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Corporate Loan Charge-Offs And Delinquencies Surge
Submitted by Pater Tenebrarum via Acting-Man.com,
Another Bump Higher
In one of our recent updates on the weakness in the manufacturing sector we have mentioned the surge in the sum of charge-offs and delinquencies of commercial and industrial loans at US banks (hat tip to our friend BC, who inspired the chart below). As we were arguing at the time, this is a sign that inflationary US bank credit expansion to businesses will likely continue to stall and as a result US money supply growth should continue to decelerate.
It turns out that this particular growth rate has recently increased further:
Growth in charge-offs and delinquencies in commercial and industrial loans (black line, left hand scale) continues to accelerate – in spite of the fact that the Federal Funds rate (red line, rhs) has officially not even been hiked yet – click to enlarge.
What makes this chart so interesting is that similar accelerations in charge-offs and delinquencies have previously occurred shortly before recessions, whereby “shortly” is an elastic term: the lead times are obviously varying from case to case. Noteworthy is also the speed of the recent acceleration in this trend. We don’t think this is a good sign for the US economy.
Transportation Sector Woes
Note in this context also that the economically highly sensitive transportation sector has recently been mercilessly stomped on in the stock market. This is a sector in which stock prices are now clearly following the worrisome deterioration in fundamentals.
The Dow Jones Transportation Average has once again broken through technical support levels (there was both lateral and trend-line support at the 8,000 level) – click to enlarge.
We have first discussed the increasingly suspect situation of the transportation sector back in July of this year (see: “Transportation Sector in Trouble – What are the Implications?” for details). In the meantime, things have gone from bad to worse, as international trade data, as well as data from railroads and trucking companies confirm (see also the recent sharp slump in rail car orders).
Given the highly cyclical nature of this sector, we take its woes as confirmation that the economy is probably far weaker than is generally assumed. As we have mentioned previously, although there is no recession in sight yet in terms of the official definition of same, it appears to us that the loss of momentum in sectors such as shale oil (and commodities more generally) as well as in manufacturing is actually very disquieting. If things were the other way around – weakness in the services sector accompanied by strength in manufacturing – we would be far less concerned about the probability of a recession being fairly imminent.
It is deeply ironic that the Fed is finally about to implement a tiny (and largely meaningless) rate hike, just as this slowdown is taking shape – based on a lagging indicator, that doesn’t look all that great anyway if one looks at it more closely (we are of course referring to employment – see this recent incisive analysis by David Stockman).
Conclusion
More signs that the economy is actually not all that well. It may yet recover on its own (believe it or not, but from a historical perspective the data in their totality are not yet decisive), but we think this is a very low probability scenario at this stage. There is likely already way too much malinvested capital in need of a significant purge.
Moreover, the economy’s pool of real funding has in our opinion been under strain (of varying intensity) since at least the year 2000. Although the pool of real savings cannot be measured, we can make educated guesses about its state by inference from other data points. If money supply expansion in the US does slow down further (as we suspect it will), an economic bust will become a near certainty.
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No one snowflake is responsible for the avalanche. But collectively they all are.
The Fed sees all these indicators and I suspect will shock the world when they don't raise rates, pointing to all these problems.
"More signs that the economy is actually not all that well. It may yet recover on its own (believe it or not, but from a historical perspective the data in their totality are not yet decisive), but we think this is a very low probability scenario at this stage. There is likely already way too much malinvested capital in need of a significant purge."
the dreaded reverse schnauzer pattern has broken to the downside for trannies. be afraid.
Here comes the 3:30 ramp. Right on schedule.
Can't blame the weather no more. It's been a mild start to the winter.
Darth Trump
https://www.youtube.com/watch?v=KU_Jdts5rL0
Hilarious!
You're gonna need a bigger chart.
Effective Fed Funds Rate are going to be (printed) lower by at least a factor of two, so the folks losing their shirts on these bankrupt bonds will take their minds off of it as they deal with the even bigger problems of inflation.
As one of my legacies, I want to see the default line NEVER to receed again! that would be quite a sight to behold!
Lol, Yellen is accelerating delinquencies, way to go!
"It may yet recover on its own (believe it or not, but from a historical perspective the data in their totality are not yet decisive)"
Who writes this shit?
Economic growth is synonymous with GDP, according to the enligthened standards of today. GDP is a measure of monetary growth (inflation), because we are trying to disguise the utter destruction of the productive base in West. Therefore money printing (inflation) is the growth in GDP. And slowing the growth of the money supply slows the growth in the economy. We can't have that, so we must print more and make sure to keep it out of the hands of the people who would actually spend it.
Futher, when our talking heads discuss inflation, they mean price inflation at the store and claim it is low. On the other side of the coin, the deflation they worry about is not price deflation, it is monetary (base) deflation. Those crazy Austrians who use the classical definition of inflation (monetary inflation) are loony. But monetary deflation is not a loony concept; it is the the one Great Satan in the world that must be defeated at all costs. Also there is no such thing as price deflation, so that's right out. There is only price inflation, which we will call "inflation".
So the economic world consists of two disparate things (price inflation/monetary base deflation) while the converse (price deflation/monetary base inflation) does not exist. Anyone who sees a problem with the faulty comparison, or notices that half the equation has been forgotten, is a lunatic and probably a nationalist fascist. Moreover, they smell and are bad people who shouldn't be listened to.
Right thinking is rewarded, wrong thinking is punished.
J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
This, btw, is the annual growth rate. Take a look a the chart fo charge-offs. They're at historical lows.
This, btw, is the annual growth rate. Take a look a the chart fo charge-offs. They're at historical lows.
https://enronnext101.wordpress.com/
Three Truths
r