[from bloomberg today: Looming Crash Prompts Most Hires for Distressed Debt Since 2002]
BNP Paribas SA, France's biggest bank, hired Steven Franck from New York-based Morgan Stanley this year to increase its distressed debt operation in London to four.
``People have been forecasting a meltdown in credit in the next 12 to 18 months,'' said Michael Gibbons, head of the special situations desk at Paris-based BNP Paribas. ``We tend to crash when we least expect it, rather than when we forecast it.''
...................................................................................................
On the other hand, you have the Chinese market way up essentially because of negative real rates. US consumer confidence seems uncorrelated to things that should be impacting, like fuel costs, higher interest rates, falls in housing prices, slowing growth. I am curious what other people are thinking about inflation these days because we have not really worried about inflation for a long time. I remain convinced that even with slowing growth, inflation is on its way up.
You'd expect that inflation would be perhaps the top concern of retirement savers, and yet investment advisers never seem to factor that in, and it's not at all clear where you'd look if you wanted to hedge your inflation exposure. In 'The Great Wave', (app. F) the author makes the argument that inflation is not all that well-defined and the way different economists use the term is not consistent. He identifies seven different types, so I myself need to be a bit more specific.
I was also thinking that if the US issues inflation-linked debt then it is a bit like having non-domestic-currency-denominated debt. I would think the Fed would not be too eager to issue debt where it has even less control.
Anyhow, we all agree it's unsustainable, and we probably also agree that like the jack-in-the-box, the event which triggers the unwinding is increasingly ominous but still unpredictable... you can hear the spring winding but you won't hear the latch slipping. I'm inclined to think that one can't profit from this structure on either side.
As of Tuesday I have increased my market exposure.
Liquidity Liquidity Everywhere
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kr
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- Joined: Thu Jan 01, 2004 12:00 am
Liquidity Liquidity Everywhere
U.S. Junk-Bond Risk Premiums Decline to a Record Low (Update4)
By Caroline Salas
May 30 (Bloomberg) -- Risk premiums on high-yield, high- risk U.S. corporate bonds fell to a record low on speculation the economy is accelerating, bolstering the ability of companies to meet their debt payments.
...
``We're in the beginning stages of the late cycle: Corporate leverage begins to rise much more in earnest from this point, which goes hand in hand with equity markets performing quite well,'' said Christopher Garman, head of high-yield strategy at Merrill in New York. ``That sort of backdrop can persist for over a year.''
...
``The ultimate end game comes when price-to-earnings multiples and corporate leverage are high,'' Garman said. ``When you have the Fed tightening into that climate, that's when the capital markets take it in the chin and default rates accelerate in earnest.''
...
I endorse this view of the fundamentals and structure - no rush to disaster just yet.
By Caroline Salas
May 30 (Bloomberg) -- Risk premiums on high-yield, high- risk U.S. corporate bonds fell to a record low on speculation the economy is accelerating, bolstering the ability of companies to meet their debt payments.
...
``We're in the beginning stages of the late cycle: Corporate leverage begins to rise much more in earnest from this point, which goes hand in hand with equity markets performing quite well,'' said Christopher Garman, head of high-yield strategy at Merrill in New York. ``That sort of backdrop can persist for over a year.''
...
``The ultimate end game comes when price-to-earnings multiples and corporate leverage are high,'' Garman said. ``When you have the Fed tightening into that climate, that's when the capital markets take it in the chin and default rates accelerate in earnest.''
...
I endorse this view of the fundamentals and structure - no rush to disaster just yet.
my bank got pwnd
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IAmEric
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- Joined: Thu Jan 01, 2004 12:00 am
Liquidity Liquidity Everywhere
[i]I endorse this view of the fundamentals and structure - no rush to disaster just yet.[/i]
I would imagine that your investment horizon should have a significant impact on your behavior under such circumstances, right? What is your typical investment horizon? How would you be thinking about things if your horizon was more like 3-5 years?
Most investor's horizons are highly correlated (I would imagine) with their compensation arrangements and most comp packages (I would imagine) are based on yearly performance. In fact, (I would imagine) that a 1-year horizon is probably considered LONG for most people.
If your horizon is 6 months to a year, keep on trucking. But how would things change if your horizon is 3-5 years? We can let this be a record of my opinion that there is a high probability of things blowing up in the next 3-5 years.
