Already Lousy Corporate Investment Comes Totally Unglued

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A toxic cocktail.

American corporations borrowed more in the years following the Financial Crisis than ever before. Debt was dirt-cheap even for the riskiest borrowers, and they went out and sold bonds and borrowed from banks, and blew the proceeds on funding operating losses, buy each other out in a record-breaking wave of M&A, and buy back their own shares. And not enough went into productive investments that would help their businesses grow and thrive.

This has been one of the reasons the economic recovery has been so crummy. Business investment is crucial, and there just wasn’t enough. And now it’s getting even worse.

Over $1.8 trillion of US corporate bonds are rated below investment grade, having doubled since the Financial Crisis. But for these junk-rated borrowers, the costs of borrowing have been rising. At the bottom end, bonds rated CCC or lower sport an average yield of nearly 20%. These companies can no longer afford to raise money via bond offerings. At the upper end of the junk-bond field, just below investment grade, the average yield has risen to 6.5% from 4.5% in 2014. These companies can still borrow, but it’s getting much more expensive. Even investment-grade borrowers have seen their costs rise.

Just how difficult is it for junk-rated companies to issue bonds? January has been, according to S&P Capital IQ’s LCD HY Weekly, “the slowest start to any year since the Financial Crisis circa January 2009.”

The trailing four-week average junk-bond issuance plunged 85% from the same period last year to a minuscule $1.5 billion.

The rising cost of debt “has to dull your willingness to invest going forward,” Rick Rieder, CIO of global fixed income at BlackRock told Bloomberg TV. As costs rise, US companies face even greater challenges investing – and that will put a drag on the economy, he said.

This comes in an environment where profit margins are under pressure, where sales of S&P 500 companies have been shrinking for an entire year, and where their net profits are likely to have declined for three quarters in a row. This is a toxic cocktail for business investment. And it has started to show up in the official numbers.

Orders for non-military capital goods excluding aircraft, a measure of investment in business equipment, fell 4.3% in December on a monthly bases, the sharpest drop in 10 months. They’re down 8.1% year-over-year.

This is what companies order to build and expand their businesses, update their technologies and equipment, become more competitive, and move the company forward. These orders, at $65.87 billion in December, were the lowest since October 2013 ($64.1 billion), then September 2012 ($64.5 billion), and November 2011 ($64.47 billion).

This was also the lower end of the range in 2006 and 2007, which speaks of long-term stagnation of business investment interrupted by violent cutbacks during the Financial Crisis. Neither QE nor ZIRP that made borrowing historically cheap, nor a soaring stock market, had any positive impact on business investment:


Note the mini-boom from October 2013 to September 2014, when capital goods orders hit an all-time peak of $73.9 billion, and when hope began to circulate that businesses would finally invest again, that the drought was over. But then it all came unglued, and investment in capital goods has since plunged 11%.

The broadest measure, orders of all durable goods, dropped 5.1% in December to $225.4 billion, the lowest since polar-vortex February 2015, and then October 2013. Excluding transportation equipment — volatile aircraft orders plunged 29.4% in December — durable goods orders still fell 1.2%. This pull-back was broad-based and not exactly encouraging.

But US companies can’t blame the “strong dollar,” which these days conveniently gets blamed for just about everything when blaming the weather won’t do. The “strong dollar” makes imported components and equipment cheaper and has no impact on domestically produced equipment. So it should have encouraged investment. But no.

The collapse of oil & gas investments has had some impact on the recent decline in business investment. But in prior years, when oil & gas investments were booming, overall business investment was already stagnating, and without oil & gas would have looked even more miserable.

Years of QE and ZIRP, instead of generating a tsunami of investment in productive activities, and thus economic growth, have pushed financial engineering – share buybacks and M&A – to new levels that have left corporate America more leveraged, more fragile, and more financially unstable than ever before. As companies are starting to grapple with the consequences of their financial engineering strategies in this environment, business investment is going to be relegated to an afterthought. And this will be a further whack-down for the already limping economy.

The credit market is in turmoil, and distressed corporate debt has reached Lehman-Moment levels. Read…  Ka-boom Goes the Bottom of the US Bond Market

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  45 comments for “Already Lousy Corporate Investment Comes Totally Unglued

  1. Buddy
    January 28, 2016 at 10:48 pm

    “This was also the lower end of the range in 2006 and 2007, which speaks of long-term stagnation of business investment interrupted by violent cutbacks during the Financial Crisis.”

