Guest Post: Two Clear Warning Signs In The Credit Markets

Tyler Durden's picture

Submitted by Peter Tchir of TF Market Advisors

Two Clear Warning Signs in the Credit Markets

Credit markets have been performing well all year.  The returns, while not outstanding have been incredibly consistent.  There has been an eerie calm to the market.  Most people are bullish on corporate credit - even those who don't like the overall yields argue that the spreads are attractive.  That may be true, but two leading indicators of potential trouble in the credit market have popped onto my radar screen.

The performance of recently issued bonds is a good lead indicator for the credit market.  These bonds are not performing well any longer and the trading volume is getting very thin.  This signal occurs fairly infrequently and is a very good indicator of future credit moves.  The CDS indices are trading cheap to fair value and that cheapness is persisting longer than it has recently.  This signal sends more false positives than watching recent new issues,  but it is still useful when analyzing the downside potential of the credit market.  I'm not yet concerned about flows, but there are a couple of small signs showing that flows are slowing if not reversing.

It's getting to the point that it makes sense to sell cash rather than buying CDS as the next leg down should see them move equally; whereas on a rally, the CDS indices in particular will outperform cash as the weak hedges are taken out of the market.  In ETF land selling HYG and JNK makes sense or selling LQD vs buying TLH.  LQD vs TLH is a reasonable attempt at putting on an investment grade credit spread trade.  Going outright short LQD without a rate hedge is more costly and potentially more dangerous - though with treasury yields next to nothing it might not be that dangerous.

Recent New Issues Underperforming

The recent new issue market is performing poorly.  I focus on bonds issued in May prior to May 23rd.  I don't include bonds more recent than that because they still have too much noise from the underwriters using their net short position on the break to support the bonds.  They are also recent enough that underwriters are more reluctant to down bid them.  Bonds issued 3 to 5 weeks ago should still be doing fine.  They came at a concession to the market and were well oversubscribed at the time.  Yet, of the 60 bonds I looked at 42 were trading wider than their issue price and the average spread is 9 bps wider than the 254 spread they came out.  These are bonds that were priced at a concession, were oversubscribed, mostly traded tighter on the break, and the underwriter likely started net short.  The volumes are declining too.  Recent new issues becoming illiquid so quickly and seeing their spreads widen is a great warning signal for the market as a whole.  In my sample I only included bonds in the 5 - 10 year maturity range, corporate issuers, and deals of at least $500 million, to eliminate the quirks of the short and long dated end of the credit market, and the potential that small issues were held by only a couple of buyers.

The GOOG 3 5/8's of 2021 are a good example of the performance of these recent new issues.  It came on May 16th at T+58.  The bonds broke marginally tighter and closed the first day at T+55.  These bonds are now trading at T+78 according to TRACE.  The volumes have also dropped and talking to  T+bond investors it is getting harder to get dealers to make a firm bid for this sort of paper.  Traders are complaining that the bulk of the selling interest is coming from these recent new issues and that the client bid side has disappeared.

Why this is a particularly strong warning sign

This is a particularly strong danger signal for several reasons.  The most obvious is that these bonds had everything going for them.  They were cheap to the market, oversubscribed, the underwriter was short them and had a chance to allocate them as they felt best.  When the bonds with so many advantages cannot perform well you have to wonder about the state of the market.

It is also a bad sign because it indicates some potentially weak hands holding too much corporate debt.  Some of these bonds went to hedge funds. The funds are often looking to flip out of these for a quick profit, but greed gets the better of them.  They have been trained over the past year that the longer they hold onto a new issue, the better the price they will receive.  To the extent hedge funds own these because they got caught being too cute while playing the flip, are now watching 'easy' money becoming a loss.  They are still ahead of the game YTD on this flip strategy, but they will be the first to get nervous and the first to 'freak out' when they realize how little depth there is to the bond market at any sign of weakness.

The other weak holders are mutual funds who may be receiving redemptions. So far that hasn't started by the looks of the AMG flows, though HY did see a moderate outflow.  On the other hand, LQD which has seen a steady increase in shares outstanding saw a sharp reversal the other day.  The mutual funds are generally buy and hold and strong hands, but if they face redemptions they will be forced sellers.  They will own a decent amount of these new issues because they were receiving inflows and this was one of the easy ways to buy up blocks of bonds quickly. 

