"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

18 December 2006

Thank God for Northern Trust - They Actually THINK !

Paul Kasriel is a national resource for financial analysts seeking portfolio managers with a brain.

"I love the Fed’s quarterly flow-of-funds report. It usually is the mother lode of enlightening economic nuggets of information. And the Fed’s latest release on
December 7 of third-quarter data was rich with these nuggets. For starters, the decline in U.S. bond yields in recent months is less of a mystery when you take into consideration the sharp slowdown in the rate of domestic nonfinancial borrowing. Chart 1 illustrates the point. Relative to nominal GDP, nonfinancial domestic borrowing (i.e., the annualized dollar change in debt outstanding) peaked at 19.7% in Q4:2005, moving down to 13.9% in Q3:2006 – the lowest percentage since Q4:2003."

What happens when private equity deals end and fail to prop this charade?

Although not the only nonfinancial sector accounting for this slowdown in borrowing, the household sector was the principal one. Chart 2 shows that after hitting a post-WWII high of 14.6% in Q3:2005, household borrowing relative to disposable personal income (DPI) dropped to 8.8% in Q3:2006 – the lowest since 7.6% in Q3:2001, when the economy was in a recession. Notice in Chart 2 that precipitous declines in this percentage tend to be followed by the onset of economic recessions (indicated by the shaded areas in the chart).


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