Today, we are going to go to Bill King, a long time observer of the stock markets. Bill writes the daily “Independent View of the News”, for institutional clients (you can contact him here).
This morning, he wryly observes:
"Despite the braying about the credit crisis being over, the economy about to rebound and stocks entering a new bull market, the fundamentals not only remain crappy, they are worsening.
Months ago, Goldman’s CFO said there was a historic disconnect between the stock market and the credit market. But that’s not the entire story. There is also a historic disconnect between L’Affaire Bear and the credit markets and the economy.
Because the US financial system did not implode when Bear was rescued, people assume all is well in the credit markets and financial system. This is a gross miscalculation. The Fed proved this last Friday when it expanded its record credit-creation gimmicks and loosed collateral standards to a new all-time low.
Bloomberg: The Federal Reserve said the proportion of U.S. banks making it tougher for companies and consumers to borrow approached a record in the past three months as the credit crunch deepened. A net 70 percent of banks increased loan rates over their cost of funds for commercial and industrial borrowing, according to the central bank’s quarterly survey of senior loan officers released today in Washington. That compares with 45 percent in the January survey, the Fed said.
As we stated several missives ago, there is no way the US economy, which has never been more dependent on debt to generate GDP, can flourish without an enormous amount of debt creation. If debt is now being curtailed or rationed, there can be only one direction for the US economy.
Morgan Stanley economist Richard Brenner: DISCONNECT – The economic fallout begins: Financial turmoil peaked six weeks ago, but the economic downturn is only beginning. It’s still a recession, in our view, and that’s no longer in the price. Indeed, reflecting higher energy quotes and slipping growth abroad, we see weaker US growth over the next few quarters than we did a month ago
The Times of London: After the crunch, a crisis in banking confidence Credit risk – that of borrowers not repaying loans – was cited as the next-biggest risk after liquidity. Consumer indebtedness was also a worry. A senior banker in an American bank said: “Consumers are in worse shape than most observers appreciate … their failure rate will look like a tsunami to those lollygagging on the financial beaches.”
Bill adds a pretty astute trading call each day: Example:
Today – Traders will play for a Turnaround Tuesday to the upside. But S&Ps must hold 1400; oil and commodity must behave and FNM (-.64 exp) cannot issue a disturbing report…There is no economic news or impact events to worry about.
Great stuff — thanks Bill.
The King Report
M. Ramsey King Securities, Inc.
Tuesday May 6, 2008 – Issue 3869
Fed Survey Shows More U.S. Banks Tighten Loan Terms
Bloomberg, May 5 2008
After the crunch, a crisis in banking confidence
Times Online, May 6, 2008
– Stephen Roach, chairman of Morgan Stanley’s Asia division, talks with Bloomberg’s Deirdre Bolton about today’s report on U.S. economic growth, the implications of a weaker U.S. dollar and the outlook for economies in Asia and a recovery in the U.S. The Commerce Department said the U.S. economy expanded at a 0.6 percent annual pace in the first quarter, reflecting an increase in inventories as consumers retrenched and companies cut investment. (Source: Bloomberg)
Roach Sees Negative Growth in U.S. for Second Quarter
Bloomberg, April 30 2008