Category: Debt

U.S. runs $107 billion budget deficit in August, Treasury says

13-Sep (MarketWatch) — The federal government ran a budget deficit of $107 billion in August, the Treasury Department said Tuesday, $43 billion more than in August 2015.

The government spent $338 billion last month, up 23% from the same month a year ago. Spending rose notably for veterans’ programs and Medicare, Treasury said. For the first 11 months of the fiscal year, spending is up 3%.

Total receipts for August were up 10% to $231 billion. Individual income and payroll tax receipts rose by 9%. Corporate receipts were flat at $5 billion.

Receipts are up 1% for the fiscal year to date.

[source]

PG View: That was outside expectations of -$100 bln.

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Posted in Debt |

This Isn’t The Steeper Curve the Fed’s Looking For

12-Sep (Bloomberg) — For the past two years, all yield curve news has been bad news — for the Federal Reserve.

In a reversal of the defining trend of the past year, the spread between two and 10-year U.S. Treasuries — known as the yield curve — has widened to more than 90 basis points on Monday morning, its highest level since the Brexit vote, amid the worldwide tumult in bond markets.

While such a widening would normally be interpreted as a positive sign for the U.S. economy, the shape of the yield curve could nevertheless cause concern for a U.S. central bank seeking to balance the needs of the economy without upsetting global markets.

That’s because the widening has been driven by a larger increase in 10-year yields than two-years, known as a steepening of the yield curve.

Such yield curves map out the rate paid to holders of government debt at various maturities, and generally slope upwards — a testament to the riskiness of lending money for a longer time period, as well as a partial reflection that central bank rates and inflation would generally be expected to rise.

So on the surface, this shift in the yield curve might be presumed to be a positive signal for the U.S. economy. The opposite dynamic — the prolonged period in which the curve flattened — was certainly taken to be a sign of economic malaise, or even malady.

[source]

Posted in Debt, Markets |

The 5,000-Year Government Debt Bubble

01-Sep (WSJ) — Politicians playing by their own rules is an old story. But it should count as news that politicians have lately been rewriting a rule in place since 3,000 B.C.

This rule of history is that savers deserve to be compensated when they loan money. Not anymore. In much of the developed world lenders are the ones paying for the privilege of letting governments borrow their cash. Through the magic of modern central banking, countries in Europe and elsewhere have managed to drive their borrowing rates not just to historic lows but all the way into negative territory. As of Monday almost $16 trillion of government bonds world-wide were offering yields below zero.

Amazingly, governments have managed this feat even as they have become more indebted and even as slow economic growth undermines their ability to repay. Such conditions normally suggest a less creditworthy borrower and therefore a higher interest rate to compensate investors for the risk. But sovereign debt has become more expensive. Governments have succeeded in making their bonds more expensive in part by printing money and buying the bonds themselves via their central banks. Commercial banks are all but required to buy them too.

In the new political economy—or alchemy—the more unsustainable a government’s finances, the less it pays to borrow. Japan’s government debt amounts to more than 200% of its economy. The yield on Japan’s 10-year bonds recently clocked in at negative 0.06%.

…Put another way, government bonds have never been so expensive. Paul Singer, founder of hedge fund Elliott Management, isn’t expecting a happy ending. He believes that because of massive entitlement promises plus huge debt, “the entire developed world is insolvent.” He says that a negative rate on a government bond is “crazier than zero, and zero was crazy enough.”

[source]

Posted in Debt, Negative interest rates |

Janus’s Gross Says Negative Rates Turn Assets Into Liabilities

31-Aug (Bloomberg) — Billionaire money manager Bill Gross said negative interest rates are turning assets into a liability stifling the capitalist system.

In his monthly investment outlook posted Wednesday, Gross, 72, reiterated his long-running criticism of central bankers, including Federal Reserve Chair Janet Yellen, for slashing interest rates to zero or below to help raise asset prices in the hope they will trickle down into the economy. It’s a plan, Gross argued, that will fail to produce sustainable economic growth.

“Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield,” wrote Gross, who manages the Janus Global Unconstrained Bond Fund. “$11 trillion of negative yielding bonds are not assets — they are liabilities. Factor that, Ms. Yellen, into your asset price objective.”

