Ten Things That Can Get You Fired

Good list of HR insights here–the first few are rather obvious (come to work on Monday, be honest about your qualifications, and don’t stink), but four through ten are good to know.

If you want to keep your job, don’t:

4. Stay Anonymous

5. Refuse to Compromise

6. Be Ungrateful

7. Disrespect the Chain of Command

8. Spend Time With the Complainers, Non-Performers and Gossips

9. Avoid Responsibility When Things Go Wrong

10. Take Credit for Other People’s Work

http://www.fins.com/Finance/Articles/SB130747091120722005/Ten-Things-That-Can-Get-You-Fired

Austerity Hawks Keep Piling On

The ‘fiscal house in order folks’ keep threatening to drive the U.S. and global economies into a ditch.

The most recent salvo comes from the Bank for International Settlements (BIS). From its 81st Annual Report (emphasis added):

“Addressing overindebtedness, private as well as public,” the BIS Annual Report says, “is the key to building a solid foundation for high, balanced real growth and a stable financial system. That means both driving up private saving and taking substantial action now to reduce deficits in the countries that were at the core of the crisis.”

Addressing private sector indebtedness is absolutely necessary. But the BIS displays its ignorance of the actual fiscal and monetary paradigm of “countries that were at the core of the crisis,” i.e., the U.S. The U.S. federal budget deficit is the source of U.S. dollar savings for the rest of the economy. The BIS economists are caught up in a bundle of contradictions here and remain blissfully unaware.

Other recent salvos:

Treasury Secretary Timothy Geithner, following the dictates of that old-time Rubinomics religion, claimed that we no longer have the “luxury” of fiscal stimulus.

Fed Chairman Ben Bernanke recently told a crowd of budget hawks that “failure to put our fiscal house in order will erode the vitality of our economy, reduce the standard of living in the United States, and increase the risk of economic and financial instability.” So will austerity Ben. So will austerity.

The Congressional Budget Office (CBO) has released its annual U.S. government budget outlook for the next decade, and observes that “The deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels.” No kidding. And if they had a better grasp of our current system, they’d realize that that equates to pushing private sector saving significantly higher, all else equal.

Some members of Congress are using the CBO report to push for tighter budgets and even a balanced federal budget amendment—perhaps the worst political idea of the young century, given that balanced or surplus U.S. government budgets have almost always been followed by a recession or depression. Senator Bob Corker (R-TN) has used the CBO report to push his Commitment to American Prosperity (CAP) Act, a self-styled “fiscal straitjacket” for the U.S. government, while Republican House whip Eric Cantor (VA) has said that the House will consider a balanced budget amendment in July (rather unlikely to pass, but it demonstrates just how hawkish the current fiscal tone is among policymakers).

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania-registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, nor is it a recommendation to engage in any investment strategy. This material does not take into account your personal investment objectives, financial situation and needs, or personal tolerance for risk. Thus, any investment strategies or securities discussed herein may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment activity, and it is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any investment strategy or security. SCM does not guarantee any specific outcome from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

Lukewarm Data, Lousy Outlook

A series of lukewarm U.S. economic datapoints over the last two months has amplified the ‘double dip’ recession chatter. We don’t believe that a recession is currently underway, but there’s not nearly as much room for error as policymakers worldwide seem to believe.

The most recent salvos, alongside the ongoing U.S. deficit/debt fear-mongering of the GOP and  some blue dog Democrats, came from Ben Bernanke and the CBO. Their danger was nicely summarized by Australian economist Bill Mitchell:

Overnight, the US Bureau of Labor Statistics released their latest Mass Layoffs data (May 2011) which showed that the number of mass layoff events in May increased by 2 percent. Further, another month went by and the US national unemployment rate remained unchanged at (a very high) 9.1 percent. There is very little happening to reduce it and the omens are bad. Also yesterday the US Federal Reserve decided to keep interest rates on hold in the 0 to 1/4 per cent range indefinitely and the Congressional Budget Office (CBO) released its 2011 Long-Term Budget Outlook. The statements accompany the central banks decision by its Chairperson Ben Bernanke about long-run fiscal problems and the very aggressive message in the CBO Outlook suggest that the politicians will continue to retard the US economic recovery and lock millions into entrenched unemployment and poverty. The US leaders are sure making a mess of things and the advice they are getting is appalling. The omens are clear – aggregate demand growth is desperately required to attack unemployment. But the land of the free is sliding further into oppression – self-induced by its political class.

