When the US housing bubble burst in 2007, most observers were focused on the threat to Wall Street banks and their massive derivatives books. This was a legitimate fear, since the worst case scenarios involved the death of Goldman Sachs and JP Morgan Chase, with all the stock market carnage that that implied. But for […]
Different Acronyms, Same Disaster: Bond Ratings Are Once Again For Sale
Of all the amazing scenes in The Big Short, a film about the genesis of the Great Recession, arguably the most shocking is the meeting between a couple of hedge fund managers trying to understand the housing bubble and “Georgia,” a (in a bit of symbolic overkill) visually-impaired executive with the Standard & Poor’s bond […]
Signs Of A 2020 Top: “Buyers Return to Riskiest Junk Bonds”
If you’re managing money and need positive results in the year ahead, you’re in a tough spot. Stocks are at levels that in the past have preceded cycle-ending crashes while high-grade bonds yield virtually nothing but could easily produce big capital losses if interest rates rise even a little. What do you do? Retire, if […]
Time To Sell The News?
Global stock (and bond and real estate) markets have been on a tear this year, apparently in anticipation of three big events. And last week they got them all, sort of: The US and China announced a “trade deal” that is flimsy but a deal nonetheless; the Fed promised to refrain from raising rates until […]
The Parasite Devours Its Host, Part 2: French Pensions
Criticizing the “public sector” is tricky, because teachers, firefighters, cops and bus drivers are by-and-large great people doing hard things that benefit the rest of us. But there’s this problem, which is that once a country’s public sector grows beyond a certain size, it takes on a life of its own, demanding more resources even […]
The Global Debt Bubble Enters Its Blow-Off Stage
People have been talking about a “debt bubble” for some years now. They’ve been right, of course, based on the combination of surging borrowing and plunging rates. But the bubble hasn’t stopped inflating, and recently it entered what certainsly looks like a terminal blow-off stage. Some highlights: Though July, China’s total debt rose by $2 […]
This Cycle’s Most Dangerous Bubble, In Three Charts
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 […]
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