    That chart “The great American Business stagnation” is not very persuasive. A longer term abscissa would make more sense. Comparative value is lacking. What was it in 2000, 1980???

    • January 29, 2016 at 12:15 am

      The stagnation started in 2006. That’s why the chart starts there. That’s 10 years. That’s “long term.”

  2. economicminor
    January 29, 2016 at 12:47 am

    All this makes me very nervous. It is like we are watching the end of an era that has been good for me. Not knowing what is actually going to happen yet imagining the outcome.

    Are dollars even going to worth anything other than toilet paper when this is all over? What have I been working my entire life for if the system comes apart and we have total chaos and anarchy?

    Maybe I am just being dramatic!

    Is anyone else feeling this? Is the train actually going over the precise?

    Is this time different because the FED has been juicing the system for so long? Or will we have the buying opportunity of many lifetimes in a few years?

    • Peepot
      January 29, 2016 at 4:10 am

      The train headed into the terminal at 250 miles per hour…… and the brakes are busted.

      What is coming is going to make the Great Depression look good.

      Basically this would be like 1929 – the Fed refuses to allow the collapse of the market so prints trillions to prop up the market — blasting hot air into the bubble until it reached gigantic proportions and filling it with faeces

      Then the bubble explodes …

    • Nicko
      January 29, 2016 at 9:00 am

      I’m guessing cash-flow from REAL investments will become most important. Of course, lower risk also means lower yeild, but at the end of the day, it’s about survival.

    • julius the second
      January 31, 2016 at 2:12 am

      Too bad, man. I started to understand how corrupt the whole so-called “markets” and “banking system” is when I turned say 50. Ever since, I extracted whatever assets I could free up out of the “system” and have only PM left ( physical ) at a custodian who is ALSO sitting outside of the USA/EU legislation area. It does not bring any money, a custodian also needs to be paid, but when the whole shit collapses, I will not be ruined.

  3. Jonathan Vause
    January 29, 2016 at 1:19 am

    the answers are yes, it won’t, yes, not a precipice just the rails, yes and yes

    hope that helps :-)

  4. John Doyle
    January 29, 2016 at 1:49 am

    Wolf, One of the reasons, or excuses, made by the banks for not lending [even Ben Bernanke said he couldn’t get a loan] was that investment opportunities were so poor it wasn’t worth their while.
    How much credence do you give to that ?

    • Jonathan Vause
      January 29, 2016 at 2:48 am

      of course it’s essentially true. the global economy is suffering from a chronic lack of demand (we can debate why and what to do about it, but those are other issues) so there are few investments which look like making profits (if there were apparently profitable investment opportunities available, surely banks, other investors and firms would be falling over themselves to make them). firms can’t be ‘blamed’ for not investing more, they’re just trying to act rationally: you could make an argument about overemphasis on quarterly profits (and a degree of satisficing between short and long term benefit is always inevitable) but that’s a bit weak imo

      • Peepot
        January 29, 2016 at 4:11 am

        If you want to understand the true nature of the beast we are facing the best analyst on the planet is on

        A must read along with WS, Stockman, ZH etc

        January 29, 2016 at 5:06 pm

        There is nothing to buy.

        I own everything I need and don’t want what I don’t have.

        • Ridgetop
          January 30, 2016 at 12:37 pm

          I think a lot of boomers are like that now. having what they need, for want of none, living longer, unsure of S.S., and perceived deflation. Keep the powder dry for later.
          Plus others like the millennials, are cutting back because they are forced to with their low wage jobs and high college debt.

        • julius the second
          January 31, 2016 at 2:14 am

          Way to go, so do I.

      • Whoz
        January 31, 2016 at 6:54 am

        …lack of demand???

        The global economy is suffering from a chronic over supply situation (too much capacity). Artificial demand via debt spending gave the signals to over capitalize the world economy.

        • d
          January 31, 2016 at 7:22 am

          “The global economy is suffering from a chronic over supply situation (too much capacity). Artificial demand via debt spending gave the signals to over capitalize the world economy.”

          NO a country set out to take the global manufacturing cake for itself.

          It built the biggest overcapacity in all hard industry’s, the world has ever seen, with loans created from air.

          Then it built many city’s, for which there are no inhabitants. With more loans created from air.

          As it started to steal more industry’s from its customer nations, the employees of its customer nations no longer had liquidity to buy its products, and a global downward spiral developed.

