• 3 days How To Invest In The Cybersecurity Boom
  • 5 days Investors Are Patient With Unprofitable Giants
  • 7 days Wells Fargo Back In The Scandal Spotlight Once Again
  • 9 days 5 Stocks To Keep A Close Eye On This Year
  • 10 days As Auto Giants Flail, Look To Chip Stocks For Gains
  • 11 days Central America Is Ready For The Bitcoin Hustle
  • 13 days China’s Video Game Restrictions Unlikely To Slow Down Booming Industry
  • 14 days Top Performing Stocks As Inflation Fears Grow
  • 15 days US Airline Stocks Take A Beating On New EU Restrictions
  • 16 days This IPO Could Open Sustainable Fashion Floodgates
  • 17 days Crypto Crime Nets Another $2B Fraudster
  • 19 days This Week’s Hottest Meme Stocks
  • 20 days Why World Markets Should Be Watching Germany Closely
  • 22 days Could ‘Cultured’ Meat Rival The Plant-Based Megatrend?
  • 25 days ‘Easy Money’: Crypto Is Still Attracting Newbie Investors
  • 26 days Foreign Syndicates May Have Stolen Up To $400B In COVID Benefits
  • 27 days Gold Jumps Above $1800 Ahead Of Jackson Hole Summit
  • 27 days International Banks Blacklist Afghanistan Following Taliban Takeover
  • 29 days China’s Tycoons Are Getting A Serious Reality Check
  • 30 days U.S. Cannabis Space Heats Up With Telling Tilray Acquisition
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Gordon Long

Gordon Long

Mr. Long is a former senior group executive with IBM & Motorola, a principle in a high tech public start-up and founder of a private…

Contact Author

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

Contact Author

  1. Home
  2. Markets
  3. Other

Something is Burning in High Yield Corporates!

Junk Bond Crisis Start to Metastasize

With John Rubino & Gordon T Long

Published 12-18-15
31 Minute Video

John Rubino and Gordon T Long discuss the alarming developments in the Junk (HY) Bond market. John was warning on his last appearance on Macro Analytics about the things he was seeing, while Gord was warning of a turn he was seeing in the Credit Cycle. Both previous observations have proven correct so John and Gordon postulate what to expect next. It isn't pretty!


A Huge Potential Problem

Since the Financial Crisis the US Federal Reserve has increased its balance sheet by approximately $3.5 Trillion. In this same period the Junk Bond (HY) issuers have issued $2.2T of debt which the markets have 'gobbled' up to achieve yield. The question is what happens if they start selling some of that debt to avoid capital losses. This problem is compounded by regulations since the financial crisis which has significantly curtailed banks making markets in these instruments. Many worry that Investment Grade (IG) bonds also issued over the same period will be "infected", especially with a historic $1.3T being sold for the first time in 2015 to significantly fund stock buybacks and dividend payouts. This is a 'witch's brew' for a potential disaster.

Corporate Leverage


Corporate Leverage

With Corporate Leverage back to the point at which past default cycles started kicking in, there are more reasons to worry, as corporate cash flow and EBITDA fall while the Federal Reserve raises rates.

Worsening cash flow to debt ratios normally force credit downgrades making credit more expensive and harder to get. This is coming at a time when major Junk Bond issuers in the Energy and Commodity sector are being hardest hit by falling pricing. They are trapped and investors know this and are now worried about junk bond liquidity.


A Slowing Global Economy

John and Gord both see a steadily deteriorating global economy which will bring further pressures to an already troubling situtation.

John lays out the torrent of bad news coming as the Fed begins raising rates:

Oil slump resumes on U.S. supply build, expected Fed rate hike
Why the current credit crisis might be 35 times worse than you thought
Freight Shipments Hammered by Inventory Glut, Weak Demand
Baltic Dry Crashes To New Record Low As China "Demand Is Collapsing"
US Markit flash manufacturing PMI slips to three-year low in December
US industrial output falls as manufacturing stays flat
Brazil's currency sinks after Fitch cuts rating to junk status

The question is whether the Fed will be able to follow through with its stated policy direction.

Fed Funds Rate


Worry of Contagion

The problems in the Junk Bond market are not isolated to just the hard hit commodity and energy sectors. The protracted period of "easy money" created by Fed policy has sowed its seeds across all economic sectors.

Sector Distress Ratios


A Critical 90-Day Window

The next 90 days are going to be both quite worrying to investors and highly volatile for the financial markets, as the Credit Cycle, Rate Cycle and Business Cycle all send confusing signals before the future economic direction becomes clear.

Let's all hope that is not spelled: "Recession".

.... there is much, much more in this comprehensive 31 minute video discussion.

 

Back to homepage

Leave a comment

Leave a comment