Commentary for March 7, 2005

| March 7, 2005

The big “surprise” news of the day was an unexpectedly large increase in consumer credit debt. The following quote is courtesy of Reuters:

“U.S. consumer credit outstanding surged a far greater-than-expected $11.5 billion in January, the biggest gain in three months, on jump in credit and charge card use, a Federal Reserve report showed on Monday. The January rise was more than double Wall Street expectations for a $5.2 billion monthly increase, and followed a much stronger December result than first reported. December’s reading was revised to a $8.7 billion increase from its initially announced $3.1 billion climb.

Fed data showed January’s increase as the 14th consecutive month of rising consumer credit outstanding and the largest monthly jump since October’s $14.3 billion gain. Both revolving and non-revolving credit levels increased in January to total $2.121.1 trillion.

Non-revolving credit, which includes closed-end loans for cars, tuition, boats, vacations and other items, rose at an annual rate of 5.63 percent in January, the biggest rise in three months. Revolving credit, which measures credit and charge card activity, surged 8.07 percent after jumping 8.54 percent the previous month.”
So, it looks like the massive imbalances that have the long-term health of our economy at risk continue to grow. How much longer can this situation be sustained? Of course, no one knows for sure. One of the most frustrating aspects of analyzing bubbles such as the one that currently exists in debt is that the timing of their ultimate, inevitable destruction is nearly impossible to predict with a high degree of statistical confidence.

Speculative bubbles, especially in their latter stages, take on a life of their own, as the excess growth compounds at a nearly exponential rate until that elusive breaking point is attained. However, when the dam finally breaks there will almost certainly be no mistaking it for something else. For now, though, denial continues to reign supreme. We will continue to watch patiently…

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Category: Commentary, Market Update

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