          Now the world has 300 % overcapacity in most thing, and the greedy nation wants everybody else to reduce their capacity whilst it, idles its.

          There is a fly in the greedy nations ointment, from a big nation just down the road. It claims its nation can supply all the goods cheaper if people come and build capacity in its nation.

          History repeats.

          Except the greedy nation has big aggressive army, and does not like greedy nation two the fly comes from, down the road, that is offering cheaper products, this could get ugly.

  5. Bruce Adlam
    January 29, 2016 at 2:00 am

    Hi wolf do you think India is the next China

    • Ron
      January 29, 2016 at 3:16 am

      There is talk of India rising. It won’t. Infrastructure is terrible, graft is too prevalent.

      • d
        January 29, 2016 at 10:36 am

        “There is talk of India rising. It won’t. Infrastructure is terrible, graft is too prevalent.”

        Didnt stop them in china.

        Wont stop them in india.

        India is a caste based society, this inherently promotes discrimination/racism

        Indias protectionism and racism, are the handbrakes.

        For a big growth engine, the global vampires will put up with a lot of graft, and racism, just like they did in china.

        Problem being, china will not stand back and let its overcapacity, be turned into an unemployment blighted rust belt,. like America allowed to happen to its industry’s. So china could steal it jobs, and industry’s.

        The other Global problem, is with indias cost saving, low environmental standards, that already make it the largest total polluter in the world.

        Will there be anything left for us to breath, before india ends up, where china is now?

        Took china and its vampire allies, 40 years to get us here, how long in india 50 or 25?

    • Peepot
      January 29, 2016 at 4:13 am

      Or Canada or the EU or Russia or America or Australia. Which country isn’t in the same boat as China?

  6. CrazyCooter
    January 29, 2016 at 2:36 am

    Allow me to quietly and concisely dispense with monetary theory in a a few words “for the practical man” (see below – I am on a tear haha).

    There is no profit in investing in overcapacity.

    To be clear, a gross expansion of credit will find a home to invest in, be it Silicon Valley start ups or frack/shale oil – to name a few. But the money HAS TO FIND A HOME after it is lent into existence. There is no implication of productive use. This is the nature of credit expansions – or at least those that exceed the natural rate of growth/expansion.

    These credit expansions have little to no relation to profitable expansion of business!

    So, there you go, a PhD in Econ, Monetary Policy, and Banking … in a few sentences.

    Folks fail to realize that in our past, say, 200 years ago, businesses failed due to LACK OF EXPANSION of credit. The world was undiscovered for quite some time. The future was wildly richer than the present – all that was required was the capital to build the ship, establish the trade route, support the colony, fight the war to defend it all. Stuff got paid back on average.

    Worse, life was HARD. People know about how fiat money failed (no CBs and thus was much more common) – GOLD was king – but GOLD didn’t EXPAND to support expansion. There was a long, hard historical fight to displace gold – for fiat – for credit – to grease the wheels of empire.

    It was quite desperate (and at times tragically so) for a system of EXPANDING credit to make that next conquest … workable! We needed a system of CONSTANTLY EXPANDING CREDIT.

    I hope readers have a sense of place now – in the long run story of things.

    With this profound statement – I would like to wholly and completely take a detour (planning how I am to sock 20 pounds of Alaskan seafood in my luggage for a SE Asia family visit for Tet is taking its toll – my Asian wife is equally as stubborn as me).

    So, new TOPIC! Let’s have a bit of fun here on WS because we like to THINK and we like to see things DIFFERENTLY.

    For those still interested, consider the following interview:

    Choose the videos under “The Pleasure of Finding Thing Out” which is from 1964! This series is WONDERFUL – and used to be on YouTube – it isn’t any more – so get your Ant Video Downloader and save to CD or something.

    And, for the record, I can appreciate the beauty of a flower too. In my first marriage, I never bought flowers. In my second, I buy flowers for the house once every two weeks. I toss them at the wife and make her arrange them – and complain if she does a sh**ty job. Never has she not been happy (and she always does a good arrangement – often times surprising me). I find it a joy, picking out the buggers that live longest – and sometimes my soliders go south right away. It isn’t as easy as it sounds with all the vendors, all the stores, and the different styles of bouquets. But I figure it out and I do pretty damn good these days.

    And yet this interview defines how I feel about the complicated world we live in and how I feel I fit in – by just thinking about what things mean. It is “very, very interesting.” I know picking flowers is an odd way to play along here, but it is intentional.

