While China is bracing for what may be a historic D-Day event on December 9, when the "unprecedented" default of state-owned, commodity-trading conglomerate Tewoo with $38 billion in assets may take place, it has already been a banner year for Chinese bankruptcies.
According to Bloomberg data, China is set to hit another dismal milestone in 2019 when a record amount of onshore bonds are set to default, confirming that something is indeed cracking in China's financial system and "testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to cope with unprecedented levels of debt."
After a brief lull in the third quarter, a burst of at least 15 new defaults since the start of November have sent the year’s total to 120.4 billion yuan ($17.1 billion), and set to eclipse the 121.9 billion yuan annual record in 2018.
The good news is that this number still represents a tiny fraction of China’s $4.4 trillion onshore corporate bond market; the bad news is that the rapidly rising number is approaching a tipping point that could unleash a default cascade, and in the process fueling concerns of potential contagion as investors struggle to gauge which companies have Beijing’s support. As Bloomberg notes, policy makers have been walking a tightrope as they try to roll back the implicit guarantees that have long distorted Chinese debt markets, without dragging down an economy already weakened by the trade war and tepid global growth.
"The authorities have found it hard to rescue all the companies," said Wang Ying, a Shanghai-based analyst at Fitch Ratings, perhaps envisioning at least two banks that have experienced depositor runs in the month of November in the aftermath of an unprecedented succession of bank failures earlier in the year.
It's not just banks however: this year’s debt woes have spread to a broad array of industries, from property developers and steelmakers to new-energy firms and software makers. The types of borrowers facing repayment difficulties has also expanded from private companies and local state-run firms to business arms of universities, an obscure and loosely regulated corner of China’s corporate world.
China's two latest defaults involved just such a company; on Monday Peking University Founder Group shocked investors after failing to repay a 2 billion yuan bond. The same day, Tunghsu Optoelectronic Technology, a maker of photoelectric display components, also failed to deliver early repayment on both interest and principal for a 1.7 billion yuan note.
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
Showing posts with label Debt Default. Show all posts
Showing posts with label Debt Default. Show all posts
November 15, 2019
One Bank Finally Admits The Fed's "NOT QE" Is Indeed QE... And Could Lead To Financial Collapse
After a month of constant verbal gymnastics (and diarrhea from financial pundit sycophants who can't think creatively or originally and merely parrot their echo chamber in hopes of likes/retweets) by the Fed that the recent launch of $60 billion in T-Bill purchases is anything but QE (whatever you do, don't call it "QE 4", just call it "NOT QE" please), one bank finally had the guts to say what was so obvious to anyone who isn't challenged by simple logic: the Fed's "NOT QE" is really "QE."
In a note warning that the Fed's latest purchase program - whether one calls it QE or NOT QE - will have big, potentially catastrophic costs, Bank of America's Ralph Axel writes that in the aftermath of the Fed's new program of T-bill purchases to increase the amount of reserves in the banking system, the Fed made an effort to repeatedly inform markets that this is not a new round of quantitative easing, and yet as the BofA strategist notes, "in important ways it is similar."
But is it QE? Well, in his October FOMC press conference, Fed Chair Powell said "our T-bill purchases should not be confused with the large-scale asset purchase program that we deployed after the financial crisis. In contrast, purchasing Tbills should not materially affect demand and supply for longer-term securities or financial conditions more broadly." Chair Powell gives a succinct definition of QE as having two basic elements: (1) supporting longer-term security prices, and (2) easing financial conditions.
Here's the problem: as we have said since the beginning, and as Bank of America now writes, "the Fed's T-bill purchase program delivers on both fronts and is therefore similar to QE," with one exception - the element of forward guidance.
The upshot to this attempt to mislead the market what it is doing according to Bank of America, is that:
the Fed is continuing to "ease" even though rate cuts are now on hold, which is supportive of growth, higher interest rates and higher equities, and the Fed is loosening financial conditions by increasing the availability of, and lowering the cost of, leverage, which broadly supports asset prices potentially at the cost of increasing systemic financial risk.
Putting the Fed's "NOT QE" in context: so far the Fed has purchased $66bn of Tbills and may purchase $60bn per month through June 2020, which could result in an increase in the Fed's Treasury holdings by about $500bn.
While we have repeatedly written in the past why we think the Fed's latest asset purchase program is, in fact, QE, below we present BofA's argument why we are right.
As Axel writes, there are two basic mechanisms how T-Bill purchases support longer-term security prices: the increase in cash assets and deposit liabilities on bank balance sheets, and the reduction of funding risk for leveraged buyers of Treasuries, MBS and other financed securities.
For those who have forgotten how the "asset reflation" pathway works, recall that the Fed either buys T-bills from investors such as money market funds, or from primary dealers who do not hold T-bills, but can buy them at auction to sell to the Fed. Buying from investors converts their T-bill holdings into new Fed cash, which in turn winds up on deposit in the banking system. If instead a primary dealer buys a Tbill at auction and sells it to the Fed, the transaction results in new Fed cash placed in the Treasury's cash account, while the dealer balance sheet is unchanged, and the banking system balance is also unchanged. But once the Treasury spends the new Fed cash on a social security payment or a medical insurance bill, etc, the cash enters the banking system and increases the aggregate balance sheet of banks.
Either way, bank balance sheets expand and banks will need to (1) hold more HQLA (high quality liquid assets) against those deposits, and (2) put some of their new cash to work in longer-term securities such as mortgage-backed securities (or even stocks)? Although banks can be flexible in how they deploy the new cash, it is likely that a portion of it will go into bonds similar to what banks already hold (currently $1.8TN in MBS securities and $770bn in Treasuries, according to Fed H.8 data). And once bonds are bid, other investors have no choice but to reach for even riskier securities, such as stocks.
Meanwhile, while the Fed does not directly lend to leveraged investors, some of the increased cash on hand at banks will likely go into repo markets to fund overnight loans to potential buyers of long-term securities in Treasuries and mortgages. This, as BofA explains, is how the increase in reserves is designed to calm repo markets. The amount of bank lending in repo has increased by about 50% since the end of 2017.
