On Wednesday, John Mauldin posted a recent research from Michael Lewitt, author of The Credit Strategist where he discusses corporate debt, commodities, climate change, Obamacare and private equity. One of the many hats I wear is research analyst and I enjoy sharing unique and thought provoking viewpoints. This one’s a doozy and a great read.
As John Mauldin highlights in his intro, the opening paragraph is blunt and to the point. It starts “Commodity prices are plunging, the dollar is powering higher, the yield curve is flattening, ObamaCare is collapsing, global trade is plummeting and terrorism is spreading across the globe. The high yield credit markets are sending distress signals and 10-year swap spreads are negative. Energy companies are going out of business faster than you can say “frack” and trillions of dollars of European bonds are again trading at negative interest rates. The world is drowning in more than $200 trillion of debt that can never be repaid while European and Japanese central bankers promise to print more money and the Federal Reserve is being dragged kicking-and-screaming into raising interest rates by a paltry 25 basis points. Accurate pricing signals in the markets are distorted by overregulation, monetary policy overreach and group think. Hedge funds are hemorrhaging and investors, desperate to generate any kind of nominal return on their capital, continue to ignore the concept of risk-adjusted returns. Some market strategists believe this is a positive environment for risk assets; I am not among them.”
Other key points, are:
- -Debt has doubled since 2007 while interest expense has only increased 40%
- -Recently, 4 energy companies owing a combined $4.8 Billion auditors expressed doubts that they could continue as going concerns
- -Dollar is trading at multi-year highs
- -China’s surging aluminum and steel exports are crushing prices around the world
- -Copper is trading at 6 year lows and have fallen 28% year-to-date
- -Freddie and Fannie rolled out a new program called “Home Ready’ that allows homeowners to obtain a mortgage with a 3% down payment. Their memory of the housing crisis is short lived.
- -EBITDA multiples hit a record for the first 9 months of 2015 at 10.3x
Enjoy!
Jared Toren
Proper Wealth Management, CEO & Founder
