Posts Tagged ‘credit market’

Deflation: How To Survive It

Deflation: How To Survive It 
Important warnings about deflation from Robert Prechter.

Pencil popping balloon

Courtesy of Elliott Wave International

Telegraph.go.uk, May 26: "US money supply plunges at 1930s pace… The M3 money supply in the U.S. is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history."

Deflation is suddenly in the news again. It’s a good moment to catch up on a few definitions, as well as strategies on how to beat this rare economic condition.

And who better to ask than EWI’s president Robert Prechter? He predicted the first wave of deflation in the 2007-2009 "credit crunch" and has written on this topic extensively.

We’ve put together a great free resource for our Club EWI members: a 63-page "Deflation Survival Guide eBook," Prechter’s most important deflation essays. Enjoy this excerpt — to read the full eBook, free, look below.


What Makes Deflation Likely Today? 
Bob Prechter, Deflation Survival Guide, free Club EWI eBook

Following the Great Depression, the Fed and the U.S. government embarked on a program…both of increasing the creation of new money and credit and of fostering the confidence of lenders and borrowers so as to facilitate the expansion of credit. These policies both accommodated and encouraged the expansionary trend of the ’Teens and 1920s, which ended in bust, and the far larger expansionary trend that began in 1932 and which has accelerated over the past half-century. Other governments and central banks have followed similar policies. The International Monetary Fund, the World Bank and similar institutions, funded mostly by the U.S. taxpayer, have extended immense credit around the globe.

Their policies have supported nearly continuous worldwide inflation, particularly over the past thirty years. As a result, the global financial system is gorged with non-self-liquidating credit. Conventional economists excuse and praise this system under the erroneous belief that expanding money and credit promotes economic growth, which is terribly false. It appears to do so for a while, but in the long run, the swollen mass of debt collapses of its own weight, which is deflation, and destroys the economy. A devastated economy, moreover, encourages radical politics, which is even worse.

The value of credit that has been extended worldwide is unprecedented. Worse, most of this debt is the non-self-liquidating type. Much of it comprises…
continue reading


Tags: , , , , , , , , ,




Credit Storm in Europe

Credit Storm in Europe

By MIKE WHITNEY writing at CounterPunch 

Munich Oktoberfest Preparations

Credit market turmoil in the Eurozone has ignited frenzied trading on global markets. On Tuesday, shares tumbled nearly 300 points on the Dow Jones before launching an unconvincing 257-point late-day comeback. Wednesday the mayhem continued; all the major indexes seesawed wildly as positive news on durable goods was nixed by  reports on wobbly EU banks. Erratic selling pushed the S&P down to 1,067 while the Dow slipped below 10,000 for the first time since February 7.  The rise in Libor (the London Interbank Offered Rate) is increasing volatility, a red flag indicating trouble in interbank lending. Banks are wary of each other’s collateral as Greece and other underwater Club Med members appear to be headed for debt-restructuring. Libor is not yet at pre-Lehman levels, but the rate that banks charge each other for short-term loans has rocketed to a 10-month high. Improving economic data have not eased fears of another meltdown or removed the rot at the heart of the system. The banks are still loaded with loans and assets that are losing value. The credit system is breaking down. 

When banks post collateral overnight for short-term loans, the collateral is effectively downgraded, limiting the banks’ access to capital. This is what triggered the financial crisis two years ago, a run on repo. Regulated "depository" institutions now rely on a funding system that operates beyond government oversight, a shadow banking system.  The banks exchange collateral, in the form of bundled securities and  bonds with institutional investors (aka—"shadow banks"; investment banks, hedge funds, insurers) via repurchase agreements (repo) for short-term loans. The repo market now rivals the  traditional banking system in terms of size but lacks the guard rails and stop signs that make the regulated system safe. The system is inherently unstable and crisis-prone as a recently released paper by the Federal Reserve Bank of New York  (FRBNY) admits. Moody’s rating agency summarized the paper’s findings like this: the tri-party repo market “will remain a major source of systemic risk, especially given the current market volatility and the fact that the Federal Reserve’s primary dealer emergency lending facilities are no longer in place…… the market remains structurally vulnerable to a repo run…… If cash investors pulled away in a stressed environment, the clearing banks would be faced with a choice (as they were several times in 2008)…
continue reading


Tags: , , , , , , , , , , , , , , , , , , , , ,




CREDIT MARKETS CONTINUE TO WAVE THE WARNING FLAG

CREDIT MARKETS CONTINUE TO WAVE THE WARNING FLAG

Courtesy of The Pragmatic Capitalist

Caribbean Reef Sharks

One of the primary reasons for our move to sell equities in mid-January was the warning shot the CDS market was sending.  Specifically, we said:

As the problem of debt refuses to go away and in fact, quietly spreads, we’ve seen another slow development over the course of the last few weeks – problems in Greece appear to be worse than originally expected and credit default swaps are sending warning messages again.  The term structure in Greek CDS recently inverted as investors are now increasingly concerned of a default in the next few months.  This is something we saw in 2008 before the financial markets nearly collapsed.  That time the inversion was in Lehman Brothers and Merrill Lynch CDS.

