• 9 hours Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 11 hours 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 15 hours Tesla, Apple Claim China Is Stealing Intellectual Property
  • 17 hours EV Giants Duke It Out For Battery Dominance
  • 1 day Tech Billionaire Takes Aim At Google
  • 2 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 2 days Expect A Pullback Before Gold's Next Major Rally
  • 2 days Why Interest On Gold Matters
  • 2 days Ten Extravagant Food Items For The Wealthy Only
  • 3 days Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 3 days $32 Million Crypto Heist Halts Tokyo Exchange
  • 4 days Is A Gold Selloff Looming?
  • 4 days Central Banks Are Stashing Gold And Dumping Treasuries
  • 5 days Three Cannabis Trends Flying Under Investors’ Radars
  • 5 days $1.3 Billion In Cocaine Found On JPMorgan Vessel
  • 5 days Amazon Teams Up With Lady Gaga To Win Over Generation Z
  • 6 days Dollar Falls As Powell Teases Rate Cuts
  • 6 days Will The World's First Trillion Dollar Company Ever Bounce Back?
  • 6 days Many Americans Will Never Stop Working
  • 6 days Mozilla vs DarkMatter: The Cyber Espionage End Game
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

  1. Home
  2. Markets
  3. Other

Global Slowdown Steepening

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

Read Full Report: Download PDF
22 Pages

Watch 20 Minute YouTube Video (With 37 Slides)

 

Back to homepage

Leave a comment

Leave a comment