Larry McDonald on the rolling credit crisis

We had the LDI [liability-driven investment strategy] scandal, or the stress in London in October.  Then it's rolled over to regional banks.  Then it's rolled over into Credit Suisse.  Deutsche Bank CDS (credit default swaps) is now elevated.  You've got MetLife.  Lincoln Financial CDS is now blowing out.  And then you've got commercial real estate loans that are impaired.  And then you're talking about Capital One CDS, which is the consumer; that's at multi-month wide.  So this is clearly a rolling credit crisis.

Larry McDonald, CNBC interview, 2:00 mark, March 28, 2023

Tim Chen on the state of the consumer: "feels like a tale of two cities"

The state of the consumer feels like a tale of two cities.  We're seeing continued strength relative to historical norms in the prime and super-prime segments and definitely some credit deterioration in the near-prime and subprime space.  Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion; mortgage balances rose to $11.92 trillion, auto loan balances to $1.55 trillion, and student loan balances to $1.60 trillion," The New York Federal Reserve Bank stated in its quarterly report on household debt and credit. "

~ Tim Chen, NerdWallet CEO, "NerdWallet CEO: US consumer health 'feels like a tale of two cities'," Yahoo Finance Live, February 17, 2023

("Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion; mortgage balances rose to $11.92 trillion, auto loan balances to $1.55 trillion, and student loan balances to $1.60 trillion," The New York Federal Reserve Bank stated in its quarterly report on household debt and credit.)

Stephanie Pomboy on the myth of strong corporate balance sheets

I don't think the excesses on the credit side are on the consumer balance sheet so much as they are the corporate side which was the prime credit taker during this free money bonanza.  Bloomberg just reported that in January large corporate bankruptcy filings were the largest since 2010.  So you're already starting to see things turn, and as I suggested with this idea that it was an interest rate shock, that hit, when it happens... is going to be much more profound than the markets presently expect.  They're looking for sort of a gradual and modest deterioration in credit conditions and I think we'll see something far more severe and that it will play out much more rapidly.  The interest rate hit doesn't happen until you have to pay higher interest rates, obviously, so if you have an adjustable rate mortgage and they take mortgage rates to 7% at the peak, that didn't affect you at all if you didn't have a reset.  It only affects you when the time comes to reset.  And the same is true, obviously, on the corporate side.  On that score, there are several myths around the strength of corporate balance sheets, but an important one is that companies shrewdly took the opportunity to lock in the incredibly low borrowing costs that we saw during the pandemic/stimulus bonanza for as long as they possibly could...  The fact is, they may have borrowed long, but they borrowed a ton short.  And we know that because there's a trillion dollars in corporate debt here in the U.S. that has to roll this year and then there's another trillion that has to next year and there's another trillion in 2025.  So there's going to be no relief from this impact of higher interest rates in the foreseeable horizon.  The only thing, I guess, that could stave off a significant wave of corporate delinquencies would be for the Fed to swiftly pivot and cut rates back down to where they were.

~ Stephanie Pomboy, "Don't Be Fooled: A Hard Landing Lies Ahead For The Economy (And Markets)," Wealthion, 7:45 mark, January 31, 2023

American Express CFO on credit stress among prime customers

These are not people who are used to being in stress.

~ Jeffrey Campbell, American Express CFO, "Do You Really Have That Credit?," Bloomberg Businessweek, May 11, 2020

(At American Express Co., about 845,000 accounts have enrolled in the company's forbearance programs.  Almost 90% of those customers had credit scores that would be considered prime or superprime.)