Surface Cracks Appear in CreditIf there's one thing that keeps the US going... it's the availability of cheap credit. Love it or hate it - the US is a credit driven economy. If credit dries up - it's goodnight nurse. The US consumer now owes close to $1Trillion on their credit card - a 17% jump from a year ago and a record high. More than 33% U.S. adults have more credit card debt than emergency savings
Stocks Under-appreciate the Impact of Credit TighteningThe market continues to hit a wall in the zone of 4200. And there is good reason for that... Investors are being asked to pay a large risk premium to own stocks. By my calculation - the forward PE is in the realm of 19x. That's far too high with interest rates at 5.00%; inflation more than twice the Fed's objective; and a real risk of recession. Today I will also spend a minute on the so-called banking crisis. I prefer to call it a crisis of confidence - as the US banking system is sound. However, we should expect many more regional bank failures - and that will lead to greater credit tightening. That's a negative for the economy and risk assets.
What Do Credit Spreads Tell Us?There are two types of economic indicators which are often cited in the financial media: (i) those which lag; and (ii) those which are leading. The latter of more useful. One of the best real-time leading indicators are credit spreads. These are excellent indicator of the 'health' of the financial system. So what do they tell us today with interest rates sharply higher?
