WHAT FUTURE DOES THE CREDIT CRUNCH BRING?

WHAT FUTURE DOES THE CREDIT CRUNCH BRING?
When you have too much debt, how can you be confident?
http://www.minyanville.com/articles/HOG-BCS-SIVS-ABCP-Greenspan/index/a/14021

by Mr Practical Sep 07, 2007

As the general public is fed old financial news day in and day out by TV, news of what happened already, let’s look at some FORWARD-LOOKING current facts.

The most important data release yesterday was the weekly Federal Reserve commercial paper outstanding number. Asset-backed commercial paper fell a further 3.1% for the week to $966.7 bln. Overall commercial paper outstanding fell by $54.1 bln. TOTAL COMMERCIAL PAPER OUTSTANDING HAS FALLEN 13.4% IN JUST ONE MONTH. During the 2001 downturn, commercial paper peaked in November 2000 and slid through to December 2003. Over that entire three-year period it declined by only 22%.

15-day commercial paper is yielding 6.3%, 90 basis points higher than a month ago. Treasuries are 200 basis points below these levels. CREDIT IN THE SYSTEM IS CONTRACTING FAST. As a result, signs of weakness in the economy will appear fast. LIBOR RATES REMAIN AT EXTREMELY ELEVATED LEVELS, also suggesting that the credit crunch in debt markets is as bad as it has been despite more liquidity injections from the ECB. Something is very wrong in the financial system.

[[The time is out of joint: O cursed spite, That ever I was born to set it right! :William Shakespeare, "Hamlet"; Act I; scene V]]

Does that not have vast implications for an economy that is built on the financial industry with over 30% of all S&P 500 earnings based on financial companies?

SP Weekly initial jobless claims dropped from 337K to 318K (normal volatility but the 4-week moving average is in a steady uptrend) while continuing claims were worse than expected.
The labor market is slowly weakening from the very bogus numbers we are fed by the BLS: “birth / death adjustments” and total employment “assumptions” have severely distorted the employment picture.

In August in the U.S., ONE-THIRD OF AGREED MORTGAGES FAILED TO CLOSE. Either the borrower walked away or the lender didn't like what he saw. On top of the pending home sales numbers released on Wednesday THIS SHOULD ADD UP TO HOME SALES DATA THAT ARE TRULY SHOCKING WHEN RELEASED LATE SEPTEMBER. A huge portion of the past five years' economic growth has been based on the housing and mortgage industries. It is not hard to see the implications.

CONTINUED AT: http://www.minyanville.com/articles/HOG-BCS-SIVS-ABCP-Greenspan/index/a/14021