Focusing just on the increasingly more important repo channel, which is one ingredient within overall financial conditions, is becoming more important as reliance on overnight funding and leverage continues to rise. This is because, as BofA shows in its "chart of the day", while banks and security brokers have greatly reduced reliance on overnight funding as a result of Dodd-Frank, the rest of the market has approximately doubled its reliance on overnight funding since the 2008 crisis.
Read the entire article
In a note warning that the Fed's latest purchase program - whether one calls it QE or NOT QE - will have big, potentially catastrophic costs, Bank of America's Ralph Axel writes that in the aftermath of the Fed's new program of T-bill purchases to increase the amount of reserves in the banking system, the Fed made an effort to repeatedly inform markets that this is not a new round of quantitative easing, and yet as the BofA strategist notes, "in important ways it is similar."
But is it QE? Well, in his October FOMC press conference, Fed Chair Powell said "our T-bill purchases should not be confused with the large-scale asset purchase program that we deployed after the financial crisis. In contrast, purchasing Tbills should not materially affect demand and supply for longer-term securities or financial conditions more broadly." Chair Powell gives a succinct definition of QE as having two basic elements: (1) supporting longer-term security prices, and (2) easing financial conditions.
Here's the problem: as we have said since the beginning, and as Bank of America now writes, "the Fed's T-bill purchase program delivers on both fronts and is therefore similar to QE," with one exception - the element of forward guidance.
The upshot to this attempt to mislead the market what it is doing according to Bank of America, is that:
the Fed is continuing to "ease" even though rate cuts are now on hold, which is supportive of growth, higher interest rates and higher equities, and the Fed is loosening financial conditions by increasing the availability of, and lowering the cost of, leverage, which broadly supports asset prices potentially at the cost of increasing systemic financial risk.
Putting the Fed's "NOT QE" in context: so far the Fed has purchased $66bn of Tbills and may purchase $60bn per month through June 2020, which could result in an increase in the Fed's Treasury holdings by about $500bn.
While we have repeatedly written in the past why we think the Fed's latest asset purchase program is, in fact, QE, below we present BofA's argument why we are right.
As Axel writes, there are two basic mechanisms how T-Bill purchases support longer-term security prices: the increase in cash assets and deposit liabilities on bank balance sheets, and the reduction of funding risk for leveraged buyers of Treasuries, MBS and other financed securities.
For those who have forgotten how the "asset reflation" pathway works, recall that the Fed either buys T-bills from investors such as money market funds, or from primary dealers who do not hold T-bills, but can buy them at auction to sell to the Fed. Buying from investors converts their T-bill holdings into new Fed cash, which in turn winds up on deposit in the banking system. If instead a primary dealer buys a Tbill at auction and sells it to the Fed, the transaction results in new Fed cash placed in the Treasury's cash account, while the dealer balance sheet is unchanged, and the banking system balance is also unchanged. But once the Treasury spends the new Fed cash on a social security payment or a medical insurance bill, etc, the cash enters the banking system and increases the aggregate balance sheet of banks.
Either way, bank balance sheets expand and banks will need to (1) hold more HQLA (high quality liquid assets) against those deposits, and (2) put some of their new cash to work in longer-term securities such as mortgage-backed securities (or even stocks)? Although banks can be flexible in how they deploy the new cash, it is likely that a portion of it will go into bonds similar to what banks already hold (currently $1.8TN in MBS securities and $770bn in Treasuries, according to Fed H.8 data). And once bonds are bid, other investors have no choice but to reach for even riskier securities, such as stocks.
Meanwhile, while the Fed does not directly lend to leveraged investors, some of the increased cash on hand at banks will likely go into repo markets to fund overnight loans to potential buyers of long-term securities in Treasuries and mortgages. This, as BofA explains, is how the increase in reserves is designed to calm repo markets. The amount of bank lending in repo has increased by about 50% since the end of 2017.
Focusing just on the increasingly more important repo channel, which is one ingredient within overall financial conditions, is becoming more important as reliance on overnight funding and leverage continues to rise. This is because, as BofA shows in its "chart of the day", while banks and security brokers have greatly reduced reliance on overnight funding as a result of Dodd-Frank, the rest of the market has approximately doubled its reliance on overnight funding since the 2008 crisis.
Read the entire article
November 14, 2019
Guess Who Is Preparing For A Major Stock Market Crash?
Pessimism is spreading like wildfire on Wall Street, and this is particularly true among one very important group of investors. And considering how much money they have, it may be wise to listen to what they are telling us. According to a very alarming survey that was recently conducted by UBS Wealth Management, most wealthy investors now believe that there will be a “significant” stock market decline before the end of next year. The following comes from Yahoo Finance…
Wealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management.
A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. The U.S.-China trade conflict is their top geopolitical concern, while the upcoming American presidential election is seen as another significant threat to portfolios.
Of course this could ultimately become something of a self-fulfilling prophecy if enough wealthy investors pull their money out of stocks and start increasing their cash reserves instead. Nobody wants to be the last one out of the barn, and it isn’t going to take too much of a spark to set off a full-blown panic. Perhaps the most troubling number from the entire survey is the fact that almost 80 percent of the wealthy investors that UBS surveyed believe that “volatility is likely to increase”…
Nearly four-fifths of respondents say volatility is likely to increase, and 55% think there will be a significant market sell-off before the end of 2020, according to the report which was conducted between August and October and polled those with at least $1 million in investable assets. Sixty percent are considering increasing their cash levels further, while 62% plan to increase diversification across asset classes.
During volatile times for the market, stocks tend to go down.
And during extremely volatile times, stocks tend to go down very rapidly.
Could it be possible that many of these wealthy investors have gotten wind of some things that the general public doesn’t know about yet?
Of course the truth is that anyone with half a brain can see that stock valuations are ridiculously bloated right now and that a crash is inevitable at some point.
And as I noted yesterday, corporate insiders are currently selling off stocks at the fastest pace in about two decades.
But why is there suddenly so much concern about 2020?
A different survey of business executives that was recently conducted found that 62 percent of them believe that “a recession will happen within the next 18 months”…
A majority of respondents – 62% – believe a recession will happen within the next 18 months. Private companies are particularly worried that a recession lurks in the near term, with 39% anticipating a recession in the next 12 months. This compares with 33% of public company respondents who felt the same way. About one-quarter – 23% – of respondents do not expect a recession within the next two years.