As the problems in the banking sector unfolded in late Summer 2008 the sovereign debt of the big three developed nations began to skyrocket before reaching a crescendo in early 2009.  What’s alarming with the situation in Greece is the similarities in CDS price action.  The recent uptick could be serving as a warning flag of things to come in 2010 and 2011 when the problem of debt has potential to rear its ugly head again.  Barclays might not have been too far off when they said the probability of a crisis would grow in 2010.

Well, this situation has only worsened in recent weeks and the equity markets have dipped over 5% since our “must sell” signal.  Jim Reid at Deutsche Bank is reiterating the concern we expressed several weeks ago that this is looking increasingly similar to the action in the markets heading up to the Lehman bankruptcy:

“The danger for every risk asset beyond IG credit is that if higher quality assets see forced re-pricing then it surely has to impact the riskier end of markets. The situation is increasingly reminding us of August/September 2008 when the credit market was sending out a strong sell signal to the equity market. Failing a quick sovereign bail-out, the credit markets are sending out a similar sell signal.”

Reid goes on to note that the markets appear to be accelerating what the governments hoped they could heal with time.  In essence, we’ve put all our…
continue reading


Tags: , , , , , , , , , , , ,




Same Old Same Old

Same Old Same Old

stocks and bondsCourtesy of Michael Panzner at Financial Armageddon

Markets often send out false signals, though some seem to do it more than others. Indeed, one lesson we’ve learned during the past few years is how wrong equity markets can be in comparison to their fixed-income brethren. The best example, of course, was when stocks surged to new highs in the fall of 2007 while almost every part of the credit universe was convulsing or collapsing. Given what Reuters has to say in the following report, "Junk Bond Spreads Signal Slow Economic Recovery," and the euporia percolating through share prices lately, it seems to me that we are seeing the same old same old.

The sanguine view of stock investors about the U.S. economy is not borne out by the credit market, which is signaling that a recovery from the longest downturn in decades may be painfully slow.

Risks of continued high defaults and massive refinancing needs of the most precarious corporate borrowers are keeping credit spreads high, especially on high-yield bonds, signaling the economy is not out of the woods.

"We are still priced for near recession at the moment and certainly notably below average growth," said Christopher Garman, founder of Garman Research in Orinda, California. High-yield bond spreads are reflecting about a 9 percent default rate, "which would put economic growth around zero to 1 percent," he said.

Spreads would typically have to reflect a default rate more within the normal range of about 5 percent to signal an economy growing more than about 1.5 percent, Garman said.

Economists polled by Reuters last week said the economy is recovering more strongly than previously expected but next year will be lackluster and risks of a double-dip downturn remain. After shrinking by 1 percent in the second quarter on an annualized basis, U.S. gross domestic product will grow 2.4 percent in the current quarter, according to a poll of about 70 economists.

High unemployment and consumer debt will hamstring the economy after an initial rebound, however, respondents said, and they still see a 25 percent chance of a double-dip recession.

SPREADS PREFIGURED MEGA-DEFAULTS

Though not considered a traditional economic indicator, corporate bond spreads typically widen ahead of recessions and rising defaults as investors demand more yield for increased risk. Widening spreads also brake the economy as they


continue reading


Tags: , , , , , , ,




Flow of Funds Report Offers Hard Evidence of Deflation

For a free subscription to Phil’s Stock World, click here (it’s easy, no credit card required)

Flow of Funds Report Offers Hard Evidence of Deflation

Courtesy of Mish

I am not sure if this was his intent, but recent analysis of the Flow of Funds Report by Martin Weiss eloquently makes the case for deflation.

In New, Hard Evidence of Continuing Debt Collapse! Martin Weiss Writes …

While most pundits are still grasping at anecdotal “green shoots” to celebrate the beginning of a “recovery,” the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.

It’s all in the Fed’s Flow of Funds Report for the first quarter of 2009, which I’ve posted on our website with the key numbers in a red box for all those who would like to see the evidence.

First and foremost, the Fed’s numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

click on chart for sharper image

Open Market Paper: Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)

Banks lending: Credit markets [collapsed] at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).

Nonbank lending: (line 8 ) pulled out at the annual rate of $468 billion, also the worst on record.

Mortgage lenders: (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)

Consumers: (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.

Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!

And even if you include all the government borrowing, the overall


continue reading


Tags: , , , , ,




 
 
 

ValueWalk

PPP changes pass House as small businesses hit first loan deadlines

By Jacob Wolinsky. Originally published at ValueWalk.

