2019 ROI First Quarter Edition 2019 - HIS Capital Group | Page 46

In true Hollywood fashion, we’ve cut thru a great deal of raw data and other areas of concern and interest to share with you and left the rest as they say, on the cutting room floor. Yield Curve: When short term rates are higher than long term the curve inverts or slopes down. Here is why this is an issue: Every US rescission over the last 60 years followed an inverted yield curve. Historically the correction has occurred within 20 months of an inversion. Debt The usual suspects Goldman Sachs, Wells Fargo, JP Morgan Chase, Bank of America and other financial companies have originated these loans to hundreds of cash-strapped companies, many of which could be unable to repay if the economy slows or interest rates rise. “This means that the next downturn that we have could be more serious and longer-lasting and more difficult to deal with than it would have been if we had constrained these practices,” former Federal Reserve chair Janet L. Yellen said in a recent interview. The world’s total debt is now larger than at the height of the financial crisis in 2008... In fact, it’s now surpassed a record $164 trillion As I mentioned in the introduction to our report Yellen like the rest of us has a 50/50 shot at being right. This nugget say’s it all: Actions by federal regulators and Republicans in Congress over the past two years have paved the way for banks and other financial companies to issue more than $1 trillion in risky corporate loans, sparking fears that Washington and Wall Street are repeating the mistakes made before the financial crisis. In a survey of 31 current and former bank regulators, senior administration officials, congressional aides, bankers and market analysts, most conceded they had no idea what would happen to the economy when defaults on these loans spike. Now for some perspective on the general public: The moves undercut policies put in place by banking regulators six years ago that aimed to prevent high-risk lending from once again damaging the economy. As regulators scaled back scrutiny, bankers began to binge. Financial companies issued a total of $1.271 trillion in leveraged loans in 2017 and 2018, 40 percent more than in 2015 and 2016, according to S&P Global Market Intelligence. More than 80 percent of the loans made in 2018 were made with fewer restrictions on the borrower and fewer protections for the lender in the event the loan falls into default. Now, regulators and even White House officials are struggling to comprehend the scope and potential dangers of the massive pool of credits i.e. leveraged loans, they helped create. Total U.S. consumer debt, including revolving and non- revolving debt, now stands at more than $4 trillion, the most ever. revolving debt, such as credit card debt, is now valued at more than $1 trillion, which exceeds the all-time high right before the financial crisis. According to the Federal Reserve Bank of New York, people age 60 and older owe about a third of this total. Non-revolving debt auto loans, student loans, mortgages is even worse. Student loan debt alone stands at $1.5 trillion. The cost of college tuition has increased eight times since the 80s. Do you make eight times more than what you made in the 80s? How long before our “kick the can down the road” approach results in negative rates? www.hiscaptialgroup.com 45