Pomboy: A Looming New Credit-bust
Stephanie Pomboy of MacroMavens was quoted extensively in this week’s Up and Down Wall Street column by Alan Abelson:
“The people necessary to drive the kind of increase in spending that would justify this year’s sizzling move in markets are consumers at the high end, the top 5% of households who own no less than 84% of equities. Yet, all the evidence suggests, they’re far from spending with their old abandon.
Stephanie speculates that one reason for their reluctance could be that while stocks have rallied, thus enriching their portfolios, dividends have been relentlessly shrinking: the $775 billion-plus annual dividend windfall the affluent had grown accustomed to has been slashed by a third or so. Or, it just may be that “even for the high-end, housing deflation outweighs equity inflation.”
Pomboy further notes that so far, we have only seen a temporary rebuild of balance sheets:
“Ben Bernanke has achieved through his unprecedented actions over the past year, it’s “only a pause in a broad deleveraging story.”
But, she warns, the game is far from over. “As the clock starts on the New Year, the likes of exotic mortgage recasts, small-biz failures and state and local tax hikes will take the field. And the realization will dawn that none of our fundamental problems — most notably excess leverage — have been solved…And just as one could argue that markets were overly aggressive in discounting the end of existence as we knew it back in March, so, too, they may be guilty of anticipating our imminent arrival at Nirvana today.”
The agent of the great awakening will be gathering pressures on the credit market, as banks are “forced to re-provision, and resurgent delinquencies find Fannie and Freddie (and everyone else) putting ill-made mortgages back to lenders.”
Credit will grow dear and do so precisely as the demand for it from borrowers looking to roll over maturing obligations swells.
The numbers, Stephanie exclaims, are unbelievably big. Uncle Sam must roll over $2.5 trillion in debt during the next two years, banks worldwide have some $7 trillion due in the same stretch and commercial real estate will weigh in with another $750 billion.
Oh, dear . . .
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Source:
A Jolly Good Year
ALAN ABELSON
Barron’s, December 28, 2009
http://online.barrons.com/article/SB126167188897704489.html
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December 28th, 2009 at 1:36 pm
That more people don’t see it this way amazes me.
What has been acomplished so far?
My take- nothing.
December 28th, 2009 at 1:51 pm
If a credit bust happens and nobody acknowledges it……..
December 28th, 2009 at 1:53 pm
Hey, i know – let’s print some more money! Problem solved, WEEEEEEE!
December 28th, 2009 at 2:02 pm
. . .and also . . .the talking heads on the financial news shows- why do they think someone has signaled the “all clear”-
How are things better now?
December 28th, 2009 at 2:10 pm
“And the realization will dawn that none of our fundamental problems — most notably excess leverage — have been solved…”
Is that the same as saying that just because you printed more dollars such that we could enjoy the illusion of stability, monetary illusions are always eventually revealed as such? 2010–the new 2008.
December 28th, 2009 at 2:13 pm
Had no idea that, “the top 5% of households … own no less than 84% of equities.” I wonder what is the percentage for the top 1%? Likewise, I wonder what has been the trend in equity holdings among the top 1-5% of households over, say, the past 25-100 years.
My curiosity is to know how few people, relatively speaking, had to panic last year in order to bring about the result we saw, as well as to measure the cost incurred in the hope of assuring that even more among these relatively few do not similarly panic.
December 28th, 2009 at 2:16 pm
. . .and lastly. . . blind optimism . . . why?
Nothing wrong with being hopeful- but throw me a fucking bone so I have something to chew on. Where is the good news for this country?
And don’t tell me green jobs and education. And a related question-
how has the pursuit of the bottom line for American companies been helpful to American workers?
December 28th, 2009 at 2:43 pm
People have been high fiving without noticing it’s only the 4th inning
December 28th, 2009 at 3:35 pm
We need to focus more on debt growth than “printing money”…I have postulated that there is up to 50 Trillion in credit worldwide over and above what could be serviced by global GDP. It has taken more and more debt to produce GDP and the ability for the private sector to handle any more debt hit a wall last year. The govt responded by creating public debt, their only recourse to avoid a depression, but how can that logically succeed? Stephanie is correct. As existing debt goes bad and disappears, we will have a deflationary crash. The Fed is Wyle E. Coyote holding an umbrella up with an avalanche coming down. The “printing money” metaphor is not very useful…it would be flushed down the debt hole anyway.
December 28th, 2009 at 5:39 pm
Like a car sliding on ice… you correct, it kicks back and slides the other way, you correct… there is probably a perfect amount of correction, but I guarantee the wild thrashings of Ben B did not hit the sweet spot.
December 28th, 2009 at 7:02 pm
like a car sliding on thin ice…
December 28th, 2009 at 7:25 pm
It’s not just shrinking dividends, it is also current interest rates. Those that depend on interest income will continue to see it drop as maturing instruments are replaced with lower yielding ones, at least until reality sets in and rates soar.
December 28th, 2009 at 7:48 pm
Stephanie rockx.Follow her religiously.When someone makes such total sense,as to what it is that you have been saying all along.Well that would make me a student of her way of thinking.Prechter,Mish,{B.R.}of course,and my recent all time guru has to be John Mauldin{Congrat’ on your newest gran daughter}….
The simple math/data,they are what they are.That what makes this so crazy!The extremes are all over the map.I sure don’t see a “V” shaped recovery either.Secular bear markets,ginned by leverage excess and blow out monetary policies/velocity,there’s no way we are through the other end.With the current breakdown of all rational/adult leadership coming out of Washington,it’s no wonder we are where we are.This is only speeding up the inevitable if you ask me.I’m short,I think we have a hard time ahead,but longer term I am an American!That mean’s I’m eternally bullish of this great country.Short term,let’s take the pain finally{should have bit the bullet in2000},but no the fed’s were a bunch of Pussy’s!Now we are here again,same absolute fool’s running the show{- sir Alan}and we are trusting a different outcome to Barney Frank,Chuck Schumer,Pelosi,Reid…God in heaven,Help us!I am not confident in the outcome.Nassim Taleb has it right,it’s broken,the financial system,it’s in mid-air on it’s way down.But we won’t let it go.It has to break/clear,it has to,at some point.Everything “will” clear.
J.S.
December 28th, 2009 at 11:47 pm
ACS…not just shrinking dividends…but what happens in 2011 when dividends are taxed at a much higher rate thanks to the expiration of the Bush tax cuts?
December 29th, 2009 at 12:54 am
Obama will not allow the capital gains tax to return to reasonable levels.
Won;t happen on his watch.
December 29th, 2009 at 12:19 pm
[...] of wealth in human history without addressing the central problematic of the American economy [Over-leveraging]… Of course not… Nothing to see here… We’re in Recovery! “As the clock [...]
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