Deflationary Forces

The above is the chart for total revolving credit outstanding
This is basically look at credit card debt
It is heading lower since the peak in 2008
Credit is contracting and debt is being paid back
The Fed cant stop this
They cant force people of borrow or take on more debt
This is also why QE cant work

The above is the chart of real estate loans at commercial banks
As you can see it is slowing down and has headed lower in 2010
People are not taking home loans in spite of the drop in prices and supposedly cheap credit

The above is the chart for commercial and industrial loans at banks
It peaked in 2008 and fell in 2009 and 2010
Slight up tick in late 10 early 11 but nowhere near the peak of 2008
This just goes to show how much the economy is growing - how amazing the recovery has been - how credit contraction has taken over

The Case Schiller 20 city index has just collapsed
Housing has seen no recovery at all
It is poised to collapse even further

Finally the housing starts chart
It can be clearly seen that there is no life in housing
A huge inventory still exists and housing which is one of the most important part of an economy is still shrinking and collapsing
This to me is the sign of a very weak economy


Deflation is picking up steam
When the current relief rally exhausts - we see a next wave down in markets
Near March 2009 - we had extreme pessimism and this was the end of the first wave
Markets move in bouts of optimism and pessimism
The rally since 09 has alleviated that fear
We are euphoric again now
The third stage will be a move downward that will dwarf the 2008 crash
This will be the most important part of the cleansing mechanism that nature will unleash
Credit will contract
Equities will fall
Commodities will fall
Dollar will gain
VIX will rise
US T bills - short term - will rise in price ie bond yields will fall
HY credit will crash
Defaults will increase