Zero Hedge shows, business delinquencies rising:
Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail…
They’re halfway toward to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And they’re higher than they’d been in Q3 2008, just as Lehman Brothers had its moment.
Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:
Meanwhile China is sitting on a debt bomb:
Chinese banks are looking down the barrel of a staggering RMB 8 trillion – or $1.7 trillion – worth of losses according to the French investment bank Societe Generale.
Put another way, 60 per cent of capital in China’s banks is at risk as authorities start the delicate and dangerous process of reining in the debt-bloated and unprofitable state-owned enterprise (SOE) sector.
Disturbingly though, debt is not only not shrinking, it is accelerating, making the eventual reckoning far worse.
China’s overall non-financial debt grew by 15.2 per cent in 2015 to RMB 167 trillion ($35 trillion) or almost 250 per cent of gross domestic product (GDP).
That is up from 230 per cent of GDP the year before and the 130 per cent it was eight years ago before the global financial crisis hit.
You’d think this is it, but it is likely just a minor burp coming. Very clever melonheads at the top are working every angle and mechanism they can find to stave the real Apocalypse off. But the news can only get worse for so long, before the final piece of the puzzle snaps into place – the populace’s amygdala kicking in and triggering personally protectionist hoarding of personal resources, removing them from the economic system.
It is tempting to think that there will be a triggering economic event, and to some degree there will be, but the real trigger will be the public’s amygdala learning from that event that failure to consider consequences and act to protect their own wealth will cost them. So long as the public amygdala does not see threat, and continues to borrow, spend, and not save for the future, we will continue to see only minor burps, and the economy will mindlessly ignore them. But once amygdalae become more agitated from threat, shortage, and enduring adverse consequences they will become predisposed to economic protectionism, and the real Apocalypse will not be far behind.
Lately I feel a reflexive emotional drive to criticize buying into the stock market in the face of all these negative indicators. Yet buying into the system is the smart play – so long as amygdala are not responding to indices of threat. In the short term that will make money. It is the intelligent move, providing it is done with a full understanding of the system’s weaknesses, and the exact human cognitive mechanism you are exploiting – amygdala reactivity, or lack thereof.
The key will lie in realizing when amygdalae begin triggering in response to the indices of economic trouble. Once people begin fearing the consequences of downturns and taking measures to protect their wealth, that will be the time to exit, and try to hold on to what you have.
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