[source]

Posted in Central Banks, Debt, Monetary Policy, Negative interest rates |

Latest bond rally eye sore: one for the price of two

15-Aug (FT) — The latest sign of the bond rally’s eye-watering extremes: Bonds that have doubled in price.

The Bank of England’s recent stimulus splurge, including a move to buy corporate paper, has driven the market prices for several sterling corporate bonds up to more than two times their initial face value, even for those unlikely to qualify for the central bank’s shopping list, writes Joel Lewin.

The price of US industrial conglomerate General Electric’s 2039 sterling bond, for example, has rocketed to a record high of 215.5 pence on the pound. That’s up from 165p at the start of the year and 100p when it was issued in 2009.

The yield has plunged from more than 10 per cent in 2009 to a low of 1.805 per cent.

Coupons aside, paying £215.50 today to be repaid £100 in 2039 amounts to a capital loss of 5 per cent every year for the next 23 years. Tasty.

It’s another sign of how far central banks have pushed things,” says Luke Hickmore, a senior investment manager at Aberdeen Asset Management.

[source]

Posted in Debt |

Britain’s bond-buying accelerates fall in global borrowing costs

10-Aug (FT) — Britain’s revived programme of mass bond-buying accelerated a fall in global bond yields yesterday in the latest sign of how central bank policy has intensified a worldwide collapse in borrowing costs this year.

The Bank of England this month announced a new £70bn asset purchase programme designed to address fears of an economic slowdown after Britain voted to leave the EU, joining the European Central Bank and Bank of Japan to become the third major central bank engaged in quantitative easing.

The speed and extent of market reaction to the BoE’s monetary easing programme indicated a change among investors who previously doubted the ability of central banks to further suppress bond yields, said Steven Major, head of fixed income research at HSBC.

“The Bank has made it clear that the next move is lower rates and possibly more QE — if they can find the bonds to buy — which is why this new round of easing is having an influence on everything in markets. It has shifted expectations towards further easing in Europe and away from a rate rise in the US.”

[source]

Posted in Central Banks, Debt, Monetary Policy, QE |

Muni Money Market Funds Decimated by Rules Intended to Save Them

03-Aug (Bloomberg) — Municipal money market funds are hemorrhaging cash in advance of rules aimed at reducing the risk of runs on the pools.

Assets have plunged $64 billion since the beginning of the year to the lowest levels since 1999 as investors pulled money from tax-exempt funds in 25 of the last 30 weeks and shifted into ones that buy only government debt. These government-only funds are exempt from Securities and Exchange Commission rules effective in October that require floating net-asset values and impose liquidity fees and redemption suspensions under certain conditions.

The new regulations are adding more pain to funds that have been plagued by seven years of the Federal Reserve’s zero interest-rate policy.

“They’re in danger of going extinct, especially if you don’t get a rate hike anytime in the next couple of years,” said Peter Crane, president of Westborough, Massachusetts-based Crane Data LLC. “Municipal money market funds lobbied hard to get an exemption from the SEC’s rules, but the SEC threw them under the bus.”

…The Fed’s zero-interest rate policy hasn’t helped.

…“Tax exemptions don’t help you if there’s no income to tax,” said Crane.

[source]

PG View: Prudent investors should consider taking a portion of their wealth out of the traditional banking and financial services realm. Physical gold is the ideal vehicle to accomplish this goal.

Posted in Debt, Markets |

‘I don’t like bonds, most stocks’: Bill Gross favours gold as investable assets pose ‘too much risk for too little return’

03-Aug (Bloomberg, via Financial Post) — Money manager Bill Gross says investors should favour gold and real estate while avoiding most stocks and bonds trading at inflated prices.

“I don’t like bonds; I don’t like most stocks; I don’t like private equity,” Gross, who runs the US$1.5 billion Janus Global Unconstrained Bond Fund, wrote in his monthly investment outlook Wednesday. “Real assets such as land, gold and tangible plant and equipment at a discount are favoured asset categories.”

