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|US Bank cards see a 9% rise in defaults in one month. I would imagine the hit to bank balance sheets could be significant if it is not just a blip. Of course, this was yesterday's bad news and markets just ignored it again.
|Today's reports of troubles at Bovis, Hayward Tyler and Interserve suggest UK bad news is spreading out of retail and consumer into (larger?) companies throughout the market.|
|US looks to be deteriorating.
|US auto loan delinquencies rise sharply in Q3 and Q4 to reach highest since 2009. (Chart says it all.) The average amount borrowed is up 25% over that period.
|50.5p bid. There will always be a lot of sellers at a number like 50p. It looks like it could nearly be behind us now.|
Britain’s biggest building society has dramatically upped its provision for bad debts over fears that borrowers are poised to start defaulting on loans.|
|Individuals' CCJs were up 14.9% in value and 39.5% in number in Q4. All of 2016 was up 24% in number so the granting of CCJ's would appear to have accelerated significantly in Q4 - even more so for just December when they were up 45.1%.
|A record number of East Anglian companies are getting into financial distress. Despite banks going easy on them so far, insolvency numbers are likely to increase in 2017.
Business rate increases to drive up Scottish insolvencies
|There's been an endless list of small and medium-sized companies missing forecasts or issuing weak guidance in the US in the last 24 hours - probably well over 50. It seems to be deteriorating week by week over there. Check it out:
|US gasoline sales plummet, indicating recession?
|Begbies join the Association of Short Term Lenders.
|UK coming under more budgetary pressure as economy slows?
|And the disadvantages of the weaker £? There is no such thing as a free lunch.
I hope you are right but warnings from UKMail, DX., BT, Verizon and ATT suggest problems in mail and telecoms, which tend to reflect the wider economy. In the US, Amazon and Master Card have reduced guidance and there has been a growing stream of profit warnings. UK transport fuel sales recently flattened off after strong growth. Add in rising defaults, rising interest rates, new BTL restrictinos, rising import costs and rising taxes (car tax) in the next few months and things look set to weaken significantly in the next couple of quarters. Credit card debt can't keep growing at 11%, especially if rates rise to cover the increasing defaults. Political uncertainty is eating away at the recent strength in consumer confidence. The reports posted earlier on this thread suggest the corner has turned on both personal and corporate insolvencies. Zopa's default rates have already nearly reached the highs of the last recession and Secure Trust Bank have withdrawn from unsecured lending due to increasing default risk, as they did last in 2007. It's generally credit cycles that drive things and they are going the wrong way.The expansion of subprime lending seems to be over as increasing write-offs there are starting to show up in bank numbers.|
|The J Curve indicates that the benefits of a weaker pound take 9 months to flow through.
In the short term buying patterns are largely stuck and take time to adjust. So in a few months exports should really take off together with domestic substitution for exports.|
|Ernst and Young's report is subtitled "The Calm Before the Storm". It notes a steady number of profit warnings despite the benefit of a weaker pound and warns of worse likely to come and cites reasons why.
|Only just checked back to the Q3 number of 248916. That means that companies in distress rose a hefty 11.1% on the quarter.|
According to Begbies Traynor's Red Flag Alert research for Q4 2016, which monitors the financial health of UK companies, 276,518 businesses were experiencing 'Significant' financial distress at the end of 2016; an increase of 3% compared to the same period last year (Q4 2015: 268,898 companies). On an annualised basis, the last time that 'Significant' distress fell year on year was in Q3 2013.|
|Can anybody see a trend here? The link below is the US but the UK has been showing similar trends, if a few months behind. (The B of E reported rising corporate and personal defaults in its last Credit Conditions Survey, while government numbers show personal insolvency rates bottomed as early as Q2 2015. The cost of credit is rising to cover the rising risk-free rate (Treasuries and Gilts) AND the increasing risk of defaults - that is where provides are not pulling out of the market altogether, like Secure Trust Bank did recently. Consumer credit is getting more expensive and scarcer and secured credit will probably do the same soon.
The 2017 points in each graph are estimates. Forecasters are notorious for underestimating downturns and often not even seeeing recessions coming at all, despite the lessons of history and plenty of current evidence.|
|Personal insolvencies up 13% in 2016
Corporate insolvencies start to rise.
|UK unemployment forecasted to rise in 2017. (Remember that the Claimant Count has already been on a rising trend since last February.)
|This is the US but the UK has been exhibitting similar trends in debt defaults starting to rise again in Q3 and Q4 last year. It shouldn't be long before the first UK bank misses forecasts for its debt write-offs.
Rising car repossessions should lead to lower used car prices and fewer new cars sold in 2017.|
|And another present for Trump:
Default rate on US mortgage backed securities accelerates in December.
I know this seems less relevant to BEG but the US and UK seem to be following a similar trend of accelerating deterioration in credit conditions.|
|This seems quite a good summary of this Christmas's UK selling patterns (Note the very high returns rate on women's fashions):
More downward spin on the economy?
And corporate finances seem to be deteriorating.
So financial distress appears to be rising in oil and gas, engineering, manufacturing, recruitment, estate agencies, property, construction, retailing, food supply, and bars and restaurants. I presume we can add the car industry when higher car taxes hit and loan rates rise to cover slightly higher interest rates and significantly higher default rates. Otherwise, technical/tax changes in property, minimum wage increases and oil price rises seem to be the biggest factors - but I fancy the media mainly blame it on Brexit and Trump.|