    You are welcome if you enjoy the rest of the fare as I have cited his work here on prior occasions. :-) Brilliant (wo)men have atypical lessons to teach.

    So, skipping past these bits, as I have commented many times before, human civilization has precisely one energy future: Thorium. This is firmly rooted in the distribution of elements as dictated by nucleosynthesis.

    I have really looked and tried to find a solution with “enough zeros” to solve humanities problems (please think like an engineer – find a damn thing that really works for the DEFINED PROBLEM) and this is the only solution I have found. Reduce population and other things start to work – but that is messy business not suitable to my way of solving problems. I find ovens with seats – distasteful.

    This link is down as of this moment (proprietor of the site is a self made individual and writes much of his own plumbing – it happens) but I was able to confirm what I needed via search engine cache:

    I cited it in an older post here:

    Again, I repeat myself, but as I get older I feel I must engage in some ritual that one day might make a damn difference.

    Somewhere, out there, is a a real entrepreneur (not these fed tit sucking rentier clones) that is looking for a real technology, has real backers, and are not afraid to rock the boat to participate in a new market.

    Maybe WolfStreet is where that person might start their journey on LFTR because they do their homework. It is slim pickins for a while, but if I had deep pockets and long timelines, that Malaysian company doing the ship building/Thoriurm MSR solution looks like a wonderful, once in a life time bet.

    I am small fry, so I might look at small Commercial RE where those sorts of sources set up and displace coal and such.

    I promise to go away for a while after this. Hope y’all enjoyed the show!



    • Sandy B
      January 29, 2016 at 8:13 pm

      Using silver with gold would solve the money expansion problem. But The Silver Squelchers, by Charles Savoie, lists all the Pilgrim members in government and industry that made sure silver never got traction as money. Shortage of currency is planned. Mexico could be an extremely rich country, as Hugo Salinas Price says, without the US cabal controlling it. If we don’t find our way into a brand new system, we’ll end up being truly feudal as supply shortages happen and the tech breakdown proceeds.

      • January 29, 2016 at 8:48 pm

        Mexico could have been an “extremely rich country,” as you said, if total top-to-bottom corruption over the decades had not gotten in the way at every twist and turn, and if incompetent, greedy, self-serving governments and oligarchs had not been bleeding it with all their might.

        • d
          January 29, 2016 at 9:22 pm

          Mexico is a previously Spanish dominated predominantly catholic country.

          look at all of the others with the same root around the globe, then look at the other club med states, italy, Portugal, southern france. They all have the same endemic problems.

          Blaming the US or the indigenous people for Mexicos problems is miles from the truth.

          The root of their problems is in Rome.

          The Protestant reformation got many from under Romes heel, but did nothing to resolve the endemic corruption, globally perpetrated as acceptable, by Rome.

        • Peepot
          January 29, 2016 at 10:17 pm

          When examining Mexico it is important to keep this in mind…

          The way the world works — and always will:

          – The luckiest, fittest, smartest, with the capability for ruthlessness survive – always have – always will

          – Resources are finite and therefore ownership is a zero sum game

          – The strong always take from the weak – if they do not then that is a sign of weakness and a competitor will take from the weak and will usurp the formerly strong dropping them into weakling status

          – Humans tend to group by clan or on a broader basis by nationality (strength in numbers bonded by culture) and they compete with others for resources

          – Competition always exist (I want it all!) but it becomes fiercer when resources are not sufficient to support competing clans or nations

          – Tribal societies understand these dynamics because they cannot go to the grocery store for their food – so they are intimately aware of the daily battle to feed themselves and the competition for scare land and resources

          – Modern affluent societies do not recognize this dynamic because for them resources are not scarce – they have more than enough.

          – One of the main reasons that resources are not scarce in affluent societies is because they won the battle of the fittest (I would argue that luck is the precursor to all other advantages – affluent societies did not get that way because they started out smarter — rather they were lucky – and they parlayed that luck into advances in technology… including better war machines)

          – As we have observed throughout history the strong always trample the weak. Always. History has always been a battle to take more in the zero sum game. The goal is to take all if possible (if you end up in the gutter eating grass the response has been – better you than me – because I know you’d do the same to me)

          – And history demonstrates that the weak – given the opportunity – would turn the tables on the strong in a heartbeat. If they could they would beat the strong into submission and leave them bleeding in the streets and starving. As we see empire after empire after empire gets overthrown and a new power takes over. Was the US happy to share with Russia and vice versa? What about France and England? Nope. They wanted it all.

