One of the lessons of the past few decades’ boom/bust cycles is that each financial bubble emerges in a different asset class. In the 1970s it was precious metals, in the 1980s junk bonds, in the 1990s tech stocks and in the 2000s mortgage-backed bonds. Today the only one of these with a reasonable chance […]
Negative Interest Rates Spread To Mortgage Bonds
There are trillions of dollars of bonds in the world with negative yields – a fact with which future historians will find baffling. Until now those negative yields have been limited to the safest types of bonds issued by governments and major corporations. But this week a new category of negative-yielding paper joined the party: […]
What Blows Up First? Part 8: Leveraged Corporate Loans
By now just about everyone understands what junk bonds are and why they matter. But there’s a non-publicly traded version of this kind of debt that’s also soaring and has recently caught the Fed’s eye. Called leveraged loans, these are loans made by banks to companies with weak balance sheets – defined as debt exceeding […]
China’s Fake Numbers And The Risk They Pose For The Rest Of The World
Not so long ago, London Telegraph’s Ambrose Evans-Pritchard was one of the handful of must-read financial journalists. He probably still is, but since he disappeared behind the Telegraph’s pay wall his work is invisible to non-subscribers, only emerging when a free outlet runs one of his stories. That happened this morning when the Sydney Morning […]
Things That Seem Normal But Definitely Aren’t, Part 1: Soaring Chinese Debt
The era of fiat currencies and central bank printing presses has desensitized us to massive leverage and its implications. So when it is reported, for instance, that China‘s private sector borrowing has risen to levels that are unprecedented in financial history, this is greeted with a collective yawn. It shouldn’t be, though, because no society […]
Stuff We Can’t Afford, Part 1: Paying People To Live On Flood Plains
Everyone has been there: Times are good for a while and it starts to seem reasonable to buy – or agree to – things you want but don’t need. Later on, when money gets a little tighter, you start prioritizing and realize you really didn’t need the leased Mercedes or the McMansion with all those […]
Who In Their Right Mind Would Lend Money To Chicago?
When you see that Italy’s debt is rising, the logical question is, who the hell is dumping good money after bad into such an obviously failed state? The answer is that by lending money to Italy (or Greece, Portugal, Spain, or France) you’re really lending money to Germany, since the latter will have to bail […]
What Blows Up First? Part 7: “Almost Junk” Bonds
The key insight of the Austrian School of Economics (maybe the key insight of ALL economics) is that the amount you borrow matters, but so does the use to which you put the money. A case in point is US corporate debt, which has changed structurally lately in very scary ways. The short version of […]
No Longer The Luckiest Generation: Boomer Finances Start To Roll Over
We Baby Boomers timed it perfectly. We came of age during in an era of plentiful jobs and relatively high wages. Public pensions were generous. Stock, bond and home prices were low, and have since risen strongly, enriching anyone who managed to save regularly. College was (by current standards) insanely cheap, allowing us to upgrade […]
All (Political) Roads Lead To Massively Higher Government Spending
The past few years have seen more than the usual amount of political upheaval. But, interestingly, most regime changes have resulted in pretty much the same thing: Higher government spending and bigger deficits. Apparently the only “reforms” today’s voters will accept – which is to say the only actions that don’t get a leader kicked […]
Why We’re Ungovernable, Part 17: In Latin America, Soaring Population + Soaring Debt = “Brutal Justice”
There are two ways of looking at the intersection of debt and population. One way says that if debt is rising population should also rise to allow future workers to pay for the retirement of today’s. More people thus make debt easier to manage. The other point of view is that debt and population soaring […]
New York City Joins The “Imminent Bankruptcy” Club
The “public pension crisis” is the kind of subject that’s easy to over-analyze, in part because there are so many different examples of bad behavior out there and in part because the aggregate damage these entities will do when they start blowing up is immense. But most people see pensions as essentially an accounting issue […]
Here Comes The Housing Bust “Reverse Wealth Effect,” Australia Edition
For the past few years, homeowners just about everywhere have been able to finesse life’s problems by thinking “at least my house is going up.” This home equity accretion allowed them to buy stuff on credit, safe in the knowledge that even as they maxed out yet another credit card their net worth continued to […]
Let The Emerging Market Bailouts Begin: “We Don’t Have Much Choice”
To understand why Europe is watching Turkey’s financial crisis with alarm, you just have to see this chart: Spanish – and to a lesser extent French and Italian – banks have lent a lot of money to Turkey. So as that country spins closer to default, those banks and their governments are in danger of […]
Here’s How “External Dollar Debt” Produces An “Emerging Market Crisis”
Emerging market currencies are collapsing pretty much everywhere these days. But it’s safe to assume that most people don’t understand exactly what’s causing this outbreak, why it’s happening now, or what “external dollar debt” has to do with it. So here’s a quick primer followed by the obligatory apocalyptic prediction: Prelude: cheap dollar financing Pretend […]
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