Lagged Effects

Take a chance like all dreamers

Can't find another way

You don't have to dream it all

Just live a day
--Duran Duran

Another insightful interview with Stephanie Pomboy. I find the Maven's focus on credit market fallout from the Fed's tightening program intuitive. In leveraged systems, rate hikes and tight money policies increase stress and lead to failure.

But, as Pomboy observes, the effects are often lagged. She points to recent trends from credit upgrades to downgrades, as well as a lender bankruptcy or two, as evidence since they come several months after the Fed began its tightening campaign.  

Recall the 2008 credit collapse. The Fed was raising rates in 2006 but it wasn't until early 2007 that the first substantial cracks started appearing. New Century Financial, anyone?

And then it took another year until the crescendo really started to build.

If Pomboy is correct, and I think she is, then additional data points that reflect credit market stress should be pending.