Nosebleed Valuations Persist in US High Yield

In August, we had reviewed a few charts showing that US high yield valuations were divorced from fundamentals, as well as to other yield products. This week, refreshing those charts, we can see that things are just as bad. US high yield seems to be the most vulnerable...

Rising Stress Levels in UK Households

Over 60% of the increase in GDP since 2010 has been driven by household expenditure. While nominal household consumption has increased by 25% since 2010, gross disposable income is up just 19%, with the financing gap bridged with unsecured leverage and a drawdown in...

EM and China Driving Global Credit Growth

The macro-economic landscape has profoundly changed since the financial crisis. Developed markets deleveraged, and emerging markets became the engine of global credit and money growth. The top-left chart from the BIS shows this very clearly. EMEs (emerging market...

UK Gilts Overvalued

UK gilts are overvalued, currently yielding only 1%. The UK has seen a boom in consumer credit in recent years, with rates around 10% YoY in the main categories of consumer lending (top chart). Rising inflation has pinched wages, with the result real wages are now...

China Broad Credit Growth Slows to Zero

The recent tightening of credit we have seen in China is primarily aimed at clamping down on shadow financing. Wealth management products have rapidly grown in size, from only 8% of total banking deposits in 2012 to over 20% today. The top chart shows China’s banks’...

Credit Spreads and Equity Volatility to Rise

(from our Tactical report of 1st November 2016) Equity volatility and credit spreads are almost perfectly correlated. In part this is because equity is a perpetual option on the solvency of a firm. When credit becomes stressed, equity volatility jumps as well. You can...

Commercial and Industrial Lending to Fall

You can take a horse to water, but you can’t make it drink.  This is generally the mistake made by many when it comes to credit.  If you expand the availability of credit, and make it more attractive, then more people will want credit.  But this is rarely the case. ...

Credit in UK Booming Again; Wage Growth Has Lagged

There are continuing signs the UK’s economy is increasingly resembling itself prior to the financial crisis.  House-price growth has cooled of late, but is still growing at 4.6% YoY, down from almost 12% last summer.  Consumer credit is also growing at a healthy clip,...
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