Global Slowdown Steepening

By: Gordon Long | Sun, Jan 3, 2016
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The Credit Cycle Is Reacting!

The Credit Cycle Is Reacting - Are you ready?


QE: Supply Outstripped Wealth Effect Demand

In March 2015 in "QE: A Failed Experiment" we began reporting on how Quantitative Easing was becoming more about creating over supply than about its intended purpose of creating economic demand.

A Sustainable Equilibrium Problem

World Trade Values

Cheap money may help consumers' ability to consume via the wealth effect and the cheap financing driving it, but we found globally it was having a much more profound impact on producers and their suppliers. Specifically, it turns out that the expected wealth effect for consumers, paled in comparison to the incentive to producers to dramatically ramp up production, and in turn for their raw material commodity suppliers to explode production output.

World Industrial production


An Artificial Equilibrium

From our college economics courses we all remember that at some point it can be expected Demand and Supply will come into balance. However, that balance can be preceded by a massive overshoot of supply if money is made too cheap for too long a period of time. Which is one of the unintended consequences of the failed QE Monetary Policy.

US Industrial Production

The overshoot of supply and then a slowing of demand has resulted in most global suppliers now chasing slowing demand growth which has critically lead to lost pricing power. Margin and profit problems can be disguised while the easy credit for zombie companies keeps them temporarily alive. These players in their desperation to stay alive and meet loan obligation payments, bring further pricing power pressures to the global markets. This is the stage we are in presently as we have documented on numerous occasions and most recently in the "The Coming Auto Abyss".

High Yield Last 12-Months Upgrade to Downgrade Ratio


Credit Cycle Has Turned

What this paper highlights is how we have now entered another stage in this re-balancing. Specifically, we have a turn in the Credit Cycle as cash flows are shrinking and the requisite credit ratings for new loans is increasingly under pressure.

Credit Cycles can be expected to turn when Cash Flow and EBITDA growth goes negative or slows relative to growth in Debt. This is what in now occurring. Those in the equity market don't yet realize why the HY and IG Bond Market are now feeling significant pain. They soon will!


Credit Cycles Always Lead

Credit Cycle

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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

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