          – Many of us (including me) in the cushy western world appear not to understand what a villager in Somalia does – that our cushy lives are only possible because our leaders have recognized that the world is not a fair place — Koobaya Syndrome has no place in this world — Koombaya will get you a bullet in the back — or a one way trip to the slum.

          – Religious movements have attempted to change the course of human nature — telling us to share and get along — they have failed 100% – as expected. By rights we should be living in communes — Jesus was a communist was he not? We all know that this would never work. Because we want more. We want it all.

          – But in spite of our hypocrisy, we still have this mythical belief that mankind is capable of good – that we make mistakes along the way (a few genocides here, a few there… in order to steal the resources of an entire content so we can live the lives we live) — ultimately we believe we are flawed but decent. We are not. Absolutely not.

          – But our leaders — who see through this matrix of bullshit — realize that our cushy lives are based on us getting as much of the zero sum game as possible. That if they gave in to this wishy washy Koombaya BS we would all be living like Somalians.

          – Of course they cannot tell us what I am explaining here — that we must act ruthlessly because if we don’t someone else will — and that will be the end of our cushy lives. Because we are ‘moral’ — we believe we are decent – that if we could all get along and share and sing Koombaya the world would be wonderful. We do not accept their evil premises.

          – So they must lie to us. They must use propaganda to get us onside when they commit their acts of ruthlessness.

          – They cannot say: we are going to invade Iraq to ensure their oil is available so as to keep BAU operating (BAU which is our platform for global domination). The masses would rise against that making things difficult for the PTB who are only trying their best to ensure the hypocrites have their cushy lives and 3 buck gas (and of course so that the PTB continue to be able to afford their caviar and champagne) …. Because they know if the hypocrites had to pay more or took at lifestyle hit – they’d be seriously pissed off (and nobody wants to be a Somalian)

          – Which raises the question — are we fools for attacking the PTB when they attempt to throw out Putin and put in a stooge who will be willing to screw the Russian people so that we can continue to live large? When we know full well that Putin would do the same to us — and if not him someone more ruthless would come along and we’d be Somalians.

          – Should we be protesting and making it more difficult for our leaders to make sure we get to continue to lead our cushy lives? Or should we be following the example of the Spartans

          – In a nutshell are our interests as part of the western culture not completely in line with those of our leaders – i.e. if they fail we fail – if they succeed we succeed.

          – Lee Kuan Yew is famous for saying ‘yes I will eat very well but if I do so will you’ Why bite the hand that whips the weak to make sure you eat well…. If you bite it too hard it cannot whip the weak — making you the weak — meaning you get to feel the whip….

          – Nation… clan … individual…. The zero sum game plays out amongst nations first … but as resources become more scarce the battle comes closer to home with clans battling for what remains…. Eventually it is brother against brother ….

          – As the PTB run out of outsiders to whip and rob…. They turn on their own…. As we are seeing they have no problem with destroying the middle class because it means more for them… and when the weak rise against them they have no problem at all deploying the violent tactics that they have used against the weak across the world who have attempted to resist them

          – Eventually of course they will turn against each other…. Henry Kissinger and Maddy Albright bashing each other over the head with hammers fighting over a can of spam – how precious!

        • d
          January 29, 2016 at 11:22 pm

          “Jesus was a communist was he not?”


          He was, an anti-corruption campaigning, militant rabbi. (A Jewish protestant)

          Some good Darwinian historical points you list, nothing new, saying anything new.

          Dosent chage the fact that inherent Catholic inspired corruption, is still the largest negative economic issue in Mexico, south America club med, and the Philippines.

          Nation states are the current incarnation of aggressive expansionist tribalism.

          If humans can not rise above this, and china which is currently leading the charge, with its vampire globalist corporation allies defiantly has no interest in that.

          They will destroy themselves. And possibly the planet also.

        • Peepot
          January 30, 2016 at 3:09 am

          You are not grasping my point.

          Let me spell it out.

          The US is the meanest dog in the junk yard.

          A big mean dog like that needs to eat – a lot.

          That means taking from others.

          In the real world that means putting in place puppets who sell out their country’s resources ensuring their citizens are dumped into poverty.

          Sometimes the puppets are elected and sometimes they are just outright dictators.

