Financial topics

[vincecate]

I got a meme on Facebook today. The text is "Bitcoin is not the bubble, it is the pin."

The picture is of a hand with a Bitcoin logo holding a pin that it moving toward a bubble with a "$" on it.
I think there is some truth to this. If people flee the dollar into Bitcoin (which seems to be happening) then Bitcoin really is like the pin that is popping the US dollar.

[aeden]

Its already popped.

[Higgenbotham]

1968 was a watershed year in a lot of ways. It may have set the stage for many years of turmoil.

Some graphs posted earlier were modified for a better presentation of the data. This is a graph of nonfinancial corporate liabilities divided by nonfinancial corporate revenues. The ratio was relatively stable until 1968, after which growth in liabilities began to steadily outpace growth in revenues.



As noted earlier, the Republican Party recognized what this would lead to in 1966. According to google, this passage has never been quoted anywhere except in the Congressional Record and here. Is that because it's not important? I don't know, but these issues were considered by many to be important when the Hero Generation was in charge.

Congressional Record: Proceedings and Debates of the 89th Congress, 1966

https://books.google.com/books?id=HILK3 ... 22&f=false

It's not just the amount of corporate debt in relation to revenue and profit generation that's the problem; it's also the quality of the corporate debt.

Gundlach: Corporate Bonds Could Be a Repeat of the Sub-Prime Crisis

by Robert Huebscher, 5/15/19

A collapse in the corporate bond market could rival the sub-prime debacle a decade ago, according to Jeffrey Gundlach.

Corporate bonds are not as overvalued as sub-prime mortgage debt was prior to the financial crisis, according to Gundlach. But because the corporate market is so much larger than the sub-prime was, the overall exposure to investors could be of the same scale. Indeed, “We could easily see $400 billion in losses,” he said.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call yesterday. Slides from that presentation are available here. The focus of his talk was DoubleLine’s asset-allocation mutual funds, DBLFX and DFLEX.

Gundlach’s fear is rooted in the excessive amount of corporate debt, particularly bonds that are rated BBB, the lowest investment-grade rating, just above high yield.

Corporate bonds have been rich by one standard deviation for most of the last three years, he said, and now are at an “outright sell” level. A massive amount of corporate debt is weighing on the corporate bond market, and a lot of bonds are “complacently owned.”

Gundlach cited a Morgan Stanley report that showed the oversupply and weak ratings standards that could lead to downgrades. Based on corporate leverage ratios, 38% of the corporate bond market should be rated junk, according to Gundlach.

https://www.advisorperspectives.com/art ... ime-crisis

At the time this article was written, I really thought the bubble was over. As the stock market continued to sink in May and early June, 2019, I stayed short. Shows how much I know - not much. One day this bubble will break, though.

[aeden]

https://www.youtube.com/watch?v=zYgP__Ke3SQ

the actual language of the plasma fields review

[Higgenbotham]

Next years project is building a concrete structure, primarily to be used as a fallout shelter and a second home should something happen to the house. Today this is considered crazy yet in the 1950's the generation who experienced total war were all building these kinds of shelters in the backyards and basements. We had an entire Civil Defense at one point....

The G.I. generation and their preparations for nuclear war did not come out of nowhere. We can use their thoughts and tools in order to prepare ourselves. Generational Dynamics can be used to understand and prepare for whats coming if you are able to apply the material. We need to adopt the mindset of the G.I. generation to best prepare ourselves.

There was a reason that the generation that lived through total war was encouraging everyone to have fallout shelters and supplies.

As noted earlier, the Republican Party recognized what this would lead to in 1966. According to google, this passage has never been quoted anywhere except in the Congressional Record and here. Is that because it's not important? I don't know, but these issues were considered by many to be important when the Hero Generation was in charge.

These comments from Tim about nuclear war have something in common with my comment about deficits. These matters were considered by the Hero Generation to be important, but today, with the Hero Generation gone, they are not considered to be valid or important.

[Higgenbotham]

I've mentioned being short the Russell 2000 starting Thursday. It might shock some to know that, according to the Wall Street Journal, the trailing twelve month earnings for the Russell 2000 index are currently negative. As also noted in the table, the PE based on forward 12 month operating earnings (from Birinyi Associates updated weekly on Friday) is 54.63.

https://www.wsj.com/market-data/stocks/peyields

Some might say that the reason the trailing earnings for the Russell 200 index are negative is because of covid-19. That certainly has something to do with it.

As far as the PE based on forward operating earnings, even if those projections are met, this PE is still twice what the typical PE has been for this index over the past 20 years or so (in other words, during the worst part of the ongoing debt bubble that has taken place since the Hero Generation retired).

[aeden]

The rediscovery of the obvious will not be understood from the demsheviks ever.
The rot is basically terminal and our only task is to avoid it.
The pattern is not what it is going forward.
As it was put the Lily and the Thorn.

thread: recursive sequences

https://ulcar.uml.edu/~iag/CS/Fibonacci.html

[Higgenbotham]

Looking at this chart, it can be seen that nonfinancial corporate business is heading toward having about one dollar of debt securities liability per one dollar of revenue. Essentially, it means to me that, in order to be profitable on average, these entities must have profit margins that are greater than the interest on their debts. But that's only an average. Hence, the exponentially growing proportion of zombie companies, particularly in the Russell 2000.

Long term rates on BBB corporate debt:



Now we know why Powell said he'd backstop the corporate debt market back in March 2020. There was probably a brief moment in time when the effective interest rate spiked well above the high number shown on the chart for 2020. That might be an end of quarter value.

[Higgenbotham]

At the time this article was written, I really thought the bubble was over. As the stock market continued to sink in May and early June, 2019, I stayed short. Shows how much I know - not much. One day this bubble will break, though.

An article that was written in this same time period (April, 2019) on these issues that I just found now:

Global Financial Zombification. Russell 2000 Junk.

https://chrisbelchamber.com/global-fina ... 2000-junk/

The "when" has eluded many.

[Higgenbotham]