merger with Salomon Brothers news was released.

Still can't understand why they chose the cumbersome Salomon Smith Barney handle for the merged company when Barney Brothers would have been so much more unique and memorable...

And let me guess... their masthead and corporate colors would have included purple?

GRG55

05-24-08, 05:28 PM

And let me guess... their masthead and corporate colors would have included purple?

Give yourself a rimshot...;)

Finster

05-25-08, 11:55 AM

Thought for the day:

I am waiting for the day when Moody's and Standard and Poor's merge to become Moody and Poor.

Er ... uhm ... Moody's Poor Standards?

bart

05-25-08, 12:22 PM

Er ... uhm ... Moody's Poor Standards?

They have Standards?!? :eek:
Can I super size them and get them with extra sleaze? :cool:

Finster

05-25-08, 02:36 PM

They have Standards?!? :eek:
Can I super size them and get them with extra sleaze? :cool:

I don't know, but the Connecticut Attorney General is trying to find out ...

Moody's Faces Connecticut Probe of Alleged `Cover-Up'

(Update1)

By Erik Holm

May 21 (Bloomberg) -- Moody's Corp. is being investigated by Connecticut Attorney General Richard Blumenthal for ``potential fraud'' tied to top rankings that the firm may have erroneously awarded to some debt securities...

http://www.bloomberg.com/apps/news?pid=20601087&sid=al3ukZGnEzdk&refer=home

Frankly, I couldn't say one way or the other, but the whole concept of buyers of securities relying upon ratings paid for by the sellers seems deeply flawed from the get-go...

bart

05-25-08, 02:46 PM

I don't know, but the Connecticut Attorney General is trying to find out ...
Moody's Faces Connecticut Probe of Alleged `Cover-Up'

(Update1)

By Erik Holm

May 21 (Bloomberg) -- Moody's Corp. is being investigated by Connecticut Attorney General Richard Blumenthal for ``potential fraud'' tied to top rankings that the firm may have erroneously awarded to some debt securities...

http://www.bloomberg.com/apps/news?pid=20601087&sid=al3ukZGnEzdk&refer=home

Frankly, I couldn't say one way or the other, but the whole concept of buyers of securities relying upon ratings paid for by the sellers seems deeply flawed from the get-go...

I'd use a stronger word than flawed... and in tinfoil hat mode, I hope Richard Blumenthal doesn't have any hookers in his past... :eek: :rolleyes:

babbittd

05-27-08, 02:06 PM

CPDOs expose ratings flaw at Moody’s (http://www.ft.com/cms/s/0/09a762ee-2699-11dd-9c95-000077b07658.html)

...the triple A ratings that Moody’s awarded to some early deals were based on a model that contained an error in its computer coding and these ratings should have been up to four notches lower, according to internal documents seen by the Financial Times. Billions of dollars could have been affected.

The very first deals from ABN Amro (http://markets.ft.com/tearsheets/performance.asp?s=nl:AABA) in August 2006, which were rated triple A by Standard & Poor’s alone, provoked huge excitement among bankers, investors, traders in the underlying credit markets and of course the media. Moody’s followed up with its first rating of an ABN Amro CPDO in late September 2006.

By December, a range of banks had copied the deal and this new kind of product had been credited by some with adding new impetus to the rally in corporate credit – a rally which meant that a number of the follow-up products could not pay the same high returns promised by the original deals.

Obviously this isn't the only flaw in their models...

bart

06-04-08, 10:52 PM

metalman

06-04-08, 11:34 PM

Total borrowings from the Fed

Includes discount window, Term Auction Facility (TAF) and Primary Dealer Credit Facility (PDCF). Same as the Fed's monthly "BORROW" ( http://research.stlouisfed.org/fred2/series/BORROW ) series, except weekly.

How droll of the Fed to only chart it monthly when the data is available weekly.

http://www.nowandfutures.com/images/total_borrowings_from_fed.png

Added to my Fed watch page
http://www.nowandfutures.com/fed_watch.html#borrow

didn't you get the memo from caroline baum at bloomberg? it's tin foil hat nutty to worry about this term auction stuff. so what if the only mortgages available are from banks with a back door to the fed? who needs free credit markets, anyway? no soup lines in my town. :p

bart

06-05-08, 07:31 AM

Finster

06-05-08, 09:44 AM

didn't you get the memo from caroline baum at bloomberg? it's tin foil hat nutty to worry about this term auction stuff. so what if the only mortgages available are from banks with a back door to the fed? who needs free credit markets, anyway? no soup lines in my town. :p
I sent her one of my new & improved silver lined tinfoil hats. It's specifically designed to filter Fed frequency waves, and was inspired by "Treasure of the Sierra Madre"*. All the trendy folk will be wearing them soon.

* http://www.nowandfutures.com/grins/steenking_badges.mp3

Ha! One way to look at this taffy pull and its alphabet soup kin is as a kind of under-the-radar way to inflate with abandon. Oh ... not that people aren't well aware of it, but the paradigm of Fed funds being the key policy tool is deeply entrenched in the financial system. Not inconspicuously in the forex currency markets, which continue to trade heavily on key policy rate differentials both current and anticipated between monetary blocs.

bart

06-05-08, 10:09 AM

Ha! One way to look at this taffy pull and its alphabet soup kin is as a kind of under-the-radar way to inflate with abandon. Oh ... not that people aren't well aware of it, but the paradigm of Fed funds being the key policy tool is deeply entrenched in the financial system. Not inconspicuously in the forex currency markets, which continue to trade heavily on key policy rate differentials both current and anticipated between monetary blocs.

Hark, what sanity through yonder post breaks, 'tis the Manor Maven bringing more light...

The false dualities of Fed Funds being key and rate differentials almost being worshiped at the altar of the inflation nations are cracking, very slowly but surely.

Ave Caesar, te morituri salutamus... :rolleyes: :mad:

friendly_jacek

06-10-08, 10:05 AM

Total borrowings from the Fed

http://www.nowandfutures.com/images/total_borrowings_from_fed.png

This shape is familiar. Wait, isn't it the oil price?

bart

06-10-08, 10:34 AM

This shape is familiar. Wait, isn't it the oil price?

ssshhhh... Lukester may be listening... ;)

And on a different note, I haven't posted the Pain Misery Index (inflation + unemployment) for quite a while. Note that U3 is the unemployment rate we normally hear about, and U6 is calculated to more closely match the way that other countries calculate theirs... and even U6 misses a few percent.

http://www.nowandfutures.com/images/pain_misery_index_short.png

friendly_jacek

06-10-08, 03:50 PM

bart

06-10-08, 04:48 PM

Bespoke came up with a Torture Index:

http://bespokeinvest.typepad.com/bespoke/2008/06/bespokes-tortur.html
http://bespokeinvest.typepad.com/photos/uncategorized/2008/06/09/tortureindex.png

The shape of that is similar of yours but reversed. We are reaching pain levels not seen in 28 years, but still way to go compared to 1974 (maybe a la 1973). My take is that an investment opportunity could be near (like within a few months or a couple of years) at these record pain levels.

I just posted the long term version of the Pain Misery Index at http://www.itulip.com/forums/showthread.php?p=38010#post38010 (http://www.itulip.com/forums/showthread.php?p=38010#post38010)
and it includes an inverse picture of the U Mich Consumer Confidence Index. It echoes that torture index chart.

Consumer confidence is at the fifth lowest value on record, and close to dropping below the 1938 and 1975 3rd & 4th places.