One or two months out from market collapse?
Updated
Thanks for viewing,
Just to say that if you read the (free ebook) by Ray Dalio on Navigating Big Debt Crises it is difficult not to see the conditions today as not being analogous to something like August 2007. There is a in-depth case study on the 2007 - 2009 recession and recent aspects are very similar especially;
- The Fed lowering rates in light of a well-performing stock market,
- An apparent drying up of liquidity in overnight lending markets (because interest rates are insufficient to compensate lenders for growing credit risk - even on an overnight basis) necessitating Fed action,
- Resumption of quantitative easing via asset purchases,
- Asset values being largely fully priced,
- Corporate leverage on the rise,
- Debt levels reaching historically high levels (due to lenders and borrowers assuming continued growth as well as low volatility),
- The rise of lending via shadow banking (I just watched a video youtu.be/ti-g690QMm4 on a 1.8billion US corporate loan that was secured by an asset management Company (non-traditional source of finance), for upwards of 11% pa (if the lowest bid was 11% what were the others?) on a debt to a large junk rated organisation, this loan was not syndicated (like established lenders would traditionally structure the loan) between a number of lenders but is held by a single organisation.
- The manufacturing PMI was negative.
There are other similarities like full or close to full employment, although in early 2007 there were strong signs that unemployment was already growing. There is also marked bearish RSI divergence presently - as was present in 2007.
The other night the NY fed conducted open market operations to shore up overnight lending with a target of purchasing USD75 billion in debts. This was insufficient to stop the rates spiking out of the prescribed range, even though almost USD84billion was spent in one night apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000.
I am waiting to hear about more distressed lender bankruptcies and or bailouts as well as an uptick in unemployment numbers before taking further action (apart from continued precious metals purchases).
Just to say that if you read the (free ebook) by Ray Dalio on Navigating Big Debt Crises it is difficult not to see the conditions today as not being analogous to something like August 2007. There is a in-depth case study on the 2007 - 2009 recession and recent aspects are very similar especially;
- The Fed lowering rates in light of a well-performing stock market,
- An apparent drying up of liquidity in overnight lending markets (because interest rates are insufficient to compensate lenders for growing credit risk - even on an overnight basis) necessitating Fed action,
- Resumption of quantitative easing via asset purchases,
- Asset values being largely fully priced,
- Corporate leverage on the rise,
- Debt levels reaching historically high levels (due to lenders and borrowers assuming continued growth as well as low volatility),
- The rise of lending via shadow banking (I just watched a video youtu.be/ti-g690QMm4 on a 1.8billion US corporate loan that was secured by an asset management Company (non-traditional source of finance), for upwards of 11% pa (if the lowest bid was 11% what were the others?) on a debt to a large junk rated organisation, this loan was not syndicated (like established lenders would traditionally structure the loan) between a number of lenders but is held by a single organisation.
- The manufacturing PMI was negative.
There are other similarities like full or close to full employment, although in early 2007 there were strong signs that unemployment was already growing. There is also marked bearish RSI divergence presently - as was present in 2007.
The other night the NY fed conducted open market operations to shore up overnight lending with a target of purchasing USD75 billion in debts. This was insufficient to stop the rates spiking out of the prescribed range, even though almost USD84billion was spent in one night apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000.
I am waiting to hear about more distressed lender bankruptcies and or bailouts as well as an uptick in unemployment numbers before taking further action (apart from continued precious metals purchases).
Note
This health crisis hit the economy while it was already in an over-extended vulnerable position. Before the sickness the IMF and World Bank were already reducing economic growth targets significantly - mostly due to reduced demand and high debt loads. Back to the present; there are signs that daily infection rates are showing the effects of the non-pharmaceutical interventions in place (masks, hand washing, isolation, lock-downs, social distancing etc). However, there is more downside left in this trend. I'll just use a restaurant as an example. A small family owned restaurant has been forced to close due to lack of demand. Employees go out of work, reduce expenses, and slow spending. Former and potential customers aren't spending on restaurants. The restaurant isn't ordering supplies (suppliers are also hurting) and also cannot afford to pay rent of the location. The landlord goes out of pocket and the restaurant will likely shutter permanently (as 14% of US restaurants reportedly were likely to do permanently - as reported 2 weeks ago). Think of all the economic transactions that are not happening. If one persons spending is another person's income, normally spending ratchets each economic actor upwards in terms of incomes, the same is also true when spending tightens. When the infection rates are under control again and people can venture out again tentatively do you think people will rush to restaurants again? To crowded streets? Maybe, but definitely not straight away. What I am listening out for now are signs of deleveraging, as debt levels are forced to reduce in the face of lower economic activity.
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