Posts filed under “Cycles”
On this day 56 years ago, the U.S. economy began to undergo a momentous change. It was Oct. 1, 1958, and the company known best for its Travelers Cheques introduced a new product: The charge card.
Although American Express technically wasn’t the first company to introduce a charge card, it was the first to make its cards ubiquitous, and in the process changed the concept of where and how credit could be used. The nation hasn’t been the same since
From those humble beginnings, the use of credit spread throughout the county. The Depression-era generation was loath to become indebted to any bank or lender after seeing what could happen in a credit crisis. It’s no coincidence that the widespread use of credit didn’t occur until a new generation came of age.
Along with that new generation came the birth of the suburban bedroom community. Homes were bought with mortgages and furnished with revolving debt. Cars purchased with dealer financing were the glue that held the edifice together. All of these items were out of reach for the average family, unless purchased with credit. This is no small matter. As you can see from the Federal Reserve’s most recent Flow of Funds report, the total indebtedness of U.S. households is a staggering $14 trillion dollars.
What makes the unstoppable rise of credit so significant is the role it played in the 2007-09 financial crisis, and the subsequent recovery. Credit crunches are different from ordinary recessions. Not only are they more severe, as Carmen Reinhart and Ken Rogoff have documented in “This Time Is Different: Eight Centuries of Financial Folly,” but their character is significantly different.
Consider an ordinary recession . . . continues here
Interesting trio of charts from Russell showing the Business Cycle Index (BCI).
The goal of the BCI is to forecast the strength of economic expansion or recession in the coming months, along with forecasts for other prominent economic measures. How well it does that is a subject of debate.
Inputs to the model include non-farm payroll, core inflation (without food and energy), the slope of the yield curve, and the yield spreads between Aaa and Baa corporate bonds and between commercial paper and Treasury bills. A different choice of financial and macroeconomic data would affect the resulting business cycle index and forecasts.
The Standard & Poor’s 500 Index closed yesterday at a record high of more than 2,000. Yet many people feel that the economy is weak. There are numerous reasons for this, but the one I want to focus on has to do with employment and wages. The economy feels weak because, depending on your education,…Read More
Source: Raymond James Research This morning, I made note of the difference between secular bull and bear markets. I described secular bear markets as being longer-term, characterized by strong rallies, vicious sell-offs and earnings contractions. Secular bull markets include an investor willingness to pay more and more for the same dollar of…Read More
In the beginning of this year, we looked at some of the trading errors commonly made by gold investors during this cycle. At the time, gold had fallen 38 percent from its 2011 peak. Yesterday, spot gold traded at less than $1,242 before closing slightly higher. Gold is hitting new multiyear lows relative to the…Read More
@TBPInvictus here: On April 17, 2012, North Carolina Congresswoman Virginia Foxx stood before her colleagues in the House of Representatives and said (emphasis mine): Ms. FOXX. Mr. Speaker, the March employment report continues to show us that the Federal Government has not been helping to create jobs in our economy. A Wall Street Journal editorial…Read More
Source: Aleph Blog Here is a fascinating chart from David Merkel at Aleph Blog. The chart shows the sentiment cycle that arises due to performance chasing. That leads to crowded and, ultimately, unsuccessful trades. As David observes: When money is being thrown at a sub-asset class, like subprime RMBS in 2006-7, or manufactured housing…Read More