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A Trade Deal With The Chinese?
The Market Bull 2020

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The Market Bull – January 13, 2020

The major averages closed with small gains to begin the week on little news. Though a trade deal with the Chinese is expected to be signed Wednesday. Still shrouded in mystery and with a considerable history of major last-minute disappointments it could easily amount to nothing once again. Earnings reporting season also kicks off this week so will see how it goes.

Considerable debate continues around the likelihood of a recession this year. So far it seems unlikely absent some sort of substantial exogenous shock like war with Iran. Or some sort of major disruption here at home. Still a number of items need to be watched closely. One of which is Commercial and Industrial Loan activity. Currently at a 9-month low of 2.33 trillion as of the 1st of the year. This marks a decline of 1.7% despite 3 Fed rate cuts last year implying that this is a demand and not a supply problem, as banks remain eager to lend. While year over year loan growth remains positive at .6%, it is only just as the new year begins compared to a year ago when loan growth was running closer to 10%. Since the peak in August of 2019 loan balances have fallen some 42 billion indicating that Gross Domestic Product or GDP is going to struggle to grow 1.5% in the first half of this year.

Grey areas indicate recession, thanks to WolfStreet for the chart.

Part of this is due to the sharp slowdown in the tight energy or fracking sector as mountains of debt and a lack of profitability and free cash flow slowly strangle it. But it is the generally weak end user demand picture that has plagued the economy for years and provided much of the impetus for debt funded corporate share buybacks as companies desperately moved to cover up falling earnings and revenues while still meeting Wall Street’s oh so important earnings per share number that is the real culprit. As the last graph shows, along with record student, auto and credit card debt. Commercial and Industrial Loans are also at all-time record highs, poised to become the crux of the next crisis.

Grey areas indicate recession, thanks to WolfStreet for the chart.

Standard and Poors 500 Index closed at: 3,288.13 up 22.78
NASDAQ finished the day: 9,273.93 up 95.07
Gold ended trading at: $1,548.30 down $11.80


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