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Two weeks ago, when looking at the recent flurry of chapter 11 filings and a striking correlation between the unemployment rate and loan delinquencies, we said that a “biblical” wave of bankruptcies is about to flood the US economy.

It now appears that the wave is starting to coming because according to Fitch, the monthly tally of defaults in the U.S. leveraged loan market has hit a six-year high, as companies are either missing payments or filing for bankruptcy because of the fallout from the coronavirus pandemic.

According to the latest Fitch Leveraged Loan Default Index data, the total amount of defaults in this high-risk, high-yielding area of the debt markets at $12.6 billion in May so far, the highest since April 2014, bringing the leveraged loan default total for the year to date is $33.3 billion.

At the end of April, the trailing 12-month default rate jumped to 2.8%, compared to just 1.8% at the end of last year. Fitch forecast that U.S. leveraged loan defaults would reach $80 billion in 2020, surpassing the previous high of $78 billion in 2009.

While many expect the US shale sector to lead in the coming default spike, US retailers have accounted for the bulk of defaults over the past two months, as they were forced to temporarily close stores in response to the COVID-19 pandemic. For now, energy remains in 5th spot after the telecom, services, and manufacturing sectors.

Retailers Neiman Marcus Group, J.Crew and J.C. Penney all filed for Chapter 11 bankruptcy protection this month in the United States, while Chesapeake Energy said this month it was unable to access financing and was considering a bankruptcy court restructuring of its over $9 billion debt if oil prices did not recover from the sharp fall caused by the COVID-19 pandemic.

…click on the above link to read the rest of the article…

China’s Losing Control Of Its Crushing Debt Load As Defaults And Missed Payments Skyrocket

July 9, 2019

China’s Losing Control Of Its Crushing Debt Load As Defaults And Missed Payments Skyrocket

China’s economic slowdown and heavy debt load is affecting everybody in the country – even it’s “jewelry queen”, Zhou Xiaoguang, according to the Wall Street Journal.

Zhou, who went from selling trinkets on city streets to taking a seat in China’s parliament and becoming Ernst & Young‘s “Entrepreneur of the Year” was faced with the reality of being unable to pay her company’s billions of dollars in debt while in a bankruptcy court in April.

She is just one example of a massive debt burden taking its toll on China.

China has relied on borrowing to fuel its expansion for at least a generation. In 2018, the country was known for creating four billionaires a week and is number one globally in self-made fortunes. But this quick pace of growth, with many borrowing heavily in the process, also masked companies’ strategic mistakes.

Fueled by debt, many over-expanded into crowded sectors and now those mal-investments and mis-allocations of resources are coming back to bite them.

Over the past decade, the overall debt of the country has quadrupled to about three times the value of last year’s national output. Corporate debt makes up 2/3 of the total, amounting to more than $26 trillion last year. Most of the money is owed by government-run companies, but the stress is starting to surface also at private companies, who have less wiggle room with creditors and less support from the government.

For instance, Chenxi Group was decimated by lenders last year when they suddenly decide to call in loans. Earlier that year, the founder of machine maker Zhejiang Jindun Group committed suicide, leaping to his death, leaving the company to later reveal that it owed about $1.4 billion to loan sharks.

…click on the above link to read the rest of the article…

“A Daisy Chain Of Defaults”: How Debt Cross-Guarantees Could Spark China’s Next Crisis

November 20, 2018

“A Daisy Chain Of Defaults”: How Debt Cross-Guarantees Could Spark China’s Next Crisis

On November 8, China shocked markets with its latest targeted stimulus in the form of an “unprecedented” lending directive ordering large banks to issue loans to private companies to at least one-third of new corporate lending. The announcement sparked a new round of investor concerns about what is being unsaid about China’s opaque, private enterprises, raising prospects of a fresh spike in bad assets.

A few days later, Beijing unveiled another unpleasant surprise, when the PBOC announced that Total Social Financing – China’s broadest credit aggregate – has collapsed from 2.2 trillion yuan in September to a tiny 729 billion in October, missing expectations of a the smallest monthly increase since October 2014.

Some speculated that the reason for the precipitous drop in new credit issuance has been growing concern among Chinese lenders over what is set to be a year of record corporate defaults within China’s private firms. As we reported at the end of September, a record number of non-state firms had defaulted on 67.4 billion yuan ($9.7 billion) of local bonds this year, 4.2 times that of 2017, while the overall Chinese market was headed for a year of record defaults in 2018. Since then, the amount of debt default has risen to 83 billion yuan, a new all time high (more below).

Now, in a new development that links these seemingly unrelated developments, Bloomberg reports that debt cross-guarantees by Chinese firms have left the world’s third-largest bond market prone to contagion risks, which has made it “all the tougher for officials to follow through on initiatives to sustain credit flows”, i.e., the growing threat of unexpected cross- defaults is what is keeping China’s credit pipeline clogged up and has resulted in the collapse in new credit creation.

