Credit Bubble Bulletin

Credit Bubble Bulletin 2018-10-30T12:00:02+00:00

Presented by Doug Noland

Weekly Commentary

February 15, 2019: No Holds Barred

The world is now fully embroiled in a most precarious period. I wonder if the Fed is comfortable seeing the markets dash skyward – the small caps up 16.4% y-t-d, Banks 15.9%, Transports 15.2%, Biotechs 18.5% and the Semiconductors 17.0%. Or, perhaps, they’re quickly coming to recognize that they are now fully held hostage by market Bubbles.

Similarly, I ponder how Beijing feels about January’s booming Credit data – Aggregate Financing up $685 billion in a month. Do officials appreciate that they are completely held captive by history’s greatest Credit Bubble? I have argued that Bubbles have become a fundamental geopolitical device – a stratagem. The situation has regressed to a veritable global Financial Arms Race. As China/U.S. trade negotiations seemingly head down the homestretch, each side must believe that rallying domestic markets beget negotiating power. Meanwhile, emboldened global markets behave as if they have attained power surpassing mighty militaries and even nuclear arsenals.

February 15 – Reuters (Kevin Yao and Judy Hua): “China’s banks made the most new loans on record in January – totaling 3.23 trillion yuan ($477bn) – as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected and eclipsed the last high of 2.9 trillion yuan in January 2018. Analysts… had predicted new loans of 2.8 trillion yuan, more than double the level seen in December.”

China’s January new bank loans were 11.4% higher than the previous record from January 2018 – and 15% above estimates. Bank Loans expanded an imprudent $821 billion over the past three months alone, a full 20% above the comparable period from one year ago. Total Bank Loans expanded 13.4% over the past year; 28% in two years; 45% in three years; 91% in five years; and an incredible 323% during the past decade.

Led by bubbling bank lending, China’s Aggregate Financing expanded a record $685 billion during January. Flood gates wide open. While typically a big month for Chinese lending, January’s growth in Aggregate Financing was 50% above January 2018. It’s worth noting that the growth in Aggregate Financing over the past six months ran 7% above the comparable year ago period (and equates to an annualized pace of $3.7 TN). Consumer (largely mortgage) Loans expanded a record $146 billion for the month, 10% greater than the previous record from January 2018. Consumer loans expanded 18% over the past year; 43% in two years; 77% in three; and 140% in five years.

It’s too fitting: as the long-standing global superpower and ascending superpower are locked in tortuous negotiations, their respective financial power centers – securities markets in the U.S. and state-directed bank lending in China – rage. No Holds Barred. (more…)

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