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November 13, 2008

The Bank of Uncle Sam?
by Zachary Oxman

As I sat in front of the TV yesterday listening to Hank Paulson speak about banks and their needs to start up lending to individuals again, I wonder if a society like the US, which is so debt driven, is going to need to fall back on direct lending from the Government to individuals. If monetary velocity continues to slow and banks continue to hoard capital, does the Government have any choice? Is the Fed Discount Window going to become the latest drive up ATM for American Consumers? Is this the only way to put a bottom into the housing slide?

All signs point to continued reduction of risk at the bank level and resistance to lending from banks to individuals. Granted, LIBOR and TED spreads have narrowed, but banks are still reluctant to lend to each other and even more resistant to lend to cash strapped investors. We are currently mired in a Global recession, the likes of which is due to get worse before it gets better. I believe that you will see contraction through at least Q3 2009. As such, I am confident that despite the "urging" of the Fed, banks are due to contract lending further, and more importantly strengthen requirements for lending. If banks are reluctant to lend, where is the consumer to go? Credit cards. Data recently released shows that loan totals from consumer banks to consumers increased by $89 billion year over year through the end of September. Of that total, 69% of that lending, a staggering $61 billion, was debt through credit card usage. More foreboding is a look at the past few weeks. According to Greg Weldon, "Commercial Banks outstanding credit card balances exploded $7.1 billion in one week (yes, one week) ending October 15th. This represents a weekly expansion of 1.9%, or an annualized increase of nearly one hundred percent (98.4%)." From August to mid-October, credit card debt increased by $32.3 billion. To compare, the 10 months prior (September 2007 to July 2008), credit card debt increased $29.1 billion. I know the numbers are hard to fathom, but in summary, the debt amassed on credit cards has risen more in the last 10 weeks than it did in the previous 10 months in total.

Where is a consumer to go? They are already unable get a loan from a bank, unable to pull equity (not that it exists) from their house and are maxed on their credit cards. We are pushing ever closer to The Bank of Uncle Sam opening up direct lending to individuals. The only hope now rests on the Fed purchasing enough equity in commercial banks that their "urgencies to lend" are heard.

Zachary Oxman
Senior Commodity Futures Trader
Wisdom Financial, Inc.

As Registered Series 3 commodities broker since 2000, Zachary Oxman specializes in proprietary systems trading execution and managed futures funds placement. Using his thorough experiences in the investment world allows him to provide a complete picture of the commodities markets and how they can work in your personal portfolio.

Zachary is highly experienced in trade execution, he acts as trader to various types of entities such as Commodity Trading Advisors (CTA's), Commodity Pool Operator (CPO's) as well as individuals and corporations wishing to trade their own proprietary systems. His services begin with trade execution and encompass the overall system management; including the downloading of data, placement of trades, risk management and stop monitoring. Supporting such platforms as TradingBlox, Mechanica, TradeStation, TS 2000i, and TS Versions 8.x+, Zachary is capable of executing any client's systems on a daily/nightly basis.

Zachary is a member of the Market Technicians Association (MTA), and is currently pursuing his CMT (Chartered Market Technician) certification.

For clients not interested in trading but rather diversification into managed futures Zachary provides solid, sound advice as to where their money should be invested. Having placed equity with numerous CTA's has given him an edge to better assist his clients with finding the right CTA.

Graduating from the University of California in an accelerated program has provided Zachary with a strong educational background focusing in Business Economics emphasizing in Finance and Econometrics.

There is a risk of loss trading futures and options. Past performance does not necessarily indicate future results. Trade with risk capital only. Futures trading is not appropriate for all investors.