US Monetary Data is Not Painting a Pretty Picture

By: David_Urban

Well, MZM and M2 have begun to take on a parabolic looks as the compounded annual rate of change increased to 9.7 and 6.4%, respectively, from a year ago. MZM growth is giving me the chills just looking at the chart. This does not look good from an anti-inflation perspective. You can say that the helicopter drops have started. Take it all in now because when the party ends you will not want to be around for the cleanup.

Bank Credit and Loans and Leases are showing consistent growth with Commercial and Industrial Loan growth continuing to strengthen at the small to medium sized bank level on an absolute level. On a percentage basis, both are holding steady over the past 2 past years. A drop would not be an indicator of a recession but it would be a strong sign that credit is tightening. Historically, loan growth began to slow when lenders started to tighten, which is right now, but the data is in conflict. This could be why Bernanke is talking about strength in the underlying economy or the money printing might be a factor.

Data coming from banks regarding their lending practices is showing a tightening of credit for non-prime borrowers. Prime borrows are seeing a mild tightening (approx. 15% reported tightening Prime standards) but this is no more than loan officers paying more attention to what is on the application. It should be noted that this data does not indicate a recession is on the horizon.

Commercial Paper, especially Asset-Backed, has fallen off a cliff as the liquidity has dried up. Companies may be turning to more traditional sources, ie. bank loans, but more data will be needed to confirm if this is happening.

Revised 2 nd Quarter GDP was released with growth being revised up to 4% as expected. Even with the PCE being revised slightly lower there is a serious possibility that the Federal Funds rate will not be dropped at the September meeting. Bernanke's speech today at Jackson Hole should give us an indication as to his policy. Poole , Lacker, and Bernanke have all stated that there will be no rate adjustment unless the liquidity problems spill over into the general public and there is no indication that a spillover is happening. It is very likely that the broader market will read a rate cut into the speech no matter what Bernanke has to say but when the Federal Reserve meeting rolls around the market may be disappointed.

Sources: St. Louis Federal Reserve Bank US Financial Data , US GDP report

By David Urban

http://blog.myspace.com/global112

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