The Primary Source Of January's Surprising Boost To Consumer Credit? Why, The US Government Of Course

Today, the market spiked in the last hour of trading after it was announced that total consumer credit increased for the first time in a year (not all credit, mind you, just car loans; consumers are still eagerly paying down their credit cards). And who was the source for this generosity you may ask? Why, the US Government of course. Not only that, but Non-Seasonally Adjusted Consumer credit was actually down by $4 billion. But let the government have its smoothing fun. On a non-seasonally adjusted basis, consumer credit has declined by $108 billion in the past 12 months. What may be surprising, is that were one to strip away the contribution from the Federal Government of $78 billion, the decline would have been almost double, or $187 billion. Furthermore, in January, NSA consumer credit would have declined by $14 billion had it not been for the... wait for it... Federal Government, which sourced $10.4 billion in new consumer credit. So here is what happens in case you haven't figured it out already: the government takes taxpayer money, and lends it out to all sorts of destitutes at zero % interest, who have to keep up with the Joneses at all costs, and even though can not afford to put down any equity, must buy a new car every 6 months (even though they have likely not made a mortgage payment in about a year... not to worry, Uncle Sam is footing that too via the Federal Reserve and Fannie and Freddie), and when the news of the government's generosity hits the market, and the spin is that Americans are again confidentenough to borrow, the few SPARC machines left trading do whatever Liberty 33 tells them to, and bump up the total capitalization of the market by about $20 billion, putting money straight into the pockets of Goldman Sachs and other recent bailoutees, who without doubt deserved a $70 billion bonus season in 2009. And now you know where your money goes to.

Net Euro Speculative Short Positions Decline Marginally From Record, Yen Longs Surge

According to the CFTC's Commitment of Traders report, non-commercial speculative shorts in the Euro declined for the week ended March 2, and for the first time in over two months, tracking the move of the EUR higher over the past week. Total net positions declined from -71,623 to -66,770, or a net long increase of 4,853. This is still the second highest net short exposure in over two years.

On the other side, a stunning push in Yen long exposure increased the net long Yen positions from 1,717 in the prior week to a whopping 32,552. The next question: will Japan promptly ask all these speculators to performSeppuku after they have done all they can to make the Yen more expensive, thus laying Japan's best laid plans to stimulate inflation to waste.

The third most relevant currency, the British Pound, saw a net short increase, with net short Non-commercial contracts increasing from -64,647 to -67,549.

Non-Revolving Credit Rises By $7 Billion As Revolving Credit Dips Yet Again

The January G.19 statement is out, and confirms that consumers are buying ever more cars on credit, as if we didn't know this. Non-revolving credit, which is basically comprised of car loans increased by about $7 billion to $1.592 trillion, even as revolving credit continued declining, hitting $864 billion, down from $866 billion. Obviously, the market, which the last time the G.19 was released bounced, regardless that credit then declined by $4 billion is now bouncing again, not really sure why, but just tagging along with the computers. And the computers may very well be right: with the government soon expected to foot all consumer credit card losses in addition to GSE and financial firm toxic asset losses, why not just max it all out, after all mortgage payments are now about 6 months in arrears and nobody from the lender bank gives a rat's ass. Out of sight is out of balance sheet impairments. Credit is back, baby. And not like anyone will ever ask you to repay it.

Sovereign CDS Ban On Deck; Next Up: Any EURXXX Short Recommendation To Land You Straight In Jail

“We must succeed at putting a stop to the speculators’ game with sovereign states. We can’t allow speculators to be the profiteers of Greece’s difficult situation. Derivatives must be curbed.” - Angela Merkel

Barney Frank Backtracks On GSE Statement, Realizes Put Foot In Mouth Yet Again

“To reiterate, I continue to think that it would be a mistake for Congress to take action that formally conferred on Fannie and Freddie debt the legal status of debt issued by the Treasury. But nothing in that position prevents Treasury from acting as it thinks best with regard to its obligation to provide stability to the housing market and the financial system.” - Barney Frank, Post Appendage In Mouth

Does Expiration Of Liquidity Facilities Mean A Steeper Curve?

As the Fed is ever-so-gradually shifting toward a tightening posture, many have wondered what will Bernanke's actions mean for the bond curve. With various liquidity facilities set to expire this month, and the recent discount rate hike already having been priced in, there has so far not been a muted response by the bond market, although over the past few days we have seen an odd tendency, albeit minor, for curve tightening. We say odd, because as Morgan Stanley points out, the Fed's actions, coupled with an unwillingness to actually hike rates, should be one benefiting ongoing steepening. Then again, the problem with that logic is that at this point going steep is like buying Greek CDS today: it pretty much means sloppy hundreds, with very few greater fools left over (and without the opportunity to arb a naked-short position via another nearly busted GGB auction). The silver lining is that at least the government will not go after you with an arrest warrant: after all the government wants nothing else more than a vertical yield curve. A brief analysis by MS details the argument for why steepening makes all the sense in the current environment where the long-end is looking increasingly shaky courtesy of marginal liquidity contraction, all the while risk-flaring episodes such as those in Dubai and Greece will likely keep the short-end well bid for months, if not years, to come.

Will The US Devalue The Dollar?

It is well-documented by economists at SocGen and elsewhere, that the world has now entered a race to the currency bottom. Ongoing recent actions by the BOJ, ECB, SNB and all relevant central banks have made this a near certainty. Yet the biggest question mark is how the US will approach the imminent dollar devaluation (and with many trillions in debt overhang needing to be rolled over, the Fed has two options: accelerated inflation or dollar devaluation) - will it be a gradual process or rapid and unexpected. A paper by Darryl Robert Schoon analyzes the various forces at play when evaluating the probability of a dollar devaluation. "Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the US, the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more, what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems...We are in what Stephen Roach, Chairman of Morgan Stanley Asia, calls the end-game, the resolution of past monetary excesses and imbalances, excesses and imbalances that reached never-before-seen heights in the last decade." Nothing too surprising for regulars, yet a good summary of the dilemma facing the monetary authority of the United States.