• Tag Archives Debt
  • BofA: “2018 Is When Bond Investors Again Get Very Concerned About Fundamentals”

    One week ago, we closed the book on the long-running debate whether gross (and net) leverage is the highest on record, when we showed a chart from Goldman according to which net debt/EBITDA for all companies (with or without energy) is the highest on record, surpassing the previous credit bubble peak by nearly 0.3x turns. Furthermore, as Goldman said that the time, “given we are 8+ years into an economic expansion, we believe it’s prudent to also view this via a ‘normalized EBITDA’ lens (i.e., median NTM 2007Q1-2017Q1). On this basis, aggregate leverage (ex- Energy) would move up to 2.1x, roughly 20% higher than current levels and 18% above the prior cycle peak.”
    Of course, none of the above matters right now; in fact if anything as Friday’s oversubscribed Tesla bond sale as well as yesterday’s massively oversubscribed sale of Amazon bonds confirmed, investors still can’t get enough of corporate debt.
    But how much longer can this relentless re-leveraging continue before something snaps, or before someone finally pays attention? According to BofA’s chief credit strategist, Hans Mikkelsen, the answer is 2018.

    This post was published at Zero Hedge on Aug 16, 2017.

  • US Household Debt at Record Levels Not Seen Since 2008 Crisis

    American household debt hit an all-time high in the second quarter of 2017, with increases in every major category, from credit cards, to student loans, to mortgages.
    According to the latest quarterly household debt and credit report by the Federal Reserve Bank of New York, aggregate household debt increased for the 12th consecutive quarter. It now sits at $12.84 trillion, a level $164 billion higher than the previous peak of $12.68 trillion set in the third quarter of 2008. The level of household indebtedness in the US now stands at 69% of US GDP.
    No wonder US Global Investors CEO Frank Holmes calls debt ‘the mother of all bubbles.’
    Credit card debt eclipsed a record set during the summer of 2008. Americans carry $1,021.7 billion of revolving debt. Overall, credit card balances went up $4.1 billion in the month of July alone.

    This post was published at Schiffgold on AUGUST 16, 2017.

  • Austerity Isn’t Dead, It Will Come Back With A Vengeance

    Authored by Jonathan Rochford via NarrowRoadCapital.com,
    There’s been a steady stream of recent articles claiming that austerity is dead. The ‘magic’ of false measurements, animal spirits and money printing are used to convince the gullible that there is an easy way out.
    This one from James McCormack at Fitch argues that populist politicians are responsible for killing off pragmatic economic policy.
    Whilst I don’t deny the medium term tide is against austerity, the very high levels of sovereign debt mean austerity will return.

    This post was published at Zero Hedge on Aug 16, 2017.

  • The Central Bankers Have Become Desperate, They Are Asking People To… – Episode 1356a

    The following video was published by X22Report on Aug 15, 2017
    German and other countries are following in the US footsteps, there latest program cash for clunkers. Retail sales have improved according the corporate media. These numbers are manipulated to make you believe the retail has rebounded. Remove autos and factor in the number of stores closures the stats are terrible. CEO of Dick’s says they are in panic mode because their prices are two high. The housing bubble 2.0 is here as the number of people borrowing with less than 10% increases. NY Fed Dudley now says that low inflation is ok and wants everyone to access their equity in their homes and go spend it in retail. This is one of the last desperate act of the central bank. The Fed also warns that debt is two high and people will not be able to sustain the debt level.

  • Is this the Start of a Hot New Metals Bull Market?

    Major U. S. indices slid for a second straight week as President Donald Trump and North Korea both escalated their saber-rattling, with Kim Jong-un explicitly targeting Guam, home to a number of American military bases, and Trump tweeting Friday that ‘Military solutions are now fully in place, locked and loaded.’ The S&P 500 Index fell 1.5 percent on Thursday, its largest one-day decline since May. Military stocks, however, were up, led by Raytheon, Lockheed Martin and Northrop Grumman.
    As expected, the Fear Trade boosted gold on safe haven demand. The yellow metal finished the week just under $1,300, a level we haven’t seen since November 2016. Last week, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, said it was time for investors to put between 5 and 10 percent of their portfolio in gold as a precaution against global and domestic geopolitical risks. The threat of nuclear war is at the top of everyone’s mind, but Dalio reminds us that our indecisive Congress could very well fail to agree on raising the debt ceiling next month, meaning a ‘good’ government shutdown, as Trump once put it, would follow.
    Dalio’s not the only one recommending gold right now. Speaking to CNBC last week, commodities expert Dennis Gartman, editor and publisher of the widely-read Gartman Letter, said that he believed ‘gold is about to break out on the upside strongly’ in response to geopolitical risks and inflationary pressures. Gartman thinks investors should have between 10 and 15 percent of their portfolio in gold.

