The Mess That Greenspan Made - Part 19

Private Sector Debt Still Unmanageable

Rex Nutting states the obvious (well, at least to anyone who isn’t an economist and who doesn’t work for the Federal Reserve) about private sector debt in this item at Marketwatch:

For the past six or seven years, most of what the Federal Reserve has done to fix the problem has been focused on getting the credit spigot turned back on: cutting interest rates and hectoring banks to start lending again, even though demand for loans was weak.

It’s a surreal policy because, while the proximate cause of the Great Recession was the collapse of borrowing in 2007-2008, the ultimate cause was the growth of unsustainable debt over many years, culminating in a doubling of debt between 2000 and 2007.

It’s nice to see that “unsustainable debt” as the root cause of our recent woes is an idea that is catching on and, it seems likely that, after another few years or so of tepid consumer spending, we’ll at least begin to rethink the whole idea of indebted American consumers as the primary engine of economic growth.

Friday Morning Links

MUST READS
Banks withdraw from Barclays’ dark pool: FT – Reuters
Barclays’ Dark Pool Crisis Another Dent In Confidence – Forbes
Nightmare Comes True in Barclays Dark Pools Action – Bloomberg
The spontaneous combustion theory of inflation – Economist
U.S. Inflation Hits Highest Level for Year and a Half – WSJ
10 everyday things getting slammed by inflation – MarketWatch
Carney Details New Weapons to Cool British Housing Market – NY Times
London house prices rise 18.5pc in two-speed Britain – Telegraph
Last Time Lenders Did This, They Triggered The Financial Crisis – Testosterone Pit
California’s Bill to Make Bitcoin ‘Lawful Money’ Heads to Governor – CoinDesk
How to Stop the Epidemic of Student Debt Defaults – Fiscal Times
Disgruntled Chinese Customer Gets New Tesla, Smashes It – WSJ
The IPO is dying. Marc Andreessen explains why. – Vox

MARKETS/INVESTING
Stocks: 5 things to know before the open – CNN/Money
Investing: Time to sell your junk (bonds) – USA Today
The Annotated History Of Global Volatility – Zero Hedge
VIX ETF ‘Fatal Flaws’ Mean You Risk Getting ‘Eaten Alive’ – Barron’s
Emerging Markets Show Biggest Premium Since ’12 With ETFs – Bloomberg
Are Bond Vigilantes About To Kick Stock Bulls In The Gut? – Ciovacco Capital
Treasuries Posting Biggest Gains Since May Amid Uneven Growth – Bloomberg
Gold moves lower but still set for fourth week of gains – Reuters
Why silver’s outperforming gold and isn’t done yet – MarketWatch
Lawsuit Adds to Concern Over China Commodities Fraud – DealBook
Could $80 Billion In False Chinese Gold Loans Have Suppressed Gold Price? – GoldCore

ECONOMY/WORLD/HOUSING/BANKING
Restrained Consumer Spending Curbs U.S. Growth Optimism – Bloomberg
Middle class is drowning in debt, hobbling the economy – MarketWatch
Forget the ‘Noise’, This Is Why the Economy Has Been Sinking – Alhambra Partners
EU signs pacts with Ukraine, Georgia and Moldova – BBC
Japan household spending falls, casts doubts on BOJ optimism – Reuters
Eurozone Economic Confidence Falls Unexpectedly – RTT News
Mexico tried giving poor people cash instead of food. It worked. – Vox
China’s Manhattan Project Marred by Ghost Buildings – Bloomberg
World’s Biggest Debt Load Lures Distressed Funds to China – Bloomberg
Millennial-driven housing boom seen on the horizon – CNN/Money
Obama administration expands affordable housing plan – Reuters
Yellen Spending Recipe Lacking Key Ingredient: Bigger Wage Gains – Bloomberg

 

Back in a Few…

The weather looks pretty iffy, so, we may beat a hasty retreat back here and in short order, but we’re off to the park for a few days of camping, hiking, and such.

We were last in Yellowstone in March when they still had snow piled 10-15 feet high in some places so, it should be interesting to see how things look now after a pretty severe winter and, lately, lots of rains (and snow at the higher elevations).

We never get tired of the place, though we do our best to avoid it during July and August (with the exception of some day trips) since people flock here from all over the country, making the roads crowded with first-timers and the campgrounds packed.

Where we’re going is a little higher elevation and they just opened up for the season on Saturday, so, we’re expecting to see some snow on the ground and have some cold nights.

 

Precious metals surged after a series of bullish developments that, on Thursday, sent the gold price to its biggest daily gain in nine months and resulted in an even bigger move up for silver. Higher than expected inflation reported on Tuesday combined with unexpectedly dovish comments by Federal Reserve Chair Janet Yellen on Wednesday spurred the jump in metal prices the following day.

Safe haven demand stemming from developments in Iraq and the threat of even higher oil prices were also factors, as was the unwinding of many commodity financing deals in China that prompted a surge of precious metals buying in the futures markets. The Thursday surge triggered stop-loss orders by those short gold and silver and this exacerbated the move, something that is usually only seen when prices are falling.

Gold fell slightly on Friday as short-term traders took profits and both equity markets and the U.S. dollar rebounded (precious metals often move opposite of these two), however, gold and silver still ended with their best week since mid-February. This sets the stage for the completion of a head-and-shoulders bottom as noted here a week ago and as detailed in this item by veteran trader Peter Brandt. A move back to $1,400 is said to be needed to complete the right shoulder and last week’s rally was a big step toward that goal.

[To continue reading this article, please visit Seeking Alpha and to access precious
metals commentary that Tim only shares with subscribers, join Iacono Research.]

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