The Next Minsky Moment

[The Minsky Moment]

It will start in the market for corporate finance.

Synthetic CDO's - the instrument the eptomized the 08 crash - are back, several hundred bllion were issued last year and issuance this year is way way up.  The issuers and buyers are saying it's OK because the underlying debt is company debt not mortgage debt. Which just proves there is no limit to human folly. 

Just as the housing market in the mid-oughts became infected with crap subprime loans, often using eumphemistic names ("Alt-A"), the corporate debt market is experiencing the same in the form of the wildly overextended "leveraged loan" market.  The latter is just a euphemism for privately arranged loans, often for companies or issuances that are too weak or sketchy to secure regualar junk bond finance. That is now a $1.4 trillion market, and still growing but looking increasingly wobbly. "Covenant light" loans - also a prominent feature of 08 crisis toxic loans - are very common in this market.

The immediate backdrop is the 1st Q GDP report - a strong headline number that concealed a significant slowdown in personal income growth and demand.  The GDP numbers were driven primarily by a sharp increase in company inventories - i.e. companies were ordering and buying, but not selling so much.  If the inventories can't be sold or have to be discounted to move it will mean a slowdown in future quarters.  If corporate revenue slows the money won't be there to service the piles of company debt and the synethic crap derivatives piled on top will collpase.

Trump despite appearances isn't a complete dummy.  He has been through many macro cycles before and knows intimately what happens at the end of a late stage up cycle, i.e. where we are know.  He knows a downturn is going to come and likely fairly soon - his entire strategy is to stave it off until after the '20 election.  Hence the ridiculous unfunded tax cut, to keep Wall street money circling the chairs without stopping the music.  But Presidential control is limited, it's quite likely we could see a break in the next 12 months.

  If that happens, expect a full frontal assault from the White House on the integrity and independence of the Fed, will all he vigour that twitterstorms, Fox News and Russian bots can bring to bear.   Things could get real ugly, real fast.

[Eddie Teach]

What does Junior have to do with this?

[HisMajestyBOB]

  If that happens, expect a full frontal assault from the White House on the integrity and independence of the Fed, will all he vigour that twitterstorms, Fox News and Russian bots can bring to bear.   Things could get real ugly, real fast.

We're already seeing the start of that. Trump and Pence are saying the Fed needs to cut rates and while GOP Senators shot down the loons Trump nominated, we'll see how they act as we get closer to a downturn.

[Admiral Yi]

Should we sell everything and buy gold?

[mongers]

Should we sell everything and buy gold?

[Ed Anger]

No coffee cans, guns and K-rations.

[/Ed Anger]

[crazy canuck]

I am heavily in cash atm, just waiting.

[mongers]

I am heavily in cash atm, just waiting.

Write a help note on a receipt slip and pass it through the slot when someone next uses the machine.

[crazy canuck]

I am heavily in cash atm, just waiting.

Write a help note on a receipt slip and pass it through the slot when someone next uses the machine.

Not sure what that means.

[Eddie Teach]

I am heavily in cash atm, just waiting.

Write a help note on a receipt slip and pass it through the slot when someone next uses the machine.

Not sure what that means.

You're stuck in an ATM.

[Maladict]

I am heavily in cash atm, just waiting.

Write a help note on a receipt slip and pass it through the slot when someone next uses the machine.

[DGuller]

 

[Monoriu]

Minsky moments are features, not bugs, of the system. 

[Admiral Yi]

Minsky moments are features, not bugs, of the system.

Have you taken macro mono?

[Monoriu]

Minsky moments are features, not bugs, of the system.

Have you taken macro mono?

Yes. 

[Tamas]

Damn!

This reminds me: is there any site/blog you'd recommend that's good for reading financial news/opinions without either the treasury optimism of the big ones or the tinfoil lunacy of the little ones?