Bank Of America: "Previously This Has Only Happened In 2000 And 2008"

Tyler Durden's picture

Although it will not come as a surprise to regular readers that, for various reasons, loan growth in the US has not only ground to a halt but, for the all important Commercial and Industrial Segment, has dropped at the fastest rate since the financial crisis, some (until recently) economic optimists, such as Bank of America's Ethan Harris, are only now start to realize that the post-election "recovery" was a mirage.

A quick recap of where loan creation stood in the last week: according to the Fed's H.8 statement, things continued to deteriorate, and C&I loans rose just 2.8% Y/Y, the worst reading since the start of the decade and on pace to print a negative number - traditionally associated with recessions - within the next four weeks, while total loans and leases rose by just 3.8% in the last week of March, less than half the stable 8% growth rate observed for much of 2014 and 2015.

Yet while zerohedge readers have been familiar with this chart for months, it appears to have been a surprise to BofA's chief economist. However, in a report titled "Is soft the new hard data?", Ethan Harris confirms that he has finally observed the sharp swoon lower and is not at all happy by it.

As he writes in his Friday weekly recap note, "this week saw some softness in hard data as auto sales and jobs growth declined sharply. While two observations do not make a trend, this occurrence nevertheless is noteworthy as on the one hand very positive sentiment indicators suggest activity should pick up... 

... while on the other hand loan data suggests everybody is in wait-and-see mode pending details of fiscal stimulus (=tax reform) - which highlights the risk of softer hard economic data."

A frustrated Harris then admits that such a sharp and protracted decline in loan creation has only happened twice before: the 2000 and 2008 recessions.

Weekly bank asset data shows that  C&I lending has not increased since September 7 last year (Figure 2)... 

 

... the first period of no growth for at least six months since the 2008-2011 aftermath of the financial crisis, and prior to that after the early 2000s recession (Figure 3). 

 

 

At the same time, consumer loan growth has slowed substantially - up just 1.4% since the US elections compared with 3.1% the same period the prior year (Figure 4).

 

Then again, with tax reform seemingly dead, not even a formerly uberbullish Harris find much room for optimism...

As tax reform by House Speaker Ryan's own account is not going to happen anytime soon, and likely will be watered down as the Border Adjustment Tax (BAT) is replaced by a Value Added Tax (VAT) and the elimination of net interest deductibility for corporations, the biggest near term risk to our bullish outlook for credit spreads we maintain is a correction in equities - most likely prompted by weak hard data.

... and concludes by echoing Hans Lorenzen's recent warning, that "the biggest near term risk to our bullish outlook for credit spreads we maintain is a correction in equities - most likely prompted by weak hard data."

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FedFunnyMoney's picture

The Fed's tightening is beginning to show up. The economy is addicted to QE and will respond to tightening accordingly.

debtor of last resort's picture

The Fed's tightening is beginning to show up. 'Markets' are addicted to QE and will respond with MOAR.

Fixed it for you.

Clockwork Orange's picture

Let's clear their balance sheet and use that $5 Trillion to buy back the garbage mortgages at the $0.50/$1 they were worth when they were purchased, then apply valuationos.  

Odds are the decline in market cap will not be fully recouped by simple liqudation of the Hamption houses that were purchased by Dimon, Blankfein, Corzine and the rest of the criminal crew.

Mtnrunnr's picture

I cannot fucking wait for this to unwind. You can tell by the war drums that it's serious this time. I cannot wait to buy some stocks at an 80% discount (fair value)!!

Galanteed's picture

At least.

 

Shorting this crap on the way down is strong ???? money.

space shitle's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

fx's picture

The first 2 charts looked impressive. But then came the third. Really? What a nothingburger at this point. I am fully aware that this is a flow, not a stock issue (i.e. the rate of change matters, not the absolute level). But that's a really small dip so far. Wait and watch for further evidence. So far it can be well explained with the tax uncertainties and the snowflakes preparig for end of world (since friday they even seem to sort of have a point).

innertrader's picture

NOT HERE SPACE SHITLE!!!!!!

fx's picture

i am not impressed. yet

xvvx23's picture

its a rigged system.   long or short you cant win

TheFederalistPapers's picture

Long cash. Long precious metals.

Nobody For President's picture

Good idea, but I have a really hard time staying long liquor. I start long in the morning, but am short by late afternoon and have to go to the matrket again...

FedFunnyMoney's picture

Good point. Pump and dump, baby! PUMP and DUMP.

Sudden Debt's picture

It's all just bullshit.

We're nearing the debt ceiling and government spending is slowing down a bit and this caused the dip.

Once it's raised again, and it will, no question about that (only a fool would believe that it won't), the markets will keep climbing.

 

The indexes are barometers of inflation and what lies ahead. DOW 30000 is very well possible in the next 2 to 3 years.

And the debt chart? It will look like a straight arrow up in the next few years as speed will double in the upward direction.

 

Tightening my ass. Whatever BAC says, you need salt lake for the intrepretation.

max2205's picture

Call me when they quit doing the 3:30 ramp 

Sudden Debt's picture

It's not just the ramping

 

look at GM autosales. Who is the biggest client of GM cars? It was on ZH about half a year ago. The government.

And now that the debt ceiling is nearing and costs are cut to delay it, their sales drop and everybody thinks it's the economy?

