Junk Bonds, Leveraged Loans, Buyouts by PE Firms, All Blow Past Records in Massive Chase for Yield amid Fed’s Easy Money

La-la-land finance.

By Wolf Richter for WOLF STREET.

It has been manna from the heavens, in terms of what the Fed’s policies have done for companies that feed on investors’ hunger for junk-rated debt and high-risk bets. Private-equity firms have announced $944 billion in buyouts in the US so far this year, by far the highest ever for any full year, and up by 86% from the prior record in 2015, according to Dealogic, cited by the Wall Street Journal:

Among the biggest deal announcements over the past few weeks:

  • PE firms Bain Capital and Hellman & Friedman, to buy Athenahealth, $17 billion including debt.
  • KKR and Global Infrastructure Partners, to buy data-center operator CyrusOne, nearly $15 billion including debt.
  • Advent International Corp. and Permira, to buy McAfee Corp., $11.8 billion.

In 2021 so far, PE firms have raised $315 billion in capital to plow into acquisitions in North America, which increased their available pile of cash for this to a record $756 billion, according to data from Preqin, cited by the WSJ. And they are continuing to raise mega-funds.

When PE firms engage in a leveraged buyout, they use some equity capital but fund most of the acquisition by having the acquired company borrow the funds itself via issuance of leveraged loans or junk bonds – hence “leveraged buyout” (LBO). The PE firms thereby shuffle the risks off to investors in those debt instruments.

Following the Fed’s yield repression, there has been ravenous appetite for this type of risky debt that enabled PE firms to go out and splurge on these buyouts.

The issuance of junk bonds and leveraged loans soared to $1.02 trillion in 2021 through November 12, beating by far the full-year record established in 2017 ($780 billion), “as speculative-rated companies have amassed cheap funding from yield-hungry investors,” according to S&P Global Market Intelligence.

Leveraged loans issued amounted to a record of $576 billion (red). These are loans by junk-rated companies that are too risky for banks to hold, and so banks sell them to investors, including as CLOs. Junk bonds issued amounted to a record $445 billion (blue):

The amount of leveraged loans issued to fund buyouts soared to $305 billion in 2021 through November 12, easily beating the full-year record of 2018 ($275 billion), according to S&P Global. Of that $305 billion, a record $224 billion was borrowed by the acquired companies themselves to fund their own leveraged buyout.

The amount of junk bonds issued to fund buyouts through November 12 reached $103 billion, less than $1 billion below the full-year record of 2014:

And thanks to the greatest chase for yield ever, instigated by the Fed’s monetary policies, the average yield-to-maturity of newly issued leveraged loans used for LBOs dropped below 5% for the first time ever this year, according to S&P Global.

History is full of companies that were acquired through an LBO and, burdened with too much debt, eventually filed for bankruptcy after the PE firms were able to take their profits via fees and special dividends that the acquired companies paid with borrowed funds, leaving investors in the debt hang out to dry.

Toys ‘R’ Us is among the more famous examples. PE firms KKR, Vornado Realty Trust, and Bain Capital acquired its publicly traded shares via a $6.6 billion LBO in 2005 and funded the acquisition largely by loading up the retailer with debt. With little skin in the game, the PE firms extracted $400 million in fees. In September 2017, Toys ‘R’ Us filed for bankruptcy and was dismembered in 2018. Investors in its bonds got crushed.

A whole slew of other retailers that had been acquired in LBOs by PE firms during the pre-Financial-Crisis LBO boom filed for bankruptcy since 2017, constituting the first stage of the brick-and-mortar retail meltdown, with many of them getting liquidated.

TXU, the Texas utility, is another example. It was acquired in 2007 by PE firms led by KKR, TPG Capital, and Goldman Sachs, during the pre-Financial-Crisis LBO boom, at the time the largest LBO ever. It filed for bankruptcy as the renamed Energy Future Holdings, in 2014.

In the run-up to the Financial Crisis, everything and anything was possible because investors that bought this junk-rated debt didn’t care anymore. They were enamored with these LBOs and just blindly chased yield. But this time, it’s different, as they always say.

Meanwhile, the average yield for B-rated junk bonds rose by around 90 basis points, from the June and September record lows of below 4.4% to 5.3%, the highest since November 2020, and above the pre-pandemic lows in January and February 2020. Despite the 90 basis point jump, it remains ridiculously low. And the average spread between B-rated junk bonds and Treasury securities widened by about 65 basis points, from 3.5 percentage points at the beginning of November to 4.15 percentage points as of Friday, the widest spread since February 2021, but it too remains ridiculously tight.

