• 2 hours What Is Africa’s Role In The New Silk Road?
  • 1 day Trump Was Right About The Dollar
  • 1 day Is Silver Gearing Up For A Rally?
  • 1 day World’s Largest Hedge Fund Turns Bullish On Gold
  • 1 day It’s Time To Spend More On Clean Energy R&D
  • 2 days Contrarian Investors Are Beating The Stock Market
  • 2 days Bulgaria’s Revenue Agency Falls Victim To Biggest Cyber Heist In History
  • 2 days Amazon Faces European Union Anti-Trust Probe
  • 2 days Commodities Are Having A Stellar Year
  • 3 days Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 3 days 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 3 days Tesla, Apple Claim China Is Stealing Intellectual Property
  • 3 days EV Giants Duke It Out For Battery Dominance
  • 4 days Tech Billionaire Takes Aim At Google
  • 4 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 4 days Expect A Pullback Before Gold's Next Major Rally
  • 4 days Why Interest On Gold Matters
  • 5 days Ten Extravagant Food Items For The Wealthy Only
  • 5 days Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 6 days $32 Million Crypto Heist Halts Tokyo Exchange
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

Debt Storm over Emerging Markets

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.

Read Full Report

 

Back to homepage

Leave a comment

Leave a comment