Mish's Global Economic Trend Analysis |
Credit Crunch Underway: Can Recession Be Far Behind? Posted: 12 Apr 2015 09:59 PM PDT Credit Crunch Underway Last week, Alexander Giryavets of Dynamika Capital L.L.C. pinged me with an article he had written on Recessionary Level in Credit Conditions. His article was based on data from the March Credit Managers' Index by the National Association of Credit Management. The report is pretty damning. First, let's take a look at some NACM snips. Emphasis in italics is mine. Following the NACM snips and some NACM explanations, we will return to a chart from Giryavets. From the March NACM Credit Managers Report: Combined Sectors [Manufacturing and Service]NACM Favorable and Unfavorable Factors click on chart for sharper image This is somewhat counterintuitive, but negative unfavorable scores are not a good thing. "When survey respondents report increases in unfavorable factors, the index numbers drop, reflecting worsening conditions." Recessionary Credit Conditions Inquiring minds may wish to read Recessionary Level in Credit Conditions by Alexander Giryavets. The charts in Giryavets' article are in his words "shifted and rescaled" so one can see how much of subcomponent movement can be explained by index movement. Some may find those charts hard to follow, so I asked Giryavets for a simple chart of the overall index, credit extended, rejection of credit, and dollar amount beyond terms. He graciously created that chart for us, shown below. Combined Index, Amount of Credit Extended, Credit Rejected, Dollar Amount Beyond Terms click on chart for sharper image Start of recession is denoted by vertical red line, end of recession by vertical green line. Can Recession Be Far Behind? NACM data only goes back to 2002. Also data prior to 2006 is not seasonally adjusted, while data from 2006 and later is seasonally adjusted. In the entire series since 2002, the only other time we have seen deep plunges in amount of credit extended and rejection of credit applications was deep in the middle of the last recession. Those are apples to apples comparisons, both seasonally adjusted. Although comparisons between seasonally adjusted numbers and unseasonably adjusted numbers are technically invalid, if anything that would have led to more volatility between comparisons, not less. This is still more supporting evidence that a recession is on the way. Heck, we may even be in the start of one right now, just as everyone is expecting rate hikes. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot |
Former Fed Governor Thomas Hoenig Says US Banks Undercapitalized; Unsafe, and Unsound Banks Posted: 12 Apr 2015 12:42 PM PDT In another round of "stress" tests last month, the Fed said Big Banks Pass Muster. Anyone who has been following stress tests in US or Europe knows full well, the tests were in reality "stress free". Confirmation of the undercapitalized state of US banks comes from former Fed Governor Thomas Hoenig. He served as chief executive of the Tenth District Federal Reserve Bank, in Kansas City, for 20 years. Rules limit terms to 20 years. Hoenig is now vice chairman of the Federal Deposit Insurance Corporation. Undercapitalized, Unsafe, and Unsound Hoenig's opinion should carry some weight. And a New York Times Editorial citing Hoenig sounded an alarm today regarding Unsafe and Unsound Banks. After the latest round of bank stress tests last month, the Federal Reserve announced that, by and large, the nation's biggest banks would all be able to withstand another crisis without requiring bailouts.Thomas Hoenig on State of US Banks Let's take a look at April 2 statements by Thomas Hoenig in the FDIC Release of Fourth Quarter 2014 Global Capital Index. For the largest U.S. banking firms, the average tangible equity capital ratio – known inversely as the leverage ratio – is 4.97 percent (column 8). In other words, each dollar of assets is funded with 95 cents of borrowed money.Banks Not Well Capitalized Banks are "well capitalized" in the US only by ignoring derivatives. European banks are "well capitalized" by treating all sovereign debt, including Greece, Spain, Portugal, as if it was risk-free. The reality is banks are undercapitalized globally. And although taxpayers were forced to cover losses, they shouldn't have been. The notion that bondholders should never take losses is absurd. The Fed assumes "derivatives are risk free because they net out". Hoenig doesn't buy that argument and neither do I. A currency crisis awaits. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot. |
You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States |