    This post was published at GoldSeek on Tuesday, 15 August 2017.

  • Diversify Into Gold Urges Dalio on Linkedin – ‘Militaristic Leaders Playing Chicken Risks Hellacious War’

    – Don’t let ‘traditional biases’ stop you from diversifying into gold – Dalio on Linkedin
    – ‘Risks are now rising and do not appear appropriately priced in’ warns founder of world’s largest hedge fund
    – Geo-political risk from North Korea & ‘risk of hellacious war’
    – Risk that U. S. debt ceiling not raised; technical US default
    – Safe haven gold likely to benefit by more than dollar, treasuries
    – Investors should allocate at least 5% to 10% of assets to gold
    – ‘If you don’t have 5-10% of your assets in gold as a hedge, we’d suggest that you relook at this’
    – ‘If you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you sharing it with us …’
    by Ray Dalio via Linkedin
    There are returns, and there are risks. We think of them individually, and then we combine them into a portfolio.
    We think of returns and opportunities as coming from those things we’d bet on, and we think of risks as the adverse market consequences of us being wrong due to our being out of balance. We start with our balanced beta portfolio – i.e., that portfolio that would most certainly fund our intended uses of the money.

    This post was published at Gold Core on August 15, 2017.

  • Household Debt At Record Level – Bigger Than China’s GDP

    The economy continues to grow weaker despite all of the Fed, Wall St. and media propaganda to the contrary. The economy is growing weaker due to the deteriorating financial condition of the consumer, which is by far the biggest driver of GDP in the United States. The only way the policy-makers can avoid a systemic collapse is ‘helicopter’ money printing, in which printed cash or digital currency credits is, in some manner, distributed to the populace.
    The Fed reported that non-revolving consumer debt (not including mortgage debt) hit $2.6 trillion at the end of the first quarter. Student loans outstanding hit a record $1.44 trillion. Recall that at least 40% of this debt is in some form of delinquency, default or ‘approved’ non-pay status. Auto loans hit a record $1.2 trillion. Of this, at the very least 30% is subprime. A meaningful portion of the auto debt is of such poor credit quality when it’s issued that it is not even rated. Credit card debt is now over $1 trillion dollars and at a record level. The average outstanding balance per capita is $9600 per card for those who don’t pay in full at the end of the month. Just counting the households with credit card debt balances, the average balance per household is $16,000. The average household auto loan balance for all households with a car loan is over $29,000.
    The data shows a consumer that is buried in debt and will likely begin to default at an accelerating rate this year. In fact, I’d call these statistics an impending economic and financial disaster. Credit card companies are already warning about credit charge-offs. Synchrony (which issues credit cards for Amazon and Walmart) reported that its credit card charge-offs would rise at least 5% in 2017. Capital One (Question: ‘What’s in your wallet?’ – Answer: ‘Not money’) reported that credit card charge-offs soared 28% year over year for Q1. Synchrony, Capital One and Discover combined increased their Q1 provision for bad loans by 36% over last year’s provisions taken.

    This post was published at Investment Research Dynamics on August 14, 2017.

  • Government & Revolution – Is it Inevitable?

    I have been warning that as governments move closer to this major event of a Sovereign Debt Crisis which begins next year with the start of the Monetary Crisis Cycle, they historically will ALWAYS, and without exception, bite the hand that has fed them. The object for government is survival of the fittest and that is them. This is never really about helping people as they raise retirement ages, punish the youth with school loans they cannot discharge, and exempt themselves from most laws that apply to us. This is also never about how to properly run the economy for the benefit of all. It always boils down to it being them against us. Throughout history, there has never been even one benevolent government that has ever surrendered power willingly for the good of the country or the people. That has NEVER happened even once. Power has always had to be ripped from their grasp either by the people, an internal coup, or some foreign invader.

    This post was published at Armstrong Economics on Aug 15, 2017.

