The credit-line is being snipped: what happens now?

Above is a chart covering the sudden divergence of Stock market prices and credit availability in the US during the months of October and November this year. In the light of data released today showing that America put on a grand total of just 3,000 more jobs in November than October, it makes for chilling reading.

I was amused to see a headline at Bloomberg earlier this week that ran ‘MARKETS NERVOUS AS GOOD GROWTH NUMBERS SUGGEST LIKELY FED TAPER’. Jonathon Swift would’ve been proud to have written it, because it captures the great satirist’s view of our ridiculous species perfectly: ‘when nobody trusts the news any more, good news might be part of a conspiracy to take away my security blanket’.

What this chart does is flag up a reality that not even Mario Draghi can ignore (because it is now his bigtime problem too) – although almost certainly HBS graduate Ed Balls wouldn’t get it. For like the strong trend in the super-élite towards buying safe property and agricultural land, it is a signal saying that, any second now, Wily E Coyote is going to look down.

It says that lending money is bad karma. It says the karma has finally run over the dogma.

The Big Dicks in the Hedgies and the banking firms are satiated: they’ve reaped the GM crop, and are now satisfied that betting on next year’s mutating crop looks too risky.

Why have they taken that decision? Very simply because:

1. The US is still 1.5 m jobs short of a 2008 figure.

2. Employee take home pay is now at the lowest level in US recorded financial history.

3. Even with a million magic bullets from QE, real revenue growth is steadily falling

As Gordon T Long points out in a recent article, ‘The desire to lend by the banks is decidedly muted as demonstrated by the fact they have $2trillion of access reserves at the Federal Reserve. They can’t find the loans that have satisfactory lending profiles….It isn’t that the banks don’t want to lend, the growth and opportunities are not seen to be there. Simply put, there is too much mispricing, excessive mal-investment and distorted allocation of capital.’

Correct, spot on the money etc etc. The fundamentals are at last reasserting themselves. If capital is not being created, you can only print credit for so long. Credit is not capital.

I wonder what Ms Yellen is going to make of this sudden responsibility being placed on her shoulders to take up the slack. And I wonder what ordinary investors and their intermediaries will be feeling about equity investments in the light of this New Reality come Monday.

Enjoy the weekend.

Earlier at The Slog: An Autumn statement from the OBR aka Not the Osborne Autumn Statement