Read the entire article
Wealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management.
A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. The U.S.-China trade conflict is their top geopolitical concern, while the upcoming American presidential election is seen as another significant threat to portfolios.
Of course this could ultimately become something of a self-fulfilling prophecy if enough wealthy investors pull their money out of stocks and start increasing their cash reserves instead. Nobody wants to be the last one out of the barn, and it isn’t going to take too much of a spark to set off a full-blown panic. Perhaps the most troubling number from the entire survey is the fact that almost 80 percent of the wealthy investors that UBS surveyed believe that “volatility is likely to increase”…
Nearly four-fifths of respondents say volatility is likely to increase, and 55% think there will be a significant market sell-off before the end of 2020, according to the report which was conducted between August and October and polled those with at least $1 million in investable assets. Sixty percent are considering increasing their cash levels further, while 62% plan to increase diversification across asset classes.
During volatile times for the market, stocks tend to go down.
And during extremely volatile times, stocks tend to go down very rapidly.
Could it be possible that many of these wealthy investors have gotten wind of some things that the general public doesn’t know about yet?
Of course the truth is that anyone with half a brain can see that stock valuations are ridiculously bloated right now and that a crash is inevitable at some point.
And as I noted yesterday, corporate insiders are currently selling off stocks at the fastest pace in about two decades.
But why is there suddenly so much concern about 2020?
A different survey of business executives that was recently conducted found that 62 percent of them believe that “a recession will happen within the next 18 months”…
A majority of respondents – 62% – believe a recession will happen within the next 18 months. Private companies are particularly worried that a recession lurks in the near term, with 39% anticipating a recession in the next 12 months. This compares with 33% of public company respondents who felt the same way. About one-quarter – 23% – of respondents do not expect a recession within the next two years.
Read the entire article
November 8, 2019
Global Debt Is Up To $188,000,000,000,000 – This Is Officially The Biggest Debt Bubble The World Has Ever Seen
The world is now 188 trillion dollars in debt, and that number continues to grow rapidly each year. It is a form of enslavement that is deeply insidious, because most of those living on the planet do not even understand how the system works, and even if they did most of them would have absolutely no hope of ever getting free from it. The borrower is the servant of the lender, and the global financial system is designed to funnel as much wealth to the top 0.1% as possible. Of course throughout human history there has always been slavery, and the primary motivation for having slaves is to extract an economic benefit from those that are enslaved. And even though most of us don’t like to think of ourselves as “slaves” today, the truth is that the global elite are extracting more wealth from all of us than ever before. So much of our labor is going to make them wealthy, and yet most people don’t even realize what is happening.
Let’s start with a very simple example to help illustrate this.
When you go into credit card debt and you only make small payments each month, you can easily end up paying back more than double the amount of money that you originally borrowed.
So where does all that money go?
Well, of course it goes to the financial institution that you got your credit card from, and in turn that financial institution is owned by the global elite.
In essence, you willingly became a debt slave when you chose to go into credit card debt, and the hard work that it took to earn enough money to pay back that debt with interest ended up enriching others.
On a much larger scale, the same thing is happening to entire nations.
Today, the United States government is nearly 23 trillion dollars in debt. In essence, we have been collectively enslaved, and we have been obligated to pay back all of that money with interest. Of course at this point it is literally impossible for us to ever pay back all that debt, and every year we add another trillion dollars or so to the balance. The global elite are now extracting more than 500 billion dollars in interest from this debt on an annual basis, and it is expected that number will greatly escalate in the years ahead.
It is not an accident that the Federal Reserve and the federal income tax were both instituted in 1913. The Federal Reserve system was designed to create an endless debt spiral that would get the federal government in as much debt as possible, and since that time the size of our national debt has gotten more than 7000 times larger. And the federal income tax was needed as the mechanism through which our wealth is transferred to the government to service all of this debt.
It is truly a deeply, deeply insidious system, and the American people should refuse to back any politician that does not favor shutting it down, but at this point this isn’t even a major political issue in our nation.
Read the entire article
Let’s start with a very simple example to help illustrate this.
When you go into credit card debt and you only make small payments each month, you can easily end up paying back more than double the amount of money that you originally borrowed.
So where does all that money go?
Well, of course it goes to the financial institution that you got your credit card from, and in turn that financial institution is owned by the global elite.
In essence, you willingly became a debt slave when you chose to go into credit card debt, and the hard work that it took to earn enough money to pay back that debt with interest ended up enriching others.
On a much larger scale, the same thing is happening to entire nations.
Today, the United States government is nearly 23 trillion dollars in debt. In essence, we have been collectively enslaved, and we have been obligated to pay back all of that money with interest. Of course at this point it is literally impossible for us to ever pay back all that debt, and every year we add another trillion dollars or so to the balance. The global elite are now extracting more than 500 billion dollars in interest from this debt on an annual basis, and it is expected that number will greatly escalate in the years ahead.
It is not an accident that the Federal Reserve and the federal income tax were both instituted in 1913. The Federal Reserve system was designed to create an endless debt spiral that would get the federal government in as much debt as possible, and since that time the size of our national debt has gotten more than 7000 times larger. And the federal income tax was needed as the mechanism through which our wealth is transferred to the government to service all of this debt.
It is truly a deeply, deeply insidious system, and the American people should refuse to back any politician that does not favor shutting it down, but at this point this isn’t even a major political issue in our nation.
Read the entire article
November 5, 2019
The Deutsche Bank Death Watch Has Taken A Very Interesting Turn
The biggest bank in Europe is in the process of imploding, and there are persistent rumors that the final collapse could happen sooner rather than later. Those that follow my work on a regular basis already know that this is a story that I have been following for years. Deutsche Bank is rapidly bleeding cash, they have been laying off thousands of workers, and the vultures have been circling as company executives desperately try to implement a turnaround plan. Unfortunately for Deutsche Bank, it may already be too late. And if Deutsche Bank goes down, it will be even more catastrophic for the global financial system than the collapse of Lehman Brothers was in 2008. Germany is the glue that is holding the EU together, and so if the bank that is right at the heart of Germany’s financial system collapses, the dominoes will likely start falling very rapidly.