…click on the above link to read the rest of the article…

China Cuts Reserve Ratio, Unlocks 700BN Yuan Amid Rising Trade War, Mass Defaults And Margin Calls

June 24, 2018

China Cuts Reserve Ratio, Unlocks 700BN Yuan Amid Rising Trade War, Mass Defaults And Margin Calls

As widely expected, China’s central bank announced it would cut the Required Reserve Ratio (RRR) for some banks by 0.5% effective July 5, just over two months after the PBOC did a similar cut on April 17, the first such easing since the start of 2016.

The move is expected to unlock 700 billion yuan ($108 billion) in liquidity amid growing trade war tensions, a sharp slowdown in the Chinese economy, a tumbling stock market, rising forced margin call, and a spike in corporate defaults.

According to the central bank, the aim of the cut is” to support small and micro enterprises, and to further promote the debt-to-equity swap program.” The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks, in other words: virtually everyone.

“The size of the liquidity being unleashed has beat expectations and it’s larger than the previous two cuts this year”, said Citic fixed income research head Ming Ming. “It’s almost a universal cut as it covers almost all lenders.”

The RRR cut was also widely expected following the publication of a central bank working paper on Tuesday calling for such a cut.

A cut in China’s RRR by the PBOC is imminent following central bank’s working paper released Tuesday arguing for such a cut.

5:06 PM – Jun 20, 2018

According to Bloomberg, the cut is designed to achieve two things:

The 500 billion yuan unlocked for the nation’s five biggest state-run banks and 12 joint-stock commercial lenders will be channeled to debt-to-equity swaps, which can reduce companies’ debt burdens and help cleaning up banks’ balance sheets. It comes following no less than 20 corporate bond defaults in 2018, and ahead of a wave of corporate repayments that has prompted analysts to express fears about a default avalanche.

…click on the above link to read the rest of the article…

Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”

June 17, 2018

Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”

As banks pull back from mortgage lending amid inflated prices and rising rates, “shadow banks” become very aggressive.

In the first quarter 2018, banks and non-bank mortgage lenders – the “shadow banks” – originated 1.81 million loans for residential properties (1 to 4 units). In the diversified US mortgage industry, the top 10 banks and “shadow banks” alone originated 260,570 mortgages, or 14.4% of the total, amounting to $75 billion. We’ll get to those top 10 in a moment.

Banks are institutions that take deposits and use those deposits to fund part of their lending activities. They’re watched over by federal and state bank regulators, from the Fed on down. Since the Financial Crisis and the bailouts, they were forced to increase their capital cushions, which are now large.

Non-bank lenders do not take deposits, and thus have to fund their lending in other ways, including by borrowing from big banks and issuing bonds. They’re not regulated by bank regulators, and their capital cushions are minimal. During the last mortgage crisis, the non-bank mortgage lenders were the first to collapse – and none were bailed out.

So let’s see.

Of those 1.81 million mortgages originated in Q1 by all banks and non-banks, according to property data provider, ATTOM Data Solutions:

666,000 were purchase mortgages, up 2% from a year ago
800,000 were refinance mortgages (refis), down 11% from a year ago due to rising interest rates.
348,000 were Home Equity Lines of Credit (HELOCs), up 14% from a year ago

HELOCs, which allow homeowners to use their perceived home equity as an ATM, are once again booming: $67 billion were taken out in Q1, though that’s still less than half of peak-HELOC in Q2 2006, when over $140 billion were taken out.

The Top 10 Mortgage Lenders in Q1 2018

…click on the above link to read the rest of the article…

Subprime Auto Implosion In Full Effect As Lenders Start Dropping Like Flies

April 8, 2018

Subprime Auto Implosion In Full Effect As Lenders Start Dropping Like Flies

We are in the midst of watching the subprime auto lending bubble burst in its entirety. Smaller subprime auto lenders are starting to implode, and we all know what comes next: the larger companies go bust, inciting real capitulation.

In addition to our coverage out just days ago talking about how the subprime bubble has burst and, since then since has been crunched even further, additional reports today are showing that smaller subprime lenders are starting to simply implode after being faced with losses and defaults. In addition to losses and defaults, Bloomberg reported this morning that there have been allegations of fraud and under reporting losses, tactics that are clearly reminiscent of <throw a dart at any financial crisis/bubble burst over the last 30 years>:

Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding.

Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in “deep subprime” borrowers, finished winding down last month after seeing its profit margins shrink.

The article continues:

The pain among smaller lenders has parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming. In both cases, rising interest rates helped trigger more loan losses.

…click on the above link to read the rest of the article…

Corporations Are Defaulting On Their Debts Like It’s 2008 All Over Again

April 19, 2016

Corporations Are Defaulting On Their Debts Like It’s 2008 All Over Again

The Dow closed above 18,000 on Monday for the first time since July. Isn’t that great news? I truly wish that it was. If the Dow actually reflected economic reality, I could stop writing about “economic collapse” and start blogging about cats or football. Unfortunately, the stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even USA Today is reporting on it…

Get ready to step over some landmines, investors. The number of companies defaulting on their debt is hitting levels not seen since the financial crisis, and it’s not just a problem for bondholders.

So far this year, 46 companies have defaulted on their debt, the highest level since 2009, according to S&P Ratings Services. Five companies defaulted this week, based on the latest data available from S&P Ratings Services. That includes New Jersey-based specialty chemical company Vertellus Specialties and Ohio-based iron ore producer Cliffs Natural. Of the world’s defaults this year, 37 are of companies based in the U.S.

