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?
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