Unfortunately, polls indicate that most U.S. voters support not raising the debt ceiling.

However, a staggering 40% of Independents, 40% of Democrats, and 34% overall selected the “Don’t know enough to say” response. While this illuminates the lousy job that our education system has done teaching basic economics and finance, it’s not easy to assume that better educated voters would fall into the “Vote in favor” camp, given the mistakes that most professional economists are making! 

What’s especially frustrating is that all voters rank the economy and unemployment as the top two most pressing issues. Until we can get the paradigm right, little progress is going to be made, which means frustration will continue to intensify.

We remain lukewarm on the next two to four quarters in the U.S., bearish on the rest of the world, and highly confident that a recession will unfold beginning in 2012 or 2013. In the meantime, if policymakers in the eurozone, China, or U.S. take their eyes off the ball, a global recession could unfold much sooner.

We apparently have some company on our recession call in economist Gary Shilling, who astutely points out that of his four economic cylinders—consumer spending, employment, housing, and business inventories—only the latter is showing much strength. He’s correct on that, and inventories had a bit of a bounce in 4Q2010 according to the latest GDP data. Nonresidential equipment and software investment was strong throughout 2010, although it hasn’t surpassed its all-time high of 2008. Corporate profits ended 2010 at record highs, although excluding financial companies, profits are right around their all-time high of 2006. One indicator signalling potential trouble ahead is net state and local government saving, which has started falling. In 60% of prior occurrences since 1970, this signal has been followed by recession within one to 1.5 years on average. Shilling still likes the long Treasury bond, as he has since 1980-something. Unless there’s a 180-degree turn in Washington on fiscal policy, we’re inclined to agree with him—a (relatively!) risk-free 4%-plus in a boiling frog economy, with a very low probability of either inflation or Fed rate hikes, is not a bad place to be.

At this point, Europe and the U.S. appear to be engaged in high stakes kabuki theater (that’s our hope anyways), while China looms as the rather unpredictable wildcard. Its economy is currently flirting with recession (pdf), and it may be exposed to hidden systemic leverage and fragility, but its central government can potentially react to a crisis more rapidly than most democratically elected ones. And one possible silver lining is that a crisis in China might finally deflate the ridiculously amateurish descriptions of its economy that some well-known western pundits have been writing for the last decade.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania-registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, nor is it a recommendation to engage in any investment strategy. This material does not take into account your personal investment objectives, financial situation and needs, or personal tolerance for risk. Thus, any investment strategies or securities discussed herein may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment activity, and it is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any investment strategy or security. SCM does not guarantee any specific outcome from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

Forbes: Treasury Has Defaulted

Donald Marron posted a really interesting piece of history on Forbes.com in late May. Apparently, the U.S. Treasury has defaulted in the modern era, back in April 1979:

“Investors in T-bills maturing April 26, 1979 were told that the U.S. Treasury could not make its payments on maturing securities to individual investors. The Treasury was also late in redeeming T-bills which become due on May 3 and May 10, 1979. The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules.”

Interesting stuff.

Can We Still Count on the Yield Curve?

Over the last four decades, the U.S. Treasury yield curve’s term spread (the difference between yields on longer-maturity bonds versus those on shorter-maturity debt) has had an admirable track record as a recession forecasting tool. While it’s had some false alarms, every recession has been preceded by an inverted yield curve, where short-term interest rates are higher than longer-term ones. As a result, today’s historically steep curve (longer-term rates much higher than short-term ones) provides some comfort that the U.S. economy is not headed for recession any time soon. That’s a view that we currently agree with, but it’s also important to assess whether yield curve behavior might shift in the coming years, and if so, what the implications are for investors.