What a joke.

In 4 months from now, it will all be unihorns and rainbows again.

fx's picture

very good points. I throw in the delayed irs tax refunds for good measure.
You may be too conservative with dow 30k, though. Another 10 or 20 years of real financia repression (negative nominal rates) can and will do wonders.

Mementoil's picture

If the declining rate of lending is only the result of an impending government shutdown, how come it didn't happen in 2013 as well, on the previous shutdown? the slowdown back then was much less pronounced.

Tallest Skil's picture

Unless Trump ALLOWS the government to hit the ceiling and shut down, thereby giving him TOTAL AND COMPLETE CONTROL over the budget...

Sudden Debt's picture

yep, that where he can prove if he's the president or not.

but after last weeks actions, I'm not holding my breath anymore.

Last of the Middle Class's picture

The Fed is still just playing wack-a-mole with the economy juicing it at different places at different times to make it appear all is well. Until purchasing power is returned to the consumer by killing off TBTF programs that merely change superficial numbers it will continue to circle the drain. Oh, and savaging every last dollar out of every household for Obamacare premiums is STILL a really BAD idea. If Paul Ryan had not lied like the scumbag he is and had repealed Obamacare we could be awaiting a return to the natural order of things within the healthcare industry, things like open markets and COMPETITION. But no, he went the donor route with RINO care and wil pay for the rest of his political career for it. He IS a lying POS.

Buck Johnson's picture

It's coming and this time it's going to hurt because they already used all the bullets they could use.

 

J J Pettigrew's picture

Banks dont lend anymore.  The Fed pays them on their excess reserves.....its a lock.

Hot Money is provided by venture capitalists and other pools of money. Banks are obsolete....and on the 

Fed's teet.

GUS100CORRINA's picture

I agree completely. My DOW fair value number is 16,000. What is your fair value number?

ABOVE 16,000

BELOW OR THE SAME AS 16,000

 

Cast your vote above.

Arnold's picture

Value implies return on investment.
Currently mine, in the stawlk market, is zero.

Although I have quite a lot of Retirement savings that will be converted to a long term US Treasury Annuity , whether I like it or not.

SilvaDolla's picture

Nice Dragonball Z reference! Upvoting.

rockstone's picture

I appreciate your point and I think I understand what you're trying to say. However...... the true valuation doesn't mean dick.

fx's picture

exactly. valuation has long ceased to matter and that will most likely remain to be the case for as long as financial repression is pursued. With negative nominal yields a near-certainty at some point over the next few years and for many years therafter, the stock market can reach truly absurd levels. Before valuation will one day matter again.
Hunkering down and just waiting as the only "strategy" is dumb. Very much like spending half your life in a fortified shelter without sunlight just in case a fuckin' asteroid my hit.

Anarchyteez's picture

Not now for sure. But it's gonna!

Mementoil's picture

It doesn't mean dick... until it does.

evildimensions's picture

I'm not going to do the math (it's Sunday) but that sounds roughly in line with analyst forward 12 month estimates: http://www.wsj.com/mdc/public/page/2_3021-peyield.html.

 

I take exceptiono it however. Even a reduced P/E of 17 and change (your 16k value) is still way over nomincal historical values. Admittedly that is Kansas reality, and we left that behind a long time ago.

 

But, if you are looking at what is a realistic valuation I would say a P/E for 5-6 for a newish company and around 9 for a mature company. So that puts the current DOW at about 2-3 times its actual value. The true value should be somewhere between 6000-9000. Again, very rough calcs, but 4 operator math is not that hard and any fifth grader can pretty much do it in their head.

 

Crassius's picture

Who needs money (borrowed capital) when we still have ObummerCare and tax reform is now talked about as something that might happen next year or the year after, in much smaller terms?

Welcome the new boss.... same as the old boss....

 

 

Deplorable's picture

OMG....What will happen to Tesla now that loan growth has ground to a halt.

Arnold's picture

Shift to reverse, light 'em up. Then slam shift to third gear, keeping them lit.
Called a J strip.

Anarchyteez's picture

Gravity!

But they should be able to cover due to their space program.

(Dripping sarc)

Consuelo's picture

 

 

"...this week saw some softness in hard data "

 

There's a pill for that...

Anarchyteez's picture

That was beautiful!

Fuck off down voter!

waterwitch's picture

Gives new meaning to "I took the blue pill".

lasvegaspersona's picture

I'm certain there is some ratio of something to something else...that can make things look good!!

indygo55's picture

Wait a minute! Some FED head is going to speak. He says things are looking a little soft. BINGO. Stocks green for the win!!

Galanteed's picture

These guys have no clue. They can't even run their own company.

Galanteed's picture

Seriously?

 

ShepWave has been nailing recent action 

 

Like I trust BAC. They will want another bailout in 2 months.

Carpe Tutti Bastardi's picture

Just taking a wild guess here.... but it seems that of the 16 or so comments espoused so far

The general concensus is Bullshite!

Tom Green Swedish's picture

Obivously Trumps fault. BTFD.

Prometheus_Goldman's picture

Oh hell... it's on now.   Hmmmmm   I wonder if Russia really did seed the US Coastline with autoburying mole nukes in the ocean subterranian?   that is a spooky thought.   Keep this crap up and we is gonna find out really soon like.