  • US Stock Buybacks In Biggest Slide Since The Financial Crisis

    In light of today’s euphoric market reaction, which has seen the VIX plunge by over 3 vols, or 20% lower, to just over 12 and sent both the Nasdaq and S&P higher by 1% on relief that there were no mushroom clouds of the weekend, the jury is out whether last week’s sharp risk off, short-vol mauling will persist or be just another BTFD opportunity. But while last week’s tension may already be forgotten, some disturbing trends persist. As SocGen’s Andrew Lapthorne writes, while the S&P trades near all time highs, the smaller cap Russell 2000 dropped a much sharper 2.7%, leaving this index up just 1.3% for the year and down 5% over the last couple of weeks on what we discussed last week was a growing concern for the US economy and companies who do not have exposure to international revenue.
    Furthermore, High Yield Credit also fell sharply. Along with the Russell 2000, HYG has also unwound most of this year’s positive performance in a matter of weeks. As Lapthorne writes, “in our view, high yield credit and the Russell 2000 are all the same trade with different wrappers. Their continued success is highly dependent on asset volatility remaining as subdued and debt markets as generous as they have been, both of which we think is highly unlikely.”

    This post was published at Zero Hedge on Aug 14, 2017.

  • The Return of the Debt Ceiling, 2017 Edition

    In what is almost an annual tradition now, the US Congress will soon come up on the deadline where it must either approve a new increase in the statutory debt ceiling, the total amount of public debt outstanding that the US government is officially allowed to have on its books, or risk defaulting on payments owed to the US government’s creditors.
    Read The Timetable for an Exploding US Debt Bomb
    Business Insider’s Bob Bryan outlines the worst case scenario facing the nation if the Congress fails to increase the debt limit to cover the amount of spending it has previously approved.
    Congress, in the midst of a month-long August recess, faces a massive policy threat when lawmakers return to Washington next month.
    By the end of September, Congress must approve legislation to raise the nation’s debt ceiling – or risk a goal economy disaster. And it already sounds like the attempts at a compromise aren’t going well….
    If breached, it could lead to disastrous consequences for the federal government, the US economy, and the global financial system. If the debt ceiling is not raised, the federal government would lose the ability to pay bills it already owes in the form of US Treasury bills and could lead the US to default on some of that debt.

    This post was published at FinancialSense on 08/14/2017.

  • Margin Debt Sets Four New Peaks This Year – a Red Flag with a New Twist

    According to the latest data from the New York Stock Exchange, margin debt has hit new peaks four times this year, starting with a new record of $513 billion in January; $528 billion in February; $536.9 billion in March; and reaching a whopping $549 billion in April. The most recent reading for June shows a decline to $539 billion – but that is still an increase of 64 percent from the margin level of January 2008, the year of the epic financial crash on Wall Street.
    Spiraling margin debt, where investors pledge securities at their brokerage firm to obtain a loan, typically to buy more securities, is frequently associated with stock market crashes. The dot.com bust followed a margin buying binge in 1999 and early 2000. Margin debt exploded from $153 billion in January 1999 to $278.5 billion by March of 2000, according to data from the New York Stock Exchange archives.
    Loans using securities as collateral may be even more dangerous this time around. According to an enforcement action filed by the Massachusetts Securities Division on October 3, 2016, brokerage firms may be pushing securities based loans on their clients for purposes of mortgage funding, tax liabilities, weddings, and graduations. The enforcement action was brought against Morgan Stanley, the behemoth brokerage firm that gobbled up Smith Barney brokers, but the charges include an interesting statement from a former Morgan Stanley broker that suggests that another giant brokerage firm, Merrill Lynch, is offering similar loans. The statement from the broker reads:
    ‘Morgan Stanley told our office during the end of February [2015] and beginning of March to pitch this product to all its customers. Management said they were doing this to keep up with its major competitor, Merrill Lynch, who was already offering express credit lines. They told us that there was big money to be made by having our customers take out credit since the variable interest rate was profitable to the company and they could just sell out of the customers positions if the customer failed to make the payment. They told us to call our customers to tell them that they could use the credit line to buy a house, pay for a home improvement project, buy a car and/or pay for school, etc. They asked us regularly how many people we had put in these products and used measurement tools to compare us amongst our peers. I did not feel comfortable recommending every customer establish a credit line because I felt that my role as a Financial Advisor and Fiduciary was to help customers save and make money and not go into bad debt.’

    This post was published at Wall Street On Parade on August 14, 2017.