The views echo concerns expressed by managers including TCW Group’s Tad Rivelle and Oaktree Capital Group LLC’s Howard Marks as stocks reached record highs and bond yields plunged to historic lows amid sluggish economic growth. “Sell everything,” DoubleLine Capital’s Jeffrey Gundlach told Reuters last week. “Nothing looks good here.”

[source]

PG View: When a bond guru eschews bonds in favor of gold…perhaps it’s time to listen.

Posted in Debt, Gold News, Gold Views |

Bonds are clearly in a bubble – but when will it burst?

06-Jul (MoneyWeek) — The bond bubble is going from mad to worse.

The average yield across Germany’s bond market – known in one of those wonderful German words as the Umlaufrendite – has fallen below 0% for the first time in history.

Meanwhile, more than $10.4trn of government debt globally now trades on negative yields, according to ratings agency Fitch.

Either the bond market is pricing in a very extreme negative economic outcome, or it’s incredibly overvalued.

One way or another, someone’s going to get a nasty surprise…

[source]

Posted in Debt, Markets |

U.S. 10-Year Treasury Yield Settles at Record Low

05-Jul (WSJ) — The yield on the benchmark U.S. 10-year Treasury note closed Tuesday below 1.4% for the first time on record, the latest milestone of the record-setting declines in global government bond yields following the U.K.’s vote in late June to quit the European Union.

Benchmark 10-year government debt yields from the U.S., Germany, Switzerland, France, Denmark and Sweden all fell to fresh historic lows on Tuesday as persistent uncertainty surrounding the economic and political fallout from the U.K.’s vote to quit the European Union continues to boost demand for haven assets.

The U.S. 10-year Treasury yield settled at a record low of 1.367%, compared with 1.446% Friday. The U.S. bond market was shut Monday for the Independence Day holiday. The previous closing low was 1.404% in July 2012.

Compounding markets’ anxiety on Tuesday is concerns over the health of the banking system in Italy. Shares of Italian banks have been hard hit lately as investors fret about their bad loans.

The buying sent the yield on the benchmark U.S. Treasury note to as low as 1.370% earlier Tuesday, surpassing the previous historical low of 1.385% set on Friday, according to Tradeweb. The 10-year government bond yields in Germany and Switzerland fell further below zero and the 10-year yield in Denmark fell to near zero. Yields fall as bond prices rise.

[source]

Posted in Debt |

Government bond yields fall to fresh record lows led by UK Gilts

01-Jul (FT) — Global government bond markets began the second half of the year extending their record-setting run, led by the UK and Japan, while the US Treasury benchmark yield also approached a fresh all-time low.

The prospect of global central banks keeping interest rates lower for an extended period, led by a likely easing from the Bank of England this month, has spurred strong buying of top-tier sovereign debt by investors.

Against a backdrop of UK political turmoil and with economists expecting a recession in the coming months, the 10-year gilt yield fell a further 6 basis points early on Friday to a record low of 0.81 per cent. That came after BoE governor Mark Carney spoke of “some monetary policy easing” in the next few months on Thursday.

The rally in Gilts was accompanied by firmer US Treasury prices, with investors concerned that Brexit will slow global growth prospects and spark bouts of financial market volatility over the summer.

The 10-year Treasury yield fell 12bp to 1.382 per cent, just above July 2012’s record low of 1.381 per cent, according to Reuters. Bond investors have ruled out the prospect of an interest rate rise this year by the Federal Reserve in the wake of Brexit.

“We believe this is one of those key moments in global fixed income,” said Luis Costa, a strategist at Citi. “It looks to us we are at the tipping point, very close to another large leg down in US Treasury yields.”

[source]

Posted in Debt |

Negative yielding sovereign debt rises to $11.7tn globally

29-Jun (FT) — Global government debt with negative yields has increased by more than a trillion dollars since the end of May after the UK’s Brexit vote sent investors scrambling for safe haven assets.

The amount of sovereign debt with negative yields, meaning if investors hold the bonds to maturity they will get back less they put in, was $11.7tn on Monday, a rise of $1.3tn since the end of May, according to data from Fitch Ratings.

Frenzied demand for high-rated government debt in the wake of Great Britain’s vote to part ways with the EU have sent sent yields a swath of haven bonds plumbing new lows.