There has been a tremendous amount of speculation about Deutsche Bank over the past several days, and so let’s start with what we know.
We know that Deutsche Bank has been losing money at a pace that is absolutely staggering…
Deutsche Bank reported a net loss that missed market expectations on Wednesday as a major restructuring plan continues to weigh on the German lender.
Read the entire article
November 1, 2019
Chinese Bank On Verge Of Collapse After Sudden Bank Run
First it was Baoshang Bank , then it was Bank of Jinzhou, then, two months ago, China's Heng Feng Bank with 1.4 trillion yuan in assets, quietly failed and was just as quietly nationalized. Today, a fourth prominent Chinese bank was on the verge of collapse under the weight of its bad loans, only this time the failure was far less quiet, as depositors of the rural lender swarmed the bank's retail outlets, demanding their money in an angry demonstration of what Beijing is terrified of the most: a bank run.
Local business leaders, political cadres and banking executives rallied Thursday at the main branch of Henan Yichuan Rural Commercial Bank, just outside the central Chinese city of Luoyang, where they stood one by one before a microphone to pledge their backing for the bank, as smiling employees brandished wads of cash before television cameras to demonstrate just how much cash, literally, the bank had.
It was China's latest, and most desperate attempt yet to project stability and reassure the public that all is well after rumors spread that the bank’s chairman was in trouble and the bank was on the brink of insolvency. However, as the WSJ reports, it wasn’t enough for 31-year-old Li Xue, who showed up for the third day Thursday to withdraw thousands of yuan of her mother’s life savings after hearing from fellow villagers that Yichuan Bank - which is the largest lender in Yichuan county by the number of branches and capital, and it is also a member of PBOC’s deposit insurance system, according to the local government - was going under.
Just like any self-respecting Ponzi scheme, the bank's branch managers tried to persuade her to keep her money with them until March, when her mother’s three-year deposits would mature, yielding more than 10,000 yuan in interest. And then, just like any Ponzi scheme, to sweeten the offer, the bank managers also offered her even higher-yielding products, plus supermarket gift cards, just to keep her money there..
"Our bank is state-backed, and your money is insured by deposit insurance," one female manager told her, but Ms. Li refused, her confidence in the state's lies crushed.
“We really can’t afford to lose the money,” she said.
The bank run at Yichuan Bank, located in China's landlocked province of Henan, makes it at least the fourth bank that authorities have rushed to rescue this year. It won't be the last.
Read the entire article
Local business leaders, political cadres and banking executives rallied Thursday at the main branch of Henan Yichuan Rural Commercial Bank, just outside the central Chinese city of Luoyang, where they stood one by one before a microphone to pledge their backing for the bank, as smiling employees brandished wads of cash before television cameras to demonstrate just how much cash, literally, the bank had.
It was China's latest, and most desperate attempt yet to project stability and reassure the public that all is well after rumors spread that the bank’s chairman was in trouble and the bank was on the brink of insolvency. However, as the WSJ reports, it wasn’t enough for 31-year-old Li Xue, who showed up for the third day Thursday to withdraw thousands of yuan of her mother’s life savings after hearing from fellow villagers that Yichuan Bank - which is the largest lender in Yichuan county by the number of branches and capital, and it is also a member of PBOC’s deposit insurance system, according to the local government - was going under.
Just like any self-respecting Ponzi scheme, the bank's branch managers tried to persuade her to keep her money with them until March, when her mother’s three-year deposits would mature, yielding more than 10,000 yuan in interest. And then, just like any Ponzi scheme, to sweeten the offer, the bank managers also offered her even higher-yielding products, plus supermarket gift cards, just to keep her money there..
"Our bank is state-backed, and your money is insured by deposit insurance," one female manager told her, but Ms. Li refused, her confidence in the state's lies crushed.
“We really can’t afford to lose the money,” she said.
The bank run at Yichuan Bank, located in China's landlocked province of Henan, makes it at least the fourth bank that authorities have rushed to rescue this year. It won't be the last.
Read the entire article
October 29, 2019
Texas Could Be The Epicenter Of The Next Subprime Auto Crisis
In a recent
report, we outlined how the largest subprime auto lender, Santander, is
currently experiencing one of the most significant accelerations in subprime
auto loan delinquencies, not seen since the dark days of 2008. Now, in a
separate report via the Federal Reserve Bank of Dallas, there is new
evidence that the epicenter of the next auto loan meltdown could start in
Texas.
The Texas auto subprime market
began experiencing a troughing event in serious auto delinquencies in 2015,
with a rapid turn up in 2016. By the end of 2018, the serious auto delinquency
rate was at 16.7%, approaching 2010 levels of 18.2%. Despite the "greatest
economy ever," the Dallas Fed admits rising wealth inequality could be
responsible for the growing delinquencies in Texas.
"It's clear something is going on," said Emily Ryder
Perlmeter, an adviser for the Dallas Fed and one of the report's authors.
"The economy may not be working as well for everyone."
Michael Carroll, an economist
at the University of North Texas, suggests the report is a clear indication that
consumers in easy money times took on too much auto debt. Carroll also said
consumer distress in Texas could be a bellwether for the broader economy and a
warning sign that the consumer is weakening.
Perlmeter
said rising auto loan delinquencies across the country is a severe problem, but
the meltdown unfolding in Texas is much worse than any other major metropolitan
area.
The Dallas Morning News noted the average auto loan in
the state is $23,500 as of late 2018.
Read the entire article
October 17, 2019
High-Income Millennials Say They'll "Need To Work Forever" Due To Lack Of Savings
The economy isn't even in a full-blown recession yet, but nearing one, and high-income millennials are already saying they'll need to work "forever" because they don't have enough savings, stated a new study via Spectrem Group, a wealth advisory company, first reported by Bloomberg. It certainly seems that after the financial crash of 2008/09, the economic environment for millennials ages 30 to 34 changed for the worst.
High-income millennials as a whole are maxed out on credit cards, student loans, auto loans, and if they're fortunate enough, have insurmountable mortgage debts. Their debt servicing payments have left many of them without savings, but it depends on which millennials you ask.
