I called it once in January 2008 (Bear). I called it 2x in March 2008 (Lehman), and I'm calling it again in 2016. Don't say you didn't know. These proclamations of trust will truly put my analysis - and your capital - to the test.
Back in December we warned that Brazil faced a "disastrous downgrade debacle" that would eventually see the beleaguered South American nation cut to junk by all three major ratings agencies. Moments ago, that prediction was borne out.
The imbalances that low rates and elasticity produce may “return us to the modern-day equivalent of the divisive competitive devaluations of the interwar years; and, ultimately, [trigger] an epoch-defining seismic rupture in policy regimes, back to an era of trade and financial protectionism and, possibly, stagnation combined with inflation.”
Don't look now, but Brussels’ preferred Spanish PM is about to be ousted by a coalition of leftist parties, and that, in turn, suggests that the idea of fiscal retrenchment will be thrown out, along with anything that even looks like austerity. That could trigger a showdown between Madrid and Brussels over Spain’s intention to adhere to EU deficit targets.
From EM darling to depression, it's been a rough ride for the "B" in BRICS. As we kick off 2016, analysts are growing increasingly concerned that Brazil's economic downturn could well be deeper and longer than anyone expected. The market's collapsing expectations are summarized in one stunning chart.
Taken together with the rather steep drop in US industrial production, the risks of a full-blown and perhaps severe recession have undoubtedly grown. Unlike what the FOMC is trying to project via the federal funds rate, a rate that isn’t being fully complemented, either, at this point, visible economic risk is not just rising it is exploding.
Brazil has a new finance minister and the market is not happy. As BofAML puts it, "the focus turns now to the direction of the fiscal policy under the new FinMin, which should affect the recovery in confidence and thus growth. With mounting downside risks to growth that heavily weigh on the government’s revenues and the ongoing challenges in passing fiscal measures in Congress, tangible results over statements will now be needed to improve expectations over primary fiscal results ahead."
"Like most turns in the credit cycle, it is uncertain exactly when the bottom will fall out of corporate credit markets, but the catalyst is likely to be an unexpected major event, perhaps even a single company getting into trouble. While we have been bearish on high yield for over a year now, we didn't think the conditions were yet ripe for a collapse. Now they're ripe."
Liar loans are back from the dead which means that if you look under the hood, you might just have a shoddy credit or two hiding in the collateral pool of your triple-A mortgage-backed paper. Meanwhile, in a further sign that we've learned nothing since the crisis, non-Agency RMBS is set to stage a comeback.
After forensically analyzing Morgan Stanley's balance sheet (which is very much like the rest of Wall Street's balance sheet) I can draw direct parallels to that of Lehman and Bear Stearns in 2007. It's a party!
Imagine that the Food and Drug Administration (FDA) was a corporation, with its shares owned by the nation's major pharmaceutical companies. How would you feel about the regulation of medications? Whose interests would this corporation be serving? Or suppose that major oil companies appointed a small committee to periodically announce the price of a barrel of crude in the United States. How would that impact you at the gasoline pump? Such hypotheticals would strike the majority of Americans as completely absurd, but it's exactly how our banking system operates.