“Worries over the global growth outlook, further fueled by Brexit, have continued to support demand for higher-quality sovereign paper in June,” Fitch said.

Strikingly, debt of increasingly long maturities has fallen into negative-yielding territory, with the level of bonds with maturities of seven years or more swelling to $2.6tn from $1.4tn at the end of April.

[source]

Posted in Debt, Negative interest rates |

S&P strips UK of top-notch rating

27-Jun (FT) — Standard & Poor’s on Monday cut the UK’s rating by two notches, becoming the last of the three major credit rating agencies to strip the country of its top-notch status.

S&P reduced the rating from “AAA” to “AA”, and warned that more cuts could be on the horizon. The New York-based group said that the country’s surprise vote to exit the EU was a “seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK”.

[source]

Posted in Debt |

S&P cuts UK sovereign debt rating to AA from AAA, citing fiscal and constitutional issues. Outlook negative.

PG View: As a further reminder of how the world has turned upside down, 10-year Gilts fell 10 bps to an all-time low of 0.93%.

There was a time — not so long ago — when this would have made absolutely no sense at all.

The debt market is neither healthy nor logical. Those seeking a haven in sovereign debt should reconsider and buy gold.

Posted in Debt |

Cat’s Cradle

PG Note: The Epsilon Theory newsletter, written by W. Ben Hunt, Ph.D., Chief Risk Officer at Salient Partners is one of my favorite reads. The most recent installment is a must read for all investors. There are a lot of arguments in his writing that should excite the gold owner. In his summation of the Epsilon Theory of investment strategy Hunt warns that “We’re in a policy-driven market” and that “A policy-controlled market is next”. His suggestion is that you “look to real assets”.

Here are several key snippets:

…when governments undertake emergency actions and extraordinary policies, they obliterate the focal points that make our cooperative games of investing and market making possible.

Specifically, extraordinary monetary policy has obliterated the focal points of price discovery.

I’m often asked if I think that negative rates will ever come to the U.S. My answer: they’re already here by proxy (U.S. Treasury rates are so low today because German Bunds are negative out to 10 years duration), and negative rates will hit the U.S. in earnest and in practice early next year.
…just wait until your money market fund starts charging you interest for the privilege of investing your cash in short-term government obligations. Just wait until Nestle floats a negative interest rate bond. Just wait until borrowing money, not lending money, becomes a profit center. Just wait until the entire notion of compounding — without exaggeration the most important force in human economic history — is turned on its head and becomes a wealth destroyer.
You know, I’ve written a lot of Epsilon Theory notes over the past three years. As I figure it, about three novels’ worth and just over the halfway mark of War and Peace. But in all that time and across all those notes I’ve never felt so … resigned … to the fact we are ALL well and truly stuck. The Fed is stuck. The ECB and the BOJ are stuck. The banks are stuck. Corporations are stuck. Asset managers are stuck. Financial advisors are stuck. Investors are stuck. Republicans are stuck. Democrats are stuck. We are all stuck in a very powerful political equilibrium where the costs of changing our current bleak course of ineffective monetary policy and counter-productive regulatory policy are so astronomical that The Powers That Be have no alternative but to continue with what they know full well isn’t working.
My god, you think I’m a downer? This is the President of the St. Louis Fed, saying that everything the FOMC has been doing for the past four years is just a bad joke!
So, Bullard says, let’s stop this charade of dot plots and just admit the truth: rates are not going up, maybe not EVER, until something beyond the Fed’s control shocks the world into some other macroeconomic regime.

Read the entire piece here.

Posted in Central Banks, Debt, Economy, Monetary Policy |

U.S. 10-Year Bond Falls to Near Record Low As Bund Yield Turns Negative

14-Jun (WSJ) — The yield on the benchmark U.S. government note fell to near a record low on Tuesday as the yield on Germany’s 10-year debt fell below zero for the first time on record.

Tuesday’s move extends the record declines in high-grade global government bond yields, reflecting investors’ consistent concerns over sluggish global economic growth and the limit major central banks are facing in boosting growth via their unconventional monetary stimulus.

