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Putting The "Bank Loans Are Rising & Animal Spirits Are Reviving" Meme In Context

Tyler Durden's picture




 

Much has been made of the "sharp acceleration" in bank lending in the last few months promulgated by the status quo huggers that 'animal spirits are reviving' and, despite a collapse in equity market valuations for 'growth' stocks, that escape velocity growth and that so-longed-for surge in Capex is just around the corner. However, when put in context... when looked at over more than a few months, and when considered against the typical economic cycle... this is anything but sustainable and merely reflects on the inventory-stacking mal-investment debacle of Q4 that is now unwinding en masse as hoped for 'aggregate demand' shows no signs of appearing.

Submitted by Lance Roberts of STA Wealth Management,

In a recent posting on Business Insider, reference was made to a chart by Liz Ann Sonders discussing a recent surge in bank loans and leases as a sign of impending economic recovery. 

"Over the past 15 weeks there has been a sharp acceleration in bank lending, which is now growing at an 8.6% annual rate, and could suggest animal spirits are reviving," she said."

The problem is that the chart is completely out of context.  Is this spurt in activity historically relevant? Have such increases previously led to surges in economic activity or inflation? Or, is this activity just an anomaly that will rectify itself in the months ahead?

While Ms. Sonders certainly presents an interesting point, by taking the data out of context it potentially leads to a misdiagnosis of the issue. The chart below is a long term view of the bank loan and lease data as compared to both the economy and the velocity of money as an indicator of potential inflationary pressures.

What we see is, as would be expected, that businesses respond to changes in the economy on a lagged basis. Business owners, and individuals, do not generally jump out to take on credit until they are sure the economy is recovering and vice-versa.

The recent uptick corresponds with the economic push in the last quarter of 2013. It is very likely, given the recent economic weakness both domestically and internationally, that the recent surge in activity may well be very short lived.

As peak hope fades...

 

 

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Sat, 04/12/2014 - 18:31 | 4652184 max2205
max2205's picture

Mandate.....keep stocks up....through rotation

Sun, 04/13/2014 - 03:01 | 4653342 Element
Element's picture

Maybe the FED needs to add a HFT target to its 'mandate'.

Sat, 04/12/2014 - 18:45 | 4652220 HardlyZero
HardlyZero's picture

Aunt Yellen...what a cougar fluffer !  My limp spirits losing pressure.  Got my shorts on and ready to go down town.

Sat, 04/12/2014 - 18:44 | 4652232 yogibear
yogibear's picture

Fed's montra is to deny their is inflation and attempt to keep devaluing the US dollar.

Printing is a debtor's best friend. Like Zimbabwe or Germany in the early 20's.

 

The fed will not allow deflation. 

Sat, 04/12/2014 - 18:53 | 4652263 Winston Churchill
Winston Churchill's picture

Maybe, but now the FedRes has a much bigger problem on its hands.

The source of its power, the petro dollar, is coming under attack.

Their very survival depends upon defending the reserve currency.They

will charge the windmills on this fools errand,stawks be damned, this

could be a very interesting week ahead.

Sat, 04/12/2014 - 22:48 | 4652271 HardlyZero
HardlyZero's picture

If nothing is done defense wise, and it is all about falling off DA FENCE (either way) and only 'talking it up', then some might start losing rigidity in the USD.   De-flation as it is losing pressure.

Can Yellen keep stiffie up (there) ?  No mo momo.   Only mommy jeans.

Sat, 04/12/2014 - 18:58 | 4652278 Jumbotron
Jumbotron's picture

I think the biggest take away from this is the 40 year downward trend on annual % change in chart 2.

It all started when we hit Peak Cheap Domestic Oil production here in the states in the 70's.  Now we have to get most of our oil from tar sands in Canada.  And the shit we are pumping out now is half baked kerogen through the process of fracking.  Couple high input energy costs to keep fantasy land going with the coming Peak Debt and Peak Old Farts retiring with little to no retrirement money and pensions blowing up left and right......how could this trend change over the next 40 years?

James Howard Kunstler had it right nearly a decade ago in his book "The Long Emergency"

https://en.wikipedia.org/wiki/The_Long_Emergency

http://kunstler.com/

Sat, 04/12/2014 - 19:00 | 4652287 ebworthen
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What it means is that people are going into debt to get by.

2007-2008 redux.  Go on Janet, cut QE and raise those rates.

Sat, 04/12/2014 - 20:05 | 4652522 Carl Popper
Carl Popper's picture

That might be fun to watch, from a bunker.

Sun, 04/13/2014 - 06:52 | 4653492 Peter Pan
Peter Pan's picture

How much of the increase is due to car loans and student debt?

Sat, 04/12/2014 - 19:03 | 4652295 desirdavenir
desirdavenir's picture

Or... Corporations load up on low interest rates while they are still available...

Sat, 04/12/2014 - 19:24 | 4652363 CrashisOptimistic
CrashisOptimistic's picture

The magical Fed has printed a lot of money by buying bonds from bank Primary Dealers, who bought those bonds at auction.

The money the banks rec'd from the Fed, however, wound up redeposited at the Fed as Excess Reserves -- in an amount over the last 5 years only a few hundred billion less than Total QE. 

It left the Fed, it went back to the Fed.

In that context, QE hasn't done much and thus was not really any sort of defense against deflation or encouragement of inflation.

And truly, the only number that matters is $104, which WTI hit Friday -- which doesn't look like abundance.

Sat, 04/12/2014 - 20:25 | 4652567 yogibear
yogibear's picture

LOL, the magic of Pomzi math.

The government spent the money, and the Fed purchased the treasury debt.

What a game when the Fed is buying 100% of US treasuries. Of course it blows up before then.

