Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
Over the past two weeks, we’ve begun to document what may end up being a dramatic unwind in the CLO market. New issue spreads are rising, issuance is collapsing, and both S&P and Moody’s recently downgraded several CLO 2.0 tranches for the first time ever. Unless you think the acute stress in the HY market is set to abate - and trust us, it’s not - you can bet that things are about to get very ugly, very quickly at least for junior CLO tranches. For those curious to know how this debacle plays out, history offers a useful guide.
China is a monumental doomsday machine that bears no more resemblance to anything that could be called stable, sustainable capitalism than did Lenin’s New Economic Policy of the early 1920s. The latter was followed by Stalin’s Gulag and it would be wise to learn the Chinese word for the same, and soon. These folks are on the deadliest strain of financial heroin known to mankind and have no chance of surviving; its a dead economy walking.
On Thursday, we got still more evidence that the market's appetite for junk is waning when Goldman ran into trouble trying to get the financing done for the Vista/Solera deal. Solera - which is being sold to PE Vista Equity Partners - didn't have any trouble with a $1.9 billion leveraged loan offering last week (it was actually oversubscribed), but when Goldman tried to price $2 billion in bonds intended to help fund the LBO, things got dicey.
It was just three days ago when we brought you what we called “the next shoe to drop:” CLOs. Just hours after our warning, Moody's followed in S&P's footsteps and delivered their first downgrade of post-crisis US CLOs. In the crosshairs: Silvermine Capital or, more specifically, Silvermore CLO and Silver Spring CLO where exposure to junk debt and the increasingly toxic O&G space is worryingly high.
When a leading nominee for President gets something exactly right, we should applaud them for it. In this case, Donald Trump’s call to audit the Federal Reserve is dead on correct. Most Americans don’t realize this, but the Federal Reserve has far more power over the economy than anyone else does – including Barack Obama. The funny thing is that the Federal Reserve is not even part of the federal government. It is an independent private central bank that was designed by very powerful Wall Street interests a little over 100 years ago. It is at the heart of the debt-based financial system which is eating away at America like cancer, and it has no direct accountability to the American people whatsoever.
There are times you try to connect the dots. There are others where those connections warrant adorning your trusted tin-foiled cap of choice; for you just can’t get there unless you do. This I believe is one of those times. And if correct? What at first might appear apocryphal, may in fact, be down right apocalyptic.And besides, what good is a tin-foil capped conspiracy theory anyhow if it doesn’t have the potential for doom, correct? The implications for everything we now take for granted such as: money, enterprise, global commerce, and a whole lot more may be far closer to a “Minsky moment” than any of us dared to imagine.
"...in a world where corporate balance sheets are arguably the most unhealthy they have ever been (all-time high leverage in HG and HY) where companies have relied on cheap debt to fund a growth through acquisition strategy, what happens if funding is either unavailable or too expensive to make a growth through acquisition strategy make sense? Same goes for buybacks and special dividends?"
Prosper Marketplace is raising the cost of loans in the face of a chaotic start to 2016. This is just the latest sign that the P2P model is starting to crack and that means the nascent ABS market for person-to-person loans may collapse in relatively short order.
Larry Summers is a pretentious Keynesian fool, but we refer to him as the Great Thinker’s Vicar on Earth for a reason. To wit, every time the latest experiment in Keynesian intervention fails - as 84 months of ZIRP and massive QE clearly have - he can be counted on to trot out a new angle on why still another interventionist experiment or state sponsored financial fraud is just the ticket. Right now he is leading the charge for the greatest stroke of foolishness yet conceived.
After a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment. But that does not mean that the crisis is over. On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams.
As you might have noticed, the Fed made a policy mistake in December. We could delve deeply into the specifics, but quite frankly it all boils down to this: Yellen hiked right into a recession. With the pressure mounting, and with Janet Yellen having failed (miserably) to reassure the market with her testimony on Capitol Hill earlier this month, what’s in the cards for the Fed if the situation (both in financial markets and in the real economy) continues to deteriorate?
For equity market-neutral funds, there is a phrase more chilling than "worst since Lehman" and that is the quant meltdown in "August 2007" that put many funds out of business. While the mainstream media remains focused elsewhere, the last two weeks have seen equity market-neutral funds 'crash' (and today it is getting worse) as momentum factors diverge and memories of the 2007 bloodbath come back... as this forced unwind drives the current ramp.