Why aren't the dealers more willing to take these down?  Dealers don't want to bid on any more bonds because they probably provided liquidity one time too many already.  Until recently buying these bonds was good for dealers as they could sell them into a client or maybe to the underwriter via the inter dealer market.  But once the underwriter was full and clients had moved onto the newest new issues (last week's) they had nowhere to go with these bonds and now hold them in inventory, hoping for a bounce so they can sell them. In the meantime they may have shorted the CDX index to hedge their inventory, which feeds into the other warning sign.

It is not that often that we see this scenario where recent new issues underperform the market on declining volume, and it usually ends up with the market as a whole selling off further. 

The CDX Indices trading cheap to fair value is another warning sign

Whenever the credit indices start trading this cheap to intrinsic value there is opportunity.  Over time the index and its components should trade in line.  There is an index arbitrage community that puts these trades on. My experience is that in a reasonably healthy market, the 'cheapness' collapses fairly quickly, largely with the index outperforming as a short squeeze pushes it tighter and bondholders across the board breathe a sigh of relief that the sell off wasn't real.  That tends to happen fairly quickly.

In weaker markets the cheapness exists for longer.  The arbs come in and buy the single name CDS from dealers and sell them the index.  This should collapse the cheapness just like it does in healthier markets, but it doesn't.  Traders are so concerned about idiosyncratic risk that they rush to replace their single name protection.  This pushes out CDS, which drives down bond prices, putting more pressure on the index as bond investors and bond market makers both try to buy some protection against their weakening position.  In some ways this doesn't make sense, but once you've lived through it a few hundred times you just accept that is how it works. 

Right now this cheapness could reverse itself but it feels like we are at the cusp of starting that self reinforcing trade wider.  Hedge funds and market makers have been putting on shorts in the index to protect their inventory.  Right now the trade is working as the indices are doing worse than their bond or CDS portfolio.  They are feeling smart, but they also know that their mark to market on the bonds is dangerous.  They can tell how thin the bid for bonds is and they are trying to avoid triggering a cascade of selling.  On any bounce in stocks the market makers are screaming at their salespeople to find buyers of bonds.  The salespeople are trying to find out what happened to all the clients who swore up and down they would buy any dip or that they were keeping powder dry for just such a moment. 

Right now there are few corporate bond buyers, but there are not many sellers so we can stay in this limbo of a liquid but weak CDX index market and an illiquid but seemingly firm cash bond market.   In my opinion we are at the cusp of seeing sellers of bonds and that these sellers would spark that cycle of sell bonds, bond spreads widen, buy CDS, CDS widens, CDS is wider so people get scared and sell bonds, making bond spreads wider, causing them to buy CDS, etc..

What could cause a wave of bond selling that acts as a catalyst for spread widening?

Hedge funds are one potential source of selling pressure.  As much as hedge funds do have money they could put to work, they are subject to the most frequent mark to market scrutiny and valuation.  They are only as good as their last month or quarter.  With high yield bonds yielding less than 8%, a 2 point drop in bond prices wipes out 3 months of carry.  No matter how much they planned to add bonds during any dip, it is hard for them to resist the urge to protect this month's return.  Time and again they will revert from being net buyers to net sellers before any market maker figured it out.

This is particularly true when they are not up a lot, and my understanding is this has only been a marginal year for credit focused hedge funds.  They aren't playing with house money like they were in 2009 and 2010 when early gains gave them a lot of extra confidence.

On the more daring side, someone may decide to push the market.  They will have received enough calls from dealers trying to move inventory that they decide the market is ripe for a sell off.  They will hit a few down bids on some large TRACE bonds.  Getting the TRACE print will ensure that everyone has to mark there.  They will pick bonds with big outstanding amounts held by weak hands to create the maximum pain possible (many of these are the recent new issues because street and hedge funds are long them).  This is more aggressive of a strategy than we are likely to see but highlights how TRACE can actually accelerate the fall in bonds.  A bond can TRACE once all day, but that print will drive everyone's closing price and ironically a print that seems too low is more likely to bring out additional sellers rather than buyers in the weird world of corporate bond trading.

