Registered Investment Adviser Caleb Lawrence
A particularly volatile early session sent the major averages into the final hour about even following another late plunge on little real news. Recent discussions involving the Fed’s gargantuan 4.5 trillion Dollar balance sheet accumulated in the aftermath of the 2007-2009 financial crisis sent the markets into a dive late yesterday. With the Fed’s recent interest rate increases and declines at the long end, the yield curve has flattened somewhat raising concerns about the direction of the economy. Given the predicament the Fed finds itself in, raise rates and risk crucifying debtors and triggering another debt fueled crisis, or continue to pursue economically and socially destabilizing zero interest rate polices that encourage bubble after bubble whilst punishing savers. Given that the Fed’s easy money policies have created a 3rd consecutive bubble in under 20-years each bigger than the last and that the first two ended in tears with the Dot-Com crash and then the real estate and financial crisis of 2007-2009. It always amazed me that the Fed hit the reset button after 2009 and pushed debt again with the help of the banksters and the lamestream media at every opportunity. Jiminy Christmas do they honestly think it’s going to be different this time?
With recent credit data showing that the 6 biggest banks are just about as leveraged as they were in 2008 at 24 times total assets. Most struggle to pass the Fed’s watered down stress tests and lack the mandated “living will” feature required following the last crisis. Worse the too big to fail or jail crowd is now 20+% larger than they were in 2008. With loan and lease growth rates approaching levels seen just before the previous crisis outstanding debt has ballooned nearly across the board, student and auto loans as examples. The recent significant decline in Commercial and Industrial lending and sharply rising default rates for corporate and consumer loan portfolios should serve as a warning because if these trends continue it won’t end well, ala 2008.