“Bank of England research shows that the share of corporate debt owed by highly leveraged companies across major advanced economies is now similar to, or higher than, levels in 2007. The reason that this should worry us is that “cross-country data shows that growth in the corporate debt to GDP ratio is associated with deeper recessions…
“It is now companies which are very indebted, in notional numbers and as a percent equivalent of GDP. Many of these are zombie companies that have been borrowing to pay existing debt, pay dividends, engage in share buy backs, and/or to pay executives bigger bonuses. As we get into an economic downturn, there is a high risk that leveraged companies will default on their obligations and fire employees in an attempt to stay afloat.
“Presently, 80-85% of leveraged loans have lite or no covenants. When companies default, lenders will have very little in protection.”
“Citi strategists pointed out the earnings recession is likely to continue into 2020. I’ll just note that the stock market behaved the same way in the run-up to the dot-com crash, rising quarter after quarter as earnings fell quarter after quarter.
“Of course, it will be different this time because today’s people are never as stupid as yesterday’s people!”
https://seekingalpha.com/article/4276256-drip-drip-drip-recession
“Britain’s currency sank to a two-year low last week, dipping below $1.24 as fears of a no-deal Brexit grew.
“Long seen as a symbol of Britain’s stability and national pride, the pound has in recent years become a barometer for concerns about the country and its departure from the European Union.”
https://www.nytimes.com/2019/07/22/business/britain-pound-brexit.html
“…given the inevitability of the Iranian reaction against British naval forces too weak to defend British-flagged tankers, the British move looks more like a strategic choice dictated by a lack of other options.
“Confrontation with the EU over Brexit means that Britain has no alternative but to ally itself ever more closely to the US.”
“While US national security adviser John Bolton and US secretary of state Mike Pompeo push the region towards maximum tension and Donald Trump makes despicable threats to obliterate Iran
“….the US military has announced its intention to create and lead an anti-Iranian naval coalition in the Persian Gulf.”
https://news.sky.com/story/global-economic-catastrophe-likely-if-us-attacks-iran-11766319
“Germany’s manufacturing industry and exports are suffering from a slowing global economy, the finance ministry said in its monthly report on Monday, warning that weak order numbers suggested the industrial slowdown could be lengthy…
“”Leading indicators as well as shrinking order books point to a lasting period of economic weakness in the industrial sector,” the report said.”
“Efforts to clean up Turkey’s bad debt have stalled…
“Interviews with more than a dozen bankers, company executives and advisers show that there has been little progress over the past three months with plans to help lenders to Turkey’s construction, real estate and energy companies that can no longer afford roughly $20 billion of debt.”
“Credit rating agencies for years assigned high ratings to India’s Infrastructure Leasing & Financial Services (IL&FS) and its group companies despite its deteriorating finances…
““Various strategies deployed by the then key officials of IL&FS group and certain favours/gifts provided to rating agency officials suggest the possible reasons for consistent good ratings provided to IL&FS group,” said Grant Thornton in its report that detailed gifts or favours such as smartwatches and tickets to overseas sporting events.”
“India is attempting to prevent any repeat of last year’s shadow banking crisis after detecting “signs of fragility” in some of the 50 housing finance and other non-bank lenders it is monitoring, according to central bank Governor Shaktikanta Das.
“The Reserve Bank of India is working closely with the country’s lenders to prevent the collapse of another large systemically important non-bank finance company…”
https://www.aljazeera.com/ajimpact/india-monitoring-shadow-banks-signs-weakness-190722062854878.html
“China’s bond market has been eerily quiet lately. Over the past year, investors in China’s U.S. dollar bonds had gotten used to the idea of defaults.
“As early as 2015, the government started allowing some state-owned enterprises to renege on their commitments, a painful but welcome step that helps differentiate healthy firms and troubled ones.”
“In response to the escalating economic conflict between South Korea and Japan, financial authorities here are establishing a contingency plan in case Tokyo expands its trade restrictions to the financial sector, officials said Monday.
“The preemptive gesture came out of concern about the apparent dependency of local financial companies on Japanese lenders, which have been offering a low interest rate for years.”
http://www.koreaherald.com/view.php?ud=20190722000705
“New Zealanders could be in line for a cash payout, alongside temporary tax cuts if the economy crashes, according to advice from Treasury…
“It says the “best case” stimulus would focus on tax cuts and stimulus, alongside spending money on building infrastructure, which would also boost the economy.
“It recommends giving money to households, particularly those in need, saying that tax changes or cash transfers (meaning a payment of some kind, possibly a benefit) meet its policy objectives of boosting the economy, but in a way that achieves equity.”
“Central banks world-wide are poised to unleash some of the most aggressive monetary stimulus since the financial crisis a decade ago. But the circumstances are different now, with policies aimed more at breathing life into decade-old expansions rather than at averting an economic collapse.
“…It is unclear whether the central bankers’ depleted tools will be adequate.”
https://www.wsj.com/articles/central-banks-are-in-sync-on-need-for-fresh-stimulus-11563714002
“If the world’s factories are any measure, then the global economy is looking rather gloomy… Global manufacturing output is at a three-year low, teetering on contraction. Around 17 central banks are expected to cut rates this quarter to combat the global slowdown. In June, manufacturing output slipped to a three-year low. It is now teetering on contraction [already is contracting according to some metrics].”
“…a report from S&P Global Ratings released earlier this month is a sobering document. It’s especially notable given that it is coming from a company that rates the quality of debt for corporate America.The U.S. shale explosion has been fueled by debt.
“What S&P sees is not encouraging. This year alone, 10 oil and gas companies rated by S&P Global Ratings have seen their debt ratings cut to D or SD. The D stands for default; SD is selective default, a rating that is handed down when a company voluntarily restructures their debt with their creditors.”
Read the previous ‘Economic’ thread here and visit my Patreon page here.