[img]/User%20Files/257/EndisNear.jpg[/img]
I would imagine that your investment horizon should have a significant impact on your behavior under such circumstances, right? What is your typical investment horizon? How would you be thinking about things if your horizon was more like 3-5 years?
Most investor's horizons are highly correlated (I would imagine) with their compensation arrangements and most comp packages (I would imagine) are based on yearly performance. In fact, (I would imagine) that a 1-year horizon is probably considered LONG for most people.
If your horizon is 6 months to a year, keep on trucking. But how would things change if your horizon is 3-5 years? We can let this be a record of my opinion that there is a high probability of things blowing up in the next 3-5 years.
[img]/User%20Files/257/EndisNear.jpg[/img]
One day, in the midst of another one of his increasingly frequent homicidal fantasies, Croke noticed a new member had invaded his favorite forum. It was an obnoxious coed (or so he thought) who went by the nickname "Lilly". At first, all Croke could think about was strangling the life out of this giddy new member. Her insistent flirting with everyone was disgusting to Croke and he began a merciless vendetta against her.
He was sure that his prominent status would cause the other "regulars" to outcast the newcomer as he wished. On the contrary, everyone dug Lilly and even Croke's most vehement beratings fell on def ears. This infuriated Croke even more.
He was sure that his prominent status would cause the other "regulars" to outcast the newcomer as he wished. On the contrary, everyone dug Lilly and even Croke's most vehement beratings fell on def ears. This infuriated Croke even more.
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kr
- Posts: 0
- Joined: Thu Jan 01, 2004 12:00 am
Liquidity Liquidity Everywhere
good one[s] from ft today:
Global awakening' is fuelling gains in asset markets
By Marc Chandler and Marc Glassman
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
From Mr Marc Chandler and Mr Jim Glassman.
Sir, Alan Ruskin's Insight column, "A weak dollar is the driving force behind global liquidity" (May 24), offers a useful summary of the conventional view that the accumulation of reserves by foreign central banks - presumably to temper the pace of their currency appreciation against the US dollar - is the main cause of the liquidity pumping up global asset markets and apparently fuelling various forms of speculation....
Just as the business cycle has lengthened and flattened, so too has the credit cycle. Rather than being a binary system where a banker either gives or denies credit, the market has capital for anyone. The only matter for discussion is the price.
Contrary to Mr Ruskin, we suggest another explanation for the global asset market rally and the compression of credit spreads: the world is going through an economic transformation of historic proportions. It is disinflationary and is creating vast new markets, with enormous opportunities for both business and consumers...
==> highlights of this heavy-sellside view: longer, flatter credit cycle, and 'it's different this time'
on the other side of the page we have
Quarter mastered
Corporate earnings just keep on keeping on. In early April, as bond yields dropped, analysts forecast that profits growth would almost grind to a halt for the first quarter of 2007. Yet actual earnings-per-share growth for the S&P 500 has come in at 8 per cent year-on-year, according to Thomson Financial. That is below the mid-teens level over 2006 but still respectable. And, unlike in the fourth quarter, where almost all growth was provided by lower-quality financial profits, the first quarter seems better balanced across sectors.
Yet despite this, it is no time to get complacent about the profits cycle. The quality of growth remains doubtful. The net decline in the S&P 500 share count, reflecting issuance and buy-backs, added about 1 percentage point to eps growth. A weak dollar will have boosted profits somewhat. The contribution of the volatile financials, energy and materials sectors has risen from about 31 per cent in mid-2005 to 43 per cent of the earnings base today.
The perception that profits are being driven by an unsustainable milking of corporate assets also seems to have some basis: first quarter revenue growth slowed to 5 per cent, almost half the level of 2006. The current boom seems to be one in which financial investments and leverage are prioritised over capital investment. In the medium term, return on capital should in principle fall, either because high profitability attracts new entrants or because asset bases are depleted.
How quickly that theoretical process takes in the real world is the big question. But earnings slumps tend to happen pretty sharply: for the seven profits downturns since 1947, the average time between peak and trough earnings is an abrupt 31 months, and the average decline in real earnings per share is just more than 30 per cent. Whether the S&P 500, trading on 17 times trailing earnings, discounts this degree of cyclicality is debatable. But at least public equity investors can rest assured that, unlike some of their brethren in the fixed income and buy-out industries, they still believe a profits cycle of some sort exists.