As clients, friends, and followers know, we believe that the U.S. is heading down a path that will look somewhat similar to (though not exactly like) Japan’s economic and market trajectories of the last twenty years. For that reason, we decided to take a quick look at how the yield curve for Japanese Government Bonds (JGBs) has fared as a recession predictor. Our starting assumption was that in a zero-overnight-rate, balance-sheet-recession economy, term spreads might lose some of their forecasting value, or at the very least need to be recalibrated. The evidence seems to bear that out.

The first graph shows the U.S. Treasury term spread (measured as the ten-year minus the two-year constant maturity yield) and periods of recession. Clearly, a negative term spread acts as a strong recession warning:

The next graph shows the JGB term spread and Japan’s recessions (measured as the yield on nine-year debt minus the yield on two-year debt). While it’s apparent that curve inversion was a fairly reliable indicator of trouble in the past, it also shows quite clearly that its effectiveness ended with the collapse of Japan’s asset bubble in the late 1980s-early 1990s and subsequent balance sheet recession. Note that the next three recessions since (four if we count the current one) have all been preceded by a positive term spread, and the term spread hasn’t been inverted since 1991!

While there are some important caveats for investors to be aware of—for example, each government’s treasury has its own unique history, path-dependency, cultural background, and institutional preferences, and the two countries debt maturity profiles and clientele have differed significantly over the years—this cursory comparison clearly raises some yellow flags regarding the term spread’s value as a recession indicator going forward. We won’t know for sure until the next recession has been officially entered in the books, but until it is, it’s something investors should keep in mind.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania-registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, nor is it a recommendation to engage in any investment strategy. This material does not take into account your personal investment objectives, financial situation and needs, or personal tolerance for risk. Thus, any investment strategies or securities discussed herein may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment activity, and it is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any investment strategy or security. SCM does not guarantee any specific outcome from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

What’s on the Menu? US!

Reuters is reporting that taxes are “on the menu” today in ongoing discussions between VP Biden and several key members of Congress:

Participants in the Biden group say they have made steady progress since talks began early last month, and have conditionally agreed on at least $150 billion in cuts. But that is far short of the roughly $2 trillion in deficit reduction needed to ensure that Congress will not have to revisit the debt ceiling issue before the November 2012 elections.

Democrats and Republicans agree that the United States needs to reduce deficits by $4 trillion over the coming decade to ensure its debt remains at a manageable level.

If the author is correct that there’s little to no debate over the need to cut $4T over ten years, then the die for asset classes has pretty much been cast. Residual income from equities and assets such as high-yield debt will become a far more challenging game over the next decade. The U.S. dollar is likely to strengthen. Commodities and emerging markets will begin to suffer at some point, once U.S. austerity begins to bite. And the long-end of the Treasury curve has a ways lower to go. That’s right—lower. It might involve some ugliness if Congress does play chicken into August or worse. But inevitably, real growth is going to fall, inflation is going to surprise to the downside longer-term, risk aversion will return, and there will be a scramble for the (almost!) guaranteed positive yield that longer-term Treasuries still offer (despite the all-too-common error of believing that real Treasury yields are negative based on the relative price distortions caused by levered speculators and their hoarding counterparties).

The fed funds rate is going to remain anchored near zero for longer than almost anyone expects. That does not argue for a rising term structure. The household sector is still trying to repair balance sheets, a decade- or decades-long process. That doesn’t argue for excessive credit creation or aggregate demand. And recent economic performance in the face of rising commodity prices has driven home the point that prevailing market paradigms around monetary policy and fashionable allocation trends are causing disruptive relative price shifts, insofar as more expensive food and energy simply substitute for other goods in the typical ‘consumption basket’. That is decidedly not inflation, much less the dreaded hyperinflation.