The yield on the benchmark 10-year Treasury note was recently at 1.587%, according to Tradeweb. It already traded below 1.616% on Monday, which was the lowest close level since December 2012.


source: tradingeconomics.com

The yield’s record closing low was 1.404% set in July 2012. Some analysts and money managers say they expect the yield to breach that level in the months ahead.

“It’s amazing. I never thought I’d see the day where 10y German rates would go negative,” said Anthony Cronin, a Treasury bond trader at Société Générale SA . “It is difficult to say what is next but it seems safe to expect money to continue to flow into U.S. Treasurys.”

[source]

PG View: Investors paying for the “privilege” of financing the German government . . . that’s pretty messed up . . .


source: tradingeconomics.com

Posted in Bond Bubble, Debt |

Bill Gross warns over $10tn negative-yield bond pile

09-Jun (FT) — The $10tn pile of negative-yielding government bonds is a “supernova that will explode one day”, according to Janus Capital’s Bill Gross, underscoring the rising nervousness over the previously unthinkable financial phenomenon.

Central banks in Europe and Japan have moved their benchmark interest rates below zero. This, combined with investors’ ravenous appetite for bonds, has pushed the yields of more than $10tn of sovereign debt into negative territory.

This is costing investors billions of dollars and forcing many to buy increasingly longer-dated or more lowly rated bonds that still offer positive yields — and has sparked concerns that investors could be exposed to painful losses if yields, which move inversely to prices, snap back up.

In a tweet on Thursday Mr Gross, the founder of bond powerhouse Pimco and now a fund manager at Janus, said: “Global yields lowest in 500 years of recorded history…. This is a supernova that will explode one day.”

…Jeffrey Gundlach, the head of Los Angeles-based bond house DoubleLine, recently told a German newspaper that negative interest rates “are the stupidest idea I have ever experienced”, and warned that “the next major event [for markets] will be the moment when central banks in Japan and in Europe give up and cancel the experiment”.

[source]

PG View: As global central banks sail ever-deeper into uncharted waters, the risk of something really bad happening grows each day.

Posted in Debt |

Bond yields in global domino fall as investors seek safer assets

10-Jun (FT) — Global sovereign bonds set new milestones on Friday, as negative interest rate policies, renewed angst over the US economy and simmering fears over the UK leaving the EU sent investors into some of the world’s safest financial assets.

After gilt yields hit record lows on Thursday, German Bunds and Japanese bonds took up the baton with the yield on the 10-year Bund — a benchmark for the whole of the eurozone — almost touching the zero mark. The yield briefly slipped below 0.02 per cent.

The introduction of negative interest rate policies by the European Central Bank and Bank of Japan is fanning the march higher in bond prices and forcing global investors to scramble for those sovereign bonds, including Treasuries, that offer juicier yields.

“The surge in foreign demand for Treasuries speaks as much to a lack of ‘safe’ assets as fear of recession,” said Kit Juckes, a strategist at Société Générale.

The yield on the 10-year Treasury — the global benchmark — broke through 1.66 per cent, the low touched in early February thanks to a plunging oil price and fears that central banks’ move to drive rates into negative territory could backfire.

[source]

PG View: “Fear of recession” and a market that has clearly swung back against the rate hike meme puts the Fed back in a box. As investors scramble for safer assets, gold will shine as well.

Posted in Debt |

Global Governments Are Boosting Spending at the Fastest Rate since 2009

06-Jun (Bloomberg) — The world’s governments are stepping up to the plate to relieve monetary policymakers of some of the burden of supporting persistently slow-growth economies, according to HSBC Holdings PLC.

Around the world, government spending is poised to grow by more in 2016 than any year since 2009, when fiscal authorities embarked upon a coordinated plan of boosting expenditures to deal with the damage wrought by the financial crisis.
Source: HSBC

“Overall we now have a fiscal stimulus in the global economy,” writes Global Chief Economist Janet Henry. “It is not large, but it is getting bigger and, for the first time since 2010, we estimate that global government spending will grow more quickly than global GDP.”

This news is music to the ears of international organizations such as the International Monetary Fund as well as financial heavyweights like former Fed Chair Ben Bernanke and BlackRock’s Larry Fink, who have long argued that governments should play a larger role in driving growth.

…However, this pick-up in government spending may prove insufficient to offset sluggish investment and trade, the economist warned.

