Thursday, May 26, 2011

Barton Biggs: HANG IN THERE

Mr. Biggs comes out again with about the same thoughts of last time, not too long ago.

The most interesting he mentions is, of course, the improvement in credit, according to SLO Survey:

I don’t believe the prolonged soft patch story. I think this is a temporary hiatus and that the U.S. is still in a self-sustaining, albeit moderate, economic expansion. All the production negatives cited above are dissipating, and the employment picture is slowly but steadily improving. Corporate profits and balance sheets are very strong, and capital spending is rebounding. The latest senior loan officers’ survey indicates a recovering propensity to borrow. With the fed funds rate virtually at zero, bankers are regaining their commercial instincts. Fed policy is extremely stimulative with an expanded balance sheet.
What I find interesting in this case is that across some of the tables we see a lot of easing in credit standards. Good for the banks?
Yes if the increase in risk isn't proportional. That I doubt.
Demand is the important part, not credit standards. There's certainly not an issue anymore with SUPPLY of credit.
There's an issue with SUPPLY of good Creditors. Balance sheets have been repaired? Not that much. A lot of consumer deleveraging was actually defaulting, not paying down debt.

Who is demanding credit and why. Are these clients good enough?

If the people that say that 44m americans are living with food stamps and that only a small portion of the jobs recovered since 2007 were high-income / full-time are true and correct I don't think that this issued credit will represent a good risk for the economy even though it will provide the US with more growth and jobs.

And we're way into this cycle, into this sailing-along recovery. Confidence still protracted, the housing double-dip that Biggs also mentions, is out there. Foreclosures are in pause, when they come in full throttle (banks do not want that as they push prices lower, economy down, etc) more people who are now living rent-free (in their foreclosing-houses) will need to pay for housing.

Well, followers of the blog know that I am on the US-will-suffer-after-QE2-ends wagon.
Its economy, in my humble opinion, will experience another slow down and, if markets come down and the Fed doesn't react.. double-dip.

Biggs mentioned:
Senior Loan Officers' Survey (full report)
Senior Loan Officers' Survey (interesting tables)
Senior Loan Officers' Surveys (summary)

2011 05 10 - Itaú Global Connections #43 - Barton Biggs, Traxis Partners

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

No comments:

Post a Comment