To quote on of the good guys: "We follow the bouncing ball of Risk on, Risk off.." The past 10 days saw no real reason for a 100 pts bounce in the S&P500 (or a 1,000 point on the Dow Jones), so today we get a 1% correction on "no news" (OK so Chinese trade data came out...nothing really that big except trade deficit with China rose again (all time high)).
On the other hand looking at the hard data is scaring the crap out of me! One of my favorite bloggers, Bruce Krasting (a fellow bear) has a couple of graph that are worth a look, but bottom line the PrimeX disaster of last week is now explained by the death of new issuance in the sub-prime market. Issuance has gone from $60 billion a quarter to ZERO in Q3/11 (look at the chart below), that's how much sub investment grade bonds have been issued in the past four weeks.
This is a liquidity crisis in the making, if you look at the SME market you notice that the primary reason for a terrible business environment is not regulation, but the lack of demand. There is no demand, as consumer (America) are tightening their belts. The job market is lousy and national income is dropping or flat. BTW I only found out yesterday how much health insurance cost the average family -- $14,500 per annum. America, where the average take on pay (for a family is around $50k per annum) must pay federal, state and local taxes plus FICA, house and feed themselves and then pay $14k per annum for health insurance. No wonder that 15% of American forgo insurance.
I mentioned in an earlier blog that in America consumption was around 75% of GDP (55% in the rest of the OECD) and around 35% in China. The two outliers will eventually have to move back to the mean -- which they now seem to be doing (at least for America), in China a slow down in construction will reduce GDP growth (not the way you want consumption to be a greater percentage of GDP...). A new age of austerity may be rising in America. Most of the 2009/2011 personal debt increase has been for education purpose -- if a 20 year old cannot get a job might as well get a degree (don't laugh that's exactly what I did in 1984 when Canada had a very bad recession). It is a lot more fun to go to class than to wait in the unemployment line...
The CAD continue its "march upward" despite oil prices dropping a few bucks -- BTW the main indicator of oil prices is now Brent Crude and not WTI (for prices at the pump it has a better correlation factor). Thing $105/bbl and not $84/bbl.
Some scary graphs:
SME owners view of the Economy (they're not talking politics but growth)
From Bruce Kastring
From Financial Armagedon Blog:
Doctor's visit down 8% -- Americans are not healthier, they are too poor to go!