Fundamentally, toxic assets(?) are still on the balance sheets of the TBTF banks in the US, UK and Europe. (See the second graph). Banks are the lynch pin in our credit based world and they hold all the cards. Fundamentally, the continuing high probability (99%) danger is that consumer and commercial lending does not occur with enough volume to contribute to a real economic recovery. That leaves the economy to look to the government for stimulus of some shape.
The market has appeared to be stalled. But wait, the tech sector, sometimes a leader, is up on big moves this week! Could this be a signal of a sustainable rally?
Here is a look at the condition of large US banks, looking at the non-performing loans in a couple of different ways. The blue line illustrates the percent of banks whose allowance for loan loss reserves exceeds their non-performing loans, looking only at banks with assets greater than $20 billion. The red line shows the total of non-performing loans as a percent of assets at all banks. The message in this graph is that banks in general have not been in a worse condition to lend since this data collection series was started in 1988.
Here is a look at the bond market from several types of bond measures. The primary view is of the Barclays aggregate bond index. This index is about 60% treasury bonds, 20% agencies and 20% corporate credits. Clipped in below is the ETF that tracks the Barclays 1-3 Yr Treasury Bond. Below it is the ETF that tracks the Barclays 1-3 Yr Credit Bond. This ETF also includes 25% exposure to foreign quasi-sovereign credit. Are bond prices turning lower in a sustainable move?
There are some stock market sectors that can be early indicators of the mood in the market. The horizontal gray and red bars show volume by price. Semi-conductors are one sector. Emerging markets have recently been taking the lead. And in its own world is gold, represented below by stocks of the miner's.