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  154 comments for “Junk Bonds, Leveraged Loans, Buyouts by PE Firms, All Blow Past Records in Massive Chase for Yield amid Fed’s Easy Money

  1. RepubAnon says:

    Looks as though bankruptcy lawyers will be very busy in a few years, once the lever swings the wrong way.

    • Surprising thing is that this dynamic is a well known problem and yet there is no mechanism suggested to neutralise it.

      PE LBO is what we diplomatically call them, but they are really Slaughter and Butcher operations

      All that really needs to be done is to constrain buyers of companies from getting direct payments from the company bought for a time period.

      No point in Slaughtering and Butchering if you cannot eat the meat.

    • MyLadyHumps says:

      Nothing swings the other way anymore. Face facts, the day of reckoning never comes. Corporate Junk bonds have an implicit guarantee against losses by the Fed, this has already been tested and proven to be true.

      Everybody knows the Fed would never allow debt defaults in the junk bond market and if you are insured against losses you would be a sucker not to accept the higher yield.

      The real risk here is default via currency debasement, not default due to non repayment.

      • Old School says:

        That’s to be determined in my opinion. Fed will try to muddle through like ECB and JCB, but might be forced to make a tough decision.

        • Jake W says:

          agreed. in my view, the fed hasn’t implicitly guaranteed anything. it has just jawboned the private sector into doing its dirty work. it’s anyone’s guess when this no longer works.

          the mythical powers people ascribe to the fed are truly astounding.

  2. Depth Charge says:

    And the FED is STILL pumping. And all sorts of articles are coming out today that this new “variant” has already put the FED’s plans of faster tapering on hold.

    Folks, we are in the end game of billionaire globalist captured eCONomies, where asset price pumping by central banks to fatten the wallets of virtue-signaling billionaire pigmen is the only game in town.

    • Jake W says:

      the fed didn’t say anything about slowing tapering. that was purely idiot strategists and “analysts.”

      not saying i trust the fed, but still.

      • drifterprof says:

        Whatever American politician is in power, they are now like a hard core alcoholic or narcotics addict, and their old friend the Federal Reserve system is the drug dealer reaping profits. The addict is bankrupting financials and despoiling various areas of life, so he and his old friend the drug dealer lay out a plan to for him to taper (though it kind of lacks credibility given their activities in the recent past).

        Then some serious stressor occurs in the addict’s life. Does he call people who have been damaged by his addiction and say: “Sorry, circumstances beyond my control have convinced me to postpone my tapering.” No.

        Suddenly one day the drug dealer’s and the addict’s behavior will fully display that they have decided to taper his tapering, or something worse. The more they do that, the scarier they get.

        • Jake W says:

          but they have to be careful to not cause a crack up boom. if they lose all credibility on tapering, even the prudent will start to get rid of any cash they can. that leads to a collapse very quickly.

        • gametv says:

          the politicians want to do away with the debt ceiling limit, because it is embarrassing for them to need to pass these extensions. one politician was saying that the debt ceiling had not bearing on the amount of debt that was created, so it was meaningless. that is like saying that the blood alcohol limit has no bearing on whether someone drives drunk. while it is true that people still drive drunk over the legal limit, it still is not a reason to eliminate blood alcohol limits.

          maybe we just need to raise the penalties for raising the debt ceiling limit, so the politicians feel pain when they do it.

        • Old school says:

          The debt ceiling doesn’t mean much since Fed is monetizing the debt. It’s all fake accounting with fiat.

      • Nacho Bigly Libre says:

        (Assuming 100% faith in the words of the Fed for a minute)

        Any estimate on when the ‘taper’ will conclude? Current total assets at the Fed at 8.6T (up from 7.2T in January). How high will that go before plateauing or heading down?

      • MyLadyHumps says:

        Actually, the Fed never really says anything outright but instead speaks in code. Code from Powell’s prepared statement clearly indicates the tapering is over and more piles of QE funny money will be handed out in vast oceans of money:

        “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.

        “To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to support a full recovery in employment and achieve our price-stability goal.

        Thank you. I look forward to your questions.”

        Well? Any questions?

        I don’t have any questions, I fully comprehend Fed code-speak and fully understand what is happening (not tightening, not ever).