“The U.S. cannot single-handedly lift the global economy out of this weak spot, any more than China alone was capable of being the global economy’s only real growth engine and absorber of the rest of the world’s disinflationary pressures for more than a few years,” writes Henry. “The world needs more than one engine.”

[source]

PG View: What is not mentioned in this article is the reality that increased government spending comes at the expense of higher government deficits and debt.

Case in point:

Posted in Debt |

Average yield on German bonds sinks under 0%

06-Jun (FT) — The average yield on German government bonds, referred to as the Umlaufrendite, has fallen below zero for the first time.

The measure is published daily by Germany’s Bundesbank, and takes an average across outstanding bonds, writes Thomas Hale.

The new low reflects the growing portion of European bonds that pay investors a negative yield, guaranteeing a nominal loss if held to maturity. German 10-year yields are only just above zero, and under heavy pressure. Last week, the amount of negative-yielding sovereign debt topped $10bn, according to ratings agency Fitch.

The phenomenon of investors paying to lend money comes after central banks in Europe and Japan have cut interest rates and bought bonds to help drive down borrowing costs.

[source]

Posted in Debt, Negative interest rates |

China’s Debt Load Is (Much) Higher Than Previously Thought, Goldman Says

06-Jun (Bloomberg) — Count total social financing (TSF) as another Chinese statistic of increasingly dubious value, according to analysts at Goldman Sachs Group Inc.

With many investors grappling to understand the degree to which China’s economic growth has been fueled by debt, efforts to get a grip on measures of new credit creation have gained fresh urgency. To date, many have relied on the TSF invented by the Chinese authorities in 2011 as a way of capturing a larger slice of the country’s shadow banking activity, but Goldman analysts led by M.K. Tang cast fresh doubt, in a note published on Wednesday, on the measure’s ability to gauge credit creation.

They identify a discrepancy between China’s official TSF and Goldman’s new proprietary estimates of credit, describing the increasing difference as “an uncomfortable trend that has gotten more discomforting.”

…On that basis, China’s credit creation came in at 24.6 trillion yuan ($3.7 trillion) last year—far outstripping the 16 trillion yuan increase in money supply and the 19 trillion yuan of TSF.

“Such a scale of deterioration [in China’s leverage] certainly increases our concerns about China’s underlying credit problems and sustainability risk,” the Goldman analysts conclude. “The possibility that there is such a large amount of shadow lending going on in the system that is not captured in official statistics also points to [a] regulatory gap, and underscores the lack of visibility on where potential financial stress points may lie and how a possible contagion may play out.”

[source]

Posted in Debt |

Chart shows China’s debt bubble bigger than subprime bubble

01-Jun (MarketWatch) — Here’s yet another sign that China’s economy may be teetering on the brink of a massive debt crisis.

Unproductive debt in China—that is, debt that’s used to drive up asset prices—swelled in 2015, eclipsing the level seen in the U.S. in the run-up to the Great Financial Crisis, said Torsten Slok, chief international economist at Deutsche Bank, in a note to clients published Tuesday.

…“The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns,” Slok said.

[source]

PG View: As a recent Observer article made quite clear: “China’s number one export is not steel, electronics, textiles or toys — It is deflation.”

Posted in Debt, Economy |

Puerto Rico, Illinois And California: Public Pension Dominoes

31-May (Forbes) — The U.S. Commonwealth Puerto Rico is making a lot of news these days, but for the wrong reasons—it’s economy, overburdened by government, can’t generate enough income to cover payments on its $70 billion debt. Measured on a per capita basis, each of the island’s 3.5 million residents owe $20,000, a debt they can avoid by simply moving. Compared to its economy, Puerto Rico’s debt-to-GDP ratio is about 68%.

Congress recently moved to rescue Puerto Rico from its debt crisis. Ironically, this is the same U.S. Congress that has presided over the accumulation of a $19.3 trillion U.S. federal government debt for a U.S. debt-to-GDP ratio of 106%. Throw in the unfunded liabilities for Social Security, Social Security Disability Insurance, Medicare and other obligations, and the debt balloons to about $127 trillion, give or take.

