Thursday, 20 April 2017

Chart of The Day: Time To Add More Gold To Portfolios?

As of March 2017

Saturday, 15 April 2017

Money & Credit Update

The money supply is still declining on a rolling 13 week basis, though it fell less this week than during the previous six weeks...

...driven by declines in bank credit...

...which consists of bank lending, which makes up about 73% of bank credit....

...and securities owned by banks which makes up the remainder (about 27%) of bank credit.

Growth in banks' securities portfolios has therefore acted to partly counter the declines in bank lending, especially during the last seven weeks.

Sunday, 9 April 2017

Chart of The Day: The Stock Market to Bank Equity Ratio - Still Near Cycle Peak

To learn about the importance of this ratio, see:

Stock Market Prices Dislocate From Bank Balance Sheets

Saturday, 8 April 2017

Friday, 7 April 2017

Charts of The Day: U.S. Bank Credit Growth Plunge Continues

This is starting to become serious. 

And finally, Michael Pollaro's "a bastion of leveraged financing into the financial markets."

A Mini-Crash in the Money Supply Growth Rate

On a rolling 13-week basis, the money supply this week declined for the 7th consecutive week.

The year on year growth rate dropped further, also for the 7th week in a row, from 5.9% last week to 5.5% this week. The last time the growth rate dropped to these levels was around the time of the September 2008 banking crisis. The current growth rate is still substantial by any prudent standard, but it is nonetheless low in a historical perspective as it has averaged 8.9% since 1987. The growth rate has now dropped 34%, or 2.8 percentage points, from the April 2013 to December 2016 average.

Though the recent trend naturally can reverse, the large drops in the above growth rates are not all that common and are often associated with brewing economic problems (more specifically, the uncovering of such problems).

Following a longer period of unprecedented stability in the y/y growth rate, the standard deviation has picked up substantially in recent months.

Thursday, 6 April 2017

Margin Debt Hits New High - What Does It Mean?

As the Wall Street Journal recently pointed out, margin debt has a history of peaking right before financial collapses. This was especially true during the previous two stock market collapses as the chart below, courtesy of Doug Short and Advisor Perspectives, clearly demonstrates.

With a margin loan, investors are able to borrow funds to be used directly for the purpose of buying of shares. According to the SEC,
"Margin" is borrowing money from your broker to buy a stock and using your investment as collateral. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses.
As I explain in detail elsewhere, increased margin lending is one of the factors that directly puts upward pressure on stock prices as the demand for stocks increases.

Additionally, as the stocks bought serves as collateral for the lender, higher stock prices facilitates yet more lending. The amount of margin loans therefore tends to increase in a positive feedback loop fashion whenever stock prices rise– increased margin lending positively affects stock market prices which again facilitates yet more lending as the value of the collateral increases and so on.

Margin debt and broader measures of the stock market therefore necessarily, almost by definition, tend to move fairly closely together as the chart above illustrates. That is the prime reason new peaks in margin lending by themselves should not be used for predictive purposes - that is, the level needs to be put in context. Sean Corrigan has some thoughts on this in the video below.

However, one thing is for certain: margin lending and the stock market cannot continuously expand over time without setbacks as the bank credit cycle and with it margin lending must eventually come to an end. And this end does tend to come with a bust. In this sense, new all-time highs in margin lending is an important risk gauge investors ought to keep an eye on, especially now when the credit cycle appears to have ended (at least for now).

Source: Market Monitor: Margin Debt Hits New High by Sean Corrigan

For a closer look at the meaning of margin debt hitting new highs, see my article published earlier today: Does It Matter That Margin Debt Just Hit A New All-Time High?

Tuesday, 4 April 2017

Snyder: The Next Subprime Crisis Is Here - 12 Signs That The US Auto Industry's Day Of Reckoning Has Arrived

By Michael Snyder

In 2008, subprime mortgages almost single-handedly took down the entire financial system, and now a new subprime crisis is here.  In recent years, the auto industry has been able to boost sales by aggressively pushing people into auto loans that they cannot afford.  In particular, auto loans made to consumers with subprime credit have been accounting for an increasingly larger percentage of the market.  Unfortunately, when you make loans to people that should not be getting them, eventually a lot of those loans are going to start to go bad, and that is precisely what is happening now.  Meanwhile, automakers and dealers are starting to panic as sales have begun to fall and used car prices have started to crash.  If you work in the auto industry, you might remember how horrible the last recession was, and this new downturn could eventually turn out to be even worse.  The following are 12 signs that a day of reckoning has arrived for the U.S. auto industry…

Continue reading the article here.

H/t Zero Hedge.


Economic Issues Unfold As The Money Supply High Tide Ebbs And Becomes Low Tide

Monday, 3 April 2017

End Of Quarter Hype/Investment "Strategies" Best Avoided

"Hoping for it, keeping my fingers crossed".

H/t Ronnie Stoeferle, CMT