        Translation for those who don’t understand Fed code: Shoot your money guns first and ask questions later. As for the innocent savers gunned down – let god sort em out, that seems like a you problem.

        Reduce people’s willingness to work? Indeed that’s true hombre.

    • Marco says:

      Just the excuse the FED needed. They will not be out of this Market for decades. Why would you hold a Bond in this mad, inflationary environment ?

      • Ron says:

        Every time tapering is suggest a new crisis evolves god people are stupid while they laugh all the way to the bank

    • Nick Kelly says:

      Is ‘variant’ in quotes to indicate skepticism about this particular one, or about variants in viruses generally, flu viruses etc. or about the existence of of viruses at all?
      After all, without the electron microscope they can’t be seen, so are we taking the word of ‘experts’ that they exist?

      • Depth Charge says:

        A snowflake says what?

        • Rumpled Bemused says:

          I’m sorry, Sir. This Is Wolfstreet. You seem to have mistaken it for Zero Hedge. Please take your boorish trade there please.

        • NBay says:

          I’m still waiting for that explosive comment your screen name suggests…..perhaps you should change it to “smudge pot” until you can generate something with more of a bang?

  3. stan67 says:

    Well, the chase for yield leaves real dead bodies behind.

    One of the PE firms mentioned (anagram: RKK), owns a chain of private schools here in U.K. As a fee contributor to one of such schools, I could observe in real life, over the last four years, the steady disintegration of the organisation my kid attends.

    The quality of service plummeted and the old COVID was a very handy excuse. When the other parents wake up to the reality, the subscriptions to the local state (=free!) schools will explode.

    We are off next term, so farewell then RKK, good bye aufviedersehn and adieu. It was nice knowing you (Not).

    • otishertz says:

      My friend just texted me angry as hell because her school district just texted her that it is requiring masks on all children 2 and up. This is in rural Oregon. Her kid is almost 3. She refuses and now is forced to home school.

  4. Depth Charge says:

    Looks like BTFD in Sh!coin is on like Donkey Kong today. Why are e-tulips rocketing?

    • Alku says:

      e-lsalvador? :)

    • MyLadyHumps says:

      Why are e-tulips rocketing?

      Well, people would like to buy something for their money, but something is out of stock. The only thing left to buy with those piles of cash is nothing (ie e-tulips).

      You can spend your savings on nothing or you can have nothing. Those are your choices.

  5. Seneca's Cliff says:

    I hope these vultures on the first ones loaded in the tumbrels when the inevitable collapse happens.

  6. Augustus Frost says:

    The buyers of the garbage debt usually don’t care because it’s not their money at risk. It’s a negative aspect of financial intermediation where the end beneficiary (the retail buyer) has turned over portfolio decisions to “experts” who are almost exclusively motivated by at least matching their benchmark and customer retention. In a market collapse, those who follow the herd claim “prudence” while underperforming your peers results in client defections. Moral hazard on steroids, especially with central bank puts.

    One thing I would definitely change (other than reckless central bank monetary policy if it were possible) is the tax deductibility of this borrowing. It needs to end.

  7. raxadian says:

    There is a reason LBOs used to be illegal.

    In fact they should go back to being illegal but good luck with that.

  8. Depth Charge says:

    Every sign, everywhere you look, screams “MASSIVE BUBBLE AND RAGING INFLATION” yet Weimar Boy Powell has the pedal to the metal, driving a bus loaded with dynamite towards a brick wall. Just who is calling the shots, anyway? Rhetorical of course, it’s the billionaire pigmen.

    • Swamp Creature says:


      Who’s running the show?? I got an idea.

      Biden had a bunch of Corporate Execs into the OVAL office today to read them the riot act about vaccines and inflation. His game plan is to dump all these government bull s$it mandates, and jawboning price controls onto these dozen giant corporations and let them do all the dirty work for him. If they want to keep making money and serve their shareholders (as Larry Fink revealed on CBNC the other day) they will have to buckle under. It’s no lose. If the plan works B will take the credit. If it doesn’t work then he will blame them for the failure, just as he’s doing with the oil companies.

      • Augustus Frost says:

        This gimmick won’t work in a negative psychological environment, if the social mood has turned as reflected in consumer confidence surveys, Even though the electorate is utterly clueless and will have a negative perception of corporate America, they will still blame him anyway.

        It comes with the job. Pro or con, he owns this economic performance by the next election.

