A World on Fire

Posted by Ed 3 mths ago
Every day, news reporters, traders, and workers of all sorts the world over wake to do their work as they always have. Part of that requires that everyone pretend that life is normal, fixable, and more or less stable. All of this is temporary. It will come and go and really not be that bad.

Strange, isn’t it? Human beings have a hard time adjusting to disaster, in their decision-making and even in their mindset. Reporters have to do their jobs as they are trained. Traders too. Everyone does. They please their bosses. They don’t sound alarms. They don’t scream and yell as they probably should.

But there is a moment in the day when the work is done and perhaps a cocktail comes out or the dishes are washed and the kids are in bed and the room falls silent. At this moment, millions and billions of people the world over know it. Disaster is all around us. We are just pretending otherwise, simply because this is what we have to do.

It was this way during lockdowns. They must know what they are doing otherwise why would we be forced to do this. If we all do our part, maybe this will end sooner rather than later. The experts surely know better than we do what is what. What can we do but trust?
Let us adjust and find a way to normalize all of this in our minds. We are powerless to change it in any case.
And thus the peoples of the world adjusted and will continue to do so as the fundamentals decay and rot, long past the end of lockdowns and most vaccine mandates, even as all the old rituals and signals of life as we once knew it fade further into memory.
Enough with the dreary existentialism. Let’s talk about life in a one-bedroom apartment in London. The price of energy for heat has nearly doubled, seemingly overnight. Truly, it took months but it has felt like one day to the next. The energy bills will be approaching a substantial portion of the rent itself. And the forecast — which one has to do because that’s how energy markets work on the consumer end — is showing a doubling and doubling again.
Here is what Goldman Sachs is seeing.
Small businesses cannot function under these conditions. “Tom Kerridge, the celebrity chef, revealed that the annual energy bill at his pub has soared from £60,000 to £420,000 and warned that ‘ludicrous’ price rises left the hospitality sector facing a ‘terrifying landscape’,” reports Telegraph.
“The U.K. may be facing a wave of business bankruptcies exceeding anything witnessed during the post-2008 panic and recession,” reports Joseph Sternberg. “Some 100,000 firms could be forced into insolvency in coming months, bankruptcy consultancy Red Flag Alert warned this week. These are otherwise healthy firms with at least £1 million in annual revenue. Business failures on this scale would dwarf the roughly 65,000 firms of any size that went under from 2008-10.” 

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Ed 3 mths ago
Rock-bottom interest rates have long allowed companies to paper over cracks in their business models.
As central banks raise rates to tame surging inflation, scores of debt-laden companies suddenly face the uncomfortable prospect of trying to service higher interest bills with crimped cashflows.
To assemble our list of debt monsters, we chose a market metric: companies with debt trading more than 10 percentage points (1,000 basis points) above government bonds, drawn from Ice’s Global High Yield index.
Although this does not capture companies turning to private debt markets or bank loans, it produces a diverse range of 207 companies whose bond spreads are flashing a red warning signal.
The top is dominated by Chinese property companies, which until recently had seemed to defy the laws of financial gravity. But the disparate group shows just how widespread corporate distress has become in 2022, taking in a French supermarket chain, an Irish aircraft lessor, an Indian miner, a Belgian toilet maker and Britain’s largest chicken producer. We have chosen to examine in more detail a sample of 35 companies from the list.
Bond investors are professional worriers and in uncertain times the market can reflect their darkest thoughts. Plenty of companies on the list have defied previous prophecies of doom, while many have already pushed out the day their debt comes due far into the future. Consider this as a tour of businesses that debt markets are fretting over, rather than a collection of condemned companies.

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Ed 3 mths ago

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Ed 2 mths ago
Central Banks Panic As Debt & Currency's Begin To Fail

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Ed 2 mths ago
UK Chaos Economics: Fretting over “Financial Stability” & “Contagion” after Gilts Plunged, Bank of England Buys Bonds
It wasn’t big hedge funds that blew up, but £1.5 trillion in leveraged pension funds. BoE stepped in to bail them out and prevent further contagion.

Over the past few days, the pound plunged, including with a flash-crash on Monday that briefly took it to record lows against the US dollar. Prices of long-dated bonds went into a death spiral, with the 10-year yield spiking by 130 basis points in four trading days to 4.63% early today, and by 275 basis points in seven weeks ago (up from 1.88% in early August).

The bond market reaction represents a colossal and sudden degree of “tightening” of the financial conditions, before the Bank of England’s QT had even started. QT is designed to bring up long-term yields, but they already exploded due to chaos.

It was the market’s backlash against the new government’s reckless plan to cut taxes for the rich and for corporations, funded by new debt, while piling on spending to subsidize energy costs, also funded by new debt, thereby requiring the issuance of large amounts of new debt, even as inflation has already reached to 10%.

