Thursday, October 6, 2016

DEBT: Why is it that the ABLE seem to DISABLE?

DEBT: the able, disable... "Anemic global growth is “sets stage...lower growth hampers deleveraging...debt overhang exacerbates slowdown,”

http://blogs.wsj.com/economics/2016/10/05/three-risks-to-the-global-financial-system-as-debt-hits-record-levels/

WSJ



Gary Shilling Blog: It's not going to be pretty

Gary Shilling Blog: It's not going to be pretty: We have a situation where most people in Europe and North America have seen declines in their purchasing power for over a decade. When we ...

Wednesday, July 13, 2016

"Yes, The Economy Is Actually That Bad"

"...debt is a two-edged sword and that if additional indebtedness doesn’t work to create income to pay down interest and principle, it is a no-win deal."

"Debt. It’s good, it’s bad, there’s too much of it, the government keeps piling on more of it. What’s the deal?
You may have none, you may have too much, but one thing is certain, debt is a major driving force behind the world economy. Both in our personal lives and in the lives of immense corporations struggling to hold on in an ever-changing economy. Make no mistake, debt patterns will continue to shape all of our financial landscapes.
Given this unavoidable fact of life, when we had the chance to sit down with Dr. Lacy Hunt of Hoisington Investment Management to discuss his upcoming appearance at our Irrational Economic Summit in October, debt is where we began.
U.S. consumers have racked up almost $1 trillion in credit card debt, despite some saying this is a great sign, that this means consumers are optimistic and will buoy the economy, Dr. Hunt does not agree.
He immediately points out that debt is a two-edged sword and that if additional indebtedness doesn’t work to create income to pay down interest and principle, it is a no-win deal.
See, when you agree to spend borrowed money today, you’re leveraging that against your future income. That means that the dollars you’ll earn tomorrow are already spent and will not be there to use in the future for anything else. Seems obvious, right?
Of course, this is not a problem if you expect your income to increase as time marches along and your payments become due. But how many people in America are facing an increase in personal income when the standard of living hasn’t changed one iota in 20 years? Not many.
Unfortunately, this is not on the forefront of most people’s thoughts when they go to buy something like a new car. Dr. Hunt points out that new car sales are buoying portions of the economy, but that credit-lending standards have slipped, much like they did for mortgages prior to the housing crisis in 2008 (Harry has been talking about the auto sector soon getting turned on its head for months!).

1200px-Tesla_auto_bots

To illustrate this, Dr. Hunt points out that the average automobile loan has gone from six years to eight in order to allow less qualified buyers to purchase more expensive cars than they might otherwise have been able to afford.
This allows buyers to make smaller payments over a longer term, but also exposes them to the risk of missing any one of those 96 monthly payments.
But what about student debt? That has always been one way to invest in ourselves, and our children, and foster new revenue streams to pay down interest and principal. Dr. Hunt has bad news on that front, as well.
From Dr. Hunt’s interview with Rodney Johnson:
Unfortunately, the economy is performing so poorly that a lot of our college graduates are coming out and they’re having to settle for jobs that are not much better than what they would’ve received if they had gone directly into the labor force from high school.
Even classically “good debt” like a college education has become a non-performing investment. That’s scary because Dr. Hunt also points out that this deluge of debt, and our eagerness both as a country and as consumers to incur the “wrong type of debt” is killing growth.
This debt is slowing GDP growth and the growth of our personal incomes and investments. “That’s why”, Dr. Hunt points out, “the standard of living is unchanged from where it was 20 years ago....”
Robert Johnson
Editorial Director, Dent Research

Ref: http://economyandmarkets.com/economy/debt/dr-lacy-hunt-debt-irrational-economics/ (Forget! advertising.)


Wednesday, June 1, 2016

Are YOU Ready?

The $6 TRILLION Corporate Debt Implosion Begins in T-Minus 3...2...?

"The corporate bond market is a time bomb waiting to go off.

It took the US half a century to grow its corporate bond market to $3 trillion.

Thanks to the Fed implementing ZIRP and holding rates there for seven years, we’ve doubled the corporate bond market, adding another $3 trillion in corporate debt… since 2009.

corporatebonds.jpg

These bonds are junk… literally. The average credit rating is junk. All told, since 2012, 75% of companies accessing the bond market have had a credit rating of single-B.

So… if the corporate bond market is now TWICE as large as it was in 2008. And the quality of the bonds is lower than it was at the PEAK of the previous bubble… what does that tell us about the state of affairs for the markets in 2016?

And look… delinquencies are spiking on corporate loans from commercial banks… indicating that businesses (the same businesses that are issuing record amounts of garbage debt) are not paying banks back for corporate loans.

GPC6116.png

More and more this environment feels like late 2007/ early 2008: when the economy was in collapse but stocks held up on hopes that the Fed could maintain the bubble.
The time to prepare for this bubble to burst is now."

Graham Summers
Chief Market Strategist
Phoenix Capital Research


Sunday, May 22, 2016

"This Hasn't Happened Since the Great Crisis"

May 17, 2016

"Stocks are now officially on borrowed time.

Corporate buybacks have been the single largest driver of stock prices in the last quarter. Institutional investors have been net sellers for 15 weeks. And individual investors have been pulling capital out of stock funds in record amounts.

This leaves corporate buybacks as the sole driver of stocks. But now that is ending.

Announced buybacks plunged 34% in 1Q16. This is the single largest plunge in announcements since 2009.

GPC51716.png

Now, this does not mean buybacks are drying up all at once. As you can see in the chart above, there were a record number of buybacks announced in 2015. Those plans are beginning to be implemented.

So there will be a significant degree of corporate buybacks going forward.

However, buyback announcements and actual purchases are not the same thing. Many times companies announce buyback programs that they later fail to complete.

Meanwhile, earnings are collapsing, while stocks remain near all-time highs.

GPC517162.png

This whole mess feels just like the end of 2007 or beginning of 2008 to me.

The time to prepare for this bubble to burst is now. Imagine if you'd prepared for the 2008 Crash back in late 2007?..."

Graham Summers
Chief Market Strategist

Phoenix Capital Research