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Debt Storm over Emerging Markets

By: Gordon Long | Sunday, January 17, 2016

Something Appears Broken Somewhere?

Debt Storm over Emerging Markets

Full Report: Download pdf- - 21 Pages

Sovereign Debt in Peripheral Nations Becoming Impaired

Things are only getting worse quickly and investors need to understand this as reports like the following begin to surface:

The Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, the Fed indicated "under the table" that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses would exceed the current tier 1 capital tranches.

It will soon surface that many peripheral nations dependent on Energy and base commodities have intractable sovereign debt issues which cannot be solved like Saudi Arabia abruptly announcing it is privatizing its oil assets through an IPO of the $10T Saudi Aramco

Echo Boom

Credit Cycle Has Turned - Everything Is Now Resting on a Moving Floor

Credit Cycle

What investors need to realize is that the Credit Cycle has reversed after 8 years. It reverses because corporate free cash flow begin shrinking and therefore credit risk increases. It is a simple reaction to the realities of the numbers but is compounded when Debt levels to EBITDA rise significantly.

This is what is occurring and the markets are reacting. The heavily leveraged energy sector is being taken to the "wood shed" as are many levered mining and commodity conglomerates.

The Commodity complex and energy began falling when the realities of a potential US Taper program actually occurring were first realized. We have written extensively since the announcement by the US Federal Reserve of its "TAPER" program that an inevitable collapsing commodity market in Emerging Economies would be the catalyst for the next crisis.

Commodity Problems

We concluded in our 2014 Thesis paper "The Globalization Trap" that a good proxy for a slowing China would initially be commodity prices and in turn the levered players behind the massive commodity run - up. Make no mistake about it; China is in the process of a hard landing which is being once again temporarily camouflaged by credit expansion! This is a ticking time bomb with players like Glencore are 'ground zero'.

Number of Distressed Bonds

When the large Energy and Mining companies have their debt rated as junk it will lead to a waterfall of collateral shortfalls and margin calls, reminiscent of the ratings agency downgrade of AIG that culminated with the US bailout of the insurer. Commodity traders have raised at least $125 billion of debt, of which about $75 billion is loans. In other words, there is about $75 billion in secured debt, collateralized by either inventory and/or receivables collateral whose value has cratered in the past year and as a result the LTV on the secured loans has soared. This is the tip of the iceberg that is prompting the panicked banks to be more eager to provide funds to the suddenly distressed energy - trading sector than even the borrowers themselves.

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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.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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