US credit card debt balloons to $917B: What it means

While rising debt issuance usually points to a strong economy, danger could be lurking ahead.

Last year, credit card debt in the U.S. surged by approximately $71 billion to $917.7 billion, according to a new study from CardHub.com. The research also found that most of the debt accrued in 2015 came in the fourth quarter, when Americans tacked on more than $52 billion.
"With 7 of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits," CardHub CEO Odysseas Papadimitriou said in a statement.

Fourth-quarter credit card debt also grew at its largest pace since the Great Recession, CardHub also said.
"It is something we need to keep an eye on if borrowing continues to grow rapidly," said Scott Hoyt, senior director at Moody's Analytics. He also said the implications of rising credit card debt would be similar to what happened in the recession, "when consumers became overly leveraged."
 

David Santschi, CEO of TrimTabs Investment Research, said "it's usually a good sign when ... credit card debt is rising" because it usually means consumers are spending more money.
However, Steve Blitz, chief economist at ITG Investment Research, said this increase is "just a signal that there's more people working," adding that consumers are not necessarily taking on more debt.
"The willingness of an individual to increase their leverage is the ultimate vote of confidence in the economy," he said.
The U.S. economy added 2.45 million jobs last year. In 2016, more than 400,000 positions have been created as of February, with the unemployment rate holding at 4.9, its lowest level in nearly eight years.
Nonetheless, wage growth remains stagnant. U.S. workers earned 3 cents less an hour last month.
"The drop in February [wages] was pretty sharp," Santschi said. "The wage situation does not get as much attention as the headline number and the unemployment rate, but it's evidence that the economy is basically flatlining."
U.S. equities are lower for 2016, with the Dow Jones industrial average and the S&P 500 both down more than 2 percent, while the Nasdaq composite has dropped more than 6.5 percent.

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Trucker pay has plummeted in the last 30 years, analyst says

Pay for truck operators has failed to keep up with inflation since 1980, effectively slashing truckers’ wages by nearly a third, according to analyst Gordon Klemp, president of the National Transportation Institute.
Klemp, who spoke Feb. 26 on a conference call with investors and reporters, said truckers wages averaged $38,618 annually in 1980. If adjusted to 2015 dollars, that would be over $111,000 a year, Klemp said.

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Dry van haulers may have been hit the hardest by lack of inflationary wage growth for truckers, Klemp showed, with wages falling more than 9 percent from 1994 to 2015 when comparing Klemp’s NTI Wage Index to the most commonly used measure of inflation, the Consumer Price Index.
Pay for flatbed and reefer haulers has also fallen, with reefer wages falling more than 5 percent since 1994 and flatbed pay falling nearly 4 percent when comparing the NTI Wage Index to CPI inflation.
Klemp also said in his presentation that more and more fleets are turning to guaranteed driver pay packages as a means to improve their driver turnover rates. He also said hourly pay and incentive-based pay — based on safety incentives, usually — are on the upswing.
He also noted that both owner-operator income and company driver pay have climbed since 2013, bucking the overall U.S. trend of declining household income in the same span. The chart below, taken directly from Overdrive‘s own coverage of the long-running disconnect between the driver shortage mantra and driver pay rates, in part based on Klemp’s data, illustrates the recent trends.

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Obama committed to Pacific trade deal, even as opposition spreads-Rice

By Roberta Rampton
WASHINGTON, March 9 (Reuters) - U.S. President Barack Obama is fully committed to pushing for Congress to ratify the Trans-Pacific Partnership (TPP) deal despite anti-trade sentiment gaining steam on the presidential election campaign trail, National Security Adviser Susan Rice said on Wednesday.
Voter anxiety and anger over international trade and the 12-nation Pacific trade pact have helped propel the campaign of Donald Trump, the Republican front-runner, as well as Senator Bernie Sanders, who is running against Hillary Clinton for the Democratic nomination.
"The president remains fully committed to working to achieve ratification on the U.S. side and encouraging all of our TPP partners to move through their domestic processes to do the same," Rice told Reuters in an interview on Wednesday.
For Obama, the TPP is a legacy issue, and standing firm on the pact reassures other nations with high expectations for the deal. At the same time, it highlights a division with Clinton, a close political ally, who has been grappling with Democratic anxiety about trade on the campaign trail.
Obama's commitment to the trade deal means that it will likely remain a hot campaign issue and exposes Clinton to trade-bashing rhetoric ahead of the Nov. 8 vote to elect Obama's successor.
Sanders has accused Clinton of backing "disastrous" trade policies that moved manufacturing jobs overseas, and questioned the sincerity of her opposition to the TPP since she became a presidential candidate.
Clinton had supported the trade pact when she was secretary of state during Obama's first term, but later said she was worried the deal would not do enough to crack down on currency manipulation or protect consumers from excessively high drug prices.
Sanders' unexpected victory in the Democratic primary in Michigan on Tuesday suggests that his criticism is resonating with some voters, and could spell trouble ahead for Clinton in states such as Ohio, Wisconsin and Pennsylvania.
Trump's anti-free trade rhetoric and promise to slap taxes on cars and parts shipped in from Mexico have also found support among Republican voters, helping him score a big victory in the party' primary in Michigan on Tuesday.
"There have been times - and this is one of them - where anti-trade sentiment has attained some salience in our domestic politics as well as in other countries," Rice said.
"There's been an evolution over the decades in the nature of trade agreements and in the caliber of trade agreements. And I'm not sure that that has fully been absorbed in the public mindset or the political discourse," she said.
Obama has repeatedly said that the TPP will expand markets for U.S. exporters and has high standards on labor and the environment that were not part of the North American Free Trade Agreement with Canada and Mexico.
Rice said policy makers face the challenge of being able to articulate the benefits of TPP and "to not allow the sort of traditional 'old saws' of the critical narrative about trade to go unchallenged, when to a considerable extent they're based on agreements of the past."
Rice made her comments ahead of a summit between Obama and Prime Minister Justin Trudeau of Canada, a nation also wrestling with the merits of the TPP. The economy of Canada, the largest market for U.S. exports, is heavily reliant on open trade with the United States. (Reporting by Roberta Rampton, editing by Tiffany Wu)

