Jan 9. Consumer credit surges $20 billion, but near term yields still fall….

–Jan/Feb dollar spread and Jan/March are now inverted! (prices 9943, 9944.5, 9944).  Near euro$ contracts up 3.5-4.5 bps. Consumer Credit +20 billion…huge number.  Three year auction today.
–(Reuters)-China trade growth slows to 2-year lows in December.  And from Bloomberg cited on ZH, “China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares.”  Emerging markets were crushed last year.  Shanghai Comp is having a nice bounce (for whatever reason); might be worth buying emerging markets as contrary play.
–Just a couple of thoughts about the Nov surge in Consumer Credit.  I saw an article proclaim that the age of household deleveraging is over because yoy growth in consumer credit is now back up to zero.  And the Fed’s FOR (Financial Obligation Ratio) for households is near the lowest ratio since 1980 at 16.15%, from as high as 18.85% in ’07 (positive for consumption).*  However, the last Flow of Funds report shows that household mortgage growth is still negative though improving (-1.8% in Q3) and in absolute levels mortgage debt is $9.875T vs $2.476T in cons credit (4x greater).  Perhaps, if mortgage debt growth stabilizes, one might conclude that the US consumer is back!  However, the St Louis Fed put out a paper which notes that Consumption as a % of GDP is still near record high around 71.1%.  In the decade from 2000-10 this ratio was 70% (think of consumption spurred by Mortgage Equity loans).  The previous decade was 67.3% and in the 80’s it was 64.5%.  I have a hard time believing this ratio can continue higher… and we are in a period where govt as % of GDP should begin to slow.  The paper concludes that growth is likely to remain sluggish.
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* FOR and DSR (debt service ratio) is a measure of the ratios of debt payments to disp personal income.  FOR adds auto leases, rents, and property taxes.  DSR is 11.09% and FOR 16.15%…low.
http://www.businessinsider.com/the-age-of-consumer-deleveraging-is-over-2012-1
http://www.stlouisfed.org/publications/pub_assets/pdf/re/2012/a/Consumer_Spending.pdf  (very good 4 page piece from St Louis Fed)
http://www.federalreserve.gov/releases/housedebt/default.htm

Posted on January 10, 2012 at 8:06 am by alexmanzara · Permalink
In: Eurodollar Options

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