Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Only Thing Systematic Is The Destruction Of America - 29th Sep 20
Fractional-Reserve Banking Is The Elephant In The Room - 29th Sep 20
Gold And Silver Follow Up & Future Predictions For 2020 & 2021 – Part I - 29th Sep 20
Stock Market Short-term Reversal - 29th Sep 20
How Trump co-opted the religious right and stacked the courts with conservatives - 29th Sep 20
Which RTX 3080 GPU to BUY and AVOID! Nvidia, Asus, MSI , Palit, Gigabyte, Zotac, MLCC vs POSCAPS - 29th Sep 20
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Weak U.S. Credit Growth Early Sign of a Double-Dip Recession?

Economics / Double Dip Recession May 06, 2011 - 05:34 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleShah Gilani writes: In spite of five straight quarters of loosening lending standards and strong U.S. credit growth data, actual loan growth in the U.S. economy is dangerously anemic.

What isn't apparent to investors is that the reason first-quarter gross-domestic-product (GDP) growth fell to 1.8% from the fourth quarter's more robust 3.1% rate is that loans and leases - which accounted for as much as 51.2% of U.S. GDP as recently as 2008 - fell to 45% of GDP in March.


Behind the headlines about positive credit trends, the truth is that weak loan demand will continue pressuring GDP growth and put a lid on some rising U.S. stock prices.

This underscores yet again how important so-called "capital waves" can be, why we need to watch them - and how we can employ them for profit.

U.S. Credit Growth: Don't Trust the Headlines
In its just-released "National Credit Trends Report" for March 2011, credit-reporting company Equifax Inc. (NYSE: EFX) showed strong U.S. credit growth across several important sectors.

On a year-over-year basis, for instance, auto credit growth increased 23%; bankcards credit growth increased 14%; home equity credit growth was 9%; and consumer finance saw a 5% growth in available credit.

In addition to expanding U.S. credit growth, Equifax revealed that credit scores are improving as American consumers are paying down debt in general and are making more timely payments.

On top of that good news, the U.S. Federal Reserve's first quarter "Senior Loan Officer Survey" revealed that bank-lending officers are more willing to lend now than at any point since 1994.

In fact, none of the banks that responded to the Fed's survey reported any tightening of credit terms and conditions for borrowers. Conversely, 16% of respondents reported they were easing standards.

That sounds great. But, as usual, the headlines don't tell the real story.

Actual available credit, while slowly rising, is still only half that of its peak year in 2006.

Installment loans - one measure of credit availability - have been rising steadily and now account for 33.9% of total consumer loans, a five-year high. Notably, however, the bulk of those loans are originations for bankcards, and for new and used cars.

And those auto loans are sending lenders careening straight into brick walls.

Auto-Loan Growth: A Wreck Waiting to Happen
Bank profits on auto loans are disappearing. With loan demand elsewhere weak, banks' only consistent expansion valve has been new and used auto loan origination. But the competition to finance pent-up demand for automobiles and light trucks is all but eliminating lenders' profits on their loan portfolios.

Ally Financial Inc. (NYSE: ALLY.B), the country's top car lender, which just reported that new-and-used car loans originated in its most-recent quarter almost doubled, also reported a 15.8% drop in earnings.

Intense competition for auto-loan business is also hurting profit margins at all the big banks that went after Ally's business. In order to offer deals to consumers, who Autodata Corp. said bought 1.2 million vehicles in March, lenders eased loan standards by 30%.

No wonder there's been a boom in auto sales while bank profit margins on auto loans have collapsed.

According to Fifth Third Bancorp (Nasdaq: FITB), one of the nation's top auto lenders, "unusually attractive" spread profits are narrowing. BB&T Corp. (NYSE: BBT), another big auto-loan provider, recently reported that its year-over-year loan spread on auto originations fell from 6.31% to 5.21%. That means that the bank's profit spread declined by more than 17%.

It's unlikely that banks and specialty lenders can continue - or even would be willing - to extend favorable credit terms to auto buyers if the economy were to erode in the face of these thinning profit margins.

And just because banks are making terms and conditions easier on other types of loans doesn't mean that consumers are lining up to take advantage of growing credit availability.

Will Consumer Sentiment Affect U.S. Credit Growth?
When it comes to credit, consumer sentiment plays a major role in determining:

•Whether consumers are willing to add to their existing debt burdens.
•And just how confident they are that they'll be able to pay any borrowed money back.

And right now, consumers just aren't feeling the love.

According to a recent behavior index survey by First Command Financial Services Inc., a Fort Worth, TX, advisory firm, six out of 10 respondents were stressing about meeting current financial obligations and were not even capable of saving for retirement.

That survey's conclusions were very similar to those of a March confidence survey conducted by the Employee Benefits Research Institute (EBRI). EBRI found that more than half of its survey respondents were "not too confident" or "not at all confident they can enjoy a decent retirement."

At a time when folks aren't confident they'll be able to meet their current obligations - let alone financing their own retirements - it's hard to imagine that we'll see robust U.S. credit growth going forward.

Beyond the Consumer
Fed data shows that commercial and industrial loans grew only 1% in 2010.

When central banks worldwide survey loan demand, a measure above 50 shows expansion.

But a measure below 50 indicates contraction.

The most recent data indicates that emerging-market-loan growth was 64.1, while the same measure for the U.S. market was at a near-flatline level of 50.1.

From 1976 to 2010, loans and leases averaged 36% of GDP. Low interest rates and easy (make that "sleazy") credit standards in the 2000s saw loans peak at 51.2% of GDP in 2008.

As of March 2010, loans were 45% of GDP.

Any downdraft to the historical average of 36% of GDP, which is skewed higher because of inordinate U.S. credit growth in the 2000s, would require a 20% drop in loans as a percentage of GDP from today's levels.

Is it any wonder that U.S. GDP decelerated precipitously, falling from a 3.1% rate of growth in the 2010 fourth quarter to 1.8% in the first quarter of the New Year?

If U.S. credit growth (in the form of loan demand) sputters and stalls altogether, it won't be long before discussion of the U.S. economic recovery is replaced by whispers of a double-dip recession.

Investors: You have been warned.

[Editor's Note: Great investors can make money in bull markets and bear markets alike.

And Shah Gilani is a great investor.

As a former hedge fund manager and Wall Street insider, Gilani made a living tracking - and profiting from - "capital waves" ... large, global moneyflows that point to the next profit opportunity like a big neon arrow ... but only if you know where to look.

Gilani knows where to look - and we can prove it. His "Capital Wave Forecast" newsletter has kicked off 2011 with 17 straight winners. These winning stock picks have racked up a stunning 554% in combined gains in a matter of months.

All because he knows which capital waves to bet on - and ride to a profit.

Today's essay may seem bearish. But bullish or bearish ... it just doesn't matter. When money flows away from one opportunity, it always flows into another.

If you'd like to climb aboard and ride along on Gilani's next profit foray, please just click here.]

Source : http://moneymorning.com/2011/05/06...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules