Household Debt Growth YoY Now Equals Federal Public Debt Growth (Thanks To Debt Ceiling On Feds)

Yes, the US public debt is temporarily frozen at the statutory debt limit (with the exception of fiscal shenanigan with public debt held by investors versus intragovernmental lending).  You can see the rapid expansion of household debt between 2000 and 2007 compared with after 2007.

But it was the Federal government that greatly expanded debt after 2007, not households.

The Year-over-year increase in Public debt can be seen spiking in 2009 then slowing while consumer debt bottomed out in 2009 but has been growing ever since such the the YoY growth rate in Public debt and consumer debt are about the same (3% YoY for Public debt and 3.44% YoY for household debt).


Despite the staggering monetary stimulus from The Federal Reserve (created in 1913 by The Federal Reserve Act and signed into law by President Woodrow Wilson), household debt has bee relatively slow to grow compared to previous decades while Public debt has benefitted by The Fed’s monetary rate repression.

And the monetary effect seems to have stalled for commercial and industrial lending (2.6% YoY) and real estate lending (4.64% YoY).

Janet Yellen looks like a Keynesian Krusader in this photo.


NY Fed’s Dudley: “Remain Calm!! All Is Well! Flattening Yield Curve Is NOT A Bad Sign For The Economy!!”

The New York Fed’s President and CEO William (Bill) Dudley just uttered one of the silliest statements of all time at a business forum in Plattsburgh, New York.

(Bloomberg) — Federal Reserve Bank of New York President William Dudley sounded a positive note on the U.S. economy, saying the central bank wanted to tighten monetary policy “very judiciously” to avoid derailing the expansion that began in mid-2009.

“I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go,” Dudley said Monday in Plattsburgh, New York.

Yields on U.S. Treasuries rose and the dollar advanced after Dudley’s comments. 

Dudley also said that a flattening (Treasury) yield curve is not a bad sign for the economy.

Well, that was a silly thing to say because since the 1970s, the US Treasury curve has always flattened before a recession.

True, we live in a global economy where numerous nations continue to struggle with low growth. And global Central Banks continue to keep their benchmark rates near zero.

Or is Dudley doing his equivalent of “Remain calm! All is well!” from Animal House?

Illinois: The Puerto Rico of the Plains (State Finances in “Crisis Mode” as PowerBall and MegaMillions Pull Out)

Ah, Illinois. Once known as “The Land of Lincoln,” it is now known as  “The Puerto Rico of the Plains.”

Illinois has the distinction of having the lowest municipal bond rating of any state. Only Puerto Rico, which is NOT a state, has a lower municipal bond rating (S&P rates them as ‘D’ since Puerto Rico has defaulted on the debt). S&P has downgraded Illinois to BBB-.

The yield on 10-year Illinois General Obligation bonds BBB-rated is almost 5% while the AAA-rate GO bond yields in Illinois is at 2.28%. BBB-rated Illinois GO bonds are yielding over 2x the AAA-rated yield. And remember, the Illinois GO bonds are tax-exempt. For comparison, the fully-taxed US Treasury yield is 2.15% at the 10-year maturity. So, tax-exempt Illinois bonds (both AAA and BBB-rated) have a higher yield that the fully taxed US Treasury 10 year note. 

In addition to credit ratings, another similarity between Illinois and Puerto Rico is that both have declining populations. But Illlinois has four times the population of Puerto Rico.

The Illinois state legislature has not passed a state budget in three years in what basically boils down to Chicago versus the rest of the state.

Rick Moran at PJMedia has cobbled together a few of the consequences of not having a state budget.

  • If there is no state budget by June 30, 2017, the Illinois Department of Transportation announced that they would be forced to halt all state projects that could cost 30,000 jobs.
  • The Illinois Lottery faces threats of removal from the Powerball and Mega Millions if there is no budget by June 30, 2017.
  • Illinois owes school districts more than $1.1 billion in categorical payments for special education, transportation, bilingual and early childhood services.
  • Illinois’ backlog of unpaid bills stood at record $14.5 billion as of May 31, according to Comptroller Susana Mendoza.
  • The state’s Medicaid managed care organizations are owed $2 billion.
  • Centerstone, a non-profit behavioral health organization that helps 16,000 clients in southern Illinois and the metro-east region, has shuttered offices and cut services amid the budget impasse, affecting 700 clients and 39 staff members throughout the state.
  • The Wells Center, a drug treatment facility in downstate Jacksonville that has been operating for 50 years, was forced to shut down operations because of the budget impasse.
  • Illinois’ unpaid bill backlog could hit $25 billion by FY 2019 if the state continues without a budget.
  • Students and parents are looking to out-of-state colleges due to the unstable climate within Illinois’ higher education system.
  • More than 1,500 employees have been laid off at public universities and community colleges throughout the state.
  • The two multi-state lotteries — Powerball and Mega Millions — announced that if there was no budget agreement by June 30, 2017, they would drop Illinois from the games.
  • Additionally, the state currently has $130 billion in unfunded pension obligations, annual payments of which could be cut if a deal isn’t struck; a scenario that Moody’s warned would be a negative credit event for bondholders.

Of course, unlike California where Governor Jerry “Moonbeam” Brown has a super-majority in the state legislature, Illinois is divided politically. The pressure of passing a budget (even a stopgap budget) is enormous, but which side will blink first?

It reminds me of “The Chicken Run” from the James Dean film “Rebel Without a Cause.” 

REAL Home Prices Remain 21.35% Below 2006 Peak (As Of December 2016)

How bad was the h0using bubble of the 2000s? Real home prices remain 21.35% below their peak in 2006 during the housing bubble, according to the Bank for International Settlements.

US homeownership is back to pre-1990s levels, but post-1986 levels.

This despite the massive stimulus from The Federal Reserve.

So, what happens when the game of musical chairs stop?

A Hawk In The Crowd: Fed Bucks Central Bank Trends By Raising Rates 4 Times Since Dec ’15 While Others Lower Or Keep Steady

With the latest hike in their target interest rate, The Fed Funds Target Rate, Yellen and the FOMC have now completed 4 rate hikes since December 2015 (although my friend Chris Whalen claims there will be no more).

One reason why Chris Whalen may be right is that The Fed is bucking the headwinds of no rate changes by other Central Banks.

Yes, I left off the Bank of England because I ran out of room. But it is the same for the BofE — no change. But the BoE has cut rates once while The Fed has increased rates 4 times.

To highlight the impact of The Fed’s 4 rate increases, I compare the US Treasury yield curve (actives) with the Japanese sovereign curve for today versus December 1, 2o15 before their first rate hike.  Notice that the US Treasury curve has been flattened for 10 year maturities and lower. The converse is true for the Japanese sovereign curve: their curve is lower, particularly in the mid-to-long end of the sovereign curve.  But still flattening. The bright lines are for today, the darker lines are for December 1, 2015.

The UK sovereign curve, like the Japan sovereign curve, is flatter today than on December 1, 2015.  But most of its flattening occurs at the mid-to-long end of their curve.

I certainly hope “Lonesome Yellen” doesn’t speak like this when off camera.

Yes, Yellen and The Fed are “A Hawk in The Crowd.” Amongst pigeons. Or a pigeon among hawks.


US Housing Starts Fall 5.54% MoM In May, 5+ Unit (Multifamily) Starts Plunge 10% (Permits Out West Fell 13%!)

While the US stock market has been on an unprecedented bull market run (thanks in part to The Federal Reserve), the US housing market has only been on a bull run since February 2012.

But housing starts (particularly the single-family detached market) have been slow to come back after the disastrous overbuilding during the housing bubble years. In fact, 1 unit housing starts are back to 1990-1991 recession levels. Despite staggering Federal Reserve stimulus.

The May housing starts numbers were released and they continue to show slow going for housing starts.  Housing starts declined 5.54% MoM from April to June, not what was expected by housing cheerleaders. 1-unit starts fell 3.87% MoM.

5+ unit (multifamily) starts fell almost 10% from April to March. Particularly since the huge surge in June 2015.

Fed rate hikes have consequences.

Building permits way out west fell a whopping 13%!

Here is a video of Fed Vice Chair Stanley Fischer closely monitoring the housing market and the Fed’s impact on it.


Fear!! Deutsche Bank to Restructure Corporate, Investment Banking (But Will That Increase Their Crashing Earnings?)

Germany’s Deutsche Bank is been trying to reinvent itself … again.

According to Bloomberg’s Matt Scully, Deutsche Bank To Restructure Corporate, Investment Banking. 

Deutsche Bank AG is giving Marcus Schenck, co-head of the newly combined investment bank and trading business, responsibility for overseeing clients in a reorganization that will see the bank focus on corporate customers, according to a copy of a memo seen by Bloomberg.

Schenck will also take charge of corporate finance, global capital markets and the institutional client group, while co-head Garth Ritchie will deal with products and processes and oversee operations including equities, fixed income and currencies, the email said. The bank is also creating a combined debt, equity and leveraged capital markets business within the investment bank.

The two executives are tasked with striking a balance between stemming a loss of market share that accelerated last year and cutting 700 million euros ($742 million) of costs by 2018. That comes as the bank pivots away from hedge funds and other financial firms, pledging almost two-thirds of the unit’s balance sheet for corporations. In 2011, institutional clients accounted for about twice as much revenue as corporate customers.

“Schenck is extending his grip within the organization,” said Gildas Surry, who helps oversee about 1 billion euros of financial-sector debt at Axiom Alternative Investments in London, including the German lender’s bonds. “He joined Deutsche Bank to pursue an ambitious agenda and today is another milestone in his ascent.”

The basic problem facing Deutsche Bank cannot be solved by simply creating a more complicated structure with co-heads, Particularly if they fight. No, the problem is Deutsche’s sinking earnings per share.

Deutsche Bank is now hovering around 15 Euros per share as EPS continue to fall.

Perhaps Deutsche Bank, Europe’s largest bank, is just too big to … succeed. I understand that DB is in a state of near panic and is trying to reinvent itself (just like large American retailers like Sears trying to reinvest themselves). But with the advent of FINTECH and the gradual tightening of global interest rates (not to mention UK’s Brexit), the massive trading profits are likely to shrink.

And Deutsche Bank, like other European banks, has considerable (7.44 BILLION) in non-performing assets on their balance sheet.

Another problem facing Deutsche Bank is zero interest rate policy that the European Central Bank (ECB) is following. While the US Fed is raising their Fed Funds Target rate, the ECB is stalled at 0% and the UK’s Bank of England is at 25 basis points where the US Fed used to be.

Perhaps Deutsche Bank should just say “Hey. we are just as bad as Germany’s Commerzbank, Italy’s Unicredit and Banco Monte Dei Paschi or UK’s Royal Bank of Scotland.

Fear does crazy things in financial markets.