China’s preliminary June bank lending data was out this week. Incredibly, loans increased by $224bn. First half loan growth surpassed $1.0 Trillion, about three times the year ago rate and way above government forecasts. As a Credit analyst, these numbers gave me the chills. The Chinese Credit system appears to have commenced the “terminal phase” of Credit excess. Export industries may remain weak, but Chinese housing, auto and equities markets – the current focal point of Credit expansion – are generally robust.

Perhaps Chinese authorities are already moving behind the scenes to try to rein in excesses. Yet a key facet of a Credit Bubble’s “terminal phase” is that it becomes a formidable challenge to muscle the Jeanie back in the bottle. Over time, Bubble economies become increasingly unstable. As we witnessed here at home, a point is reached where policymakers view the risks of bursting the Bubble as too great – and they justify and rationalize. Too many – individual and institutions – become dangerously exposed to inflated asset prices. The unbalanced and maladjusted economy becomes acutely vulnerable to a downward spiral. Erratic behavior engulfs assets markets, economic activity and speculative flows, creating confusion and policymaker paralysis. And, especially relevant to the current Chinese predicament, an increasingly unequal distribution of (Bubble economy) wealth creates a volatile social backdrop. When push comes to shove, authorities will generally feed the Credit beast – and the unchecked “terminal phase” is left to run completely out of control.

“Macro” analysis remains today as fascinating as it is challenging. Here at home, Washington seems poised to move against unhelpful speculation. The marketplace has good reason to fear heavy-handedness. But don’t be surprised if it turns out more a case of light coddling: “Speculators please take notice that it is to your advantage to buy corporate bonds and mortgages instead of oil futures contracts.” Fiscal and monetary policymakers are formulating a recovery strategy. I would expect them to pull out all the stops – and not give up easily - in their efforts to accomplish objectives.

And despite the recent bludgeoning meted out in the commodities markets, I’m not keen to abandon the global reflation thesis. At its root, global reflation is premised upon a synchronized global government finance Bubble consequent to bursting Credit Bubbles and the breakdown in the global dollar reserve system. I am comfortable with the thesis yet recognize the analysis is tough and the circumstances fluid. Mostly, uncertainty and market volatility are as expected.

“There’s no summer gasoline demand season this year in the U.S.,” Tchilinguirian said in an interview yesterday in Tokyo. “It can test the low $40’s, and again our average is relatively weak at $58 a barrel for the third quarter.”

The Commerce Department said Tuesday that retail sales rose 0.6 percent last month, better than the 0.4 percent gain that economists had expected.

Excluding autos, retail sales rose by 0.3 percent in June, lower than the 0.5 percent rise that economists had expected. Much of the strength outside of autos reflected the big jump in gasoline prices during the month, a rise that pushed sales at gasoline stations up by 5 percent, after a similarly big jump in May. Excluding gasoline, retail sales would have risen by 0.3 percent last month

The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.5 from a nine-month high of minus 2.2 in June, the bank said today. Negative numbers signal contraction.

Total business inventories shrank at a record $87.1 billion annual rate in the first quarter, subtracting 2.2 percentage points from gross domestic product. Economists estimate companies continued to slash stockpiles in the second quarter, setting the stage for expansion in the second half of the year.

Initial jobless claims dropped by 47,000 to 522,000, lower than forecast, in the week ended July 11, from a revised 569,000 the prior week, the Labor Department said today in Washington. The number of people collecting unemployment insurance plunged by a record 642,000, also reflecting seasonal issues surrounding the closures at carmakers….
“The automotive industry shutdowns have occurred and they aren’t occurring when the seasonals expected them to,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “We ought to see in the next couple of weeks claims come back to something resembling an underlying trend” in the 600,000 range, he said.

As of June 30, nearly 1.53 million U.S. properties were subject to a default notice, auction-sale notice, or bank repossession, RealtyTrac reported.
Nearly 1.2% of all U.S. housing units -- 1 in 84 -- were subject to a foreclosure filing in the first half, RealtyTrac reported.
Despite an industrywide moratorium on foreclosures earlier this year plus legislative action and more efforts by lenders to modify the terms of mortgages, "foreclosure activity continues to increase to record levels," RealtyTrac Chief Executive James J. Saccacio said in a statement.
People who've lost jobs "account for much" of the increase, and borrowers who owe more on their mortgages than their homes are worth represent a significant risk going forward, he said.

Nine months after accepting more than $200 billion in government rescue funds aimed at preventing a collapse of the financial system, U.S. banks are girding for more losses from mortgages, credit cards and other businesses linked to consumers, while their underwriting and trading units generate revenue at or near all-time highs.

“Capital-markets businesses are going very well right now, and Goldman Sachs is the best of the best,” said Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia. “But the consumer is still struggling out there and anybody with a lot of consumer exposure is struggling along with it.”

But Bank of America CEO Ken Lewis had some sobering words during a conference call with Wall Street analysts after his company's results were released Friday: "Profitability in the second half of the year will be much tougher than the first half."