The study says 50% of high-income millennials ages 30 to 34 feel that they will work forever because their savings are depleted.
Meanwhile, younger millennials, 29 or less, ones who graduated college after the financial crash, so the economy was already in an upswing, are more optimistic in retiring. Only 25% of them say they will need to work forever because of savings issues.
Read the entire article
High-income millennials as a whole are maxed out on credit cards, student loans, auto loans, and if they're fortunate enough, have insurmountable mortgage debts. Their debt servicing payments have left many of them without savings, but it depends on which millennials you ask.
The study says 50% of high-income millennials ages 30 to 34 feel that they will work forever because their savings are depleted.
Meanwhile, younger millennials, 29 or less, ones who graduated college after the financial crash, so the economy was already in an upswing, are more optimistic in retiring. Only 25% of them say they will need to work forever because of savings issues.
Read the entire article
October 10, 2019
Debt Market Suffering "Quiet Meltdown" As Billions In Loans Are Suddenly Crashing
The exponential growth in the leveraged loan market, in the last several years, created an enormous excess accumulation of sub-investment grade loans that are a ticking time bomb when the next recession strikes.
Late last year, leveraged loan markets froze, for at least a month, as Treasury yields dropped, due to the increasing threat of a global recession. An abundance of fake trade news and central bank easing throughout 2019 saved Wall Street and reopened the leveraged loan market earlier in the year, but it seems that cracks are starting to develop again with recession threats building for 2020.
Bloomberg reports that 50 companies that have at least $40 billion of loans have lost about ten percentage points of face value in the last three months.
An exodus of investors has been seen in the leveraged loan market late-summer into early fall as liquidity dries up. It's mostly due to Treasury yields sinking, and end of cycle fears increasing, as a recession could emerge next year.
Some of the hardest-hit companies in the loan space in the last three months have been Amneal Pharmaceuticals, whose $2.7 billion loan due 2025 plunged about 80 cents on the dollar, and Seadrill Operating whose $2.6 billion loan maturing in 2021 only commands 53 cents on the dollar, said Bloomberg.
Read the entire article
Late last year, leveraged loan markets froze, for at least a month, as Treasury yields dropped, due to the increasing threat of a global recession. An abundance of fake trade news and central bank easing throughout 2019 saved Wall Street and reopened the leveraged loan market earlier in the year, but it seems that cracks are starting to develop again with recession threats building for 2020.
Bloomberg reports that 50 companies that have at least $40 billion of loans have lost about ten percentage points of face value in the last three months.
An exodus of investors has been seen in the leveraged loan market late-summer into early fall as liquidity dries up. It's mostly due to Treasury yields sinking, and end of cycle fears increasing, as a recession could emerge next year.
Some of the hardest-hit companies in the loan space in the last three months have been Amneal Pharmaceuticals, whose $2.7 billion loan due 2025 plunged about 80 cents on the dollar, and Seadrill Operating whose $2.6 billion loan maturing in 2021 only commands 53 cents on the dollar, said Bloomberg.
Read the entire article
October 1, 2019
"It’s Almost Impossible To Buy": Japanese Bond Crash, Margin Call Send Shockwaves Around The Globe
For a dramatic preview of what will happen in a flash to all those record low interest rates without the backstop of central banks and ravenous pension fund, look no further than what happened in Japan overnight, where bond futures suffered the biggest one-day crash since August 2, 2016, sliding as much as 0.97 yen to 154.05, and triggering margin calls for investors after the worst 10-year debt auction in three years.
More ominously, once the rout started it quickly spread outside of Japan, because as yields jumped, the sell-off spilled into US Treasuries and European debt.
There were three things behind the swift collapse: the first catalyst was the Bank of Japan’s Monday decision to slash bond purchases in October for the four major maturity buckets in order to steepen the curve and avoid further flattening which Kuroda has repeatedly expressed concern about in the past; the BOJ had indicated it may even stop buying debt of more than 25 years. It also sought to anchor yields from the one-to-three year zone by raising purchases in a regular operation earlier in the day and lifting the purchase band for the sector in October.
"The BOJ is showing its clear intention to correct distortions in the curve through flexible adjustments in market operations,” said Mari Iwashita, chief market economist at Daiwa. "While cutting the lower end of purchases in bonds maturing over 25 years to zero looks shocking, the BOJ will probably cut buying in this zone slowly."
Read the entire article
More ominously, once the rout started it quickly spread outside of Japan, because as yields jumped, the sell-off spilled into US Treasuries and European debt.
There were three things behind the swift collapse: the first catalyst was the Bank of Japan’s Monday decision to slash bond purchases in October for the four major maturity buckets in order to steepen the curve and avoid further flattening which Kuroda has repeatedly expressed concern about in the past; the BOJ had indicated it may even stop buying debt of more than 25 years. It also sought to anchor yields from the one-to-three year zone by raising purchases in a regular operation earlier in the day and lifting the purchase band for the sector in October.
"The BOJ is showing its clear intention to correct distortions in the curve through flexible adjustments in market operations,” said Mari Iwashita, chief market economist at Daiwa. "While cutting the lower end of purchases in bonds maturing over 25 years to zero looks shocking, the BOJ will probably cut buying in this zone slowly."
Read the entire article
September 27, 2019
Nationalizing The Federal Funds Market
Last week's volatility in the market for fed funds gave a lot of equity managers an opportunity to brush up on their understanding of the workings of the short-term money markets. The Fed of New York was forced to offer cash to the Street in the form of forward repurchase agreements all week. These activities are likely to continue.
Nathan Tankus posted a good discussion of the mechanics of adjusting bank reserves on Twitter last week. He particularly highlights not only the Liquidity Coverage Ratio or LCR, but also the additional liquidity stash meant to fund a resolution of an insolvent money center bank.
Given that we would never actually resolve a bank over $100 billion assets, we wonder why this rule exists: What is the point of the “resolution liquidity” for a G-SIB if we’re likely to just put the bank into an FDIC conservatorship a la Indy Mac and then sell it after a bad asset cleanup?
