Quarter Ends but Pain Begins

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US economy is headed for recession and the Fed will be held responsible, SocGen bear warns

With credit card delinquencies rising sharply at smaller banks, Societe Generale’s uber-bearish strategist Albert Edwards has predicted that the U.S. economy is headed for recession.

“Markets are now sniffing out a rising stench,” Edwards claimed in his latest research note, published Thursday.

Edwards said a flattening of the U.S. yield curve — where the difference between short-dated and longer-dated U.S. Treasury yields narrow — was revealing investor fears about the economic recovery, despite punchy data related to consumer and business optimism.

“The optimists have had their day. This data merely reflects the illusion of prosperity,” Edwards argued.

Societe Generale’s lead global strategy analyst holds a history of outlandish negative calls and in this latest note he has claimed the authority of the U.S. Federal Reserve is now at risk.

“They say a fish rots from the head down. Unlike the 2008 financial crisis, this time I expect it is the Fed that will be held responsible for yet another debt crisis. Do not expect their independence to survive,” Edwards added.

Edwards cited data which showed that credit card charge-off rates at small U.S. banks had peaked to 7.9 percent. This is a level not seen since the end of the global financial crisis. Charge-off rates represent the level of debt that a creditor has decided it has no chance of collecting.

A similar but separate analysis measuring credit card delinquency also revealed an alarming spike at small banks.

A debt crisis is on the horizon

We live in a time of extraordinary promise. Breakthroughs in artificial intelligence, 3D manufacturing, medical science and other areas have the potential to dramatically raise living standards in coming decades. But a major obstacle stands squarely in the way of this promise: high and sharply rising government debt.

President Trump’s recently released budget is a wake-up call. It projects that this year, a year of relatively strong economic growth, low unemployment and continued historically low interest rates, the deficit will reach $870 billion, 30 percent greater than last year.

For years, economists have warned of major increases in future public debt burdens. That future is on our doorstep. From this point forward, even if economic growth continues uninterrupted, current tax and spending patterns imply that annual deficits will steadily increase, approaching the $1 trillion mark in two years and steadily rising thereafter as far as the eye can see.

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Canary On The Junk Pile: YTD Issuance Down 25%

Issues of new high-yield corporate debt in March are currently at $24 billion, half the issuance in the same month last year, according to JPMorgan. New supply in the year to date is $68.3 billion, 25 percent below the same period last year.

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