Another potential seller is mutual funds.  They are at the mercy of their flows.  Most are running relatively small cash positions, largely because the return on cash is such a big drag on their portfolio.  AMG numbers remain strong for IG funds, but did show a moderate outflow in HY.  The shares outstanding for the JNK, HYG, and LQD have been flat to up slightly and stable.  I'm not sure exactly what happened in LQD but it had a sharp spike up on the 1st and a big reduction on the 2nd.  I wouldn't normally be concerned about small changes in the fund flows or ETF shares outstanding, but every indicator is that the street is caught long bonds and has little appetite to digest more risk.

Be wary of the CMBX and ABX space?

In the 'you never see it coming' category, it makes sense to watch what is going on in CMBX and ABX as I wrote about yesterday.  Both of those markets have been under pressure and are at their yearly lows.  Although, in many ways they have nothing to do with corporate bonds, you find out they actually do.  Once you can no longer sell your CMBX BB's at any price, or you can't stomach locking in any more losses on a AA tranche of something, you look around and short some other market that you feel is correlated but hasn't moved as much.  It doesn't usually work, but people can't help themselves and it does tend to drag that 'correlated' market down as it cannot absorb the additional shorts.

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Yen Cross's picture

 Could loss of paying cash, be one of those warnings?

Number 156's picture

I thought you were going to say "No credit" as one of the problems.

Yen Cross's picture

 Credit has never been available. You I suppose, can do the math. Your time is appreciated.

buzzsaw99's picture

wow, that was a deeper look up the bung hole of the bond market than I ever expected to read.

Yen Cross's picture

  Thanks BUZZ, no offense. yen

zhandax's picture

I used to call the 'bung hole of the bond market' home and I learned a few things.  Since they didn't exist when I traded this shit, it never occurred to me how much fun could be had by jacking with the indices.

CPL's picture

Check your credit cards.  If they jacked up your credit's a good sign they are moving.  If it increases x2 QE3 is won't be announced.

High Plains Drifter's picture

chinese divest themselves of 97 percent of us treasury bills.....


hack3434's picture

If I read it right, it's just short term paper. 

So Close's picture

Do you just read the headlines?

sneering nihilist's picture

my understanding is that the most recent bonds had terms ridiculously friendly to the issuer. if that is true, then why wouldn't prices on these issues weaken?  how are more mature issues doing? if the older bonds are holding up but the recent issues(with less appealing terms for investors) are weakening i'd say that is a sign of a healthy market. i like corporate debt here and will continue buying the fucking dips in this space.

jm's picture

People know they can't unwind in an orderly way.  Fat lot of good getting flat does when you have to worry about the counterparty.  So there's a lot of cash sitting out there, not just PIMCO.

HY hits 8%, lot of money be piling in. 

chartcruzer's picture

Hmmm,,  it may be worth while to wait for some kind of actual sell signal/weakness on these instruments longer term.   So far,,,, this seems to be speculation.   Examples

Investment grade corporate currently a SOLID buy.[s233943224]&disp=P

High yield corp bonds starting to show a bit of weakness and,,,,,,,  just flat for now[s232907077]&disp=P


jm's picture

Market strucure issues are what concern me.  If you ask a dealer to make a market for you, and they won't, you can be bidless in a heartbeat.

Not sure where the author stands with fair value, but this a great article.

BTW, I loved the long-term chart you posted about the long bond a couple days ago.

AUD's picture

So speculators are seeing potential profits in something other than corporates? Possibly in Treasuries?

Capital Context made an interesting point the other day. Speculators have been buying Treasuries further out in duration. The Fed & the BoJ & the BoE have all but given as much profit at the short end as they can, with overnight rates at zero but there is still risk free profit, the best profit of all, further out. Central banks can be goaded into 'coming up with the goods', all it needs is some credit spreading.

slewie the pi-rat's picture

from p. tchir: The salespeople are trying to find out what happened to all the clients who swore up and down they would buy any dip or that they were keeping powder dry for just such a moment. 

