Thanks to massive stimulus that the Fed can never seem to unwind despite promising to do so for years, the Corporate Bond Deluge Rolls and Leverage Soars to New Heights.
What has the analysts uneasy isn’t just the speed at which leverage is climbing, but that it’s happening while the economy continues to grow.
“Leverage tends to rise most in a recession — so the fact that it is this high in a ‘healthy economy’ is even more concerning,” the analysts wrote. In other words, they said, “mistakes are both more likely and more costly.”
Corporate-bond issuance this year is on pace to exceed last year’s record $1.3 trillion, data compiled by Bloomberg show. That would push sales during the past five years to more than $6 trillion. Companies that sold dollar bonds this week included Home Depot Inc., Cox Communications Inc. and TJX Cos.
Total debt at companies grew steadily at about 10 percent year-on-year since 2009 and accelerated to 16 percent year-on-year at the end of 2015. As that happened, Ebitda fell 4 percent for twelve months through the end of 2015, according to the report.
Debt loads are swelling across most all industries, the analysts said. But it’s been most pronounced among energy and healthcare companies. Companies have also borrowed to buyback stock rather than investing, a factor that contributed to weak productivity in the U.S. economy, and that does not “bode well for earnings,” the analysts wrote.
Wizard of Fed
Speculation has it that Fed governor Lael Brainard, an interest rates dove, would signal she was ready for rate hikes in a speech today. Instead, I wrote, Strike Three on September Rate Hike: Brainard Urges “Prudence”.
Prior to her speech, I was highly skeptical the Fed would hike. It’s now a near certainty the Fed won’t hike.
Cowardly Scarecrow
The Fed is like a talking statue that cannot think clearly or ever move. Envision a combination of the brainless scarecrow and the cowardly lion from the Wizard of Oz, stuck on a pointed stick, yapping incessantly but afraid to do anything.
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Mike “Mish” Shedlock
http://4.bp.blogspot.com/-mOGlXl9j6EY/ULVWXYgZawI/AAAAAAAAG9g/c0-zVde_-Wo/s640/debt_based_money_meme_federal_reserve_fiat_currency_scam_bankster.jpg
It’s a trick question. The real answer is: Why the heck should “we” bother paying it off?
Mish – stop peddling the fiction…
Exactly.
Never assume conspiracy when stupidity works as an explanation. These people were selected to work on the FOMC because they were gullible and dumb, yet excel at personal presentation.
The conspiracy exists with whoever selected these idiots to work as the FOMC. Shadow Control 101 explicitly states “Use others to do the work you want done. Replace them with others you can control when their usefulness is compromised. Never expose yourself.” Basically, the current FOMC are the flunkies and the fall guys.
Asking economists for a cure for our economic ills is like a zombie going to the doctor for low blood pressure.
Like!!! The Zombie collapsed yesterday… Who do you think Tim Kaine is going to pick as his running mate?
Indeed. She’s got the kind of face that inspires you to start punching, and never stop.
Japan’s massive pre crisis private debt to GDP was mostly the result of corporate debt, Japanese consumers were never big fans of going into debt. In the US, it was the other way around, US consumers were up to their eyeballs in debt but corporate debt I believe wasn’t that bad.
The rapid expansion of corporate debt since the crisis is the best explanation yet of why we haven’t had another recession. But it also means that when the crisis hits, and mathematically speaking it absolutely has to be within the next decade, look out below.
This.
In addition to being more concentrated, by being largely relegated to corporates, the Japanese bubble was to a large extent corralled off to sections of even those. While the rest of the “economy” remained to a large extent unaffected. And, in Japan, the bubble went from start to finish in a fairly short time. Basically an 80s phenomenon. So it didn’t have time to have the kind of deleterious effect on the wider culture and economy, that it’s slower rising, multi generational, cousin has had in the West.
“Envision a combination of the brainless scarecrow and the cowardly lion from the Wizard of Oz, stuck on a pointed stick, yapping incessantly but afraid to do anything.”
How dare you!
Using messaging that alludes to the Fed as cowardly! Don’t you even realize it was only Mr. Bernanke having “the courage to act” that has kept the entire global economy from going over the falls?
