Category Archives: Manias

Credit Impulse

The credit impulse isn’t the sudden urge to borrow – it is the additional income and concomitant spending that results from an increase in aggregate debt. Spending capacity = net income + credit impulse. Credit impulse (annual) = current debt amount – year ago debt amount. Not complicated.

The credit impulse is how easy money creates economic expansion as economic entities – households, corporations, governments, etc. are able to spend more than they earn.

The downside is that, sooner or later, the entities reach the limit of their ability to borrow. The credit impulse disappears and the economy shrivels. Incomes diminish and defaults begin as entities can no longer service their debt. Credit becomes very difficult to obtain, lenders fail as capital losses mount and the economy accelerates downhill as the credit impulse goes negative as borrowers are unable to roll over their debt.

Let’er Rip, Potato Chip

Larry Kudlow, newly minted economic advisor, was on CNBC last night, advising that the Fed should “Let the economy rip.”

Larry, if you want to see what happens when a country monetizes its deficits, look south.

Credit Impulse

US household debt ended the year at $13.15 billion, a y-o-y increase of $402 billion and a record. This means that about 2% of GDP came from the increase in household debt alone. It is likely that when corporate and government debt increases are taken into account that the economy is operating at a substantial loss.

They’re Back

OK I give up. According to this report from zero hedge, the Beanie Baby bubble is back. Apparently the supply of Beanie Babies has been somewhat depleted during a 20-year hiatus on speculation, leading to new opportunities.

You really cannot make this stuff up.

Fed Minutes

Another day, more blather from the Fed. Risk is “on” with a vengeance as the Fed continues to demonstrate its unwillingness to “take away the punch bowl” as Fed Chairman Martin put it.  Apparently there is no such thing, in their minds, as too much stimulus. We’ll see about that. In my view, a financial catastrophe is almost inevitable at this point. Overpriced stocks and the fear of inflation have always been a toxic mixture. Add in the overhang of aggregate debt somewhere in the neighborhood of 350-400% of GDP and you have a recipe for a protracted decline to well below fair value, unlike 1987’s brief shock.


Look Out Below

The volatility shorts are back with a vengeance, slamming the VIX at the open this morning. Rebuilding these positions at this point virtually guarantees a serious crash.

I Spoke Too Soon

I thought the massive crush of the short VIX ETFs and serious losses for anyone short volatility would have discouraged the VIX sellers.

Well, no. They’re back, using VIX slams to pump the market today and yesterday. Sigh.

Why are we wasting money on a do-nothing SEC and CFTC who are allowing this kind of conduct?

Inflation Is About To Disappear

The main factor is U.S. oil production,” the IEA said. “In just three months to November, crude output increased by a colossal 846 kb/d, and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.

VIX Shorts Crater Stocks

Well the bad news is I covered my shorts way too early.

The good news is that we seem to be rid of these inverse volatility products that have been plaguing the market. As I have mentioned before, authorizing securitization of the VIX was a really, really bad idea.

Bitcoin Guy