Consumer Credit

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The Bubble Is Back





For all those analysts who thought the debt binge of the previous decade marked end of the Age of Leverage, well, not so fast. It turns out that memories are short and government printing presses are powerful, and this combination has turned the “Great Deleveraging” into a minor speed bump on the road to something even more extreme. It was just six years ago that soaring consumer spending, massive trade deficits and generally excessive debt caused the biggest crisis since the Great Depression, and here we are back at it. The details are slightly different but the net effect is the same: inflated asset prices, growing instability and rising risk of a systemic failure capable of pulling down pretty much the whole show.

 
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Consumer Credit Has Fifth Biggest Monthly Jump In History; Revolving Credit Soars By Most Since November 2007





A month ago we pointed out that with April US consumer savings plunging to levels not seen since Lehman, the only place where the tapped out consumer could find some purchasing power is by maxing out their credit cards. This is precisely what happened: moments ago the Fed released its April consumer credit report and it was a doozy: expected to print at $15.00 billion, down from a pre-revision $17.5 billion, the April total instead exploded to a whopping $26.85 billion. This was the fifth biggest surge in history, and was only surpassed by the 2010 "cash for clunkers" record, as well as previous one time outliers in 1998, 2001, and 2006.

 
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Frontrunning: June 6





  • Canada Aims to Sell Its Oil Beyond U.S (WSJ)
  • ECB Unanimity May Prove Fleeting (WSJ)
  • Chinese military spending exceeds $145 billion, drones advanced: U.S. (Reuters)
  • France to sell 10 warships to Russia next? BNP Executive Firings Sought by Top New York Bank Regulator Amid Probe (BBG)
  • Vodafone says governments have direct access to eavesdrop in some countries (Reuters)
  • Home Price Gains of 20% Vanish as Hottest Markets Cool (BBG)
  • G-7 Heads Warn Moscow Before Facing Putin (WSJ)
  • Barclays Fine Spurs U.K. Scrutiny of Derivatives Conflict (BBG)
  • "Or Costs" - Obama Says Putin Running Out of Time Over Ukraine (BBG)
  • Banca Monte Paschi Falls After Offering New Stock at 35.5% Discount (BBG)
 
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Algos Waiting For Today's Flashing Red NFP Headline To Launch The BTFATH Programs





If predicting yesterday's EURUSD (and market) reaction to the ECB announcement was easy enough, today's reaction to the latest "most important ever" nonfarm payrolls number (because remember: with the Fed getting out of market manipulation, if only for now, it is imperative that the economy show it can self-sustain growth on its own even without $85 billion in flow per month, which is why just like the ISM data earlier this week, the degree of "seasonal adjustments" are about to blow everyone away) should be just as obvious: since both bad news and good news remain "risk-on catalysts", and since courtesy of Draghi's latest green light to abuse any and every carry trade all risk assets will the bought the second there is a dip, the "BTFATH mentality" will be alive in well. It certainly was overnight, when the S&P500 rose to new all time highs despite another 0.5% drop in the Shcomp (now barely holding on above 2000), and a slight decline in the Nikkei (holding on just over 15,000).

 
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Half The Country Makes Less Than $27,520 A Year And 15 Other Signs The Middle Class Is Dying





If you make more than $27,520 a year at your job, you are doing better than half the country is. But of course $27,520 a year will not allow you to live "the American Dream" in this day and age. After taxes, that breaks down to a good bit less than $2,000 a month. You can't realistically pay a mortgage, make a car payment, afford health insurance and provide food, clothing and everything else your family needs for that much money. That is one of the reasons why both parents are working in most families today. The American Dream is becoming a mirage for most people. No matter how hard they try, they just can't seem to achieve it. And here are some hard numbers to back that assertion up. The following are 15 more signs that the middle class is dying...

 
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America's Insatiable Demand For More Expensive Cars, Larger Homes And Bigger Debts





One of the things that this era of American history will be known for is conspicuous consumption. Even though many of us won't admit it, the truth is that almost all of us want a nice vehicle and a large home. They say that "everything is bigger in Texas", but the same could be said for the entire nation as a whole. We live in a debt-based system which is incredibly fragile. We experienced this firsthand during the last financial crisis. But we just can't help ourselves. We have always got to have more...