We appreciate the kudos on our call this past July on CNBC regarding liquidity problems in the markets, but we erred in thinking that merely ending the runoff of the Fed’s portfolio was sufficient. When our colleagues who trade TBA, and agency and whole loan repo, saw cash tightening up in the middle of August, that was a sign that problems lay ahead. Even with the Fed’s operations, the repo market is still displaying a lack of liquidity.
A lot of people asked: what is going on? The best primer we can suggest is the 2018 book “Floored” by Dr. George Selgin of Cato Institute, who has been producing excellent research focused on the mechanics of monetary policy for years. Selgin describes “How a Misguided Fed Experiment Deepened and Prolonged the Great Recession.”
Read the entire article
Nathan Tankus posted a good discussion of the mechanics of adjusting bank reserves on Twitter last week. He particularly highlights not only the Liquidity Coverage Ratio or LCR, but also the additional liquidity stash meant to fund a resolution of an insolvent money center bank.
Given that we would never actually resolve a bank over $100 billion assets, we wonder why this rule exists: What is the point of the “resolution liquidity” for a G-SIB if we’re likely to just put the bank into an FDIC conservatorship a la Indy Mac and then sell it after a bad asset cleanup?
We appreciate the kudos on our call this past July on CNBC regarding liquidity problems in the markets, but we erred in thinking that merely ending the runoff of the Fed’s portfolio was sufficient. When our colleagues who trade TBA, and agency and whole loan repo, saw cash tightening up in the middle of August, that was a sign that problems lay ahead. Even with the Fed’s operations, the repo market is still displaying a lack of liquidity.
A lot of people asked: what is going on? The best primer we can suggest is the 2018 book “Floored” by Dr. George Selgin of Cato Institute, who has been producing excellent research focused on the mechanics of monetary policy for years. Selgin describes “How a Misguided Fed Experiment Deepened and Prolonged the Great Recession.”
Read the entire article
September 26, 2019
Repo Market Guru: "Whatever Changed Last Week Is Clearly Still A Problem"
Last week around this time, most of the self-described repo experts on twitter and elsewhere were pounding the table, screaming to anyone who would listen that the unprecedented spike in overnight general collateral repo from 2.25% to 10% was a non-event, and reflects one-time items such as the mid-September tax remittance, the rapid build up of cash in the Treasury's general account and a flurry of Treasury settlements.
Alas, as we warned, and as the NY Fed today confirmed, the sudden heart attack in the critical, overnight funding market has turned out to be anything but a one-time event. First, as we saw first thing this morning, the latest repo overnight repo operation was the most oversubscribed yet, with $91.95BN in securities tendered for $75BN in reserves, the most yet since the Fed resumed these "unclogging" operations after a decade plus hiatus.
However, the big surprise came later on Wednesday morning, when in an "unexpected" move, the Federal Reserve expanded the size of its two dollar funding operations, the overnight and term repo, from $75BN to $100Bn, and from $30Bn to $60BN heading into quarter-end, effectively injecting up to $250 billion in funding ($30BN in already concluded term repo as well as two $60BN term repos yet to come, together with the $100BN overnight repo, assuming full allottment on all operations, for a grand total of $250BN).
Commenting on this dramatic expansion in Fed liquidity injections, BMO's rates expert ian Lyngen, had a simple, if very powerful observation: "the fact that we’re discussing a quarter trillion dollars is telling as to the depth of the constraint in repo." Indeed a far cry from the "all clear" the twitter repo "experts" were screaming from the top of their lungs last week.
Read the entire article
Alas, as we warned, and as the NY Fed today confirmed, the sudden heart attack in the critical, overnight funding market has turned out to be anything but a one-time event. First, as we saw first thing this morning, the latest repo overnight repo operation was the most oversubscribed yet, with $91.95BN in securities tendered for $75BN in reserves, the most yet since the Fed resumed these "unclogging" operations after a decade plus hiatus.
However, the big surprise came later on Wednesday morning, when in an "unexpected" move, the Federal Reserve expanded the size of its two dollar funding operations, the overnight and term repo, from $75BN to $100Bn, and from $30Bn to $60BN heading into quarter-end, effectively injecting up to $250 billion in funding ($30BN in already concluded term repo as well as two $60BN term repos yet to come, together with the $100BN overnight repo, assuming full allottment on all operations, for a grand total of $250BN).
Commenting on this dramatic expansion in Fed liquidity injections, BMO's rates expert ian Lyngen, had a simple, if very powerful observation: "the fact that we’re discussing a quarter trillion dollars is telling as to the depth of the constraint in repo." Indeed a far cry from the "all clear" the twitter repo "experts" were screaming from the top of their lungs last week.
Read the entire article
September 23, 2019
'Vaguely Troubling': BIS Warns Of Financial Disaster Amid $17 Trillion In Negative-Yield Debt
When the central bank for central banks publishes its quarterly review, the world should take note.
Claudio Borio, Head of the Monetary and Economic Department at the BIS, published the BIS Quarterly Review, September 2019 on Sunday, revealing how the increasing acceptance of negative interest rates has reached "vaguely troubling" levels.
The statement comes after the Federal Reserve and European Central Bank (ECB) cut interest rates to flight a global manufacturing slowdown -- Borio said that the effectiveness of monetary policy is severely waning and might not be able to counter the global downturn, in other words, JPMorgan Global Composite PMI might print sub 50 for a considerable period of time.
"The room for monetary policy maneuver has narrowed further. Should a downturn materialize, monetary policy will need a helping hand, not least from a wise use of fiscal policy in those countries where there is still room for maneuver."
Read the entire article
Claudio Borio, Head of the Monetary and Economic Department at the BIS, published the BIS Quarterly Review, September 2019 on Sunday, revealing how the increasing acceptance of negative interest rates has reached "vaguely troubling" levels.
The statement comes after the Federal Reserve and European Central Bank (ECB) cut interest rates to flight a global manufacturing slowdown -- Borio said that the effectiveness of monetary policy is severely waning and might not be able to counter the global downturn, in other words, JPMorgan Global Composite PMI might print sub 50 for a considerable period of time.
"The room for monetary policy maneuver has narrowed further. Should a downturn materialize, monetary policy will need a helping hand, not least from a wise use of fiscal policy in those countries where there is still room for maneuver."