Meanwhile, coal producer Peabody Energy (BTU) and surfwear seller Pacific Sunwear (PSUN) this week filed plans for bankruptcy protection. Shares of Peabody have dropped 97% over the past year to $2 a share and Pacific Sunwear stock is off 98% to 4 cents a share.

A lot of big companies in this country have fallen on hard times, and it looks like bankruptcy attorneys are going to be absolutely swamped with work for the foreseeable future.

So why are stock prices soaring right now? After all, it doesn’t seem to make any sense whatsoever.

…click on the above link to read the rest of the article…

Why is the MSM Covering Up Recessionary Data?

April 14, 2016

WHY IS THE MSM COVERING UP RECESSIONARY DATA?

The Census Bureau put out their monthly retail sales report this morning. During good times, the MSM would be hailing the tremendous increases as proof the consumer was flush with cash and all was well with the economy. Considering 70% of our GDP is dependent upon consumer spending, you would think this data point would be pretty important in judging how well Americans are really doing.

It’s not perfect, because the issuance of debt to consumers to purchase autos, furniture, appliances and electronics can juice the retail sales numbers and create the false impression of strength. That’s what has been going on with auto sales for the last two years.

The retail sales figures have been propped up by the issuance of subprime auto loans to deadbeats, 7 year 0% interest loans to good credit customers, and an all-time high in leases (aka 3 year rentals). Despite this Fed induced auto loan scheme, retail sales have still been pitiful, as the average American has been left with stagnant wages, 0% interest on their minuscule savings, surging rent and home prices, and drastic increases in their healthcare costs due to Obamacare.

The retail sales for March, reported this morning, were disastrous and further confirmed a myriad of other economic indicators that the country is in recession. GDP for the first quarter will be negative. And this time they can’t blame it on snow in the winter. They have already doubly seasonally adjusted the figures, and they will still be negative. Retail sales in the first quarter were atrocious. It might make a critical thinking person question the establishment storyline of solid job growth being peddled by politicians and their MSM mouthpieces. If people had good paying jobs, they would be spending money.

…click on the above link to read the rest of the article…

Robert Kiyosaki And Harry Dent Warn That Financial Armageddon Is Imminent

March 31, 2016

Robert Kiyosaki And Harry Dent Warn That Financial Armageddon Is Imminent

Financial experts Robert Kiyosaki and Harry Dent are both warning that the next major economic crash is in our very near future. Dent is projecting that the Dow will fall to “5,500 to 6,000 by late 2017″, and Kiyosaki actually originally projected that a great crash was coming in 2016 all the way back in 2002. Of course we don’t exactly have to wait for things to get bad. The truth is that things are not really very good at the moment by any stretch of the imagination. Approximately one-third of all Americans don’t make enough money to even cover the basic necessities, 23 percent of adults in their prime working years are not employed, and corporate debt defaults have exploded to the highest level that we have seen since the last financial crisis. But if Kiyosaki and Dent are correct, economic conditions in this country will soon get much, much worse than this.

During a recent interview, Harry Dent really went out on a limb by staking his entire reputation on a prediction that we would experience “the biggest global bubble burst in history” within the next four years…

There will be… and I will stake my entire reputation on this… we are going to see the biggest global bubble burst in history in the next four years…

There’s only one way out of this bubble and that is for it to burst… all this stuff is going to reset back to where it should be without all this endless debt, endless printed money, stimulus and zero interest rate policy.

And of course he is far from alone. Without a doubt, we are currently in the terminal phases of the greatest financial bubble the world has ever known, and it is exceedingly difficult to see any way that it will not end very, very badly.

…click on the above link to read the rest of the article…

Deranged Central Bankers Blowing Up the World

February 15, 2016

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

…click on the above link to read the rest of the article…

Two Outs in the Bottom of the Ninth

September 26, 2015

Two Outs in the Bottom of the Ninth

The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

The millions in upfront fees, along with their lack of conscience in bribing Moody’s and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child’s play compared to the last six years).

Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled “exotic” mortgages to dupes who weren’t capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

…click on the above link to read the rest of the article…

As Oil Prices Fall, Banks Serving the Energy Industry Brace for a Jolt

January 12, 2015

As Oil Prices Fall, Banks Serving the Energy Industry Brace for a Jolt

Banks have been lending hand over fist to companies in the nation’s energy industry, underwriting bonds, advising on mergers, even financing the building of homes for oil workers. All of this has provided a boon to banks that have been struggling to find more companies and consumers wanting to borrow.

Yet with the price of crude oil falling below levels sufficient for some energy companies to service their huge debts, strains are being felt and defaults are likely. While it may take some time for the crunch in the oil industry to translate into losses, one thing already seems clear: The energy banking boom is over.

The Price of Crude Oil Over the Last 9 Months

“At the least, you are talking about a slowdown in loan growth for the banks in the energy-producing states,” said Charles Peabody, a banking specialist at Portales Partners. “That, we feel pretty strongly about.”

…click on the above link to read the rest of the article…

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