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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: kris b who wrote (75200)	12/10/2006 6:31:36 PM
From: bart13	Read Replies (2) of 110194

Your findings seem to be supported by FED's Q3 2006 Flow of Funds. The rate of Credit Growth is slowing in the real economy, but expanding in Financial. Indeed, and the mixed signals continue to abound. Both base and consumer credit have been down trending for years, and more recently the bank credit component has moved down from above 10% y/y growth to the mid to high 8% range. Doug Noland also strongly noted the same things you mentioned in this weeks article: "I'll posit that ballooning securities finance (in particular, speculative securities leveraging along with booming M&A financings) has developed into a key force in ongoing system liquidity creation. Cutting to the chase a bit, "Fed Funds & Repos" expanded at a 26.9% rate during the quarter and "Funding Corps" grew 25% annualized. Broker/Dealer Assets ballooned at a blistering 28% pace during the quarter, expanding balance sheets much more rapidly than the Banks ($168.3bn vs. $39.5bn). Why the need for such aggressive expansion in the face of a slowing economy? ... Financing the historic Broker/Dealer Bubble, "Security Repos (net)" expanded $509 billion SAAR and Securities Credit from Banks $101 billion SAAR during the quarter. Year-to-date, the Liability "Repos" has expanded at a 41% rate to $965 billion and the Liability "Security Credit" 21.5% to $282 billion. In contrast, so far this year Broker/Dealer Credit Market Bond borrowings have increased $11.6 billion to $74 billion. ... The Fed's category "Federal Funds and Securities Repurchase Agreements" expanded $606 billion SAAR during the third quarter ($509 billion SAAR lent to the Broker/Dealers). Year-to-date, Fed Funds & Repo has ballooned $366 billion, or 24% annualized, to $2.371 Trillion, with a two-year gain of 42%. On the Liability side (the entities holding these Credit instruments), owed to Money Market Mutual Funds increased $266 billion SAAR during the quarter (to $368bn) and Rest of World $144 billion SAAR (to $805bn). ROW Fund Funds & Repo holdings have expanded at a 17% rate y-t-d."

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