Read the entire article
September 13, 2019
Bidding Wars For US Homes Collapse To Eight-Year Low
Bidding wars for homes in Seattle, San Jose, and San Francisco have crashed in the past year, reflecting an alarming national trend, according to a new report from Redfin.
The report found that the national bidding-war rate in August was 10.4%, down from 42% a year earlier. The rate printed at the lowest level since 2011.
At the start of 2018, the national bidding-war rate was 59%, then plunged as homebuyers became uncomfortable with sky-high housing prices, increasing mortgage rates, and economic uncertainty surrounding the trade war. The housing market started to cool in late 2018, as the competition among homebuyers collapsed by 4Q18, this is an ominous sign for the national housing market that could soon face a steep correction in price.
Even with eight months of declining mortgage rates in 2019, bidding-wars among homebuyers continue to drop. This is somewhat troubling because the government's narrative has been declining rates will boom housing, but as of Wednesday, mortgage applications continue to fall. Homebuyers aren't coming off the sidelines, and there's too much uncertainty surrounding the economy with recession risks at the highest levels in more than a decade.
Read the entire article
The report found that the national bidding-war rate in August was 10.4%, down from 42% a year earlier. The rate printed at the lowest level since 2011.
At the start of 2018, the national bidding-war rate was 59%, then plunged as homebuyers became uncomfortable with sky-high housing prices, increasing mortgage rates, and economic uncertainty surrounding the trade war. The housing market started to cool in late 2018, as the competition among homebuyers collapsed by 4Q18, this is an ominous sign for the national housing market that could soon face a steep correction in price.
Even with eight months of declining mortgage rates in 2019, bidding-wars among homebuyers continue to drop. This is somewhat troubling because the government's narrative has been declining rates will boom housing, but as of Wednesday, mortgage applications continue to fall. Homebuyers aren't coming off the sidelines, and there's too much uncertainty surrounding the economy with recession risks at the highest levels in more than a decade.
Read the entire article
September 12, 2019
Full ECB Preview: Draghi Parting Gift - A Bazooka Or A Water Pistol?
Tomorrow, at 13:45am CET (7:45am ET) the will unveil its Draghi "Swan Song" Monetary Policy Decision, with a press conference Due At 13:30BST, (08:30ET)
INTRODUCTION
Will outgoing ECB president Mario Draghi's "swan song" decision - the one in which he is widely expected to cut rates deeper into negative territory and resume sovereign and/or corporate QE - be a bazooka or a waster pistol? That's the question.
Markets currently fully price in a 10bps reduction in the deposit rate to -0.5% with just over a 40% chance of a deeper cut of 20bps.
Read the entire article
- Surveyed analysts look for the ECB to cut the deposit rate by 10bps with the Main Refi and Marginal Lending rates seen unchanged
- Markets currently price in around a 40% chance of a deeper cut to the deposit rate of 20bps
- Focus will be on any potential complimentary easing measures alongside expected rate reductions
- ECB staff economic projections will likely reflect the downbeat prospects for the Eurozone economy
INTRODUCTION
Will outgoing ECB president Mario Draghi's "swan song" decision - the one in which he is widely expected to cut rates deeper into negative territory and resume sovereign and/or corporate QE - be a bazooka or a waster pistol? That's the question.
Markets currently fully price in a 10bps reduction in the deposit rate to -0.5% with just over a 40% chance of a deeper cut of 20bps.
Read the entire article
September 11, 2019
60 Percent Of Americans Believe A Recession Is Coming – But Consumers Continue To Pile Up Debt At A Frightening Pace
We haven’t seen survey results like this since just before the last recession. Right now, 60 percent of Americans believe that a recession is “very or somewhat likely in the next year”, and the reason why that figure is so high is because there is already a tremendous amount of evidence that the economy is slowing down all around us. As I have been documenting repeatedly, U.S. economic performance has not been this dismal since 2008 and 2009, and the slowdown seems to be gaining pace as we move toward the end of 2019. So it really shouldn’t be a surprise that a solid majority of the country thinks that the next recession will officially begin very soon. The following comes from ABC News…
Ratings of the U.S. economy overall, 56% positive, are down from 65% last fall in this poll, produced for ABC by Langer Research Associates. Most ominously, 60% see a recession as very or somewhat likely in the next year. That’s within sight of the 69% who said so in November 2007, in advance of the Great Recession.
But at the same time, U.S. consumers continue to pile up more debt at a frightening pace.
According to NBC News, total revolving credit shot up at an 11.25 annual pace during the month of July…
Read the entire article
Ratings of the U.S. economy overall, 56% positive, are down from 65% last fall in this poll, produced for ABC by Langer Research Associates. Most ominously, 60% see a recession as very or somewhat likely in the next year. That’s within sight of the 69% who said so in November 2007, in advance of the Great Recession.
But at the same time, U.S. consumers continue to pile up more debt at a frightening pace.
According to NBC News, total revolving credit shot up at an 11.25 annual pace during the month of July…
Read the entire article
September 10, 2019
After $74BN Weekly Record, Bond Boom Continues With Another $14 Billion In New Debt Borrowing
Ever since a thunderous start to September's bond calendar, which saw a record 20 companies issue $26 billion in record cheap investment grade debt in a single day, corporate America has been on a historic bond selling spree to lock in ultra-low rates and refi existing debt (making Wall Street i-bankers quite happy in the process). For the entire week, companies borrowed a total of $75 billion in investment-grade paper, the most for any comparable period since records began in 1972. Since Tuesday, corporations including Coca-Cola, Walt Disney, and Apple sold notes as yields have dropped.
The frenzy isn’t letting up. According to Bloomberg and Bank of America, at least another $50 billion is projected for the rest of the month, with the activity expected to spill over to junk bonds and leveraged loans as well, and not even today's Ford downgrade to junk affecting $84 billion in debt, is expected to put a damper on the party.
The reason for the bond issuance frenzy? Rates have never been lower - according to Bloomberg Barclays index data, the average yield on bonds was 2.77% as of last week, effectively at all time lows, and almost 2% lower compared to late November, when that figure was above 4.3%. For a company selling $1 billion of debt, that amounts to $15.3 million of annual interest savings. Junk-bond yields have dropped too, with notes rated in the BB tier, the uppermost high-yield levels, paying a near record-low 4.07%.