Small businesses need all these adjustments in the Paycheck Protection Flexibility Act, but there are still multiple gaps, including data collection

Q1 2020 hedge fund letters, conferences and more

On the passage of the Paycheck Protection Flexibility Act in House today, Executive Director of the Main Street Alliance Amanda Ballantyne has this to say:

Paycheck Protection Flexibility Act Addresses PPP Flaws

“The Paycheck Protection Flexibility Act is ...



more from ValueWalk

Phil's Favorites

The PhilStockWorld.com Weekly Webinar - 05-27-2020

 

For LIVE access on Wednesday afternoons, join us here at Phil's Stock World!

 

Major Topics:

00:01:40 - Yang 4 Day Work Week
00:12:21 - DIS
00:19:01 - Bonds
00:25:49 - COVID-19 Update
00:41:12 - Trading Techniques
00:45:18 - US Corporate Taxes
00:52:27 - US National Debt
01:04:36 - Beige Book
01:09:25 - Hedge Funds
01:10:08 - States Reopening
01:14:16 - May Portfolio Review
01:14:52 - STP & LTP
01:26:38 - PAA & Strategy Section
01:29:44 - CSCO
01:34:04 - LTP
01:35:18 - VIAC

Phil's Weekly Trading Webinars provide a great opportunity to learn what we ...



more from Ilene

Biotech/COVID-19

How coronavirus contact tracing works in a state Dr. Fauci praised as a model to follow

 

How coronavirus contact tracing works in a state Dr. Fauci praised as a model to follow

Pairing widespread testing with fast, effective contact tracing is considered essential for controlling the coronavirus’s spread as the U.S. passes 100,000 deaths. AP Images/Rick Bowmer

Courtesy of Jenny Meredith, University of South Carolina

After weeks of keeping people home to “flatten the curve,” restrictions on U.S. businesses are loosening and the coronavirus pandemic response is moving ...



more from Biotech/COVID-19

Zero Hedge

Futures Tread Water In Calm Before US-China Storm, Trump Twitter Crackdown

Courtesy of ZeroHedge View original post here.

The S&P's remarkable stretch of posting gains in the overnight session continued for another day, with the S&P rising as high as 3,053, and last trading 9 points higher at 3,044, tracking global stocks higher, with Europe's Stoxx 600 rising 1.3% to session highs as investors weighed again increased friction between America and China and the official passage of China's National Security Law in defiance of Trump, against fresh fiscal stimulus promised by the European Union. Treasuries edged up, while the dollar was modestly lower even as traders "treaded water...



more from Tyler

Kimble Charting Solutions

Tech Indicator Suggesting A Historic Top Could Be Forming?

Courtesy of Chris Kimble

Tech stocks have been the clear leader of the stock market recovery rally, this year and since the lows back in 2007!

But within the ranks of leadership, and an important ratio may be sending a caution message to investors.

In today’s chart, we look at the ratio of large-cap tech stocks (the Nasdaq 100 Index) to the broader tech market (the Nasdaq Composite) on a “monthly” basis.

The large-cap concentrated Nasdaq 100 (only 100 stocks) has been the clear leader for several years versus the ...



more from Kimble C.S.

The Technical Traders

M2 Velocity Collapses - Could A Bottom In Capital Velocity Be Setting Up?

Courtesy of Technical Traders

M2 Velocity is the measurement of capital circulating within the economy.  The faster capital circulates within the economy, the more that capital is being deployed within the economy to create output and opportunities for economic growth.  When M2 Velocity contracts, capital is being deployed in investments or assets that prevent that capital from further circulation within the economy – thus preventing further output and opportunity growth features.

The decline in M2 Velocity over the past 10+ years has been dramatic and consistent with the dramatic new zero US Federal Reserve interest rates initiated since just after the 2008 credit crisis market colla...



more from Tech. Traders

Lee's Free Thinking

US Southern States COVID19 Cases - Let's Give Credit Where Due

 

US Southern States COVID19 Cases – Let’s Give Credit Where Due

Courtesy of  

The number of new COVID 19 cases has been falling in the Northeast, but the South is not having the same experience. The number of new cases per day in each Southern state has been rangebound for the past month.

And that’s assuming that the numbers haven’t been manipulated. We know that in Georgia’s case at least, they have been. And there are suspicions about Florida as well, as the State now engages in a smear campaign against the fired employee who built its much praised COVID19 database and dashboar...



more from Lee

Chart School

Is this your local response to COVID 19

Courtesy of Read the Ticker

This is off topic, but a bit of fun!


This is the standard reaction from the control freaks.








This is the song for post lock down!







What should be made mandatory? Vaccines, hell NO! This should be mandatory: Every one taking their tops off in the sun, they do in Africa!

Guess which family gets more Vitamin D and eats less sugary carbs, TV Show



...



more from Chart School

Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



more from Bitcoin

Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



more from Our Members

Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

http://www.insidercow.com/ more from Insider

Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

...

more from Promotions

Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

more from M.T.M.





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.