Paying debt service is easier when you can print money and run deficits at will. Local and state governments, in contrast to the federal government, are obligated to balance their books. It’s this level of government where a looming debt crisis is gathering, the likes of which make Puerto Rico seem a minor prelude.

[source]

Posted in Debt |

US companies issued a staggering $517 billion of debt in the last year

31-May (BusinessInsider) — US companies have issued a staggering amount of debt, but it’s not a problem.

At least that’s according to Adam Parker, chief equity strategist at Morgan Stanley. In a note to clients Tuesday, Parker noted that the massive $517 billion in new debt issued by US corporations in the past 12 months is the second-highest mark ever.

“At the end of 4Q15, these companies had issued $517 billion in new debt, the second highest reading since 1985 ($574 billion was issued in the trailing 12-month period ending 3Q15),” wrote Parker.

“Net debt issuance in 4Q15 is nearly 90% above levels during the dot-com bubble(~$275 billion) and ~50% above pre-financial crisis levels (~$340 billion).”

This debt pile encapsulates the largest 1500 non-financial companies in the US, and the chart of its growth is certainly astounding.

[source]

Posted in Debt |

Global conditions echo post-Lehman crisis, Abe warns G7

26-May (FT) — Global demand is in as bad a state as it was after the Lehman Brothers crisis in 2008, Shinzo Abe told G7 leaders on Thursday, in a clear sign the Japanese prime minister plans to delay a scheduled rise in consumption tax.

In the first session of the G7 summit in Ise-Shima, central Japan, Mr Abe showed world leaders a series of alarming graphs comparing today’s economic conditions with those of 2008.

…Mr Abe has repeatedly said that only a major natural disaster or an economic shock on the scale of Lehman Brothers would justify a delay. The recent earthquake in Kyushu provides the first; now he has found the second.

Delaying the consumption tax rise, in addition to a planned supplementary budget, would mean Japan will head into 2017 with an anticipated fiscal stimulus instead of contraction.

[source]

PG View: And Japan may in fact be the epicenter of any such crisis. Delaying the consumption tax hike may buy some time, but it pushes Japan ever-deeper into debt.

Posted in Debt, Economy |

Greek Parliament Approves Fresh Austerity Measures to Secure Bailout Cash

22-May — Greece’s parliament approved a raft of fresh taxes and austerity measures that the country must legislate to unlock further rescue loans, as the country’s most influential creditors—Germany and the International Monetary Fund—remain deadlocked over debt relief.

The measures were backed by the 153 lawmakers from the ruling Syriza party and its junior coalition partner, the Independent Greeks, securing the majority in the 300-seat parliament late Sunday.

But Syriza lawmaker Vasiliki Katrivanou voted against two of the measures included in the bill. Early Monday, Mrs. Katrivanou announced her resignation from parliament. Another Syriza candidate from the prior elections, George Kyritsis, will run in her stead.

Parliamentary approval could pave the way for eurozone finance ministers meeting on Tuesday to clear the next disbursement of funds to Greece. But that could be complicated as the IMF and eurozone governments and especially Germany remain at odds over when Greece should get debt relief and how deep it should be.

“European leaders get the message tonight that Greece meets its obligations,” Prime Minister Alexis Tsipras told lawmakers ahead of the vote. “Starting from tomorrow it remains that the other side meets its own and I think this will happen.”

[source]

PG View: Remember when Tsipras and Syriza got elected on the platform of no more austerity? Good times . . .

Posted in Debt, European Debt Crisis |

A huge wave of sovereign defaults might be coming

18-May (BusinessInsider) — Oil prices are around seven-month highs.

West Texas Intermediate crude is around $48.74 per barrel, while Brent is at $49.50 per barrel as of 10:23 a.m. ET.

But if folks think this might be the end of all their commodity problems, they may want to think twice.

In a recent note to clients, a Macquarie Research team argued that the global economy may go through a “wave” of sovereign defaults given that something similar happened several decades ago.

“The last great collapse in oil and commodity prices from the end of the 1970s led to a decade-long wave of sovereign defaults. We believe another wave is coming, involving multiple debt restructurings over many years,” the team wrote.

[source]

PG View: Sounds like a fine time for the Fed to be contemplating another rate hike . . .

