“Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon.
“The U.S. household debt and credit report, published Tuesday by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession…
“Another signal of weaker demand, the closing of credit cards and other accounts, jumped to its highest level since 2010, while flows into serious delinquency for credit cards rose 5 percent, up from 4.8 percent in the third quarter.
“Serious-delinquency flows, a warning bell for economists because they can prelude defaults, spiked in the third quarter for student debt and remained there in the fourth quarter, with 9.1 percent of the $1.5-trillion total debt seriously delinquent.”
“[A new survey] found that 29% of Americans have more credit-card debt than they do emergency savings. And the problem is getting worse.
“In 2018, 21% said they had more credit-card debt than emergency savings. And in 2015, 22% said they had more credit-card debt. This disturbing trend is “evidence of a lot of the strain households are under,” said Greg McBride, the chief financial analyst at Bankrate.”
“A record 7 million Americans are 90 days or more behind on their auto loan payments…
“A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is usually a sign of significant duress among low-income and working-class Americans.”
“The key fear among regulators and the IMF is a repeat of the 2008 financial crisis, which was triggered by a decline in home values and a spike in defaults on loans to homebuyers with tarnished “subprime” credit…
“A similar frenzy is happening now with junk loans. The end product is a type of bonds known as “collateralized loan obligations,” or CLOs. New York-based Blackstone is the biggest manager of CLOs, overseeing about $28 billion of the investment vehicles, according to Creditflux, a publication that tracks the industry.”
“If you’re finding stock markets hard to call, or are nervous about how to invest right now, then don’t worry.
“It appears that the market professionals feel exactly the same. The monthly survey of fund managers, conducted by the banking and broking giant Bank of America Merrill Lynch, points to a good deal of bearishness…
“…in another sign of the caution being displayed, the proportion of professionals who are ‘overweight’ in cash (where a fund manager believes a particular security or asset class will perform better than others) is at its highest level since January 2009 – a period in which the financial crisis was raging and global markets were gripped by fear.”
“Bank of England Governor Mark Carney said, “Like households, companies repaired their balance sheets following the crisis but unlike households, corporates then went back to the well,” he said in a speech in London Tuesday. “Relative to earnings, aggregate corporate debt in the U.S. and U.K. is nearing pre-crisis peaks, and the distribution is worsening. In the U.K., the share of highly levered companies is above pre-crisis levels.””
“Britain’s banks say they are getting no guidance from government on how to deal with a predicted surge in business casualties in a “no deal” Brexit. The banks have asked the government to engage with them on a range of requests, ranging from specific financial support for businesses hit by supply chain problems or delayed payments to guidance on how to lend to those in financial trouble, but this has fallen on deaf ears, two senior bankers from two of Britain’s major banks told Reuters.”
“Banco Santander on Tuesday opted not to call a 1.5 billion euro ($1.7 billion) additional tier one (AT1) bond once the deadline expired, becoming the first European lender not to redeem this kind of hybrid debt that can be converted into equity… Bankers warned that the Santander non-call may incentivise other issuers with low reset credit spreads to follow the Santander route, meaning investors may not be paid back.”
“Over 2,500 businesses closed their doors in Buenos Aires City, Greater Buenos Aires and La Plata in January, a new survey has revealed.
“Debt is one of the main factors behind business closures, which totalled 2,536 in two of Argentina’s most important metropolitan areas, the Quarterly Economic Survey (EME) reported.”
“After Finance Minister Berat Albayrak called recent food price increases “food terrorism”, President Recep Tayyip Erdoğan announced that the government would sell staples like tomatoes and peppers at reduced prices.
“The Islamist government’s approach to the price crisis highlights the Turkish state tradition and its endemic weakness on economy.”
“Growth in China’s tourism revenue fell to its lowest level last year since the global financial crisis a decade ago, highlighting growing risk in a fast-growing sector as Chinese consumers became more cautious, Reuters reports…
“China has rolled out a flurry of stimulus measures since late 2018 to spur consumption from cars to home appliances amid a broader economic slowdown, as it tackles financial risk at home and navigates a trade war with the United States.”
“Economic recovery efforts since the 2008-2009 global financial crisis have mainly depended on unconventional monetary policies. As fears rise of yet another international financial crisis, there are growing concerns about the increased possibility of large-scale military conflict.
“More worryingly, in the current political landscape, prolonged economic crisis, combined with rising economic inequality, chauvinistic ethno-populism as well as aggressive jingoist rhetoric, including threats, could easily spin out of control and ‘morph’ into military conflict, and worse, world war.”