Share the Wealth – June 13, 2017
Registered Investment Adviser Caleb Lawrence
The major averages enter the final hour with small gains on little real news though the tech heavy NASDAQ did manage to recover from its early plunge.
The May Producer Price Index or PPI was unchanged as per expectations. On a year ago basis the index slipped .1% to 2.4%. Goods prices fell sharply for the month on large declines in food and energy prices.
Ala shades of 2007, auto loan default rates are pushing Asset Backed Securities or bonds based on the loans into distress as the underlying assets become impaired from non-payment. After Bloomberg reported that the 2015 vintage auto bonds are on track for 15% loss rates that will eclipse that seen in 2007. While hardly the systemic threat that sub-prime was in 2007, add a number of other loan types like student, credit card, commercial etc., and you have the makings of another crisis.
UBS recently took a look at the global credit impulse - the second derivative of credit growth and arguably one of the largest drivers behind economic growth and world GDP. The report noted that since late 2016 sharp reductions in Chinese credit creation have pushed the index to essentially zero in the first quarter of 2017. After updating the series through April UBS found that the credit impulse continued its plunge falling to -3% of Global Gross Domestic Product or GDP. The last time this index was so deeply in the red was the beginning of 2009 as the previous credit crisis hit the critical stage. Recent credit data in the US shows us going in the wrong direction in a hurry as well. While certainly not yet a crisis, like many other reports, it paints a disturbing picture.