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AutomaticEarth<>Debt Rattle March 27 2017

Posted by Raúl Ilargi Meijer at 8:18 am


Ray K. Metzker Chicago 1958

• Sharpest Credit Plunge Since 2008 Could Spell Disaster For US Economy (AEP)

• Paper Wealth In US Stocks Reaches $32 Trillion (Fed)

• Rich Chinese Race to Apply for a US Golden Visa (BBG)

• Russia’s Banking System Has SWIFT Alternative Ready (RT)

• Erdogan Setting Back Integration In Germany By Years: Schaeuble (R.)

• France’s Le Pen Says The EU ‘Will Die’, Globalists To Be Defeated (R.)


• Populism Is The Result Of Global Economic Failure (G.)

• The West is Becoming Irrelevant (Vltchek)

• The US Will Lose Control Of The Global Internet (Morozov)

• Circular Runways Proposed For Airport Efficiency (Curbed)

• Trump Presidency “Opens Door” To Planet-Hacking Geoengineer Experiments (G.)

• UN’s Famine Appeal Is Billions Shy of Goal (NYT)

• ‘We Reached Our Limits’: Greece To Stop Taking Back Refugees (RT)

• Greek-US Ties Set To Strengthen Significantly (K.)

• Greece Considers Capital Control Tightening (K.)





The Telegraph changed the title of this Ambrose article overnight to “Fading Trump Rally Threatened By Rare Contraction Of US Credit”.

• Sharpest Credit Plunge Since 2008 Could Spell Disaster For US Economy (AEP)

Credit strategists are increasingly disturbed by a sudden and rare contraction of US bank lending, fearing a synchronised slowdown in the US and China this year that could catch euphoric markets badly off guard. One key measure of US corporate borrowing is falling at the fastest rate since the onset of the Lehman Brothers crisis. Money supply growth in the US has also slowed markedly. These monetary and credit signals tend to be leading indicators for the real economy. Data from the US Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December. The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Over the last three months it has dropped at a rate of 5.4pc on annual basis, a pace of decline not seen since December 2008.


The deterioration in the broader $9 trillion market for loans and leases has been less dramatic but it too is shrinking, falling at a 1.6pc rate on a three-month basis. “Corporate lending has ground to a halt and I am staggered that the Fed is raising rates. They have made a very big mistake,” said Patrick Perret-Green from AD Macro. Credit experts at several big US banks have issued warnings over recent days, albeit sotto voce. “We’ve been surprised how little attention the slowdown in US bank lending has garnered,” said Matt King, global credit strategist at Citigroup.



While they are not yet alarmed, their concerns are worth heeding. Credit has tended to pick up signs of trouble several weeks before equity markets in recent episodes of financial stress. “Without another big dose of momentum, the cracks in the global reflationary consensus are liable to grow bigger. All around, existing trends are being called into question,” he said. Net corporate bond issuance has also stalled, indicating that borrowing by US firms as a whole is in decline. “So much for a Trump-driven expansion. Beneath the surface, we think a seismic battle is taking place,” he said.

Elga Bartsch and Chetan Ahya from Morgan Stanley said the credit squeeze is a warning sign and needs watching closely. “On our estimates, the credit impulse turned negative at the end of 2016. We have not seen such a sharp deceleration in bank lending to US corporates since the Great Financial Crisis,” they said. “Historically, credit downturns have led recessions. The plunge could reignite concerns that a highly leveraged US corporate sector may react strongly to even limited interest rates increases,” they said.



[..] Money and credit are certainly not flashing warnings of an imminent crisis, but they are hard to square with the exuberant view of investors that the world is on the cusp of an accelerating economic boom. That boom may already have peaked. The massive stimulus injected by the global authorities last year to counter the Chinese currency scare and any fall-out from Brexit is by now fading, and it is too early to tell whether business will pick up the baton. Any soft patch could all too easily combine with a slowdown in China as the country taps the brakes after an extreme episode of fiscal prime-pumping in 2016. Regulators are clamping down on property speculation and trying to rein in forms of pyramid lending, causing a sharp rise in Shibor lending rates. The worry in China is a maturity mismatch. Huge sums have been borrowed on the short-term markets. These debts have to be rolled over constantly to cover long-term liabilities. It was this sort of mismatch that brought down Northern Rock and Lehman Brothers.



[..] Weak US indicators are clearly at odds with the Trump rally on Wall Street, which has pushed equity valuations to nose-bleed levels. Kevin Gaynor from Nomura says his model of asset pricing suggests markets are in effect assuming global growth of 5pc and earnings increases of 30pc a year. These are heroic. “There is a time decay on this new temporary equilibrium,” he notes acidly. What is so disturbing is that each extra dollar of new debt now generates just $0.17 of extra GDP in the US, down from around $0.75 in the 1960s. Much of the corporate debt built up in this cycle has been to buy back stock or pay dividends.



Read more … briefs or link out for full @
https://www.theautomaticearth.com/2017/03/debt-rattle-march-27-2017/