Saudi Arabia is looking for $6-8 billion in bank loans to keep its public finances afloat

Many states are expected to increase their borrowing sharply if oil prices stay low Reuters

 

Saudi Arabia is reportedly seeking a bank loan of $6 to $8 billion is what would be the first significant borrowing by the kingdom's government for more than a decade.
It emerged that Saudi Arabia was looking to borrow money to shore up its public finances last week.
The kingdom has asked banks to submit proposals to lend it a five-year dollar loan of between $6 and $8 billion, Reuters reported, citing sources close to the matter.
Saudi has also asked for the option to increase the loan from this initial limit, as it looks to plug a record budget deficit of £100 billion in 2015 alone.

The kingdom is selling off foreign assets and issuing domestic bonds to try and shrink that deficit that has opened up since oil prices have slumped from over $100 a barrel in 2014 to around $30 a barrel today.
Saudi Arabia has already raised domestic petrol prices by up to 40 per cent and set about dismantling generous subsidies for water, electricity and petrol. The kingdom has traditionally kept prices low for residents as a social welfare measure.
Changes to VAT and an increase in taxes on soft drinks and tobacco are also planned.
Before the oil price started falling in mid-2014, Saudi Arabia, like many other oil-reliant Gulf states, paid down Government debt and borrowed little from international banks.
Many states are expected to increase their borrowing sharply if oil prices stay low.
Qatar borrowed $5.5 billion in January, around the same time the government of Oman borrowed $1 billion through an international loan.
Saudi Arabia's £100 billion budget deficit is still one of the lowest in the world, which could make lending to the kingdom an attractive prospect for investors. The pricing of the loan is expected to be measured against the earlier loans to Qatar and Oman, which took a long time to arrange because of concerns about the Gulf region's ability to cope with the era of cheap oil, Reuters said.

 

Cameron: It is 'very much my intention' to run as an MP in 2020 election

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Venezuela Could Default Tomorrow

FT notes:

Investors worried that Venezuela might fail to repay a $1.5bn bond coming due on Friday have been reassured by the sudden appearance of tonnes of Venezuelan gold worth almost that amount in Switzerland...

There are good reasons for the government of President Nicolás Maduro to avoid defaulting on Venezuela’s debts, and not only because they risk losing their jobs and their liberty in the chaos that would follow.

Were it to default, Venezuela, like its regional neighbour Argentina, would be likely to find itself shut out of international capital markets, possibly for years. It might also, like fellow oil producer Iran, be denied access to the international banking system...

But there are reasons to think Caracas might not pay Friday’s bond after all. 

The first is that default seems inevitable, if not on Friday then later this year.

Siobhan Morden of Nomura estimates that, after the Swiss shipment and taking account of recent price rises, Venezuela is left with gold worth about $11.3bn. According to the central bank it also has foreign exchange reserves of $14.6bn (after a withdrawal of $472m last week, also seen by analysts as preparation for Friday’s payment).

But Friday’s is not the only payment coming up. Taken together, the government, state-owned oil company PdVSA, and its affiliates, face repayments this year of $10.5bn. The crunch months are October and November...

On top of that, Ms Morden says, Venezuela must find $35bn to pay for imports and $12bn to cover capital outflows, out of oil revenues of just $20bn.

While the price of the bond maturing on Friday suggests most (though not all) investors are convinced it will be paid, the price of credit default swaps, a type of bond insurance, puts the likelihood of default in the next 12 months at 69 per cent, according to Bloomberg.

The other reason to think default might happen sooner rather than later lies in recent actions by Caracas that suggest it is preparing for the consequences...

One is the creation this month of a state-owned company called Camimpeg, whose name is an acronym for Military Limited Company for the Mineral, Oil and Gas Industries. This company, says Mr Dallen, would allow the military to take over not only the licences for mineral production held by companies such as PdVSA, but also their assets. If it did so, such companies would become valueless overnight, leaving their bondholders with claims on nothing.

PdVSA and its subsidiaries owe about half of the $70bn in outstanding Venezuelan bonds, with the rest owed by the state.

The other development concerns the collapse in 2014 of Portuguese bank Espírito Santo, which formerly processed payments for PdVSA. Since then, PdVSA has switched its business to Citic Bank of China.

“How would the Chinese react if there was a western order to seize Venezuelan accounts?” asks [Russ Dallen of Latinvest, a Venezuelan bond specialist]. “Would they protect their client or play by western rules? It would be a real test.”

China itself is a big creditor of Venezuela, having lent it more than $50bn in recent years. It is being repaid in Venezuelan oil, a currency that has fallen sharply in value.

Even the Swiss gold is no guarantee of payment. The agreement with western banks that led to the shipment was made at the end of last year, when Mr Maduro may still have regarded paying bondholders — and thereby demonstrating economic and financial responsibility — as a vote-winner.

If so, the government’s defeat in December’s parliamentary elections may have disabused him. If default is inevitable, he now may be thinking, why throw $1.5bn away on Friday?

The hope for bondholders is that Mr Maduro may not always make rational decisions.

“The question is,” says Mr Dallen, “is it going to be a Thelma & Louise ending, where they drive off the cliff knowingly and deliberately, or will they just drive off the cliff? Their inability to change course, despite the obvious danger, is stunning.”