  • Bitcoin Has No Yield, but Gold Does

    Last week, we said:
    It is commonly accepted to say the dollar is ‘printed’, but we can see from this line of thinking it is really borrowed. There is a real borrower on the other side of the transaction, and that borrower has powerful motivations to keep paying to service the debt.
    Bitcoin has no backing. Bitcoin is created out of thin air, the way people say of the dollar. The quantity of bitcoins created may be strictly limited by Satoshi’s design.
    We referred to the dollar as being borrowed into existence, to make our point that the dollar’s value is pretty firm, due to the struggles of the debtors. By contrast, bitcoin is created ex nihilo (yes, yes, at a limited rate and subject to an ultimate cap on its quantity).
    A reader took exception to the idea, and asserted that bitcoin is borrowed and lent all the time. We would like to address this, though first noting that this reader failed to address our point. A bitcoin is not, itself, a debt. It is not borrowed into existence. Now we will consider the reader’s point whether there is any real borrowing in bitcoin at all.

    This post was published at GoldSeek on Monday, 14 August 2017.

  • Technical Scoop – Weekly Update: August 13, 2017

    It hardly seems much of a contest: the world’s most powerful nation both economically and militarily vs. one of the poorest nations on earth but with a strong, or at least large, military. So far, the war has been rhetorical as both sides though their respective leaders hurl superlatives at each other that usually end in one of them being engulfed in a ring of fire. The words, however, have unnerved global markets.
    This past week saw upwards of $1 trillion shaved from global stock markets triggered by Donald Trump’s and Kim Jong Un’s ongoing war of words. The last word has so far gone to Donald Trump who did his usual tweet, asserting that ‘military solutions are now in place, locked and loaded, should North Korea act unwisely.’ Earlier, North Korea had threatened to land a missile near the US Pacific territory of Guam in response to Trump’s promise to unleash ‘fire and fury.’ The world can only shudder at the thought of a nuclear exchange. But words are having an impact as stock markets ‘hurled’ and safe havens of Japanese Yen, Swiss Francs, US Treasuries, and German Bunds and gold jumped higher.
    US and global stock markets had been hurtling ever higher and valuations are near record. A correction was most likely overdue. The war of words and tensions over North Korea was the trigger. How deep the correction goes is anybody’s guess at the moment. Numerous pundits believe that the odds of actual war between the verbal combatants is low, but that a correction was probably overdue and this could result in a buying opportunity.
    The likelihood is that the rhetoric and war of words is liable to continue for some time. Even if North Korea were to launch more missiles into the sea, it most likely would up the ante and rattle markets further. An overvalued market and sabre rattling is a recipe for the correction. Inflation numbers released this past week were benign. As a result, the combination of the sabre rattling and a stumbling market could keep the Fed on the sidelines through the rest of the year. And that is not even getting into the looming fight over the budget, tax reform and the debt ceiling. Also, let’s not forget the ongoing investigation into the Trump campaign and the Russians being conducted by special counsel Robert Mueller.

    This post was published at GoldSeek on 13 August 2017.

  • Tesla Upsizes Junk Bond Offering After Excess Demand

    There’s covenant-lite and then there’s “zero covenant” junk debt, and moments ago Tesla just sold $1.8 billion of the former, upsizing what was previously expected to be a $1.5 billion issue. The deeply junk “B3/B-” rated bond was priced at par to yield 5.25%, with Goldman – who famously slashed its Tesla price target to $180 a month ago – as lead left. It was unclear how many times the offering was oversubscribed but one guess offered was “many.”
    The details from Bloomberg:
    Issuer: Tesla Inc $1.8b, up from $1.5b, 8NC3 sr notes Launch: 5.25% (Talk 5.25%) Maturity: 08/15/2025 Pricing at par Trade date: Aug. 11 Settles Aug. 18 144a for life Rated B3/B- Bookrunners: GS/MS/BARC/BofAML/C/DB/RBC Proceeds to strengthen balance sheet and GCP As for the reason why the bond is, as we call it, “zero covenant”, Bloomberg explained two days ago that Tesla’s biggest asset, its Gigafactory, has been carved out from the debt incumbrance basket, meaning when, not if, Musk needs to raise more debt, he can simply layer the just issued notes under the new debt offering that assures those who ran to give Musk $1.8 billion today get much less, if anything, back. Here’s Bloomberg:
    Valerie Potenza, the head of high-yield research at Xtract Research LLC, said “it’s a very lousy set of covenants.” … analysts combing through terms of the company’s plan to raise $1.5 billion with its debut offering in the junk-bond market [are] citing language that exempts Gigafactory 1 from the usual curbs that would prevent Tesla from using the factory as collateral for even more debt.

    This post was published at Zero Hedge on Aug 11, 2017.