The Bank of England, which is in charge of maintaining financial stability, now has a slew of problems to deal with: inflation spiraling out of control, currency plunging, bond market in chaos, financial stability at risk, and spreading contagion. And some of them require the response that the others require.

So this is a mess, and there are no good solutions.

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Ed 2 mths ago
Fed’s Favored Inflation Index Says: Underlying Inflation Just Isn’t Slowing Down at All

Everyone wants to know when inflation is finally going to cry uncle.

Just briefly here: The Fed uses the “core PCE” inflation index, released by the Bureau of Economic Analysis, as yardstick for its inflation target. This “core PCE” index – the overall PCE inflation index minus the volatile food and energy components – is therefore crucial in the current rate-hike scenario, amid red-hot inflation, when everyone wants to know when inflation is finally going to cry uncle.

Some folks thought that happened in July, when the month-to-month “core PCE” inflation slowed to “0%” (rounded down).

Turns out this much-ballyhooed month-to-month “core PCE” reading in July of “0%” was just a one-off event. In August, according to the BEA today, the core-PCE inflation index jumped by 0.6%, same as the multi-decade records in June 2022 and in April 2021 (all rounded to 0.6%). As Powell had said during the FOMC press conference: Underlying inflation is just not slowing down.


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Ed 2 mths ago
Is Credit Suisse about to be the new Lehman Brothers?
Something is brewing in the financial world

There is much speculation that at least one major bank is not fine and could create the next Lehman Brothers moment. ABC Australia, quoting ‘a credible source’, reported that a major investment bank is on the brink. Morgan Stanley have said that the surging US dollar is setting the stage for “something to break” in the financial system.

The Bank of America have warned that the Fed is about to break the corporate bond market.

The two which are in the worst shape are Deutsche Bank (heavily exposed to the energy crisis) and Credit Suisse. Both are already trading at distressed valuation but I’ll focus on Credit Suisse in this post.


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Ed 34 days ago
Horror-Show Inflation in Euro Countries: Overall 10.7%, Germany 11.6%, Without Energy 6.9%
“Defeating inflation is our mantra, our mission, our mandate,” and that’s “why we have to raise interest rates”: ECB’s Lagarde now, after years of money-printing and NIRP.
Inflation began spiking last year well before Russia’s invasion of Ukraine. Early 2021 was when the inflation dam broke globally, with the pandemic money-printing and deficit-spending binge still in full swing. The dam just broke, and inflation washed over the lands. In July 2021 in the Eurozone, inflation shot past the ECB’s target of 2%. It hit 4.9% in November 2021, and 5.1% in January 2022 before the war in Ukraine had begun. Russia’s invasion of Ukraine made the existing trends worse.  https://wolfstreet.com/2022/10/31/horror-show-inflation-in-euro-countries-overall-10-7-germany-11-6-without-energy-6-9/





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Ed 28 days ago
Imploded Stocks of the Day: Carvana, Twilio, Atlassian, Cloudflare
The free-money virus turned investors’ brains to mush. But the healing has started, interest rates are recovering, QT is here, and look what we got.
Let’s just walk through some of the already Imploded Stocks that further imploded on Friday. There were quite a few of them, as is now usually the case during earnings season, but we’ll just look at a handful. They imploded even as markets rallied for the day. On Friday, the Nasdaq rose 1.3%, reducing its loss for the week to just 5.6%, that kind of week. But a whole bunch of stuff plunged after reporting “earnings” – I’m using that term loosely because they all reported huge losses on top of endless losses.

Carvana, an online used-vehicle retailer, is one of the earliest entries into my pantheon of Imploded Stocks. Thursday evening, it reported “earnings” – you know what I mean. Everything went the wrong way: The number of vehicles it sold to retail customers fell, revenues fell, cost of sales jumped, gross profit plunged, selling and administrative expenses soared, interest expense more than tripled, and the net loss exploded to $508 million.

The used-car startups Carvana, Vroom, and Shift “face an existential crisis,” I wrote in April 2022, based on the changing dynamics in the used vehicle market, the fading willingness of investors to keep fueling cash-burn machines, and driven by the used-vehicle startups themselves that were never designed to make money and never could figure out how to make money, not even in the hottest used-vehicle market ever in 2021.

They were designed to burn investor cash. And investors no longer want their cash to be burned. And so that existential crisis is now.
The chart displays the now classic pattern of how the Fed’s trillions of dollars in QE and interest rate repression – the free-money era started in 2009 – mutated over the years into a virus that turned investors’ brains into mush, and after their brains had turned into mush, they inflated asset prices to ridiculous levels. 

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Ed 1 day ago
The Unavoidable Crash

After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public- and private-sector debt. The mother of all economic crises looms, and there will be little that policymakers can do about it.


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