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.
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).
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.
Charts by: St. Louis Federal Reserve Research, StockCharts
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Corporate Loan Charge-Offs and Delinquencies Surge”
Most read in the last 20 days:
- Free Money Leaves Everyone Poorer
Destroying Lives BALTIMORE – A dear reader reminded us of the comment, supposedly made by Groucho Marx: “A free lunch? You can’t afford a free lunch.” Groucho dispensing valuable advice Photo via imdb.com He was responding to last week’s Diary about the national referendum in Switzerland on Saturday. Voters will decide whether to give all Swiss residents a free lunch – a guaranteed annual income of about $30,000 a year [ed note: the initiative was...
- How the Welfare State Dies
Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico). Gee, we wonder why? They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
- Free Speech Under Attack
Offending People Left and Right Bill Bonner, whose Diaries we republish here, is well-known for being an equal opportunity offender - meaning that political affiliation, gender, age, or any other defining characteristics won't save worthy targets from getting offended. As far as we are concerned, we generally try not to be unnecessarily rude to people, but occasionally giving offense is not exactly beneath us either. The motto of the equal opportunity...
- Moving Closer to BREXIT
Polls Show Growing Support for a Break with the EU In the UK as elsewhere, the political elites may have underestimated the strength of the trend change in social mood across Europe. The most recent “You-Gov” and ICM pools show a widening lead in favor of a UK exit from the EU as the day of the vote comes closer. Pro-BREXIT campaigners Boris Johnson (ex-mayor of London) and Michael Gove (UK Secretary of Justice) are in a good mood. Photo credit: Paul Grover /...
- A Market Ready to Blow and the Flag of the Conquerors
Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast. St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6 Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
- Toward Freedom: Will The UK Write History?
Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call. The battle lines are...
- What Could Possibly Go Wrong?
A Convocation Of Gamblers The Wall Street Journal and BloombergView have just run articles on the shadow banking system in China. This has put me in a nostalgic mood. About 35 years ago when I was living in Japan, I made a side trip to Hong Kong. Asia's Sin City, Macau Photo credit: Nattee Chalermtiragool I took the hydrofoil to Macau one afternoon and the same service back early the next morning. On the morning trip, I am sure that I saw many of the...
- The Real Reason We Have a Welfare State
From Subject to Citizen BALTIMORE – June 5th, the Swiss cast their votes and registered their opinions: “No,” they said. We left off yesterday wondering why something for nothing never works. Not as monetary policy. Not as welfare or foreign aid. Not in commerce. Not never, no how. But something for nothing is what people most want. The future Switzerland just managed to dodge... for now The Swiss voted against awarding all citizens a “universal basic...
- The Problem with Corporate Debt
Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour. Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us: “Businesses racked up debt in the...
- Going... Going... Gone! The EU Begins to Splinter
Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
- A Darwin Award for Capital Allocation
Beyond Human Capacity Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy. The inputs are too vast. The relationships are too erratic. The economy - complex and ever-changing interrelations. Image credit: Andrea Dionne Quite frankly, keeping tabs on it all is beyond human capacity. This also goes for the federal government. Even with all their data gatherers and...
- Rule Britannia
A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union. Waving good-bye to...