Steve Blitz from TS Lombard thinks it will take time for the recent policy tightening by the Fed and last year’s slide in equities and credit to work through the financial system and the broader economy. “We are not really out of the woods,” he says, adding that it’s important for investors to focus on leading indicators of activity, particularly that of credit and flows such as those through small bank lending. Across the US, small banks, or those institutions outside the top 25, have been very important sources of business and consumer lending, notes Steve, who adds: “Small-bank loans have increased from 55 per cent of large-bank loans when this cycle began to 75 per cent.” And since the Fed funds rate rose above 2 per cent in September, Steve says there has been a slowdown in lending from small banks and this is a very important factor to watch in the coming months.
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