 
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The Retail Death Rattle Grows Louder





The inevitable shuttering of at least 3 billion square feet of retail space is a certainty. The aging demographics of the U.S. population, dire economic situation of both young and old, and sheer lunacy of the retail expansion since 2000, guarantee a future of ghost malls, decaying weed infested empty parking lots, retailer bankruptcies, real estate developer bankruptcies, massive loan losses for the banking industry, and the loss of millions of retail jobs. Since we always look for a silver lining in a black cloud, we predict a bright future for the SPACE AVAILABLE and GOING OUT OF BUSINESS sign making companies.

 
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The Connection Between Oil Prices, Debt Levels, And Interest Rates





If oil is “just another commodity,” then there shouldn’t be any connection between oil prices, debt levels, interest rates, and total rates of return. But there clearly is a connection. As we have seen, rising interest rates will bring an end to our current equilibrium, by raising costs in many ways, without raising salaries. It will also reduce equity values and bond prices. A rise in the cost of extraction of oil, if it isn’t accompanied by high oil prices, will also put an end to our equilibrium, because oil producers will stop drilling the number of wells needed to keep production up.  If oil prices rise (regardless of reason), this will tend to put the economy into recession, leading to job loss and debt defaults. The only way to keep things going a bit longer might be negative interest rates. But even this seems “iffy.” We truly live in interesting times.

 

 
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Keynesian Madness: Central Banks Waging War On Price Stability & Savers





Central banks see their main role now in supporting asset markets, the economy, the banks, and the government. They are positively petrified of potentially derailing anything through tighter policy. They will structurally “under-tighten”. Higher inflation will be the endgame but when that will come is anyone’s guess. Growth will, by itself, not lead to a meaningful response from central bankers. No country has ever become more prosperous by debasing its currency and ripping off its savers. This will end badly...

 
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27 Huge Red Flags For The U.S. Economy





If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.

 
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Student Loans Soar To Record $1.111 Trillion, Up 12% In Past Year





We have covered the topic of the student loan bubble extensively in the past so we won't waste more digital ink on where it comes from or what it means for the troubled US consumer, suffice to report that according to the Fed, in Q1 total Federal student loans rose by another $31 billion to a record $1.11 trillion, and up a whopping $125 billion, or 12% from this time last year.

 
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94% Of March Consumer Credit Was For Student And Car Loans





Another month, another confirmation that when it comes to the US consumer, it is all about student debt (and to a lesser extent, car loans). Moments ago the Fed reported that consumer credit number for March: at $17.5 billion, it not only blew out the expectation of a $15.5 billion increase (although when one adds last month's $3.5 billion downward revision to $13.0 billion the two month total actually missed), but was the highest monthly increase since February 2013. That's the good news. The bad news was once again in the composition: of this $17.5 billion $16.4 billion was non-revolving debt, or about 94% of total. The "good", or revolving, credit card debt? Only $1.1 billion.

 
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Frontrunning: May 7





  • Alibaba files for what may be biggest tech IPO (Reuters)
  • Early Tap of 401(k) Replaces Homes as American Piggy Bank (BBG)
  • Developers Turn Former Office Buildings Into High-End Apartments (WSJ)
  • Thai court orders Yingluck Shinawatra to step down as PM (Guardian)
  • German industry orders fell 2.8% in March, the biggest drop in one and a half years (RTE)
  • Ukraine Bulls Scatter as Death Toll Mounts (BBG)
  • China Property Slump Adds Danger to Local Finances (BBG)
  • Stein Says Fed May See Bouts of Volatility as It Approaches Exit (BBG)
 
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It May Be Non-Tuesday, But The High Freaks Are Cautiously Optimistic





Perhaps the most important "news" of the day is that it is non-Tuesday. Yes, there was actual news news, like German factory orders dropping -2.8% on expectations of a 0.3% increase, French industrial production down -0.7% on expectations of a 0.3% increase (both misses driven by a soaring Euro which is now spitting distance away from the 1.40 ECB "redline"), the Nikkei tumbling 2.9% to just above 14000, the Shanghai Composite down 0.9%, SocGen Q1 profit plunging 13% and conveniently blaming it on Russia, speaking of Russia things continue to deteriorate even though Interfax reported that the country has received the first part, some $3.2 billion, of the promised IMF bailout - money which will be used to promptly pay Gazprom... and buy gold, a sudden conflict between China and Vietnam escalating over the placement of an offshore oil rig and so forth, but in the new normal, none of this matters.

 
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