These brave bankers are saving the world, while you pop off about fictitious cowardly lions! I suppose you think it’s easy to have a balance sheet leveraged at 80-to-1 and have to address nervous investors with calming talk when you know the whole damn thing is but kindling wood in search of a verbal match to be struck.
(LMAO!)
‘healthy economy’…
when the quotation marks come out for ordinary phrases….
you know you aren’t in Kansas anymore.
This is like standing next to a pressure cooker with the steam vent blocked.
Katy bar the door when she blows!
Printing is confiscation. Bankers are only too happy to keep slowly confiscating the people’s stuff, and putting the loot in their own pockets.
How is it confiscation? Is it confiscation if you are a stock holder in a company but that corp. decides to issue more shares?
Trump is openly taking on the Fed. Good. It is time someone showed the world what these lunatics are doing in the guise of helping the economy. They have simply abrogated too much power to themselves and I for one am glad Trump is taking them to task. It is high time that someone asked the right questions and demanded answers and accountability from the Fed. Why not charge the cockpit (as indicated in link below) when you realize the Fed is not doing the right thing.
http://www.vox.com/2016/9/12/12862434/flight-93-election
The future is already written by the Apocalypse Now. Historically unprecedented amounts of credit money (debt) now exist, like a massive overhang of snow and ice on a mountain just awaiting a trigger for avalanche. Is the avalanche the cataclysm or is the build-up of the inevitability of avalanche the cataclysm? I submit the Apocalypse is Now, and its inevitable denouement just a logical consequence.
This said, auditing the Fed is just a brick on the Path of that denouement. The Fed can’t be audited without a change in our 50 year, too-trusting Narrative, and once that Narrative changes toward distrust, every bit of data coming from such an audit will rip trust from the Central Bank rationalization ever faster. People running the Fed may be tried, convicted and executed for treason under the ethos likely to prevail during the collapse of the Credit Bubble.
The fed wants the debt bubble to bust, so they can swoop in and pick up all the bargins.
I think the Fed won’t survive the bursting of the bubble. To your point, however, there are other actors who no doubt intend to do exactly what you describe. Can we imagine what happens if credit-money burns to ash, leaving only physical money (banknotes) as a medium of exchange? It is the people managing the Fed who move literally pallets of Federal Reserve Notes around the world (remember the billions of $ that went missing in Iraq post-invasion?) The Fed may not survive the coming conflagration, but highly placed managers within it are positioned to engage in one of history’s Greatest Robberies.
The US (and world) economy cannot be run on banknotes. But for a brief time during the chaos of a credit collapse, access to an infinitesimal amount of surviving “money” could enable a few people to scoop up multiple kings’ ransoms at fire sale prices.
Corporate Debt Binge chart. My, what a nice parabolic on the right side of that chart.
A company always has a master. If it is up to it’s eyes in debt then the bondholders’ are its master. If it is the opposite then it is the stock holders.
So if corps. are issuing bonds to buy back stock that would be a change in corporate structure but how is it a function of the Fed? The Fed’s QE is pretty small but from it’s latest balance sheet (https://www.federalreserve.gov/monetarypolicy/bsd-overview-201608.htm) I’m eyeballing about $2.5T in US bonds and $1.7T in MBS’s and nothing for corporate bonds (let alone corporate paper). So corps. issued $10T in bonds that tells me it’s the market that is buying it. So the issue is?
All this started 50 years ago when they eliminated any consistent link between the US dollar and something real (silver.) It got supercharged when bond rates topped in 1981 and for 35 years issuing a bond was tantamount to “producing” wealth. The resulting compounded rise in total outstanding credit filled an OCEAN (the Bond Ocean) and Pollyanna (Fed economists, legislators, C-suite robber-barons, etc.) has sailed it ever since, with all that illusory liquidity sloshing from one sub-market into another creating booms and busts for 30 straight years.
All this coincided with the social Narrative of Equality and non-Judgmental Tolerance of the Civil Rights Act, the Immigration Act, Title IX, and most recently, the “men-are-women/women-are-men if they say they are” legal framework.
It all rests on the same rotten foundation. People embarked on a social mood mania 50 years ago and we collectively sailed into historically uncharted waters, surrounded by monsters and storms, yet Pollyanna is our captain and our national ethic. As Mad Magazine’s poster boy used to say, “What, me worry?”