US Credit Cycle: Why Powell Needs to Act Quickly

Published on: March 27th, 2019

Julian Brigden has also made available for MI readers his latest MI2 report in which he looks at weak US data and a worrying shift in the credit cycle, to make a strong case for the FED to act quickly to ease financial conditions


  • TB
    Thibault B.
    27 March 2019 @ 17:34
    It came out on Think Tank yesterday? Still - fantastic work, can't get enough.
  • KC
    Ken C.
    27 March 2019 @ 17:42
    Excellent piece Julian! Is our best option to just stay long short duration fixed income or should we extend duration?
  • HH
    Hugh H.
    27 March 2019 @ 18:56
    Hmmm,... I received the same one yesterday via TT. Considering MI is a premium service, it would be better at least to share the information with MI subscribers in advance.
    • HH
      Hugh H.
      28 March 2019 @ 16:02
      Oh, I was confused. I thought this piece is for the meeting of minds. I really appreciate sharing this with us!
    • SS
      Steve S.
      27 March 2019 @ 19:57
      I tweeted Julian and asked him to put it on MI. Kind of him to respond.
  • SS
    Steve S.
    27 March 2019 @ 19:56
    Thanks very much Julian
  • MB
    Matthias B.
    28 March 2019 @ 10:58
    very informative and helpful. But I am baffled: all of a sudden, there is a chorus of analysts, market observers and even future FED board members demanding a rate cut. This is the same kicking the can down the road we witnessed the last 10 years. When do leaders finally stand up and acknowledge that the best cure to a drug addict (financial markets) raising his/her future prospects is to go through that detox process. The longer one waits, the bigger the pain... but the concept of subscribing more morphine or so to an addict is stupid, irresponsible and highly selfish.
  • MH
    Marc H.
    4 April 2019 @ 23:46
    What is causing the lenders to tighten credit for the small businesses?
  • MG
    Miguel G.
    6 April 2019 @ 20:02
    Julian, after reading your piece you sound convinced that the fed can and with high probability will, add more stimulus to the US economy and today's set up looks similar to 2016. Here's where I have to disagree. In 2016 we had a much different set up than we have today where we had very low levels of inflation (sub 1%) and oil crashing to a 2 handle along with the 10 year trading at 1.6is% if my memory serves me right. Today 2019 inflation should continue to track around 1.7-1.8% and oil is trading at 63/bbl along with the 10 year making a higher low at 2.3xx%. I cant see how the fed can step up to the plate and unleash QE 4 with the current macro set up theyll risk sparking higher inflation. IMO inflation looks like the market's deciding veto card for the fed and what I think keeps them at bay. Where the most I can see the fed doing is more "cooing" as you put it and less actual stimulative action. A way to get a 2016 redux I think we's surely at minimum need much lower equity prices along with oil probably breaking much lower as well to temper these inflation embers. Another round of stimulus imo from this point looks disastrous for risky assets and Id assume the fed is keeping a close eye on oil and knows it cant really do much from today's current set up. Now if Raoul is right and we are about to see a lift off in the dollar and we rally a good percent to 105-110 dxy then sure that would break oil's back and the fed likely has a little more room to tinker with policy, but all scenarios that I can think of from today's market and the next 3-6 months keeps the fed at bay from doing much of anything other than talking UNLESS we see a deflationary wave cause by a stronger dollar. In which case a fed elongating the business cycle would have to come in the form of weaker asset prices and probably much lower oil. I dont hold a candle to the likes of your experience and am a huge fan of your work, but I'm really struggling with your piece here as to how this credit cycle can be stretched with the current back drop. I may be over looking something silly and please feel free to punch holes through my argument as I have a ton of respect for both you and Raoul which is why Im a life time member
    • MC
      Mathieu C.
      1 May 2019 @ 21:03
      Nice comment, it seems Julian has agreed to it in his insider talk video. Fed don't anticipate, they act on clearly defined risks and this isn't clear at that moment where we going, in my opinion it is the point missed in Julian's work. I think also they can hardly fight the tide of the world at that point of the cycle without increasing significantly their domestic risks. That's where I agree with you. The main risk I see to ease early would be a slow domestic growth but with high inflation but how many times one said this about QE. China seems not ready to stimulate further though that time because of their economy's leakage and Europe is completely hopeless. My thesis is the FED will try to negotiate a rather lengthy soft landing rather than playing the saver of the world. Remember this is a global slow down. They already managed to buy until September for free which I found quite fascinating whereas it unveiled also there is a ceiling (quite lower than anticipated) on risk free rates. That seem like the major risk to me and let me think that they will indeed not anticipate any easing (your inflation risk). So at the end, if the fed isn't ready to ease the global risks, isn't there only one way out that everybody is too cautious to call it wrong. It is over. We are in now and it just started. On a different topic, a nice indicator in my opinion which is never being discussed is to watch the Chinese outbound tourism, I think it is just starting to contract globally but I understand it is still just a forecast and not a hard data. (perhaps in between?!) If it confirms, despite indicating on the health of the Chinese economy, it might be quite the global shock the world didn't need. In September we will know more I guess.
    • MG
      Miguel G.
      6 April 2019 @ 20:11
      Excuse my terrible grammar in a rush and heading out the door. Wanted to get this out after reading your piece and pushing me to think it through.