Caution: Prima Facie the credit health of banks has taken a sharp downturn, marking a concerning milestone not witnessed since the dark days of the 2008 Financial Crisis. This ominous dip, echoing an alarming pattern last seen nearly five decades ago in 1974, reveals a potential storm brewing in the financial sector.
During the prior crisis, this critical metric plummeted to staggering lows, hitting a disconcerting -5%. As we peer into the current landscape, it becomes evident that a credit event looms on the horizon. However, a closer examination of the situation unveils a pivotal detail: the origin of this “contraction” is attributed entirely to the Securities in Bank Credit (SIBC) component of Bank Credit.
SIBC represents the holdings of commercial banks in Treasuries and Mortgage-Backed Securities (MBS). When we subtract SIBC from the overall bank credit equation, a different narrative takes shape. Bank credit is not in a state of contraction but is indeed experiencing a notable slowdown. Here’s a snapshot of the 4-week seasonally adjusted changes in billions of dollars across various lending categories:
– Total Bank Loans & Leases: Up by 22 (a boost of 15 from the previous week)
– Commercial and Industrial: Up by 4 (a decline of 5)
– Residential Real Estate: Down by 1 (surging by 15)
– Commercial Real Estate: Up by 2 (a drop of 2)
– Consumer: Down by 3 (an increase of 7)
– Other Loans and Leases: Up by 13 (a rise of 1)
Evidently, the real estate sectors, both commercial and residential, and consumer lending are displaying fragility in today’s credit landscape. Loan growth in these areas appears significantly feeble, raising concerns about the broader economic implications. @inflectionpoint: it will take a miracle to avoid recession in 2024, however it is increasingly difficult to trade equity markets looking at the broader economy as the “magnificent 7” although not immune to economic slowdown, still they seem to operate in a league of their own, certainly making them an important intriguing anomaly in the trading world! Charts by GameofTrades and Caleb Franzen and Arch Global Economics!