There’s a class of economists out there who argue that fiscal multipliers (the overall spending that results from a dollar of government spending) are no better than one, as bad as zero, and possibly worse (which might in fact be possible, but only under exceedingly unusual circumstances). The common assumption, and it’s one that GOP presidential candidate Tim Pawlenty hammered on in a recent speech, is that the private sector always stands ready to put resources to use in the most productive manner if only government would get out of the way. Certainly such situations exist from time to time, but the free-market dogma has gone completely over-the-top in recent years, especially when you consider the overall shape of private sector finances and income today, the damage that’s been done by financial deregulation, and the inescapable reality that the baby boomers are no longer going to be the private-sector economic juggernaut that they were for the last forty years.

More objective and convincing arguments have been made that when monetary policy faces a zero-bound, as most developed economies’ central banks do now, that fiscal multiplers are large—anywhere from 1.5x to as high as 4x. In other words, for every marginal dollar added to the federal government’s net spending, whether from additional spending or lower taxes, anywhere from an additional $0.50 to $3.00 of total income is created (once you get your head around how fiat money works, you add back that initial $1 of spending as well). Unfortunately, the power of fiscal multipliers holds true on the downside as well, i.e., fiscal consolidation can have more negative effects than a mere dollar-for-dollar reduction in output or demand, especially in the economic circumstances prevailing today, as the U.K. and parts of the eurozone can already attest to.

So without going into why they’re completely off base to begin with in worrying about the “manageability” of U.S. Treasury debt, let’s say that Congress eventually does agree to and implement $4T worth of deficit reduction via some combination of spending cuts and tax hikes. If the U.S. economy were to average about $16T per year over the next decade, $4T in cuts represents about 2.5% of overall economic activity ($4T / [$16T x 10] = .025). Even if we assume a multiplier of one, you’re talking about a net effect of zero or negative growth under fairly pessimistic but potentially very realistic assumptions of 2.5% or less annual growth, and very meager growth under a rosier 3% to 4%-plus assumption. Add in potential multiplier effects and it gets much uglier. How do you spell J-A-P-A-N?

Mike Norman of John Thomas Financial has done a nice job outlining how this dynamic works here (pdf). See especially pages seven to nine.

Markets seem to be taking it all in stride today. Some form of agreement would at least remove the uncertainty around August’s Treasury debt payments and rollovers, and as we pointed out earlier today, initial jobless claims didn’t contain any negative surprises, even though the headline disappointed. But the China and other emerging-market risks remain in play, as does the potential for more negative shocks out of Europe. And with the austerity fetish still gaining traction in the U.S., the longer-term outlook for risky assets keeps getting worse, even at their currently somewhat-attractive levels.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania-registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, nor is it a recommendation to engage in any investment strategy. This material does not take into account your personal investment objectives, financial situation and needs, or personal tolerance for risk. Thus, any investment strategies or securities discussed herein may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment activity, and it is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any investment strategy or security. SCM does not guarantee any specific outcome from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. 

Unemployment Claims: Don’t Panic, Don’t Write Home Either

Initial claims for unemployment insurance rose unexpectedly on a seasonally-adjusted basis last week. It’s a volatile series, but this continues a string of disappointing readings that have an increasing number of commentators wringing their hands over an imminent double-dip. Anything’s possible, but at the moment, claims data aren’t flashing imminent recession.   

What we’re seeing in the data is a typical mid-cycle flattening. Of course, it’s occurring at higher levels of un- and under-employment than anyone should be comfortable with, but until we see average initial claims move forcefully above current levels, it’s reasonable to assume that we’re not in a recession yet.   

As the first graph shows, there’s a fascinating sinus-like rythm to the non-adjusted series. And although it’s hard to take much away from the short-term data, what patterns there are don’t look too worrisome at the moment, despite the disappointing headline numbers:   

Source: BLS, Symmetry Capital

 Shorter-term averages recently crossed above longer-term ones, but similar occurrences in the past have not been a portent of imminent recession:   

Source: BLS, NBER, Symmetry Capital

Historic data indicates that a recession alarm isn’t sounded until smoothed, long-term averages start pushing forcefully higher. While they’ve flattened out of late, they’re still in negative territory:   

Source: BLS, Symmetry Capital

In past updates on claims, we’ve pointed out the staggering ratio of continuing claims to new ones since the most recent recession. This number has tailed off in the official data of late, which is a good sign. However, if it were possible to get an accurate count of the number of people who have exhausted their benefits but remain unemployed—the so-called 99′ers—this figure would be significantly higher, perhaps as high as fifteen to twenty continuing unemployed for every newly unemployed person.   