      • Old school says:

        Don’t think current crew knows much about economics. It’s mainly about incentives. You have to let people keep enough of what they make that they want to roll their butt out of bed at 6:00 and go do something unpleasant all day for the payoff.

        People aren’t too excited working to provide new apparel for someone else’s kids or to provide someone else a place to live or to provide a bolt on a new pentagon boondoggle.

  9. sine99 says:

    Near the top of one of the prominent financial news web sites today reads the following:
    “Opinion: Buying stocks with borrowed money isn’t as crazy as it sounds ”

    While I don’t have any clippings to prove it, this is the kind of thing I recall seeing in the financial press in the last days running up to the March 2000 top.

    • MyLadyHumps says:

      Was the Fed creating unlimited sums of new currency in 2000?


      “This time is different” is not a dangerous statement when, in fact, this time is different.

      Greenspan was insane and reckless, but not destroy the world monetary system insane. That is a special insanity known only to Bernanke/Yellen/Powell.

      They have destroyed the world and they don’t care, too easy to blame someone else.

      • otishertz says:

        They sure did and had a lot of coordinated help from the other central banks.

      • Old School says:

        Government needs money and central bankers help them get it.

      • VintageVNvet says:

        Thank you MLH:
        In spite of, or perhaps because of the young folks on Wolf’s Wonderful Website who did not get either the class of ”statistics” in which the textbook was, ” Lies, Damn Lies, and Statistics” and then the professor would make a pretty damn clear case of the ability to lie lie lie and make the so called statistics lie lie lie,,, YOU have it at least somewhat correct IMO…
        Really and truly boys and girls, only GOD,,, AKA The Great Spirits, etc., will have anything to say to each and every one of us after the next ”GREAT DEPRESSION” as has been very clearly defined,,, so far.

  10. David W Young says:

    Wow, history sure repeats itself, maybe not to the letter, but pretty close. This is another area the Fed can take a huge bow in. How many seniors are out there that have either been sold some of this garbage corporate debt or have been so Yield Starved due to ZIRP for 13 stinking years now that they pushed the Buy button in their online Schwab trading platform. Many retirees just have not saved enough to have the liquid assets necessary to supplement their Social Security benefits. Not a moral judgement against them, just a harsh reality.

    This grossly overpaid Private Equity and LBO firms should be forced to have more skin in the game and for a longer period of time. They skim, very good word in these operations, the cream from the top of these deals, and then head for the exits at the earliest possible moment. How come none of these financial sharks never get prosecuted for violation of S.E.C. full disclosure requirements in these dead-men-walking prospectuses? I think its called Political Contributions!

    There is no wiggle room for financial result shortfalls in these deals, pie-in-the-sky projections are the rule and hardly the exception.

    We have an economy that is beginning to slip southbound, and investors are still loading onto the financial railroad tracks to receive the lowest spread to allegedly risk-free debt, cough, choke, sneeze, gag: U.S. Treasuries? Those miniscule spreads should be at least double what they are today.

    • Augustus Frost says:

      You can primarily blame portfolio managers for buying this garbage. That’s how the retail buyer ends up with it. Never heard they buy the garbage directly in any volume.

      • RockHard says:

        Yep. As an individual investor, buying any kind of bond is tricky. I’ve looked into buying T-bills and that is daunting enough, let alone corporate debt. How much money is out there in bond-market funds owned in 401(k) and 529 accounts, or pension plans? I’d personally never buy a bond like this but I probably own a bunch in these limited-option investment vehicles.

        • MyLadyHumps says:

          ETF JNK

          EZ PeeZee

          Yield = 4.47%

          That’s a pretty good yield if the Fed is going to come running in to illegally purchase the fund (via SPV;s) every time the fund dips. If that is not a guarantee against losses what is? Implicit Fed guarantee and a real yield that is barely even negative, what’s not to love?

          Not financial advice, just pointing out that the Fed bailed out junk last time, seems to me they would do it again. Is it risky or just sound investing?

        • Old school says:

          I think it’s wrong point in cycle to buy junk. If you ever are going to buy it buy it when things are scary and yield is close to 20%.

          If need 4.7% yield you are lry better off buying Berkshire Hathaway and selling off 4.7% of shares every year. At least you will know it’s going to survive come want may.

    • HowNow says:

      Mr. Young, am I to understand that you are questioning the efficacy of the Great Poohbah: The Invisible Hand?