Right now there are few corporate bond buyers, but there are not many sellers so we can stay in this limbo of a liquid but weak CDX index market and an illiquid but seemingly firm cash bond market. (End Paste)

on 5.20.11, bloomberg reported the busiest week on record @ $54 Bil for hi-grade stuff.  and the next week,  "investment-grade issuers included Hewlett-Packard $5.0bn, Caterpillar $4.5bn, Barrick $4.0bn,"  [from doug noland]. 

so, i think the well is dry or the mule is tired, or something. 

credit needs exceed credit available?  roll the presses!

the people who never noticed the credit & price bubble in housing are now making loans to nations which are not credit worthy.  the people are rioting to tell them they are not credit worthy!  but, the banksters can work everything out, see, just sign here.

we are not worthy! 

Yen Cross's picture

S you are smar, However, have you ever seen the planet  earth


  My Thread was edited! I'm telling the truth.   Yen

slewie the pi-rat's picture

hey, Y/C!  i may have seen the earth from a lower orbit...

i've been hanging out w/ an old kingfisher and a few herons.  they are food chain capitalists, along a little creek.  so far, they have had a pretty good Spring.

Yen Cross's picture

 Slewie King Fishers are always well grounded. I was thinking Blue Fin! You my friend seem concerned. Hit me @ Best wishes.


      Yen Cross

RoRoTrader's picture

tricky shit isn't it........figuring out the psychology of macro policy space and at the same time trying to be fluent in the micro space where all of the micros are trying to interpret price action.

quite the game if you ask me.........i think we should keep it churning along for what that is worth.......or not.

ps slewie,,,,,,,,,where do you think the money will run as it trys to hide until you can run but you can't hide sort of thing?

Luke 21's picture

Great Post. Thanks.

Fiat2Zero's picture

I'm admittedly a newbie in this area, so the fine points escape me. To paraphrase it sounds like the author thinks the commercial credit market is deteriorating (well one step before). Wasn't this what made Bernanke freak out and start QE (I.e. Total freeze of credit market)? Is the obvious conclusion that we may be seeing a repeat of 2008, in a "History never repeats but it often rhymes" kind of way?

in4mayshun's picture

Many factors caused the 2008 meltdown, but lack of liquidity is what triggered it, which in turn led to collapsing credit markets. But thats a vast over-simplification.

treemagnet's picture

I think I've lost that loving feeling........

vxpatel's picture

Anyone else spot news of this?

China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Reese Bobby's picture

Decent post.  The MBS/CMBS market is the canary in the coal mind.  Most banks and credit funds own mortgage securities using 3-4X leverage.  ABX is even quoted on unlevered and levered yields.  Any unwinding of mortgage market leverage will have a big effect on all credit markets.


I think your corporate bond observations are flawed unless you are talking IG only, and even then I am surprised given the strong rally in UST's.  But the end of this week was enough of a sell-off to notice.  We all know what happens eventually: Boom!  But I have grown accustomed to expecting all weakness to be temporary,  although I don't invest that way.

dcb's picture

so I'd like some feedback from folks.

the last market peak I looked at treasuries and compared the price to where they were whn oil was 147, and decided they looked good considering the state of the economy. I did the same at this peak. on a bit of a  historical note you look att he tlt chart and it gives nice entry points for near market peaks and corrections, bottoms as well as tops.


I write about this on these pages, wondering about the market action going up and treasuries going up as well. the dichotomy. Nobody answers. so I have now used it twice as a market timer rather well. Does anyone do this?

in a  normal interest rate environment treasuries hear would be a buy stock signal. I know it isn't know because things are so screwed up with QE and all.

now, my target exit point for treasuries just go hit, 97 on tlt. any thoughts from anyone, anyone at all?

decon's picture

I'm certainly not steeped in the bond world but pay attention to TA even though I suspect all the intervention messes it up, but if you look at TBT a massive IHS has formed with the head formed in 9/10.  The rS should form soon with yields dropping to about 4.  That would fit with a lack of Q3 deflationary pause and then the money spigot again.

dcb's picture

I have been floowing tbt because my trading strategy is to trade a few things I can trade up and down. I don't see that formation, I see a HS formation with top 2/11, two shoulders and going down through the neck line.

The Answer Is 42's picture

I'll throw in my $0.02.

TLT is strongly negatively correlated to stocks. But I'm not sure which is leading which, or rather I'm not sure either is leading. What I think is more intriguing is when both treasuires and stocks move in the same direction. When they both go up, it's either a macro risk-on trade -- possibly an indication of some sort of bubble. When they both go down, it's a macro risk-off trade.

