Consumer Debt Report: Ugly

“OK, Ure, how so?” you’re wondering through the decaf fog.

We begin by reminding you that in many ways (as my deflationist pal Jas Jain is so fond of noting) the one thing that hold America together is we spend money like water…and since we do that, it keeps business afloat, if that’s not too simple.

Obviously, if consumer debt (it’s only credits to the banker class) is going UP, that’s a good thing because people are going in hock, and that means more jobs and that means good times.  But, the flip side is that when people stop – or even slow – their spending, jobs and everything else goes DOWN.

Which brings us to “turd in the punch bowl” which I haven’t heard any of the nitwits in congress ask Dr. Ben:  “No growth – so now what?”

We turn to the meaningful part of the Consumer debt report out Thursday afternoon:  This is right off the G.19 report…

Consumer spending in the most recent reporting month (April) was going up at an annualized rate of 3.1%.  “What’s so bad about that?“  Well, considering the money supply is going up at about that rate (meaning inflation) where’s the growth?

On the surface it’s still not bad…I mean flat is better than down.  But on close inspection we notice that revolving credit  (like credit cards) was declining at a 4.8% annualized rate.

Seeing as Americans are by nature optimistic, it looks like nonrevolving credit which was up 7.1% saved the day and that’s why you didn’t have to dodge falling bodies walking around Wall Street Thursday.

The problem – and why this is so serious – shows up when you scroll down the G.19 report and look at where the growth in nonrevolving credit came from.

• Nonrevolving credit was actually down a bit at depository institutions (banks) by a tad, so they aren’t stepping up and throwing money into the economy.

• Finance companies were tighter in how they let out loans, too.

• Credit unions were up 1.5% for the month, but that  isn’t going to account for the increase in nonrevolving credit, so we keep going…

• Federal government revolving credit was up for the month, too:  About 1.35%

• But our winner is?  Pools of securitized assets which were up 2.92% for the month.

To be sure, there are some footnotes as to what these pools of securitized assets are: “Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators. The shift of consumer credit from pools of securitized assets to other categories is largely due to financial institutions’ implementation of the FAS 166/167 accounting rules.”

So what’s my point?  Just this:  If you backed out the small increase in lending at credit unions, the  increases in student loans and such, plus the increase in securitized assets as lending institutions bundle faster you come up with a picture that’s more like flat to slightly declining revolving credit.  You marry that up with declining revolving credit, and the picture is of a country that is unsure of the future and unwilling to spend.

And that, dear reader, is trouble with a capital T just waiting in the wings.  I’d think someone in Washington oughta ask the good Dr. a question or two.  With Year on Year M2 up 9.8%, and with credit declining, the recovery has lost its snap, crackle, and pop and is looking more like a bowl of soggy cornflakes.

By the time Wall Street figures that out, the last greater fools will have bought into the current sharp rally which is a characteristic of what? Bear markets.

Falling DOWn

I’m not the only guy to see things this way.  Robin Landry and I chatted for a few minutes Thursday and he’s seeing this as an Elliott wave (iv) – a short counter-trend rally – while we set up to complete wave 1 of the larger Super Cycle 3 down.  A target?  Could go as low as the 1,137 S&P level but maybe a breather on the way down around 1,243.  But we’ll just hold our shorts for now and see what happens this morning, although the early check of futures looked like someone got out the Slip & Slide and set it up overnight.

Japan was down more than 2% and under the 8,500 handle, China was down almost one percent, and in Europe when I checked, France was down more than one percent and looking like they might be able to slide back under 3,000 on the CAC40 if they keep going at this clip.  The Brits were down almost a percent, as well, so when the US markets open, the global sellathon is probably back “game on.”  Maybe flattish at the open, but sobering later on would be the trajectory.

Watch the Commodities and Gold

That’s where the truth of continuing deflation is popping out.  Natural gas has been looking a bit pale the past day or so.  Checking the NYMEX Crude contract on INO.com this morning it’s down almost 3% – for the day.  Gold is going which way as a result?  Down more and if it takes out $1,525, a logical stop might be $1,425.  Yes, I will hold my lone coin, because even though gold may go down, it won’t go down as fast as other things….

Life as a Gas

Oh, and my lifelong friend up in the Seattle area tells me for the first time in about four years, diesel is once again cheaper than gasoline.  He bought one of those new TDI VW’s a while back and has to gloat a bit about 46 MPG with three guys going down to the Seaside ham radio convention last weekend.

Sure enough, the Triple A Fuel Gauge Report is showing the trend, too:  Diesel is now cheaper nationally than premium, and diesel owners are likely pretty damn happy about that. 

As the People’s Economist, however, this means OTR trucking and other uses of diesel may be declining again!

In fact, if you look at the Baltic Dry (cargo) Index,  it’s all the way back down to 872 when I looked this morning.  Further evidence (if you ask me) that the economy is soggy cornflakes and Wall Street is due for a little detox…the diesel won’t be needed for moving as many goods and when we get down a hundred more points on the S&P (be patient) the tradable rally they may be anemic and will likely follow the Baltic Dry’s trajector which hasn’t been bad guidance here lately.

Might make you head hurt for a while, but stick around.  The more crap we put in the blender here, the more you’ll get a feel for how it all blends up and you can get a taste of the future.  Still, ain’t no smoothy.

March to War

Speaking of trjaectories, as we were a moment ago (though related to markets in that context) seems like war is not going out of style any time soon.  This morning we’re reading how Russia has fired a new intercontinental ballistic missile.  

Say, you don’t think Russia and the US would start up a Second Cold War, do you?  I mean, gosh, look how much economic activity we got out of the last one.  And besides, give be the SecDef more reason to keep the .mil headcounts high while congress is off looking for scapegoats for it’s runaway social(ist) largess. 

Bait and switch – works on the taxpayers every time.  Still, we need to carefully ask, would Russia build these if they didn’t see a need for them?  And that need means use is maybe on their horizon…  I better stock up on marshmallows.

And if that makes the hairs on the back of your neck stand out (the nukes going off idea, not the marshmallow part) then Clif’s latest tweak on model timing about here comes the unexpected military actions stuff moving it up (read more details on his site here) is just what you need to push the blood pressure up further.

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You see where China has closed Tibet to foreign visitors?  Have to scrap my plans to visit the monk dudes….but since Tibet is a country would this maybe be a new flashpoint East-West?

Balance of Trade

Well, we’re still here, and only going in debt overseas at an annual rate of…uh….$600-billion (half a trillion) per year or so, according to this brand spanking new trade report:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total April exports of $182.9 billion and imports of $233.0 billion resulted in a goods and services deficit of $50.1 billion, down from $52.6 billion in March, revised. April exports were $1.5 billion less than March exports of $184.4 billion. April imports were $4.1 billion less than March imports of $237.1 billion.

Quick!  Run out and buy crap!  Dhina and India are depending on you!

Scams Making Rounds

So a reader asked “Is this listing on CraigsList Detroit for real?“

No.  Normal Boeing flight test rig for certifying load distributions in commercial aircraft.  They pump stuff around to test handling with different load distributions.  The real ones are different.

People are Crazier Dept.

Now a high school in NY is going down the path to “slutty Wednesdays” reports the NY Post as a protest over  a strict school dress code.

Watching for this to go up-demos to offices, because it would sure be more interesting than “jeans Fridays.”  Just saying….

More after this…