          Doesn’t matter – they dance to the tune or they get replaced by someone who will

          In return the gangsters that the US puts in place to manage the pillaging get to live large – very large indeed (see House of Saud – Shah of Iran — Marcos etc…)

          But they are expected to keep their populations in line — using brutal methods including torture if need be.

          Corruption is expected – afterall these are gangsters — it does not matter — so long as the resources are made available and the and its allies benefit.

          If they fail (see Mubarak in Egypt) they are abandoned and the new kid in town is visited by the CIA and made to understand how the system works.

          The new kid – unless he is a stupid moron (there is no winning against the big dog) kisses the ring — and assist with the pillaging.

          Have you not read Confessions of an Economic Hitman? It is a must — actually just watch this interview with John Perkins and you will understand how the system works

          At the end of the day I see nothing wrong with this system. As I have stated above – the Mexicans and the Saudis and the Russians and the Chinese would — if they had a mean enough dog — rip our dog’s throat out.

          And they’d change places with us in a heartbeat.

          There is no good nor evil — there are only interests.

          And at the moment my interests are in line with the US so I cheer for that dog — I do not give a shit if it has to resort to ‘unethical’ means to win the fight.

          All that matters is winning.

        • d
          January 30, 2016 at 3:42 am

          “All that matters is winning.”

          Very sad you are.

          You would make an excellent soldier, but a terrible officer.

          As your attitude produces Pyrrhic victories. Regularly.

        • Thomas Malthus
          January 30, 2016 at 2:14 pm

          Remember this scene from A Few Good Men?

          Nicholson is speaking to people like you…

        • d
          January 30, 2016 at 10:21 pm

          “Remember this scene from A Few Good Men?

          Nicholson is speaking to people like you…”

          The purpose it to “achieve” the objective, Expediently.

          Smart officers achieve that, frequently, without moving.

          Winners frequently do not achieve the object, or achieve it expediently.

          “After this is over, we will need to trade with these people. They will not trade with us. If we slaughter them like cattle, to claim a victory on the field, we do not need. Disengage. Withdraw. Allow them to do the same.”

          Words to that effect.

          Charles Cornwallis.

        • Toddy
          January 29, 2016 at 11:41 pm

          Isn’t that what’s happening now in the USA?

        • d
          January 29, 2016 at 11:48 pm

          Isn’t that what’s happening now in the USA?

          It has aggressively accelerated under O bummer.

          If America does not enact serious campaign reform, its political future is to be like the Philippines, since Ramos.

        • January 30, 2016 at 1:51 am

          Of course. But our corruption is legal. It has been codified. We call it lobbying. The Supreme Court approved a different type of corruption as legal (Citizens United). But this type of corruption is generally limited to the top political levels. On the ground floor in the US, corruption is generally frowned upon.

    • Julian
      January 30, 2016 at 1:03 am

      Thanks Cooter, that made plenty of sense to me.

  7. DV
    January 29, 2016 at 6:08 am

    Why would they invest, there is overproduction of everything in the world. It is not about cutting capacity, not increasing it. But article is good in that sense that it gives a strong support to one argument I came acroos a couple of years ago and that is that outside oil&gas sector there was effectively no growth either in job or investment. But the investment in the US oil& gas was in itself investment in excess high cost capacity driven by any considerations, other than economic. There should a price to be paid for that.

    • rich
      January 29, 2016 at 7:04 am

      There is a worldwide labor glut, a worldwide lack of demand, a growing number of banks punishing savers with negative interest rates, and China, the world’s factory, is weakening financially, and is in no position to bail out the rest of the world. The only growing demand seems to be for weapons of death and destruction. However, central banks are still in the position to create even wilder financially engineered policies.

  8. Jeremy
    January 29, 2016 at 7:07 am

    Wolf – Agreed: ZIRP and QE have resulted in an explosion of debt which has been “invested” unproductively and, therefore, in many cases will not be repaid. That’s how things worked in the past, but going forward? The clear implication of Japan’s action today and Bernanke’s ongoing campaign to adopt negative interest rates here is that debt, in the past viewed as a liability is now, by central bank fiat, about to become an income producing ASSET. The notion of cash as a store (and not a very good one) of value will soon be history. Once again imprudent borrowers will be bailed out and banks will be rewarded for knowingly making bad loans, this time by what amounts to a tax on savers and a virtual guarantee that the real value of the principal owed will decline even more rapidly than in the past.