      • NBay says:

        I believe this article is about some people with quite VISIBLE hands…..mine, however, are completely invisible in Smith’s theoretical context, so they do sorta exist, even though in reality I can pick my nose with them just fine.

        • NBay says:

          I am also glad Young let me off the hook as far as his moral judgements go…..without SSC I would have been homeless (again) years ago.

  11. Nothing New says:

    I’ve been browsing this website for a while now. No matter how accurate and detailed the charts/analysis/comments are, it’s all just wishful thinking that anything will happen other than more of the same.

    No one in charge wants to be responsible for starting the ball rolling downhill. When even more money doesn’t work, they’ll claim the crisis was an unicorn millennial event.

    • HowNow says:

      NN: O Ye of little faith! Although rare, there are people who will start the ball rolling downhill. Paul Volcker comes to mind. But he was reviled and demonized by members of Congress and any and all who were finding sustenance on the gravy trail back in the day.
      When nearly everyone is aligned in the same financial direction, excesses are inescapable. When the game finally ends, no one wants to be stuck with “The Old Maid”. Unless, of course, you happen to be a lonely Old Man.

      • Old School says:

        Volker was smart enough to know what his role was and understood the theater that Congress was.

  12. Bruce says:

    Any shorts left in this market? I thought Friday was the start of something’ big….. now I’m thinking late Jan earnings season disappoint???

    • RockHard says:

      I’m about 2/3 in cash at this point and the rest is mostly in things associated with basic materials like oil and mining, along with some gold funds. My thesis is that this Xmas season is going to be a disappointment and in Q1 the numbers will come out and things start to come unglued. It might take until Q2 to really see this blow up. I’ve been super aggressively long for the last 10 years (especially in tech, many years I outperformed the market, although I really lagged in 2021 because I’m less enthusiastic), and to be honest, selling all the FAANG stocks (along with their more questionable cousins) felt weird, but the last few months did me in. Stuff like Zillow blowing up in residential RE, a general shift in sentiment against the large tech stocks, and really the overall insanity of the financial world.

      Maybe I’m wrong and come June ’22 I’ll be kicking myself on missing out on another 20% market runup, that’s part of the fun of this casino I suppose.

      • Ron says:

        China s problems are headed this way watch out WAR AHEAD

        • Lynn says:

          Why would they want a war? They’ve already bought up half the world’s real estate and a better portion of the offshore means of food production each year.

  13. Rowen says:

    Neo-feudalism at its finest. America’s gonna be one huge company town.

  14. TED says:

    I went through this with a company called Avaya a company A.T.&T. spun off in late 2000. We were debt free, had a Billion a year in free cash flow, number one in our industry. Avaya was aquired by Silver Lake Partners and TPG. They immediately laid off thousands of employees (including me), took on a mountain of debt, brought in new management and went bankrupt. In addition to hurting investors, theses clowns ruined a lot of lives many of whom were my friends. Great synopsis Wolf, exactly correct.

    • Jake W says:

      ultimately, the fault is on those that lend for lbos. without them, this scheme wouldn’t work.

    • Rowen says:

      The problem is that people think this is a bug, when it’s really the feature.

      LBOs are the greatest redistribution of wealth ever.

      • Depth Charge says:

        Mitt Romney is having an orgasm reading this.

        • Augustus Frost says:

          One of the most insufferable pompous asses I have ever seen on TV.

        • Jake W says:

          when that despicable man won the nomination, that was when i knew the gop had jumped the shark. i voted for the constitution party in that election.

      • otishertz says:

        Private equity LBO vultures snacked on the assets of the venerable Sears for years, hollowing it out until there was nothing but a carcass left to pick over. Then the executives all left before the inevitable bankruptcy. Happens every time.

    • Petunia says:

      The moral of your story is, the minute you hear your company is the buyout target of a hedge fund, dump your stock in the company and look for another job.

      • Mike G says:

        Totally this. When the quick-buck mercenaries take over, you can say goodbye to any concern for quality or the long term. It becomes a toxic environment where only immoral grifters and glib con artists thrive.

    • Harvey Mushman says:

      Avaya – That sounds familiar. I think the speaker phone in our conference room says “Avaya” on it. Same company?

      • Mike G says:

        That would be it, they make business phone systems and other communications equipment.

    • RockyCreek says:

      Why would the owner(s) of a perfectly healthy company allow this?