  • UBS Explains Why The Next Credit Unwind Will Be Unlike Anything We’ve Seen Before

    Several weeks ago, Janet Yellen boldly declared “I don’t believe we will see another crisis in our lifetime.” For the rest of us who live in reality there is little doubt that the latest Fed-fueled credit bubble will eventually burst in epic fashion and once again lay waste to the personal balance sheets of millions of Americans. And while the timing of market collapses can never be predicted, UBS strategist Matthew Mish says there is one thing that is certain about the next credit unwind, it will be unlike anything we’ve seen before.
    To summarize, Mish notes that unlike previous credit expansion cycles, this current one has been dominated not by traditional banks but rather by non-bank lending entities and government backed loans, especially in riskier subprime residential, auto and student loans. Moreover, unlike traditional lenders, Government debt tends to be much slower to react to things like rising delinquency rates…you know, because it’s just taxpayer money so who cares.
    First, non-bank lending (as a share of net loan growth) has accounted for about two thirds of the total expansion, akin to prior cycles. However, the non-bank share has been elevated in residential real estate (at 101%), but depressed in commercial real estate (30%) versus history. Second, the role of federal credit support has been very material, with a significant 45% of net loan growth this cycle coming from government (or government guaranteed) loans. In particular, government backed loans (as a share of the debt stock) now comprise a record 63% of residential and 29% of consumer loans, respectively, up 9% and 18% from 2010. In nominal terms, non-government related net debt growth has been negative for retail loans in aggregate. Third, while the share of non-bank lending has held steady, their share of higher risk debt has increased substantially across many loan categories. Non-banks account for 58% of outstanding adversely rated (leveraged loan) commitments, roughly 75% of recently originated FHA mortgage loans, and over 85% of subprime student and auto loans. With some exceptions (think auto and student loans), Mish notes that overall non-financial debt growth has roughly mirrored past credit cycles.

    This post was published at Zero Hedge on Aug 11, 2017.

  • Forgive and Forget Won’t Fix College Debt

    ‘Free’ college and loan forgiveness are increasingly popular ideas. According to a recent AOL News poll, for example, 49 percent of respondents believe every state should offer free four-year public college tuition. Another poll by MoneyTips.com found that nearly 42 percent of respondents favored forgiving all student loan debt.
    Such results are understandable. After all, who doesn’t like forgiveness and free stuff?
    The ones paying for it, that’s who – especially since the bill’s probably going to be pretty steep.
    Total student debt now tops $1.4 trillion, and there’s growing evidence that borrowing by the federal government to subsidize its student lending is hurting the economy.
    President Trump has proposed several student loan reforms designed to streamline repayment plans and make them more affordable for student borrowers (p. 20).

    This post was published at FinancialSense on 08/11/2017.

  • Why Precious Metals? Here Are The Fundamentals In 2017 | Golden Rule Radio

    The following video was published by McAlvany Financial on Aug 11, 2017
    This week we discuss why Precious Metals are key to your portfolio and the fundamentals that support that in 2017. We’ll discuss Gold, Silver, Platinum, & Palladium in relationship to the larger macro global economic picture. Tensions continue to rise between the Superpowers as Global Debt soars. Governments can no longer hide the enormous debt they harbor, as Central Banks run out of options to help prolong these failing systems. We’ll talk about the Bond Market, US Dollar Index, & how Fiat currencies across the globe continue to lose their value. Learn how you can protect yourself from these risks, preserve the value of your wealth, and hedge against risk in this week’s Golden Rule Radio. We will be back with a regular chart based show next week. Thank you for listening and if you enjoyed please hit the thumbs up button.

  • Asian Metals Market Update: August-11-2017

    Factors which can affect markets
    Trump’s rhetoric on nuclear attack on North Korea is a case of barking dogs seldom bite. A nuclear attack on North Korea will indirectly affect people of South Korea as well as people of China. The Japanese Fukushima nuclear disaster is still yet to be fully controlled despite many years. All news related to Fukushima is highly censored. There is a difference between armed attack to dethrone the North Korean monarchy and a nuclear attack. There is a little doubt that North Korea will very soon become a colony of NATO. The American knows that North Korea armed attack will get over quickly whenever they want it. So they have now started Venezuela. American say that Venezuelan elections is rigged and was not conducted in the way they want to. America’s message to the world is that if anything is not done as per their whims and fancies then unleash a global alienation for that nation. On the contrary everyone knows that American elections is the most rigged election among the democratic nations. Certain reports say that the per capita alcoholics is highest in USA in the world, USA has the highest per capita credit card debt. The real purchasing power of the US dollar is on the slide. In the long term gold will rise. Gold is money. Gold is the real asset.

    This post was published at GoldSeek on 11 August 2017.