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Citi Warns The Leverage Clock Is Ticking
Citi's credit strategy team warns, for non-financial corporations - fundamentals have turned. Low interest rates hae helped keep debt service burdens low but, as they suggest, releveraging tends to sneak up on you. Leverage is as high as its ever been outside recession. This may not be a problem today, or tomorrow, but the leverage clock is ticking... and credit markets have no room for downside surprises (and, as we have vociferously explains, if credit spreads rise as the credit cycle 'cycles' then the underpinning for the entire buyback/dividend driven 'fudge' for stock valuations is removed)... and risks seem far higher in the US (than Europe) going forward.
The leverage clock is ticking...
But releveraging tends to sneak up on you...
Leverage is as high as Citi has seen outside of recession... and credit is not priced for any risk...
Any growth slowdown and leverage is in trouble...
Which leaves the US a lot more at risk than Europe...
We have seen this "credit cycle end, equities ramp" before - in 2007 - where leverage (both firm-wise (debt/EBITDA) and instrument-wise (CDOs)) provided the extra oomph to send stocks higher on the back of credit fueled extrapolation of earnings trends.
(charts: Barclays)
In the end we know this is unsustainable - the question is when (in 2007 it lasted 10 months or so...).
Of course, just as in 2007, things change very quickly once collateral chains start to shrink.
Perhaps this is why Carl iCahn called the top - because he knows the ability to re-leverage (his bread and butter trade) is over...
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Right. Look at the chart for C
http://finviz.com/quote.ashx?t=c
At least we know they don't make any money by front-running you
Citibunk should be sub $5/share.
It was 100X overvalued mid-2007.
Right now it is 10X overvalued, thanks to the FED and Treasury.
Does anyone really know what time it is?
But the big question for all of us here at ZH is, "why does Tyler foist off on us all of this retail-oriented crap from Citi and BoA?" We all agree that both of those institutions are part of the problem, not the solution. This quoting/posting on ZH from Citi and BoA is relatively recent, say in the past six months or so. So why do we get this stuff that gives them credence?
What say, Tylers?
Fuck You ShittyBank! Just unwind it already!
We're stuck. The "unwind" only happens when something "unexpected" happens. Something "odd". Something that not even the wisest of the wisest bearded ones thought would ever happen.
"Something that not even the wisest of the wisest bearded ones thought would ever happen" but that GS is somehow presciently positioned for
JapUSAn
the longer it takes, the worse it gets.
And I'll be damned if I ever feel pitty for the fool who's still long in this market.
And those who buy into those stocks that carry a price to valuation over 50 should be mocked as the town fools when it implodes.
Ridicule really is the best medicine.
Bankers, like politicians, need to have dozens of people come into their offices and just make fun of them.
If you don't want to be made fun of your shit needs to hold up to reason.
Make fun of them on the street. Make fun of them in "town hall meetings." Make fun of them as they leave their Wall Street towers...
These people want only one thing more than money, and that, is to be genuienly liked. A shame that many of them probably truly believe they are liked by common people. It may even lead to instances, in some of the more extreme mental cases, of them thinking they're doing God's work.
They'll be bailed out and make huge bucks, and you'll be ridiculed for not getting free money.
How long 'till it blows?
A few years, based on the "Learn to Flip Houses" full page ads in the Sacramento Newspaper.
OT: call me mean, or even disgusting, but i spit on a banker today. not randomly, of course. in his entitled mind he thought he was going to jaywalk right in front of me, until he realized this guy wasn't going to stop. just so happend i had a mouthful of Pellegrino and an open window as he yelled. couldn't pass up the opportunity. i guess i won't be getting the loan i don't need from that guy at Citi. the look on his face was totally worth it. asshole.
How do you know he was a banker?
He was holding a nail gun.
i knew because of the reserved spot where he parks his car. ironically not far from where i park. i expect we'll end up in fisticuffs the next time our paths cross, as he looks like a thick-necked ex-jock. at least it'll be a chance to practice my krav maga.
Wait a minute. He yelled just before he hit the pavement from 5 stories up, and you still spit on him? Good show, sir!
anybody calling the over/under bankers? take over 25 by year end.
"Leverage is as high as its ever been outside recession."
What do they mean by "outside recession"?
"...credit fueled extrapolation of earnings trends."
Barn burning with horses inside by any other name.
Inside joke.
How does citi still exist?
They are TBTF. They must exist.
Your tax dollars at work, and the future of any children/grandchildren you have/may have.
$17.52 Trillion reasons and counting, each one a fatal LIE: http://www.usdebtclock.org/
FED MBS Purchases chart 2002-2014 (blowing then re-blowing a banker bubble at the expense of taxpayers):
http://en.wikipedia.org/wiki/File:U.S._Federal_Reserve_-_Treasury_and_Mortgage-Backed_Securities_Held.png
1.3 trillion eh. lot a paper homes. real question? do they have any interest in the actual home at the other end of the chain?
or just a security interest...
The world has leveraged both its investments as well as its consumption.
As a result the double whammy of unsustainable values and consumption combined with unfunded liabilities will cause a domino convulsion at some point that will end the financial and business world as we know it.
And it was all behavioral, not inherited, in the end.
May I suggest the following scenario that may unfold as the final act. The modern economy that has evolved over the last several decades is loaded with interwoven contracts reeking of contagion. I contend that if faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. This would result in an economic melt down, the article below delves deeper into how this might come about.
http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....
The study of economics is often baffling and confusing. Many economic theories exist but many are full of holes and conundrums. Much of how people react to a policy may have to do with timing and perception instead of reality. Economics is full of loops that feed back upon themselves and unexpected pitfalls based on expectations. All this can become quite abstract.
Economist predict events that never tend to unfold as expected or planned. Many of the "modern monetary theories" in use today have not been proven over time, but reflect an attitude that we can control economic cycles better than in the past. The article below delves into how many people don't care or simply do't understand how the economy works.
http://brucewilds.blogspot.com/2014/03/few-people-really-understand-econ...
How is this any problem? All they need to make markets sprint upwards daily is to hammer gold and VIX, and throw in a few billion POMO daily.