Corporate Loan Charge-Offs and Delinquencies Surge

Submitted by Pater Tenebrarum  –  The Acting Man Blog

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:

 

Charge-offs and DelinquenciesGrowth 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. Continue reading

Of Central Bankers, Monkeys, and John Law

Back in April, my good friend Charles Gave, Chairman of Gavekal, penned a short but brilliant piece in which he likened central bankers to a bunch of monkeys in a cage. In the unforgettable “Of Central Bankers, Monkeys and John Law,” he proceeded to run down the parallels between France’s 18th-century “Mississippi Bubble” and the situation in the Eurozone today.

Now Charles has given us a follow-up, titled “The Apex of Market Stupidity,” in which he regales us with a sardonic but spot-on recap of the sundry ways in which market participants and analysts have been witless over the years. And just last week, he says, we scrambled, clawed, and algoed our way to the very summit of market stupidity, when European markets were routed by the failure of ECB Chairman Mario Draghi to be sufficiently dovish.

Thus, Charles concludes, we now find ourselves in a world where “value in the financial markets is no longer a function of the discounted cash flow of future income, but instead is determined by the amount of money the central bank is printing, and especially by how much it intends to print in the coming months.”

This distortion of the basic tenets of investing is leaving otherwise rational market participants feeling like they are living in an alternate universe. Of course, reality will eventually reassert itself; but as Keynes famously said, “The markets can stay irrational longer than you can stay solvent.”

For today’s Outside the Box I bring you both of these pieces, which not only make for fun reading, as Charles is such a great writer, but will also help you understand a bit more about the psychology of the marketplace.

I want to offer a comment on Donald Trump’s latest contretemps – that we should not allow Muslims into this country for a period of time. That may be simply the most boneheaded, ill-conceived idea I have heard from a politician in my life, which is saying a lot, given Bernie Sanders’ recent suggestions for cutting carbon emissions by 80% by 2050, which is merely impossible without creating a multi-decade depression in the United States.

Aside from the Constitutional, ethical, and practical problems, closing the border to arbitrary groups, even temporarily, would cause enormous economic damage. Muslim-majority countries would certainly retaliate by barring Americans and/or Christians. The result could be a trade war at least as bad as that brought on by the old Smoot-Hawley tariffs, with people as the weapons and no resulting benefit to national Continue reading

Something Did Blow Up In Junk

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Now that Kinder Morgan has come out with a massive dividend cut, I think it will get harder to ignore that this isn’t just about crude oil prices and the death of “transitory.” There is a financial element here that is perhaps even more important.

Kinder Morgan Inc., the biggest North American oil pipeline operator, cut its 2016 dividend by 74 percent as the free-fall in crude markets reduced cash flow needed to cover payments on $41 billion of debt.
Kinder Morgan stockholders will receive a payouts totaling 50 cents per share next year, the Houston-based oil and natural gas shipper said Tuesday in a statement. As recently as Nov. 18, the company was promising investors a 6 percent to 10 percent increase from the $2 per share it budgeted for this year, which would have meant payouts of $2.12 to $2.20. [emphasis added]

In the space of just three weeks, the company went from expanding its dividend to cutting it by three-quarters? That is far,far more serious than just oil trading below $40 once more. Again, as noted from Anglo American’s earlier statement, you have to believe that the huge and dramatic turmoil in junk right now is playing a role in these decisions. That includes not just 2008-level prices recently, but also much, much more discrimination in trying to float anything (cov-lite of 2014 is as dead as transitory). Continue reading

Screaming Fundamentals For Owning Gold Bullion

Submitted by Mark O’Byrne  –  GoldCore

We’re at a moment of historic opportunity.
By Chris Martenson

Every year or two we update this report which lays out the investment thesis for gold. Here is this year’s version.

Silver is touched upon only as necessary; as a separate report of equal scope is required for that precious metal.

Gold is one of the few investments that every investor should have in their portfolio.

We are now at the dangerous end-game period of a very bold but very reckless & disappointing experiment with the world’s fiat (unbacked) currencies. If this experiment fails – and we observe it’s in the process of failing – gold will provide one of the best forms of wealth insurance. But like all insurance products, it only works if you buy it before you need to rely on it.

GoldCore: Comex Gold Cover Ratio

Read more on the “The Screaming Fundamentals For Owning Gold” from Chris Martenson.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• If It Owns a Well or a Mine, It’s Probably in Trouble (NY Times)
• Credit Card Data Reveals First Core Retail Sales Decline Since Recession (ZH)
• America’s Middle Class Meltdown (FT)
• Chinese Devaluation Is A Bigger Danger Than Fed Rate Rises (AEP)
• China Swallows Its Mining Debt Bomb (BBG)
• China’s Plan to Merge Sprawling Firms Risks Curbing Competition (WSJ)
• Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke (BBG)
• Bond King Gets Antsy as Junk Bonds, Which Lead Stocks, Spiral to Heck (WS)
• Banks Buy Protection Against Falling Stock Markets (BBG)
• Dividends Could Be the Next Victim of the Commodity Crunch (BBG)
• Copper, Aluminum And Steel Collapse To Crisis Levels (CNN)
• US Companies Turn To European Debt Markets (FT)
• Italy Needs a Cure for Its Bad-Debt Headache (BBG)
• Swiss to Give Up EVERYTHING & EVERYBODY (Martin Armstrong)
• Trump’s ‘Undesirable’ Muslims of Today Were Yesteryear’s Greeks (Pappas)
• It’s Too Late to Turn Off Trump (Matt Taibbi)
• War Is On The Horizon: Is It Too Late To Stop It? (Paul Craig Roberts)
• Greek Police Move 2,300 Migrants From FYROM Border To Athens (Kath.)