The Coming Great Rest: The Fed's Bubble Blowing, America Teeters On the Verge of the Next Great Crash

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The Fed’s Bubble Blowing, America Teeters On the Verge of the Next Great Crash
Stock prices are the biggest bubbles right now. Some stocks are up by 300% over the last 10 years, while those same corporations are doing worse than they were.
Low interest rates, huge amounts of QE caused corporations to use not just their profits, but also take on (cheap) debt to do huge stock buybacks and pay their CEOs lost of money. I think it might happen this year, but more likely next year. Even if interest rates stay low, QE is (finally) ending. While purchasing power is not getting any better.
Huge debt funded buybacks this cycle to take on stocks which are 250% normal valuation (per John Hussman). Corporate debt has exploded and surely will be a major part of the next crisis.

The hidden risk to the economy in corporate balance sheets

In March, S&P cut its ratings on Macy’s to BBB, two notches above junk, as competition from internet retailers continues to dig into the department store chain’s sales. The company’s debt, net of cash, has risen over the past three years. Meanwhile, it has spent $5.2 billion buying its own stock, or $1.4 billion more than those shares are worth now, according to data provider FactSet. Companies often buy their shares and take them off the market to goose their earnings per share, a widely watched measure of success.
Oil company Hess was also recently downgraded, mostly because of a plunge in oil prices beyond its control. But its own moves hurt, too. Instead of whittling away at its debt with the cash it raised in recent years from selling parts of its business, it has spent billions buying its stock. Moody’s Investors Service cited Hess’ heavy debt burden when it downgraded the company.
The similarities to the last debt crisis may not end there. Like folks who kept refinancing their mortgages instead of paying them off, companies have “rolled over” their old loans by taking out new ones. This makes sense at many companies because interest rates are so low.

A record 2.61 million options on the VIX traded on Monday, surpassing a previous peak reached in August.
Shockingly, Bloomberg reports that the activity appeared to be led by one investor, who rolled over a massive bet on a return in market turbulence to the end of the year.

Shortly after Monday’s market open, an investor rolled over a position of more than 486,000 Oct. 25 calls to December.
Monday’s trade was effectively an extension of a bet that volatility will more than double by the end of the year — the wager was initiated in July but that didn’t come to fruition since the VIX gained only 2.5 percent in the period.
While the trade was big — it accounted for almost half of Monday’s call volume and 11 percent of the total calls outstanding — wagers that the VIX will rebound have multiplied in recent weeks as shorting volatility has lost some of its appeal.


Fitch Ratings is expecting China’s first local government bond defaults, but timing uncertain

  • China may see its first local government bond defaults soon, said Fitch Ratings
  • The Chinese government will contain systemic defaults, it said


China may witness its first local government bond defaults, although the timing was uncertain, Fitch Ratings said in a press release issued on Sunday, amid persistent concerns over high debt levels in the world second largest economy.
These bonds were issued by Chinese local government financing vehicles (LGFVs), which were created by local authorities to bypass restrictions on borrowing.
There are concerns about the potential for a wave of defaults in China due to high local government debt, which could impact the financial markets and potentially spread a wave of contagion across the global economy.

The LGFVs have also borrowed from the Chinese shadow banking sector as official channels dried up due to the government’s crackdown on leverage.

Debt boom in India and China threatens new financial crisis, warns … hours ago

“The largest 30 banks hold almost $43 trillion in assets, compared to less than $30 trillion in 2006, and concentration is continuing to increase in the US, China, ..

China’s mortgage debt bubble raises spectre of 2007 US crisis

South China Morning Post14 hours ago
Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy …

Central Bank Stimulus Alone Can’t Punch Up Wage Growth, IMF Says

Bloomberg2 minutes ago
Weak productivity growth and a shift to part-time work are key forces behind the sluggish wage gains across the developed world since the Great Recession, …

Canadian Indebtedness to Limit Rate-Hike Path, Economists Say

Bloomberg18 hours ago
… little precedent to show what happens to confidence and spending when consumers see higher payments on their record C$2.1 trillion ($1.7 trilliondebt pile.

California schools face $24 billion in retiree health costs

Ventura County Star5 hours ago
SACRAMENTO – California schools are on the hook for $24 billion in future health care costs for their retirees, a mountain of debt that’s forcing some districts to …

Hartford debt default a ‘virtual certainty,’ says S&P

MarketWatch20 minutes ago
The city of Hartford, Conn., is on the brink of defaulting on its debt, S&P Global … for the current fiscal year that would close a two-year $3.5 billion spending gap.

City pension woes hit home as shortfall hits $405 million (Palo Alto)

The Daily Post20 hours ago
The pension shortfall — also known as the unfunded liability — is the difference between what will be needed to pay employee pensions into the future and the …

Jacksonville City Council approves $1.27 billion budget

Florida Politics (blog)11 hours ago
The other amendment: almost $23 million to be moved to pension from two … sales tax proceeds will only pay a fraction of the $3.2B unfunded pension liability, …

Report gives Delaware ‘F’ grade for its fiscal health

Los Angeles Times2 hours ago
A new report has given Delaware an “F” grade for its fiscal health. The analysis from Truth in Accounting claims the state had an $8.5 billion gap between assets …

REAL BREXIT BILL: Brussels now demands UK pays £10BILLION … hours ago
HUGELY generous pensions for retired Eurocrats have skyrocketed over the last year …. Britain is expected to contribute £10 billion to EU pension costs before …

LA pension officials deliver another financial blow to the city budget

Los Angeles Times12 hours ago
A Los Angeles pension board voted Tuesday to scale back its long-range investment … The decision is expected to shift $38 million in retirement costs onto the …

Obamacare premiums in Florida to rise 45 percent on average next …

Miami Herald16 hours ago
Health insurers selling Affordable Care Act plans in Florida will raise monthly premiums by nearly 45 percent on average next year, the state’s Office of Insurance …

Health Premiums To Rise An Average Of 24-Percent On Washington …

NW News Network10 hours ago
If you buy individual health insurance through Washington’s Health Benefit Exchange get ready for sticker shock. Rateswill go up by an average of 24 percent …

h/t SpontaneousDisorder

2 thoughts on “The Coming Great Rest: The Fed's Bubble Blowing, America Teeters On the Verge of the Next Great Crash

  1. …..and yet the stock market was up again today, making that 4 out of the 5 days this week, and they’ve managed to AGAIN shove metal prices down, with gold hitting $1350 a couple weeks ago, now muddling – again – well in the $1200’s.
    Don’t underestimate the Fed’s ability to manufacture yet another or even more bubbles. Amerikans desperately want them – any – to continue, so I see reports like this and simply dismiss.

    • It is how they are hiding inflation…..the stock market is being used as a money laundering system. Soon they will offload all their stock to pension funds at ridiculous interest rates that will not be sustainable, and greedy fund managers will snap them up thinking they are going to make a killing, but will buy insurance just in case things go south. The insurance will be bet for and against, with insurance being taken out on those shorts etc on and on ad nauseam. They learned from 2008 how to hide it better, and make bigger profits behind the scenes.

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