"There is excessive debt everywhere and negative interest rates are dangerous... My number one fear? That’s the same as asking me where it will start. When you view the economy as a complex, adaptive system, like many other systems, one of the clear findings from the literature is that the trigger doesn’t matter; it’s the system that’s unstable. And I think our system is unstable... Central Bank models are just wrong"
In any other case debt/EBITDA at or higher than 10x - certainly 15x - in a world in which cash flows are rapidly deteriorating would be an excuse for bondholders to take to the hills. But when you have such leverage ratios as 83x one can only quietly stand back, find a place behind which to hide, and hunker down ahead of the coming explosion.
According to the head of financial markets research Asia Pacific at Rabobank, Michael Every, not only has China not begun to delever at all, but since McKinsey's update, its debt has risen by another 70% of GDP! According to Every, China's 2015 debt-to-GDP might be as high as 346%, and while that is in line with wealthier developed economies but is “vastly higher” than any EM peer.
One of the (many) fascinating things about this latest global financial crisis is that there’s no single catalyst. Unlike 2008 when the carnage could be traced back to US subprime housing, or 2000 when tech stocks crashed and pulled down everything else, this time around a whole bunch of seemingly-unrelated things are unraveling all at once.
At the end of the day, the Fed led central bank money printing spree of the past two decades resulted in what is functionally a massive dollar short. Once the Fed stopped expanding its balance sheet when QE officially ended in October 2014, it was only a matter of time before all the “near-dollars” of the world would come under enormous downward pressure in the FX markets. Our Keynesian witch doctors believe that sinking currencies are a wonderful thing, of course. They claim making your country poorer is a good way to stimulate export growth and a virtuous cycle of spending and growth. But there is another thing. It is also a good way to generate capital flight and the ensuing chaos that creates.
“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey
"Things are crazy," says Charles Biderman summing up this bizarre situation. "We’re seeing the impact of the global slowdown on the US and that’s going to continue" adds the TrimTabs founder, and, in contrast to the mainstream view on Wall Street, he doesn’t think that the Fed is going to raise interest rates (and is more likely to start a new stimulus program). "Ultimately there will be a major correction," he warns and any new stimulus will merely serve the drug-addicted market.
We found something unexpected when skimming through the website of China's finance ministry.
If you thought the increases in insurance premiums incurred to date, you ain't seen nothing yet. According to a new study by McKinsey looking at the perverse consequences of Obamacare, "insurers struggled to predict their costs, and many didn’t set rates high enough to cover the care of those they enrolled." And now, they are going to do just that...
Financial engineering scams like Tyco and Valeant would never happen in an honest free market. Short sellers would shut them down long before they reach egregious levels of over-valuation; and the cost of honest downside market insurance (i.e. S&P 500 puts) and market driven carry cost would dramatically reduce the profitability of speculation and the amount of punters and capital in the casino. In today’s broken markets and corrupt regime of central bank driven crony capitalism, however, bubbles inflate in individual securities, as well as in broad sectors and the market as a whole, until they reach egregious, self-correcting extremes. Then they violently implode, creating immense waves of collateral damage in the process. Perhaps then the American people will learn that Yellen & Co have actually been in the un-wealth effects business for way too long.
The Federal Reserve was supposed to serve the nation, however as even Bloomberg observes today, ended up "steamrolling" Main Street. One reason why: directors such as this one. Presenting former Morgan Stanley CEO, James Gorman, whose former employer got a $107 billion loan from the Federal Reserve to avoid implosion.
“It wasn't raining when Noah built the ark.”
While the Valeant soap opera has had constant, heart-pounding drama for weeks and following yesterday's report that it allegedly fabricated prescriptions, even an element of career-ending (and prison-time launching) criminality, so far one thing had been missing: an antagonist tied to Goldman Sachs. We are delighted to reveal the "missing link", one which ties everything together. Its name is Howard Schiller.