Posted in Debt |

Spain’s debt now worth more than value of the economy

18-May (AP, via CNBC) — Bank of Spain figures show that the country’s public debt is now worth more than the value of the economy.

The bank said Wednesday that Spain’s public debt stockpile stood at 1.09 trillion euros ($1.23 trillion) in the first quarter of the year. That represents 101 percent of the country’s annual GDP — 1.08 trillion euros — in 2015.

The government estimates the debt ratio will be 99.1 percent of GDP at the end of 2016.

Spain’s public debt has risen consistently since the beginning of the country’s economic crisis in 2008.

[source]

PG View
: I’m going to go out on a limb here and suggest to Spain that the solution to a debt crisis is not more debt. All they did is borrow some time, but I’m afraid this won’t end well . . .

Posted in Debt, European Debt Crisis |

U.S. Discloses Saudi Holdings of Treasuries for First Time

16-May (Bloomberg) — The Treasury Department released a breakdown of Saudi Arabia’s holdings of U.S. debt, after keeping the figures secret for more than four decades.

The stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March, down almost 6 percent from a record in January, according to data the Treasury disclosed Monday in response to a Freedom-of-Information Act request submitted by Bloomberg News. The tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt, and compares with China’s $1.3 trillion trove, and $1.1 trillion for Japan.

Yet the disclosure may bring more questions than answers, because Saudi Arabia’s foreign reserves amount to $587 billion, and central banks typically put about two-thirds of their coffers in dollars, according to International Monetary Fund data. Some nations accumulate Treasuries in offshore financial centers, meaning the holdings show up under the data of other countries. For example, Belgium, which held $143 billion of U.S. government debt as of February, is home to Chinese custodial accounts, analysts say.

“The politics has always been secretive, so have their finances,” said David Ottaway, a Middle East Fellow at the Woodrow Wilson International Center, a research institute in Washington. “It does answer the question of how much they own, which is surprisingly not that much.”

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PG View: Why did the Saudis get to keep this info secret in the first place? Is this release to mitigate the Saudi threat to sell Treasuries if Congress passes legislation that would open the Kingdom to lawsuits associated with 9/11?

MK note:  Hey, Pete.  Not sure what’s going on here but the Treasury Department has been publishing Saudi Treasuries holdings since 2012.  Prior to that, it appears Saudi holdings were aggregated under “Oil Exporters”.  Looks like they removed that designation from the tables in 2012 and broke it out by country.  Here’s the history as published by the Treasury Department in TIC data:

http://ticdata.treasury.gov/Publish/mfhhis01.txt

I too see the number as low and not much of threat to international stability, but is it the real number?

What is even more astonishing to me about the Saudi situation is that it does everything possible to undermine the oil price, which in turn undermines its own economy.  It then borrows $10 billion through a consortium of international banks (end of April) to shore up things.  Why borrow the money when you have it sitting in reserves?  A long way from King Saud personally counting the 35,000 British sovereigns he received for the first oil concession with the West in 1933.  And now oil is back to $50/bbl. . . .Go figure. . . . .

Posted in Debt, Markets |

Greek lawmakers vote for austerity as protests turn ugly

09-May (CNN) — Buffeted once again by protests on the streets outside, Greece’s parliament has voted — by a razor thin margin — to cut pensions and increase taxes ahead of a crucial meeting in Brussels Monday.

At the meeting, Eurozone finance ministers will again debate whether to provide financial support to the beleaguered country.

Late Sunday evening, Greek Prime Minister Alexis Tsipras’ coalition passed pension and tax reforms, which cover the majority of a €5.4 billion ($6.15B) package of austerity measures requested by creditors. A slim majority of lawmakers, 153 of 296, voted in favor of the bill.

…Tsipras campaigned on a platform of opposition to EU-imposed austerity. However, the parlous state of the Greek economy has forced him to accept the necessity of the measures, which remain unpopular with voters.

…On Sunday evening, police and masked demonstrators clashed outside of the parliament buildings in Athens. Petrol bombs were thrown by protestors and police used tear gas and flashbang grenades to disperse the demonstrators, CNN affiliate CNN Greece reported.

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Posted in Debt |