Source: BLS, Symmetry Capital

  The takeaways:   

• Claims and other employment data, while stubbornly disappointing, are not pointing to an imminent recession, though they do highlight the ongoing failures of policies and policymakers.
• Current trends are more indicative of a mid-cycle slowdown, which may justify some tactical or even strategic portfolio shifts, depending upon your investment assets and liabilities.
• Huge potential shocks remain in play: an emerging market slowdown, an intensifying eurozone crisis and/or eurozone recession, a potential showdown over U.S. government debt, and the austerity fetish gaining more traction in Congress. These factors will continue to demand savvy risk-management.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such.  Clients and/or principals of SCM may own shares of any securities mentioned. 

Help, Help, I’m Being Repressed!

Carmen Reinhart, of Reinhart-Rogoff fame, has fired an intensely political salvo in the guise of an academic paper, and under the auspices of the International Monetary Fund (IMF) no less, warning the world about the dangers of “financial repression” (pdf). I don’t have time to offer a detailed critique at the moment, but suffice to say, it’s more crap-peddling from the folks who’ve brought you the “it-all-comes-apart-at-90% debt-to-GDP” meme.

Paul Krugman made a half-hearted and highly diplomatic attempt to address it, but the problems with the paper, the models, the data and the assumptions go much deeper. Briefly:

• There’s no serious discussion of the problems in measuring inflation (pdf), especially discerning between absolute and relative price changes.
• As Krugman points out, they cherry-dissect the data. As with her book This Time Is Different, Reinhart sweeps inconveniently critical distinctions under the rug. Is there a similar term for the enrichment of government bond holders? If not, why not? May we suggest ”financial oppression?” It would certainly help clarify the IMF’s mission as actually practiced around the world.
• Also as Krugman alludes to, even if we accept the “financial repression” hypothesis at face value, there’s a conspicuous absence of any discussion of tradeoffs, which are a central concept in economics—but apparently only when convenient anymore.
• There’s no mention of demographics, which are almost certainly a key factor (pdf) in both relative and absolute price changes, public debt, real and nominal interest rates, external balances, etc. Thus, like the eurozone, the paper is malformed from the start and its conclusions should not be trusted without bringing other (and better) models to bear on the subject.
• Most glaring, and it seems typical of neoliberal economists these days, is the complete ignorance of Japan’s deflationary experience. Granted, the way the paper was constructed, that was to be expected, but for someone who has as much political (i.e., policy) influence as Reinhart, and for a paper that is inherently political despite its academic trappings,  it’s absolutely critical to step beyond one’s customary paradigm (especially when Japan calls the entire paradigm into question), as the well-being of billions of people is at stake.

As Warren Mosler and others continue to point out, because we fear becoming the next Greece—or in the case of Reinhart’s paper, the next (for example) Argentina, Bolivia, Brazil, Egypt, Mexico, Peru, Philippines, Uruguay, Russia or South Africa—our policy-making elites are doing everything they can to ensure that the world follows Japan’s recent path (also strongly associated with demographics).

At what point does this kind of thing cross the line into professional malpractice? Oh, right. Economists aren’t subject to such a thing, are they? 

http://youtu.be/5Xd_zkMEgkI

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such.  Clients and/or principals of SCM may own shares of any securities mentioned. 

Closing the Pay Gap?

Not quite what it sounds like, but for anyone who’s worried about other C-level execs keeping pace with CEOs (!):

CFOs made a lot more money in 2010 than in the previous year, and their pay grew at a faster rate than that of their bosses. But the gap between CFO and CEO compensation remains so vast that even a solid annual gain for the finance leaders did virtually nothing to close it.

