Corporate Credit Bubble Article

[Gobears81]

I read an interesting article this morning:

https://www.marketwatch.com/story/w...-so-blame-the-credit-market-bubble-2017-12-27

Maybe this is all elementary discussion for some of you, but I was not aware of the recent increase debt being taken out by corporations. It does mention predictions of inverting yield curves near the end of 2018.

It seems that crashes happen well after the fundamentals triggering said crash suggests overvaluations of stocks. Of course, we could simply point to trailing P/Es and say that stocks are overvalued now, but a growing concern in late 2017 regarding corporate debt holdings would not be sufficient to trigger a crash in 2018, though as long as the bull market has run, it would not surprise me if there is a significant downward move in 2019/ 2020. What are your thoughts on the market or on this article?

 

[Terrel L. Shields]

Buying back shares is a poor alternative "investment" but everyone is stretching for yield due to low interest rates. Too much money chasing too few good deals. The credit markets financing oil and gas development is drying up because so many companies are over-leveraged and companies like Linn Petroleum have went bankrupt and emerging from chapter 11 selling off assets and promising investors that they will do better by developing existing reserves and showing a profit not just disguising net losses behind credit-fueled growth. Others like Sandridge emerged from ch. 11 as zombies. Their recent merger with Bonanza Creek is a nothing burger, two zombies for the price of one. And at the last minute Sandridge called it off... probably could not fund it. The credit markets are weary of the lack of profits and recognizes all the over-drilling is resulting in a profit killing glut. And some believe that this effort may fail because generation of internal funds to show a profit may expose an ugly truth. Namely that most of these wells are not profitable, break even at best, and costs are about as low as they can get as it is.

Glut plagues agriculture as well. Soybeans, wheat and corn are half the price six years ago. And renewed development is a huge threat roadblock to affordable farmland. A place near my house sold as soon as listed, 113 acres for over $7000/ac. It's too expensive for the sort of marginal farmland we have. And much of it will flood. Someone is buying it for the creek... which usually means clearing the bank and not a good thing for the environment. Cheap grain is boon for value added food companies like Tyson, General Mills, or Cargill.

 

[Deleted member 134708]

I’ve long predicted 2019/2020 is the economic reset. Cause by everything overvalued but the trigger point will be retail refi-Armageddon.

Sears, Macy’s, Malls etc need to refi then and won’t be able to take on the new payments. Layoffs ensue. Layoffs beget layoffs.

 

[Randolph Kinney]

When borrowing costs are at zero percent, or there about, it pays to borrow. It pays to buy your competition and layoff the duplication rather than expand or invest into your own operations. It pays to borrow to pay the dividend. It pays to borrow to buy back stock.

The problem becomes when interest rates rise. Debt servicing becomes a problem both for private borrowers and the government. A larger share of tax revenue goes to pay interest on the national debt with less money available to pay social programs. The government has been borrowing the money to pay interest on the national debt for years. Now that the debt is greater than $20 trillion and growing, interest rates will accelerate and digital currencies will explode in value relative to the dollar.

 

[Big ole Boy]

When borrowing costs are at zero percent, or there about, it pays to borrow. It pays to buy your competition and layoff the duplication rather than expand or invest into your own operations. It pays to borrow to pay the dividend. It pays to borrow to buy back stock.

The problem becomes when interest rates rise. Debt servicing becomes a problem both for private borrowers and the government. A larger share of tax revenue goes to pay interest on the national debt with less money available to pay social programs. The government has been borrowing the money to pay interest on the national debt for years. Now that the debt is greater than $20 trillion and growing, interest rates will accelerate and digital currencies will explode in value relative to the dollar.

Its a dictatorship. A money control system that dictates all social engineering ... an outdated financial dictatorship.

 

[Terrel L. Shields]

Its a dictatorship

Maybe we should let heads of state stamp their own coins, like Roman magistrates...

 

[Big ole Boy]

Maybe we should let heads of state stamp their own coins, like Roman magistrates...

Stocks have become these "stamped coins" you speak of. Clearly, stocks are no longer a function of anything else but "defacto state" apparatus that support the state through all its tentacles. And we are the socially engineered cogs that "broker" more debt with our state licensed appraisal "stamps". "We" are the stamps.

 

[Randolph Kinney]

Its a dictatorship. A money control system that dictates all social engineering ... an outdated financial dictatorship.

Look to Venezuela for the model of what happens to a socialist state. The state is replacing its own paper currency with a digital currency backed by commodities.

People are wise to the money printing game and sovereign paper which is paid in more of the same as its purchasing power steadily erodes.

 

[Randolph Kinney]

Stocks have become these "stamped coins" you speak of. Clearly, stocks are no longer a function of anything else but "defacto state" apparatus that support the state through all its tentacles. And we are the socially engineered cogs that "broker" more debt with our state licensed appraisal "stamps". "We" are the stamps.

It's the crap game run by the house that prints money. You have to do something with your money so you borrow more of it and trade it for something that appears to have real value as a hedge against the house. If there is a crash, the house loses because the house has debt to repay and the players can't repay all their debt with falling asset value. It's 2008 all over again.

 

[Big ole Boy]

It's the crap game run by the house that prints money. You have to do something with your money so you borrow more of it and trade it for something that appears to have real value as a hedge against the house. If there is a crash, the house loses because the house has debt to repay and the players can't repay all their debt with falling asset value. It's 2008 all over again.

Not too long ago .... (3 or 4 years ago) the body politic finally let go of "the deficit meme". We no longer hear about the ravages of deficit spending; as if, its import is of no consequence going forward. - these are the "blue pill elites" whom have placed the entire world on the precipice demanding a uni-polar outcome.

"The Red Pill" - is the multi polar world where finance will eventually be put to heel by a larger creativity of "will" of the young who see the dementia of the dying old empire of a one world system led by incompetence. Math is the red pill and it will put to heel the likes of Rogonoff and his ilk.