"This is a great time for companies to refinance,” Christian Hoffmann, a portfolio manager at Thornburg Investment Management, told Bloomberg. "Financing costs are near all-time lows, so I would not be surprised to see better high-yield companies coming to market and treating debt capital markets like a cheap buffet."
As we noted last week, borrowers are taking advantage of the recent drop in rates to refinance their outstanding bonds at lower costs. As BofA noted last week, the new issuance "use of proceeds" has shifted from supporting re-leveraging activities to refinancing in the currently low interest rate environment.
Read the entire article
The frenzy isn’t letting up. According to Bloomberg and Bank of America, at least another $50 billion is projected for the rest of the month, with the activity expected to spill over to junk bonds and leveraged loans as well, and not even today's Ford downgrade to junk affecting $84 billion in debt, is expected to put a damper on the party.
The reason for the bond issuance frenzy? Rates have never been lower - according to Bloomberg Barclays index data, the average yield on bonds was 2.77% as of last week, effectively at all time lows, and almost 2% lower compared to late November, when that figure was above 4.3%. For a company selling $1 billion of debt, that amounts to $15.3 million of annual interest savings. Junk-bond yields have dropped too, with notes rated in the BB tier, the uppermost high-yield levels, paying a near record-low 4.07%.
"This is a great time for companies to refinance,” Christian Hoffmann, a portfolio manager at Thornburg Investment Management, told Bloomberg. "Financing costs are near all-time lows, so I would not be surprised to see better high-yield companies coming to market and treating debt capital markets like a cheap buffet."
As we noted last week, borrowers are taking advantage of the recent drop in rates to refinance their outstanding bonds at lower costs. As BofA noted last week, the new issuance "use of proceeds" has shifted from supporting re-leveraging activities to refinancing in the currently low interest rate environment.
Read the entire article
September 3, 2019
28 Signs Of Economic Doom As The Pivotal Month Of September Begins
Since the end of the last recession, the outlook for the U.S. economy has never been as dire as it is right now. Everywhere you look, economic red flags are popping up, and the mainstream media is suddenly full of stories about “the coming recession”. After several years of relative economic stability, things appear to be changing dramatically for the U.S. economy and the global economy as a whole. Over and over again, we are seeing things happen that we have not witnessed since the last recession, and many analysts expect our troubles to accelerate as we head into the final months of 2019.
We should certainly hope that things will soon turn around, but at this point that does not appear likely. The following are 28 signs of economic doom as the pivotal month of September begins…
Read the entire article
We should certainly hope that things will soon turn around, but at this point that does not appear likely. The following are 28 signs of economic doom as the pivotal month of September begins…
Read the entire article
August 30, 2019
Whistleblower Alleges GE Commits Almost $40 Billion In Accounting Fraud
General Electric (GE) shares fell Thursday following Bernard Madoff whistleblower, Harry Markopolos, targeting the company in a report alleging the corporation covered up a massive amount of losses in financial documents, according to the Washington Post.
A forensic accountant, Markopolos posted a 175-page report, which is being circulated on a website called GEFraud.com. The reporting alleges that GE is committing $38 billion in accounting fraud. He calls this a “bigger fraud than Enron,” and declares GE is using similar fraud tactics. After the release of the report, GE stock dropped 4.3% in premarket trading, according to Reuters.
“[I]t’s the biggest, bigger than Enron and WorldCom combined,” the report goes on to say. “In fact, GE’s $38 Billion in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”
Markopolos and his team published the allegations after a year’s worth of research.
“My team has spent the past 7 months analyzing GE’s accounting and we believe the $38 Billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos stated in the 175-page report.
Read the entire article
A forensic accountant, Markopolos posted a 175-page report, which is being circulated on a website called GEFraud.com. The reporting alleges that GE is committing $38 billion in accounting fraud. He calls this a “bigger fraud than Enron,” and declares GE is using similar fraud tactics. After the release of the report, GE stock dropped 4.3% in premarket trading, according to Reuters.
“[I]t’s the biggest, bigger than Enron and WorldCom combined,” the report goes on to say. “In fact, GE’s $38 Billion in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”
Markopolos and his team published the allegations after a year’s worth of research.
“My team has spent the past 7 months analyzing GE’s accounting and we believe the $38 Billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos stated in the 175-page report.
Read the entire article
August 13, 2019
Middle Class Death Spiral: Consumers Have Never Been In More Debt, And Bankruptcies Are Surging
This wasn’t supposed to happen. During the relative economic stability of the past few years, the middle class was supposed to experience a resurgence, but instead it has just continued to be hollowed out. The cost of living has risen much faster than wages have, and as a result hard working families all over America are being stretched financially like never before. Even though most of us are working, 59 percent of all Americans are currently living paycheck to paycheck, and almost 50 million Americans are living in poverty. In a desperate attempt to continue their middle class lifestyles, many Americans have been piling up mountains of debt, and it has gotten to the point where we have a major crisis on our hands.
According to the New York Post, the total amount of debt that U.S. households have accumulated is about to cross the 14 trillion dollar mark for the first time ever…
Meanwhile, record American household debt, near $14 trillion including mortgages and student loans, is some $1 trillion higher than during the Great Recession of 2008. Credit card debt of $1 trillion also exceeds the 2008 peak.
Americans are spending heavily, again — and often recklessly, say analysts.
This is the exact opposite of what U.S. consumers should be doing. We can see signs of a fresh economic slowdown all around us, and consumers should be feverishly trying to get out of debt as fast as they can.
Read the entire article
According to the New York Post, the total amount of debt that U.S. households have accumulated is about to cross the 14 trillion dollar mark for the first time ever…
Meanwhile, record American household debt, near $14 trillion including mortgages and student loans, is some $1 trillion higher than during the Great Recession of 2008. Credit card debt of $1 trillion also exceeds the 2008 peak.
Americans are spending heavily, again — and often recklessly, say analysts.
This is the exact opposite of what U.S. consumers should be doing. We can see signs of a fresh economic slowdown all around us, and consumers should be feverishly trying to get out of debt as fast as they can.
Read the entire article
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