Juggling Dynamite

Meredith Whitney did a worthwhile Op Ed in the Wall Street Journal yesterday: The Small Business Credit Crunch:
Usually at this point in an economic recovery government hiring kicks in to help pull down unemployment and bump up the consumption ability of consumers. This time however, governments are doing the opposite due to staggering budget deficits:

“Over the next 12 months, disappearing state and local government jobs will prove to be a meaningful headwind to an already fragile economic recovery. This is simply how the math shakes out. Collectively, over 40 states face hundreds of billions of dollars in budget gaps over the next two years, and 49 states are constitutionally required to balance their accounts annually. States will raise taxes, but higher taxes alone will not be enough to make up for the vast shortfall in state budgets. Accordingly, 42 states and the District of Columbia have already articulated plans to cut government jobs.”

This leaves the hopes for job creation squarely on the shoulders of the private sector. Over the past 15 years, 64% of new jobs have been created by small business.
Since the onset of this credit crisis small business have cut five million jobs. Given the lingering constraints on their ability to access credit, it is highly unlikely that small business can ride to the rescue of the job market this time.
Whitney appeared on CNBC to discuss her concerns that the current proposals for financial regulation will further restrict capital and credit to small business.

Our firm technician has been muttering concern about weak and declining volume in the stock market rally since last May. Day after day, as price moved up, volume moved sideways and down. A bull market is supposed to have volume moving up in tandem with price as more people buy into “belief” in the market and the recovery.
One of the features which have exasperated this trend over the past year I believe, is the fact that 50-70% of the trading volume has been driven by the banks and their proprietary trading desks rather than managers and institutions buying in on investment merits. This has left the market very toppy, thinly traded and subject to large and sudden dislocations like we saw last Thursday. When the flash trading crowd pulls their bids, the buyers disappear and prices can plummet very fast. These are not healthy or reassuring conditions for investment capital. We need more than “3 guys” trading to give this cyclical market staying power. And for all Warren Buffett's cheerleading the past couple of weeks (recall he did the same thing in the fall of 2008 when he bought his unique deal in Goldman Prefs), institutional holders have been selling off Berkshire Hathaway shares since March 5th.
In the past several weeks we have seen a significant pick up in general market volume but only ON DOWN DAYS. This is generally a very bearish indicator suggesting 'distribution' which means those that have held equities for early parts of the rally have been continually selling as prices moved higher. In the past few weeks as volatility accelerated and the market experienced large negative swings–the volume of shares traded jumped significantly.
Today James Bianco examines this trend and what it suggests on the Big Picture Blog. See: Heavy volume continues to suggest this correction is important. Buyers and holders beware.

A new report by the Certified General Accountants Association of Canada shows household debt in Canada kept rising through the recession and peaked in December at $1.41 trillion. (It has risen further year to date in 2010.)
That's $41,740 on average per Canadian, or debt-to-income ratio of 144 per cent. Canada ranks first in terms of the consumer debt-to-financial assets ratio among 20 OECD countries examined.
Remarkably oblivious to their present peril, a full 60 per cent of Canadians whose debt levels rose felt they could still manage or take on more obligations.
It seems Scotiabank has succeeded in convincing the masses that “you are richer than you think.” Can’t someone convince BNS how predatory and revolting their marketing moniker has become?–enough already! BNS you banks are the rich ones, the rest of the country is broke!
The share of debt represented by revolving credit (personal lines of credit and credit cards) within total consumer credit issued by chartered banks grew from 21.1 per cent in 1989 to 77.7 per cent in 2009. Borrowing through personal lines of credit increased 25 fold within this period of time.
Revolving credit leaves the borrower most susceptible to adversity from rising interest rates. The trouble is interest rates are only just started into a long recovery back to the normal range some 3 to 5% above where they are today. The report points out that even a 2 per cent increase in rates would mean mid-income and higher-income households would have to slash spending on non-essentials by between 9 and 11 per cent. Oh what fun…