    I find it hard to believe that we have come to this pass. In a desperate effort to avoid a recession which, while painful, might begin the process of correcting past excesses, we are about to throw more fuel on the fire of runaway debt – again.

    I am retired and have paid off the mortgage on my house. At the time, it seemed to be the sensible thing to do. Now it appears to have been a mistake. I suppose the wise move would be to call my bank this morning and inquire about a 30 year variable rate loan in case an initial negative rate of a few BPs turns out to be just the start of something much bigger.

    • HD
      January 29, 2016 at 7:45 am

      Two things. First, debt as an income producing asset must – by its very nature – continue to expand to remain a productive asset. As it relies heavily if not exclusively on human confidence (serviceability), it is mathematically certain that this confidence will evaporate somewhere along the path of this continuous and even exponential expansion of the asset. Ergo, implosion at some point is certain. The only remaining question marks are: when, how and at what pace and intensity will it occur?

      With regards to you paid off mortgage: at least you will sleep like a baby in the bedroom of your own property, unless your government decides to tax your house out of private ownership, in which case all bets are off for everybody anyway.

    • Petunia
      January 29, 2016 at 12:07 pm

      Sell the house and rent. Every time I read the posts of people who think the economy will crater and the first thing they think of is paying off their mortgage, I cringe. In a time of financial collapse there will be no one around to take your house anyway. If you are afraid, stay mobile and stay liquid, and stay out of the markets.

      • Toddy
        January 29, 2016 at 11:46 pm

        Hear hear!

  9. d
    January 29, 2016 at 8:31 am

    ” at least you will sleep like a baby in the bedroom of your own property, unless your government decides to tax your house out of private ownership, in which case all bets are off for everybody anyway.”

    That is what they are going to do, the question is how fast and how far down they will go in the first step of making the westerners the new global paupers.

  10. Ptb
    January 29, 2016 at 10:42 am

    How is the car debt industry going? I’ve heard defaults are rising quickly. In a ” consumer” based economy, this may be a better indicator than our unemployment claims.

  11. J P Frogbottom
    January 29, 2016 at 12:07 pm

    I think the angst isa a bit over-done. Yes, some investment has been made inappropriately, whether in O&G ventures, or in less than prime auto loans, or perhaps mortgages.

    Never, have all loans been repaid as agreed. Most have, or the lending industry would not exist today would it?

    When the middle-class is stalled, or shrinking hope can “business” expect demand to grow, or even remain at present levels? Makes no sense does it. When people -the workers- are employed at competitive wages with extra spendable dollars, those $$ will indeed find a demand for products, and services.

    Presently, where is the wage growth, jobs growth? Weak to none from what I can see in the local area.

    Hey, I’m retired, have relatively few plans to buy “big stuff” over the next 24 months, but who knows. If the major appliances fail, a car needs replacing so be it. If I hit room temp. so ends the worries here.

    Maybe Alfred E. Neumann had it right, his “What me worry” attitude might just be appropriate for me. I can’t take it with me, and I can’t go far away without it. Ha,Ha!

  12. Petunia
    January 29, 2016 at 12:27 pm

    With the expansion of cloud computing, companies will be buying almost no new computer equipment and firing more IT workers. I think right now this might be the big reason capital expenditures are low. The cloud computing companies build their own servers, and you can bet, they are configuring the cheapest components they can buy to achieve the scale they need. This basically wipes out any growth coming from the big computer makers.

    The other part of the cloud computing business which affects the US is that there is a big push by foreign countries to house data under there own jurisdiction. So, much of the growth in the cloud business will be accounted for overseas.

  13. OutLookingIn
    January 29, 2016 at 12:30 pm

    Think big. Look big. Stop looking at the tree. Step back and look at the forest. The stock market is NOT the be all and end all.


    This is where the next shoe is dropping as we speak.
    It has already started down on the junk end. CCC HYG
    Smaller corporates of national size are in deep trouble.
    Larger, multi-national corporates are now feeling increasing pain.
    Next up B class, then begins to inexorably climb the ladder.
    Municipals – Villages, Towns, Small cities on up to the largest.
    Counties, States, then Sovereigns.

    The bond market is +$ 100 trillion with attached derivatives that are bond interest sensitive at +$500 trillion. The implosion will be epic!

  14. NotSoSure
    January 29, 2016 at 2:04 pm

    Well with negative rates all over the place, the party will continue for a while.

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