      • Petunia says:

        Ironically, the more well run a company is and the more cash it generates and holds, the bigger target of a takeover it becomes. The predators call it unlocking shareholder value. They pay a premium for the stock, then they strip the company bare of all assets and cash flow, until it goes bust.

        The target company must consider the offer and accept it, if it is over the market value of the shares. Otherwise, they will get sued for depriving the stockholders of additional profits. Money is the only consideration in the rape of the company. The eventual destruction of the firm is never a consideration.

        • otishertz says:

          Some companiies used to poison pill to block hostile takeovers or LBOs but I haven’t heard that term poison pill in years.

        • Sit23 says:

          The top executives of all the target companies are given bonuses and incentives upon the successful completion of the takeover. They then run away and find somewhere else to work, and watch from a safe distance as the touch paper is lit.

        • Cookdoggie says:

          Individuals can accomplish the same thing via a reverse mortgage. Strip out all the (home) equity, load up on debt and (eventually) walk away.

      • Augustus Frost says:

        What Petunia said.

        Its called “maximizing shareholder value”, essentially the equivalent of destroying the village to save it.

        While not covered by this article, LBOs aren’t materially different from the recent gutting of many corporate balance sheets through share buybacks since 2008.

        Examples covered on this site are the airlines and Boeing, both of whom went hat-in-hand for bailouts last year after incinerating billions to enrich top management.

        On occasion, I have looked at corporate financials on CNBC.com. Overwhelmingly garbage quality balance sheets loaded with debt but concurrently with “manageable” debt service ratios due to artificially low interest rates and the loosest credit conditions ever. An example is UPS which used to be one of a handful of “AAA” rated credit which to my recollection, had a 771% debt-to-equity ratio last I checked.

        If the bull market for bonds really ended last year, it’s going to get really ugly later.

        • HowNow says:

          AF: By “credit rating”, are you referring to the The Three Stooges?

        • Petunia says:


          You are correct in pointing out that a share buyback is a backdoor way of raping a company. An LBO allows outsiders to loot the company, and share buybacks are an inside job. The results is a bankrupt company either way.

    • Old School says:

      I have been through it too, but not exactly with LBO. My advice to anyone is to give it no more than one year and if they don’t treat you well get out as soon as you can and find another job.

      They usually try to squeeze too much out of the employees. In our case it used a matrix management system. It basically meant you did your old job, plus several new jobs as you were reporting to different managers. Turnover went thru the roof and knowledge that was needed walked out the door.

  15. COWG says:

    Can we stop calling Wall Street bull$hit a “ financial crisis”… please…

    I believe that if you’re in a 401k, index funds, crypto crap, overpriced housing and autos, you are at severe risk with the games being played with your money…

    You try to be prudent and invest in decent companies to grow wealth, then Boom!… a bunch of a$$ holes using cheap, borrowed money swoop in, steal the company, and put a bullet between your eyes… but, hey, thanks for playing…

    The Fed has a choice… support the stocks, wink wink, and keep the stock ponzi going or fight inflation and kill the 401k… red or black… place your bet…

    The only “crisis” we have is the intelligence of the people who give these people money to gamble with… they will win even as you lose and get wiped out…

  16. So is this what’s going at Hertz. Hertz laid on 1.5B in new debt in order to buyback their stock. Isn’t that the reason you buy the company, to pump and dump the shares?

  17. Michael Gorback says:

    Never underestimate the power of stupid people in large groups

    • Augustus Frost says:

      Exactly what HL Menken said about the American electorate, over and over.

      • NBay says:

        “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” ― Friedrich Nietzsche

        Not just the electorate……how about most of those here, who joined the “Get lots of stuff” Party….and even brag here about it from time to time?

        Pretty stupid game on a ball in space.

        • NBay says:

          The PE bunch doesn’t just take companies apart…..at least 7 of the top 10 Food Producing companies BY TOTAL SALES are PE….and doing very well, thank you.

          One could maybe even say ever decreasing “Public Stocks” were just a means to an end.

        • Old School says:

          I couldn’t really determine your point. As educated by Warren Buffett I would say that private equity is misnamed and should be called private debt as they strip out equity and pretty much ensure company will blow up when times get tough.

          They pay too much and try to make it up with leverage, sometimes round tripping it back to public markets after loading it up with debt.

        • NBay says:

          “I couldn’t really determine your point”

          Doesn’t surprise me…

      • Michael Gorback says:

        I left out the attribution since the source is questionable, but often attributed to Mencken. Other sources include Allen Sparks and Jack Jarvis. It’s also been attributed to George Carlin, which is historically late to the party.