Those conclusions can be drawn from a report by Compensation Advisory Partners, which looked at 55 companies that were early proxy filers this year…

Median total direct compensation for CFOs, including salary, bonus, and long-term incentives, shot up 23% in 2010, compared with 18% for CEOs. A year earlier, deep in the recession, both groups took home about 5% less than in 2008. The big jump last year reflected improved company performance, which boosted annual bonuses, and recovering stock prices, which buoyed the grant-date value of new equity awards.

Compensation Advisory Partners downplays the significance of the disparity between CEO and CFO pay hikes. “They are, basically, directionally aligned,” says Kelly Malafis, a partner at the consulting firm. “And neither CEOs nor CFOs are necessarily getting tremendously increased long-term incentives. Shares are just worth more [than they were in 2009].”

Indeed, finance chiefs would need many more such years to transpire to get within shouting distance of their superiors. Over the three-year period of 2008-2010, the former group’s total pay was approximately one-third of the latter’s, according to the report.

http://www.youtube.com/watch?v=tVFBK9GhS5Q

Consumer Credit Update: Green Shoots and Elephants

Earlier this week, the Federal Reserve released its preliminary report on consumer credit growth in April. This is an important indicator for the current and future path of consumer spending, which has long been the most significant component of U.S. gross domestic product (GDP): http://www.federalreserve.gov/releases/g19/Current/

The prior month’s preliminary report for March was interesting, as it showed a comparatively healthy bump in overall consumer credit, and the first increase in revolving credit since the financial crisis. However, the underlying data was not as encouraging—digging below the headlines, the only financial entity that showed any meaningful credit growth in March was the federal government (e.g., non-revolving student loans), and on a non-seasonally-adjusted basis, revolving credit growth was still negative.

The current report reaffirms that last month’s was nothing to write home about, as seasonally-adjusted revolving credit in March was revised down to a barely positive 0.1%. Moreover, the preliminary figure for April indicates that revolving credit contracted by 1.4% month-over-month (unadjusted), continuing the longstanding trend of household de-leveraging. It still seems plausible to us that 2010 tax payments were reflected in the March number, as an increasing number of taxpayers now use credit cards to settle up with Uncle Sam. True or not, the main implication is that households continue to rein in credit-driven consumption. While that’s a healthy development insofar as it reduces the fragility of private sector balance sheets, it’s something that premature fiscal consolidation at the federal level will work against (which still seems to be the preferred course of the American electorate, unfortunately).

There is a small green shoot in April’s preliminary data though—there was a noticeable bump in lending by commercial banks and credit unions, which credit markets have been foretelling for the last six to twelve months. Assuming this trend continues, it should be supportive of business investment, final demand, and ultimately, employment and incomes, despite the current soft patch. The elephants in the room continue to be (1) the U.S. government’s budget (if current budget negotiations lead us down the path of premature austerity, all of this will eventually be undone), (2) China’s economy and financial system (and an increasing number of other emerging economies), and (3) Europe’s fiscal challenges and fragile banking system. Any of those could easily trample this little green shoot and push the global economy back into recession.

Given their external financial obligations (a burden that the U.S. and eurozone economies do not have to deal with), it could well be that a hard landing in a key emerging economy or economies is what finally tips the world back into recession—especially given the likelihood of stagnant demand from Europe and other western regions, and the spectre of the U.S. Congress choosing to voluntarily default on Treasury obligations in August, as that would theoretically make U.S. dollars harder to come by (many argue that the USD would fall dramatically, but that assumes that there’s a credible short-term alternative out there; at this point there’s not).

Until one or more of those elephants (or something more unexpected) goes off the rails, we expect the U.S. recovery to continue. But it will remain subpar and will continue to disappoint in terms of both magnitude and duration, given the amount of private sector de-leveraging ahead of us, the global austerity fetish, emerging market tightening, and a fast-fading tailwind from global demographics in the coming years.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results.  This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you.  You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein.  The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such.  Clients and/or principals of SCM may own shares of any securities mentioned.