Consumer credit keeps contracting faster

Consumer credit data came out about 2 weeks ago and the numbers are not getting any better.  Unlike my previous entries showing the very long term I thought I'd zoom in a little to show you how this recession is unlike anything we've seen in the last 40 years.  Consumer credit keeps going down and the rate of declining is increasing.  Call this an anti-'green shoot'.

The economy will not properly recover and the Federal Reserve will most likely not raise interest rates too much (if at all) until consumer credit and bank lending start rising.  Until then, get used to very low short term rates.

Bank lending continues falling -- Are buying US Treasuries instead

Bank lending continues to fall on a year over year basis.  Compared to the previous two recessions in which bank lending stabilized and then renewed growing this time overall bank lending is down and is continuing to decline.

As you can see from the first graph they are instead following the pattern from the last two recessions and are increasing the US Government securities portfolios while cutting lending to the private sector.   Unlike private bank loans Treasuries are very liquid and can be sold immediately if cash is needed.   Capital requirements for Treasuries are also much lower compared to a private bank loan.  Considering the capital positions of most banks in America (I'll have a post on this soon)  are tenuous they need the liquidity and 'safety' of Treasuries.

The year over year change in bank's holdings of US Government securities does not show the full extent of the bank Treasury purchases. As you can see from the second graph the banks continue to load up and the slope is definately upwards.

Inventory bounce is pretty much over with

The Inventory / Sales ratio is pretty much back to 'normal'.  As such the inventory bounce contribution to GDP is over.  A lot of other blogs have the details but here's one picture that says it all. 

The quick and easy fixes to GDP growth have already occured.  It's going to be tough sledding now.

North Korea from another perspective

Ever since my previous posts on North Korea I have been on the lookout for more articles.  The pathology of how the the authorities are able to completely twist and warp the nations reality is fascinating to me.  Slate.com ran a recent article:

A Nation of Racist Dwarfs:  Kim Jong-il's regime is even weirder and more despicable than you thought.

Consider: Even in the days of communism, there were reports from Eastern Bloc and Cuban diplomats about the paranoid character of the system (which had no concept of deterrence and told its own people that it had signed the Non-Proliferation Treaty in bad faith) and also about its intense hatred of foreigners. A black Cuban diplomat was almost lynched when he tried to show his family the sights of Pyongyang.

Interesting reading . . .

Copper update -- Nice to see I'm not alone in the wilderness

My bearish opinion of copper has been met with (polite) derision by some people.  It is nice to see I'm not the only one who is very bearish on the metal




One of the Fast Money members took the very opposite viewpoint from Threlkeld but I find his reasoning incorrect. As I have mentioned in previous posts copper inventories continue to rise and new supply (TCK for example) is coming from various sources. 

More on Threlkeld can be found in this Bloomberg article.

I haven't purchased BOS yet.  I'm hoping for a bounce from the copper selloff to initiate my position.

Hugh Hendry debating economists and ambassadors on the Euro and Greece. Loan sharking in the EU.

Hugh Hendry, in the guise of the evil speculator debates Stiglitz and the Spanish ambassador to the UK on the current situation in Greece.    The Greek situation is a mess and in my opinion a 'bailout' would create a tremendous moral hazard.  Ireland, Spain, and Portugal would all scream foul and demand their own cash / backstop.    Only if the bailout includes draconian spending cuts and severe punishment for failure would it actually solve the problem.  Considering we are talking about Greece which has a 200 year history of reneging on its debt the odds drop by quite a bit of a sucessful workout.

Even if you could get the Greeks to promise to spending cuts, would they follow through with it?  The Germans (presumed donor) could agree to purchase Greek debt ONLY AFTER they cut their budget each and every year until the have a balanced budget.  No balanced budget, no more debt buys by Germany.  Perhaps the Germans could attach a percentage of  EU funds flowing to Greece as their payment source? 

Even better, take the title to a few Greek Islands as collateral.  Don't pay up, you get an island (or 20 or so) 






There's some great commentary afterwards at zerohedge on this debate. Go on over and check it out. 


ht Zerohedge

Fast Money needs to do their homework -- High lumber prices are due to a temporary supply shortage not demand

I was watching Fast Money on CNBC tonight and their Prop Desk blurb on lumber and by implication Plum Creek (PCL) caught my attention.  The Fast Money speaker posited lumber prices had risen dramatically and this was a sign of a lumber and housing recovery.




I recently listened to the Plum Creek earnings report and management specifically commented upon weather conditions in the southeast US creating supply problems.  To quote from a SeekingAlpha article:

A lot of this lumber is filling inventories; it is concern over wet weather. As we mentioned, lot of these mills especially in the southern United States are very short inventory, and therefore there is not a lot of lumber inventory in the system.


I was down in Mississippi, Louisiana, and Arkansas last week, and what my guess is that half the forests are inoperable, and I don’t what it was like two months ago. I know they got some 9 inches of rain in one day. It’s a severe problem, and most areas you can’t operate in today. They need two or three or four weeks of dry weather so that we can get into a lot of these areas. That’s why inventories are so tight in that region. So it’s a huge issue.

Furthermore quite a few directors and officers of Plum Creek sold some of their holdings a few days after the earnings report:

CROWE BARBARA L 591

JIRSA ROBERT J 224

TUCKER DANIEL L 251

HOLLEY RICK R 4,376

BROWN DAVID A. 611

HOBBS JOHN B 178

LINDQUIST THOMAS M 2,097

RICKLEFS HENRY K 582

Wilson Nancy L 254

KRAFT JAMES A 604

LAMBERT DAVID W 1,076

KILBERG JAMES A 1,275

NEILSON LARRY D 776

REED THOMAS M 655

FITZMAURICE JOAN K 624

For a total of 14,174 shares.  No one purchased shares, all were sales. (Source)

I'm not disparaging Plum Creek or their officers / managers for selling off a small portion of their shares, but doesn't the comment about a short term weather phenomenon spiking lumber prices and quite a few officers unanimously selling their shares cause you to reconsider the short term valuation of the company?

I have followed Plum Creek on and off for several years and right now have a very small (just one contract) short call spread position on the company.  It is a company I may very well own in the future if the price is right.  Right now I do not foresee a strong housing rebound and my position is due to valuation issues. The price of both lumber and PCL have already had their run in my opinion.

My beef is with Fast Money.  Do your homework.  PCL may continue upwards for a little longer but it is riding high on a short term phenomenon.  The price rise is due to weather and a short term supply disruption. Once the forests dry out they are going to cut cut cut and the relatively high prices of lumber will come crashing down.

p. s. I would not call lumber futures a 'secret sauce' unconventional indicator. It is a publicly traded futures contract available on stockcharts.com and everywhere else.  The implication you are revealing your sekrets is vaguely insulting.