Category Archives: Investing

Robert Gore Said That? 10/10/18

On Septemeber 30, at Murphy, North Carolina, I addressed the Appalachian Network PATCON, a gathering of very bright people on the cutting edge of preparation for the coming catastrophe. The topic was: “How to Survive an Economic Collapse.”

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“Concerned” Bank of England Raises Alarm about Growth of High-Risk Loans, by Don Quijones

The market for high-risk loans that have little or no protections for creditors has ballooned. From Don Quijones at wolfstreet.com:

The power of Collateralized  Loan Obligations.

“The global leveraged loan market is larger than – and growing as quickly as – the US subprime mortgage market was in 2006,” said the Bank of England’s Financial Policy Committee in the statement from its latest meeting. And the committee is “concerned by the rapid growth of leveraged lending.”

In terms of magnitude, the US and EU “leveraged loan” market combined now exceeds $1.3 trillion, up from $50 billion at the turn of the century.

A “leveraged loan” is a loan that is extended to junk-rated (BB+ or lower), over-indebted companies. These loans are considered too risky for banks to keep on their books. Instead, banks sell them to loan funds, or they package them into highly rated Collateralized Loan Obligations (CLOs) and sell them to CLO funds and other institutional investors. In the UK, over £38 billion ($50 billion) of these loans were issued in 2017 — more double the amount in 2016 — and a further £30 billion ($39 billion) has already been issued in 2018.

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With corruption like this, it’s no wonder so many pension funds are insolvent, by Simon Black

Big pots of money and government attract bad people like shit attract flies. From Simon Black at sovereignman.com:

Last week, the head of a New York state pension fund found herself a new job.

Vicki Fuller, the former head of New York’s $209 billion fund, now earns $275,000 per year working part time for a natural gas group called The Williams Companies– good work if you can get it.

It’s noteworthy that when Ms. Fuller ran her state pension fund, she invested $110 million of taxpayer money to buy bonds issued by none other than The Williams Companies.

Bear in mind that Moody’s, the credit rating agency, downgraded Williams’ financial outlook to “negative” because of the company’s high leverage and risk.

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10 & 30-Year Yields Surge, Yield Curve “Steepens,” Stocks Drop, as Fed Talks Up Rate Hikes in 2019, by Wolf Richter

Interest rates are going up, which is generally not a good thing for heavily indebted economies. That would be most of them. From Wolf Richter at wolfstreet.com:

Ironically, after having lamented the flattening yield curve for a year, soothsayers now lament the steepening yield curve.

On Friday, capping a rough week in the US Treasury market, the 10-year yield closed at 3.23%, the highest since May 10, 2011, and stocks fell for the second day in a row. This is an unnerving experience for pampered equity investors who’ve come to take endless stock-price inflation for granted, who’d figured for years that interest rates would never rise, and as short-term interest rates began rising, figured that long-term interest rates would never rise – and now they’re rising too.

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The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations, by Charles Hugh Smith

Cheap credit keeps alive a lot of corporations who should be dead. From Charles Hugh Smith at oftwominds.com:

The defaults and currency crises in the periphery will then move into the core.
It’s funny how unintended consequences so rarely turn out to be good. The intended consequences of central banks’ unprecedented tsunami of stimulus (quantitative easing, super-low interest rates and easy credit / abundant liquidity) over the past decade were:
1. Save the banks by giving them credit-money at near-zero interest that they could loan out at higher rates. Savers were thrown under the bus by super-low rates (hope you like your $1 in interest on $1,000…) but hey, bankers contribute millions to politicos and savers don’t matter.
2. Bring demand forward by encouraging consumers to buy on credit now. Nothing like 0% financing to incentivize consumers to buy now rather than later. Since a mass-consumption economy depends on “growth,” consumers must be “nudged” to buy more now and do so with credit, since that sluices money to the banks.

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The US Spent A Record $523 Billion On Debt Interest In Fiscal 2018, by Tyler

Here’s a new record that will be broken next year if interest rates stay the same or move higher. From Tyler Durden at zerohedge.com:

Earlier this week, when the US closed fiscal 2018 on September 30, we reported that US gross national debt jumped by $84 billion on September 28, the last business day of fiscal year 2018; with this last push higher, total gross national debt in fiscal 2018 rose by $1.271 trillion to an all time record of $21.52 trillion.

What is more stunning, is that only six months ago, on March 16, it had for the first time risen above the $21-trillion mark, while a year ago, at the end of September 2017, it was just $20.2 trillion.

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Merkel’s End Could Spark EU Breakdown, by Tom Luongo

It’s hard to see how the EU won’t fracture if the true hand on the wheel, Angela Merkel, was to lose her position as Chancellor of Germany. From Tom Luongo at tomluongo.me:

The pieces have been moving into place for months now.  German Chancellor Angela Merkel has seen her power within German political circles wane for more than a year.  Italy’s opposition to the European Union’s budget rules is stiffening.

Bond yields are beginning to not just rise, but blow out uncontrollably.

The Fed keeps raising rates to arrest inflation not supported by increased wages.

Brexit talks are at a standstill.

Last week Merkel suffered what could easily be her most important political defeat over the past two years.  She lost a parliamentary vote for her candidate in an internal vote of her Christian Democratic Union (CDU) party.

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