Friday, October 15, 2010

Consumers and Credit -- Behaviors may not be changing

One item I follow are aggregate debt levels as well as additional focus on the consumer as they are a large portion of GDP.

A WSJ blog entry from Sept 18 caught my eye and the results of their analysis are very interesting.

Their conclusion is the consumer is not voluntarily deleveraging, rather it is from charge-off and defaults.  This information does synch with how retail sales continue slowly rising even in the face of declining credit. 

From the WSJ:

There are two ways, though, that the debts can decline: People can pay off existing loans, or they can renege on the loans, forcing the lender to charge them off. As it happens, the latter accounted for almost all the decline. Our own analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.
That means consumers managed to shave off only $22 billion in debt through the kind of belt-tightening we typically envision. In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.


Interesting data providing for very different conclusions. People will shop until their credit cards are pried from their cold dead fingers.

Wednesday, October 13, 2010

Latest Chinese Lending Stats: Ignore these numbers!

An odd way to start a post but as mentioned in my previous entry it is hard to know how much lending is truly going on in China these days.  The official data shows a decline in the rate of growth in lending and the government appears to be reigning in credit growth by raising reserve ratios

This does not tell the entire story. There is a boatload of off balance sheet lending but there are no 'official' numbers for that.
The WSJ (Sept 28,2010 ) recently commented:
A report from Standard Chartered economist Stephen Green estimates that by the end of August between 2 trillion yuan and 3 trillion yuan worth of loans (the banks don’t formally disclose the amounts) were moved off balance sheets–and outside the PBOC’s formal loan data–in this way. Over the same period, PBOC data showed the banks lending out 5.6 trillion yuan, suggesting the banking system has already passed the central bank’s 2010 target for new credit creation. It also means that the tightening signaled by the loan quota never happened.
Standard Chartered is guessing an additional 50+% of unofficial lending this year. Not a small number.  If the bank regulators crack down on this unofficial lending the rate of true loan growth would fall dramatically.

Tuesday, October 12, 2010

Foreclosure mess update: Why this is important

Barry Ritholtz clearly explains why this foreclosure mess is so important and how all the cutting of corners by the loan servicing organization has gotten completely out of control.

http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/

I could try to paraphrase it but you really must read it ALL to understand why this scandal is more than just some 'goofed up paperwork'

http://www.marketwatch.com/story/bank-of-america-halts-all-foreclosure-wsj-2010-10-08?siteid=bnbh
Bank of America halts all foreclosures.  This is a few days old but just the latest in a long march of banks who are calling a full halt to foreclosures.

BofA's sterling efficiency is demonstrated by them foreclosing on a house with no mortgage. Whoops!
http://www.businessweek.com/news/2010-10-07/man-who-had-no-mortgage-faced-foreclosure-anyway-ann-woolner.html

This is going to get worse before it gets better . . .

Inflation expectations

The recent rumors of an imminent second round of quantitative easing (QE 2.0) by the US Federal Reserve has sent ripples throughout the entire financial market.  One series I occasionally check in on is the implied breakeven inflation rate by looking at nominal versus inflation protected rates in the treasury market.    The threat of QE 2.0 can be seen here as well.


10 year inflation protected rates (TIPS) have fallen to levels not seen for this entire data series.  In other words people are bidding up the value of inflation protection.    However in the context of comparing TIPS rates to nominal the spread is trending downwards but is not out of the ordinary. 

Interesting. 
Of course the Fed threatening to buy up outstanding T bonds (instead of just buying more at auction) also creates a supply demand issue but this trending divergence bears watching.

Monday, October 11, 2010

Volatility measure goes bonkers

One of the indicators I follow just hit multi year lows and that's not a positive sign for the equity markets.  (Stockcharts link)

Scroll back through history and notice when this ratio of short term volatiliy to longer term volatility was so low . . .

Another sign of money market stress

Short term lending rates in Europe are creeping upwards, showing a measure of bank stress. Here's the Bloomberg link

I'd be concerned if this keeps going upwards . . .

Initial unemployment claims - Treading water

While I touched on initial unemployement claims before in an attempt to see if Google Trends could accurately predict changes, (failure!)  other people have shown the change in initial unemployment claims provides some predictive value. Creditwritedowns writes about how looking at the year over year change in unemployement claims provides insight into changes in consumer spending in America.   In short, a year over year decline in initial unemployment claims forebodes postive growth in the economy.

Let us take a look at the data (Source: Federal Reserve)


Looking at the year over year percent change in initial unemployement claims all appears well. The year over year number is negative meaning fewer people are getting laid off each week. 

There is a problem with this prognosis however and you can see it looking at the absolute numbers in the second graph. In chart two initial unemployment claims have remained quite stubborn for 2010, refusing to drop below the ~440k number for the entire year.   In a couple months if unemployment claims don't start falling our year over year metric will flatten out.  Right now the employement situation is treading water and this meshes well with the general sluggish feel to the economy.  

Right now this economic indicator is flashing Yellow.