Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – February 8, 2017
The major averages struggled into the final hour with small losses on little real news. The usual Gross Domestic Product or GDP estimate circus begins again with the initial 3%+ estimates getting cut below 3% on their way to 2% or perhaps less as the quarter draws to a close.
Absent decent jobs that pay well consumers turn to debt, partly out of necessity and partly because the lamestream media and various pundits push debt at every opportunity. Debt was the primary cause of the 2007-2009 financial crisis. Debt saturation and a lack of earned income make up much of the reason why the economy struggles to maintain 2% economic growth in the post bust period, classic deflationary credit bust. The latest Senior Loan Officer Survey covering the 4th quarter of 2016 shows that loan demand plunged across the board after showing steady growth for a number of years. Higher interest rates are certainly a factor as the 10-year Treasury yield, and loan rates spiked during the quarter in question. Loan demand also took a hit as one would expect particularly for credit card and auto loans. Another byproduct of higher interest rates is the first increase in bankruptcies since 2010 as consumer bankruptcies jumped for a second month in January with a 5.4% gain as per the American Bankruptcy Institute. Business bankruptcies have been moving steadily higher since late 2015. So far this hasn’t stopped consumer confidence from hitting record highs or house flippers making up a larger percentage of the market at 6%+in 2016 than they did in 2006 with Las Vegas and Florida leading the charge just like 2005. Confidence is a lagging indicator and one I have never found to be very useful. Incoming data shows substantial cracks forming in the Florida condo market. With the ability to lower interest rates and reduce debt service costs mathematically off the table as a practical matter the accuracy and truth of the statement “deficits don’t matter” and debt by implication, is about to be put to the test once again.