==> actually the caption for the attached chart argued that the cycle is MORE volatile, on the basis of historical pattern
Global awakening' is fuelling gains in asset markets
By Marc Chandler and Marc Glassman
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
From Mr Marc Chandler and Mr Jim Glassman.
Sir, Alan Ruskin's Insight column, "A weak dollar is the driving force behind global liquidity" (May 24), offers a useful summary of the conventional view that the accumulation of reserves by foreign central banks - presumably to temper the pace of their currency appreciation against the US dollar - is the main cause of the liquidity pumping up global asset markets and apparently fuelling various forms of speculation....
Just as the business cycle has lengthened and flattened, so too has the credit cycle. Rather than being a binary system where a banker either gives or denies credit, the market has capital for anyone. The only matter for discussion is the price.
Contrary to Mr Ruskin, we suggest another explanation for the global asset market rally and the compression of credit spreads: the world is going through an economic transformation of historic proportions. It is disinflationary and is creating vast new markets, with enormous opportunities for both business and consumers...
==> highlights of this heavy-sellside view: longer, flatter credit cycle, and 'it's different this time'
on the other side of the page we have
Quarter mastered
Corporate earnings just keep on keeping on. In early April, as bond yields dropped, analysts forecast that profits growth would almost grind to a halt for the first quarter of 2007. Yet actual earnings-per-share growth for the S&P 500 has come in at 8 per cent year-on-year, according to Thomson Financial. That is below the mid-teens level over 2006 but still respectable. And, unlike in the fourth quarter, where almost all growth was provided by lower-quality financial profits, the first quarter seems better balanced across sectors.
Yet despite this, it is no time to get complacent about the profits cycle. The quality of growth remains doubtful. The net decline in the S&P 500 share count, reflecting issuance and buy-backs, added about 1 percentage point to eps growth. A weak dollar will have boosted profits somewhat. The contribution of the volatile financials, energy and materials sectors has risen from about 31 per cent in mid-2005 to 43 per cent of the earnings base today.
The perception that profits are being driven by an unsustainable milking of corporate assets also seems to have some basis: first quarter revenue growth slowed to 5 per cent, almost half the level of 2006. The current boom seems to be one in which financial investments and leverage are prioritised over capital investment. In the medium term, return on capital should in principle fall, either because high profitability attracts new entrants or because asset bases are depleted.
How quickly that theoretical process takes in the real world is the big question. But earnings slumps tend to happen pretty sharply: for the seven profits downturns since 1947, the average time between peak and trough earnings is an abrupt 31 months, and the average decline in real earnings per share is just more than 30 per cent. Whether the S&P 500, trading on 17 times trailing earnings, discounts this degree of cyclicality is debatable. But at least public equity investors can rest assured that, unlike some of their brethren in the fixed income and buy-out industries, they still believe a profits cycle of some sort exists.
==> actually the caption for the attached chart argued that the cycle is MORE volatile, on the basis of historical pattern
my bank got pwnd
-
IAmEric
- Posts: 0
- Joined: Thu Jan 01, 2004 12:00 am
Liquidity Liquidity Everywhere
More fun from the Austrian camp (which I'm sure you've seen... and probably dismissed)...
BIS warns of Great Depression dangers from credit spree
[Edit: Added more references]
Amid Financial Excess, a Revival of Austrian Economics
I'm still far behind you guys, but following this closely is a great learning experience so far. For example, over the weekend I learned about the "BIS view" and what a wanker Bernanke really is.
BIS warns of Great Depression dangers from credit spree
[Edit: Added more references]
Amid Financial Excess, a Revival of Austrian Economics
I'm still far behind you guys, but following this closely is a great learning experience so far. For example, over the weekend I learned about the "BIS view" and what a wanker Bernanke really is.
One day, in the midst of another one of his increasingly frequent homicidal fantasies, Croke noticed a new member had invaded his favorite forum. It was an obnoxious coed (or so he thought) who went by the nickname "Lilly". At first, all Croke could think about was strangling the life out of this giddy new member. Her insistent flirting with everyone was disgusting to Croke and he began a merciless vendetta against her.
He was sure that his prominent status would cause the other "regulars" to outcast the newcomer as he wished. On the contrary, everyone dug Lilly and even Croke's most vehement beratings fell on def ears. This infuriated Croke even more.
He was sure that his prominent status would cause the other "regulars" to outcast the newcomer as he wished. On the contrary, everyone dug Lilly and even Croke's most vehement beratings fell on def ears. This infuriated Croke even more.