For the last few days, both came down.

dcb's picture

no if you chart the channel on tbt, that pop was exactly as expected, with the recent low/high exactly on the channel bottom for tlt. the screwed up thing, and thing that really shows the manipulation by algo's in that market now was the action friday. where futures were so bad, but the algo's brought it up anyway exactlly to the bottom of the tlt trend channel. Top of tbt trend channel.


But this fits with my theory that where the market goes has really been programmed beforehand. I make much more money trading if I chart the trend lines out, put my buy and sell orders into the computer before, and ignore the markets. or any data.


the other things I notice is that the also's always try to keep in downward channel, or in the us case speedlines. I think when humans get into the mix a real lot those lines are violated and the quants can't manipulate with the added volume

The Answer Is 42's picture

Great analysis, thanks!

I'm confused about a couple of points, tho. Any enlightenment is appreciated.

1. If the dealers are loaded up with cash bonds, wouldn't the hedge be BUYING CDS? They could buy single names to be more "precise" or they could buy indices if they hold many names and want to go the shotgun approach. But I can't find any rantionale for them to short indices.

2. When an index is rich to sum of single names (and refuses to be arbed away for some time), it implies hightened correlation risk, in other words fear of a systemic event. But when indices are presistentlhy cheap, the only fundamental (as opposed to temporary, technical/idiosyncratic factors) factor would be hightened counterparty risk on index sellers, more so than single-name sellers. Why would this be, I don't quite know. Why inddeces are cheap is still a mystery IMHO.

Many corporates took advantage of the QE2 good times in the past few months to grab cash. The rush may be coming to an end with the uncertainty after June. Fundamentally, I think everyone is holding their breath for this month, or at least trying to so far. If there're promises of QE3, in whatever form, all mkts will sigh a big sigh of relief and shoot straight up, except USD of course. So, no, I don't believe the mkts are in any grave danger of crash in the short term. It's range-bound by definition: if things are good, then no QE3 and mkts go down; if things are terrible, then QE3 and mkts go up.

The real crash will come much later, when it becomes obvious to the mkts that Fed printing can no longer perpetuate the game -- the usual suspects: commodities inflation, dollar devaluation, abandonment of dollar reserve status.

jm's picture

Hope this helps.

1.  Single name CDS is dominated by dealers, could be prop and not just inventory hedging, so in general hedge funds buy and sell the index for liquidity reasons.  Seems that the sovereign debt space is different because those types of bonds are different than corporates.

2.  I asked a similar question before...  HY is a "hybrid" of correlation to revenue (like stocks) moves and correlation to spread (like treasuries).  So why not hedge it with VIX call spreads? Or hedge it with CDS, etc?

LMAO at my expense ensued.  Answers:  "The basis works well until you need it"-- the CDS spread bond yield correlation breaks down when you need it.  This is far more common than people think.  "Are you a vol trader? F*ing sell it and book profits!!"

In short, they crushed my idealism that everything works as planned and every hedge can be hedged.

The Answer Is 42's picture

Thanks, but

1. yes, it's generally easier for anyone except the big IB desks to use indices than single names. But still you hedge long cash with long CDS indices, not shorting them. (With DTCC I thought it's easier for anyone to play single names now but that's beside the point.)

2. yes, the CDS-bond basis has a nasty tendency to go haywire near default. This could be due to counterparty risk or idiosyncratic crap like delivery options, supply-demand for the paper, and so forth. HY, being generally closer to default by definition, tends to have more of this basis trap. But I don't see how this is related to the index-singleName basis. The only two types of causes for this basis, as far as I can think of, are either correlation risk (index trading rich) or counerparty risk on indeces sellers. Or maybe surging demand for single names. But I don't quite understand the driver behind the latter.

There is always logic in the mkt, although it may not be what you think is logic.

jm's picture

Yes, I see.  I was reading your question wrong.

An example about this correlation driver.  As a starting point, I say that illiquidity is what screws the basis, whihc I think is fair enough, but perhaps worthy of discussion.

Let's say you hold some muni bonds you like from 10 states... tax revenues up, balanced budget law... work with me. It would be natural to hedge these long MCDX.

If you hold some munis from states that are in trouble, hedging with MCDX doesn't make sense.  The downside/upside mix doesn't work... you lose more than you gain, and it makes sense to unwind or hedge in the names instead.  But if intrinsics aren't liquid, and even a more suitable index like GO CDS, the hedge won't work well, as you said.