The US buys EUROs with US dollar swaps, Japan buys US dollars with Yen swaps and the ECB buys Yen with Euro swas. 

One big circle-jerk of suspended printed money.

Enter Russia and China...not willing to play the elitist bankster game. 

 

Sat, 04/12/2014 - 20:52 | 4652693 Jumbotron
Jumbotron's picture

WTI is more for market casino boys to trade with.

Brent is the price you want to keep your eye on.  Or....to play it safe....just average the two.

Bottom line....if we are SSoooo awashed in oil....and we are SSooooo close to energy "indedpendence".....how come the average price of oil hasn't really dropped in two years....much less where it was in 1999?

Bullshit and Oil do NOT mix.

Sun, 04/13/2014 - 05:28 | 4653440 icanhasbailout
icanhasbailout's picture

We don't have anything resembling a free market, it is foolish to expect free market behavior in this context.

 

We have an outcome-based market. The outcome for which the market is geared is that the people at the top get to overcharge you for everything, restrict competition, restrict supply to achieve maximal profit potential.

Sun, 04/13/2014 - 12:07 | 4654094 fattail
fattail's picture

Gasoline consumption is down. Price is up.  Must mean the equilibrium supply is down or the purchasing power of the dollar is down.  Probably both.

Cue the evil oil company meme.

Sun, 04/13/2014 - 18:26 | 4655052 JeffB
JeffB's picture

It's funding the federal government at the expense of the private sector.

The government spends more than it has (consuming more resources, of course) and the Fed funds it by "printing money"... Then they suck most of that money back out of the economy into those reserve accounts.

Just another way of feeding the government monster while starving the productive economy.

 

Sat, 04/12/2014 - 19:25 | 4652374 naughtius maximus
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Animal spirits? YUCK! Spirits are supposed to come from grain and potatos!

Sat, 04/12/2014 - 19:49 | 4652458 buzzsaw99
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well it isn't going into mortgages or productive expansion so my guess would be it is going into stock buybacks or margined speculation for stock purchases.

Sat, 04/12/2014 - 19:56 | 4652480 CrashisOptimistic
CrashisOptimistic's picture

Not a bad call re buybacks.

 

I'll offer up another.  Shale drilling in Texas and NoDak isn't funded from cash flow, and there is one HELL of a lot of frantic, desperate drilling going on.

Some guy just posted analysis showing if drilling stopped in NoDak, output would drop 50% in ONE YEAR.

Sun, 04/13/2014 - 12:08 | 4654098 fattail
fattail's picture

Link????

Sat, 04/12/2014 - 19:59 | 4652499 kenny500c
kenny500c's picture

So folks are paying their sky-high utility bills with the crdit cards.

Sun, 04/13/2014 - 00:20 | 4653000 HardlyZero
HardlyZero's picture

We are all Ukes...waiting for our Sugar Daddy or Momma.   Oh...there's Aunt Yellen down there...at the end of the road...kickin' her can off the cliff.....

Sat, 04/12/2014 - 20:02 | 4652509 Carl Popper
Carl Popper's picture

Yes it proly is not asustainable accelleration.

 

We have a secular demand shift.  But we can muddle thru with qe foreva as long as the world still accepts the dollar.

 

Looking at the treasury yield curve shows no sign of dollar and treasury debt rejection   It shows the opposite.

 

We have years to get our fiscal house in order.   Not that we ever will.

 

Party on.

Sat, 04/12/2014 - 20:05 | 4652521 CrashisOptimistic
CrashisOptimistic's picture

Suppose oil ramps to $150.  Do you still have years?

Sat, 04/12/2014 - 20:29 | 4652592 yogibear
yogibear's picture

All Russia has to do is up the price of Natural gas and demand payment in gold.

THe BRICS can work together to for a gold-backed currency and steal the show.

They'll screw the US, European and Japanese Ponzimakers as they scramble to buy an asset they can't deliver.

Sun, 04/13/2014 - 00:58 | 4653227 Elliott Eldrich
Elliott Eldrich's picture

"Animal Spirits" my fucking ass. Why can't these pointy-headed cretins who call themselves "economists" just fucking come out and admit that they don't know what the fuck they are talking about? When so called "educated" people use terms like "Invisible Hand" or "Animal Spirits" what they are REALLY saying is "we don't have ANY FUCKING CLUE what is actually going on here, we just know that SOMETHING is happening."

It's like back when we didn't know anything about electricity, didn't even have a word for it, so certain observed phenomenon were given names like "St. Elmo's Fire" or "Thunderer of the Nile" (for electric eels.) The classic (and utterly vital) experiments by visionaries such as Ampere, Volta, Faraday, Ohm, Franklin and others did nothing less than make the entire modern world possible, but the experiments came FIRST, followed by understanding, followed by the development of techniques and technologies. First theory and experiment, then understanding, THEN techniques and technologies.

So what do the pointy-headed practitioners of the black arts of economics actually understand? Next to fucking NOTHING, that's what, which is why they cling to such utterly vapid, pathetic and uncomprehending phrases as "Invisible Hand" and "Animal Spirits" as they feebly attempt to describe something that is as far beyond their understanding as avionics is to the average Cargo Cultist. Instead of doing experiments, making observations and then developing understanding, they jibber and gibber and basically waste good oxygen as they intone their quasi-religious catechisms in a feeble attempt to convince average people that they know what the flaming fuck they are talking about. They don't, so fuck them.

Sun, 04/13/2014 - 03:38 | 4653361 Harbanger
Harbanger's picture

I see you have a problem with the animal spirits and this thing called jibber, it makes us feel good, so fuck off.  Welcome to the art of  "I have no fucking idea what I'm talking about" retrospective economics.

Do NOT follow this link or you will be banned from the site!