Lesson 2
Credit Cycle vs Business Cycle
Watch credit conditions as a LEADING indicator. When SLOOS shows tightening and spreads widen, reduce risk even if economic data looks fine.
📊 Indicators mentioned in this lesson (click for details):
Credit often LEADS the economy by 6-12 months. Understanding this gives you an edge.
Why Credit Leads:
- Banks see early stress signals before the economy officially slows
- Credit tightening CAUSES slowdown (less credit → less spending → recession)
- Credit loosens before recovery is obvious
The Typical Sequence:
Credit Peak → Economy Peaks (6-12 months later) ↓ Credit Contracts → Recession Begins ↓ Credit Trough → Economy Troughs ↓ Credit Expands → Recovery Begins
Reading the Lead:
- SLOOS tightening while economy looks fine = recession warning
- SLOOS easing while economy still weak = recovery coming
- Spreads widening while stocks flat = stocks will catch down
- Spreads tightening while stocks falling = stocks will catch up
Check your understanding
Lesson Quiz
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Quiz Check
SLOOS shows 45% net tightening but employment data is strong. What should you expect?