I use this example instead of the corp complex because the seignority mix and other things is more complicated than in munis. Just a clarifying example that may distill away pertient issues, but I see the same type of effects going on in a lot of spaces. 

Now since the Fed had been pumping liquidity, there has been strong demand for beta chasing in weaker names.  It makes more sense to unwind a weak book than to hedge in this case.  If the instinsic is strong, you will hedge it with an index for the liquidity.  Either way, single name hedging is at a disadvantage.

Reese Bobby's picture

It may be that dealers tend to be long more CDS/CDX during periods of high primary issuance like we are in now; especially if they have bridged deals.

But I think they find R2000 stock puts more liquid at this point so I am just guessing.

Maybe it is as simple as the shelter from interest rate volatility that CDS/CDX provides...yes, I'll go with that.

FreedomGuy's picture

Is this a post purely for traders or are there implications here for the general public? I find this interesting though I confess I understand less than half of it. Should I buy more gold, sell my stocks, close my mutual bond funds, load up on corporate debt, vote Republican, move to Taiwan, lol? I definitely should not seek work as a bond trader. Good luck to all of you in that profession in reading the tea leaves.

Wild tree's picture

Free, no one can read the leaves in this 1984 world we live in. Black is white, up is down, sub-prime crisis is contained, Patriot Act will make us safe, green shoots, depression is only transitory, ARGHHHH.

Methinks that we will have a deflationary event simultaneously with hyper-inflation. Cars, real estate, toys will continue to crash in value and become worse when the dollar defaults, necessities will spiral up like balloons. Cash will be king until the US defaults because of government and personal debt, then the dollar becomes toilet paper as the world moves on to the next world reserve currency. Bubbles will always be blown by the New World Order.

The puppeters will engineer many raids on PM's, and I think that they will go nuclear soon. If so, (ie gold $1,000, silver $20) back up the truck for these commodities are being actively pursued by IMF and other governments. That will also be what the criminal elements of our society (bankers/politicians) will be doing; at our expense of course.

My advice is to load up on ammunition, food, and have a dependable access to water. Secondarily, pick a place in the country with family/friend as an emergency safe haven and make sure you have an agreement in place, if you can't live there. The zombies will panic when food can’t be found on grocery shelves, will even forget to turn on the boob tube as our society crashes and burns. Katrina was a preview. This will be a world-wide event, as we all are spokes in the wheel riding the wave as it crashes down.

Thanks to all the zh's out there, that mix thought with their ruminations. This is where I come to read the leaves. Good luck to all.

bond trader's picture

It would be a warning to the general public also. If there is just a risk off scenario corporates will underperform treasuries. If there is another deflationary scare corporates can head in the opposite direction as they did during the Lehman debacle. For example, AXP 7.3 13 traded at 87 now about 112, Some Chubb (CB) 2018 maturity traded with a 50 something handle now trading around 118 I believe, and some BAC bonds traded in the 40s. All the while Treasury prices were smoking. These are not losses anyone can stomach. 

mayhem_korner's picture

Very insightful for me (a know-nothing about bond markets). 

It occurs to me though, in this era of microbursts and near-instantaneous data discovery, that time - intentional accelerated or decelerated response - is perhaps the strongest lever in spread arbitrage.  I wonder what Myron and Fischer would say about this.

ibjamming's picture

This is why the economy is so fucked up...all these fucking products, all the gambling.  Why can't it be simple?  You want buy don't want sell them.  ALL this shit is just a way to seperate someone from their money.

Reese Bobby's picture

"ALL this" is a way for dealers to bank onerous commission in return for investors getting substantial leverage on the cheap.  This is among the same bullshit that nearly imploded the financial system just 2+ years ago.  The Bank Cartel operates with impunity as they own the Fed and "our" Politicians.  And the poor average American is poorly equipped to ever understand the PROBLEM even if they were inclined to try.  The weather forecast is stormy...

ibjamming's picture

Leverage IS the problem.  WTF?  "Leverage"?  Why?  It's just fucking GREED!  It's the leverage that is killing us.  Leverage is what turned a $14 trillion deficit problem into a $100 trillion problem that we may not be able to service.