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With scalpel in hand, I carve into the latest macro-monetary credit data reports offered up by the US Federal Reserve, just hours before they ‘decide’ to do nothing against a backdrop dominated by ‘reflation’ in credit, bank lending, and financial leverage:

From the weekly Fed report on Commercial Bank Assets and Liabilities:

• Bank Credit: down (-)$4.4 billion, driven by a (-)$11.0 billion decline in Treasury and Agency Securities held, but also aided by a (-)$5.6 billion deflation in Commercial and Industrial Loans.

But, while Commercial and Industrial Loans have declined in two of the last three weeks, it posted a record high in the week in-between, and thus significantly more data is required to suggest that a trend change is underway.

Indeed, the trend has not changed in other areas:

• Real Estate Loans expanded by +$14.8 billion, a sizable single-week figure (up by a rapid +23.3% annualized), and taking the total back above the March high, and back above $3.3 trillion.
• Real Estate Loans have now expanded by +10.4% in the last twelve months, posting a nominal increase of +$311.5 billion.

However, the latest surge is not yet enough to drive the total back above the February high of $3.378 trillion, and thus, like the situation in C+I Loans, more data is required to determine if a trend change has taken place.

To date, no change.

Moreover:

• Consumer Loans: New record high for the second week in a row, expanding by +$1.5 billion in the latest week to reach $746.1, and higher than the previous monthly high of $744.1 billion posted in January of this year.

With an April rise to new highs in Consumer Lending by Commercial Banks in tow, I shine the spotlight on the explosive increase posted by March Consumer Credit, as revealed yesterday by the Fed’s monthly report:

• Consumer Credit rose by +$13.46 billion during the month, to a new record high of $2.426 trillion.
• Revolving Credit (credit card debt) led the way, inflating by a hyper-speed rate of +9.2% annualized via a sizable single-month expansion of +$6.7 billion and hit a new record high of $888.2 billion.

This is one of the highest rates of growth in US credit card debt in years, rivaled only by the +13.8% annualized expansion posted in November of 2006 on the back of a record single-month rise. Moreover, it represents an extension of the uptrend seen since the decline into December of 2006. Note the acceleration by month-month annualized rates of growth:

• Mar '07: up +9.2%
• Feb '07: up +2.9%
• Jan '07: up +0.8%
• Dec '06: up +0.8%

In boom times - housing price and income wise - these statistics would be overtly bullish for bullion and stocks.

However, when I note the erosion in Chain Store Sales, along with the recent plunge in ‘real’ Retail Sales growth into ‘negative’ territory, I begin to think that an increase in consumer credit card borrowing is not ‘positive,’ but rather a symptom of intensified ‘distress’.

Note the latest weekly UBS Chain Store Sales data released yesterday:

• Chain Store Sales: down (-)0.6% during the latest week, marking the third week in the last four that sales posted an outright decline, for a four-week cumulative contraction of (-)1.0%.
• Chain Store Sales: up +1.7% year-over-year, falling deeper below the rate of inflation, and thus more negative on a ‘real’ basis, while extending a slowdown posted since the end of March. Note the sequential slide:
  • May '05: +1.7%
  • Apr '28: +1.9%
  • Apr '21: +2.1%
  • Apr '14: +2.3%
  • Apr '07: +4.0%
  • Mar '31: +4.3%
  • Mar '24: +4.9%

Thus, the longer-term secular ‘credit reflation’ trend remains intact but within the context of intensifying ‘anxiety’ about its ‘sustainability.’

Global credit continues to expand rapidly.

US credit continues to expand rapidly.

Until/unless these dynamics reverse, and a contraction in credit develops, the backdrop remains supportive to the ongoing secular bull market trend dominant in Gold.

Thus, strategically speaking, my firm is keeping a small ‘bet’ on the table, in terms of low-risk, long-term, “core investment” exposure in Gold but we ‘check’ when it comes to taking a more aggressive ‘trading’ approach to the long-side of Gold, as the US comes under increased scrutiny.

Indeed, markets are at a critical juncture from the macro-monetary perspective, and this is clearly ‘reflected’ by broadening ‘divergences.’

Hence, my firm will continue to rigorously pursue our regular day-to-day dissection of all the pertinent global macro-monetary data, along with the technical evolution, and intermarket activity for more clues as to the health of the longer-term secular trend.

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