        I’ve seen this with a lot of famous quotes, especially Mark Twain.

  18. Auldyin says:

    This tsunami of cheap money is allowing these PE Co’s to buy up once great legacy businesses all over the world. Morrison’s supermarket in the UK is the latest to fall. They’ve got (had) loads of hard assets, farms, bakeries, food factories, etc all ripe for sell-off. Game over I’m out.
    It must surely be near an end game for the West where every cent of financial value is extracted leaving only hollow shells and mountains of junk unrepayable debt behind.

  19. drifterprof says:

    Does the flow of money involved in the PE LBOs contribute to the GNP? If so, it’s a stark irony.

    Asset vultures and mega-fee windfalls involved in bankrupting a company adds to the total goods and services produced in a nation?

    • Augustus Frost says:

      No, only to the extent the equity extraction is spent. Never seen any stats on that but most of it presumably ends up in the hands of the wealthy backers who don’t or can’t spend it all.

      Otherwise, it’s just financial engineering smoke and mirrors, something America is unquestionably ranked #1 at.

    • Wolf Richter says:

      The flows of buyout money do not enter into the GDP formula.

      • cb says:

        How about all the commissions, fees, attorneys, accountants, bankers, consultants, bonuses, new yachts, etc,?

        • Wolf Richter says:

          You’re throwing two items into one box. So let’s separate them:

          1. Commissions, fees, salaries, bonuses, tips, bribes, etc. do not enter into GDP when they’re paid. But when they’re spent on goods and services, then they enter into GDP as part of consumer spending.

          2. New yachts enter into GDP as part of the money spent on goods and services.

  20. sunny129 says:

    I have bought PE Firms their STOCKs (CG, BSCF++directly and NOT their Bonds. The pay out ration for investors in these PE firmsare quite attractive. They employ short trading and are holding good for the past months including recently. There is also an ETF of global PE firms! Ihave bought a few shares of LQD, JUNK, HYT and HYG, etf – ANGL paired with puts as a hedge! Wouldn’t advocate for the newbies or the novice.

    • HYG just broke the 200dma, something it did once in 2018, 2019 and 2020 each time coincidental with a larger selloff in the markets. The market overreacted to the variant news Friday, that was mostly Europe I think, when the rough edges came off the story, it turns out it is bullish for US stocks. The Fed will not be forced to normalize policy. The pandemic provided a wall of worry to climb, and kept the Fed on their heels and will continue to do so. The Fed hasn’t been able to do quite as much as they want, like YCC which would help the junk bond market. The V Chair nomination and the OCC might box Powell in on procedures. (The Fed is too big and too corrupt. We all knew that..) Then there is the debt ceiling, and what does the GOP have to lose? None of them voted for either of the spending packages. There is nothing wrong with this market if they will just let Powell print all the money he wants. If they rip into him at the hearings, then the market might assume his second term will not go easily. Nominating him was the easiest thing Biden ever did.

      • sunny129 says:

        ‘it turns out it is bullish for US stocks”
        News to me!?

        Omicron variant uncertainty!
        Powell – Need to do faster tapering!
        Stocks are still in overvalued zone
        Supply chain problems remain
        Energy is tanking heralding pssible recession next year
        10y yield is 1.45% against votes for recession!

        I am trading options and leveraged ETFs both directions, raised cash,
        Mkt won’t crash but will bleed slowly- lower highs and lower of the lows -Classic secular BEAR mkt! ( Been in the mkt since ’82)

  21. Marcus Aurelius says:

    Let me see if I have this correct.

    A few guys borrow Billions through Bonds issued from the companies they are taking over? Right

    Then these few guys sell these Bonds to the FED with their QE program.

    Then, these few guys, with this money from the FED’s QE, again borrow Billions through Bonds issued from the latest companies they are taking over? Right.

    I think I got it.

    • Wolf Richter says:

      Marcus Aurelius,

      The first line is correct.

      The second line is not correct. The Fed doesn’t buy any corporate bonds anymore, and it SOLD the small amounts of corporate bonds it had bought. Instead, these “few guys” are selling those bonds to retail investors via bond funds, pension funds, and other institutions.

      The Fed’s monetary policies repressed interest rates. QE repressed long-term interest rates. These ridiculously low interest rates (yield for investors) caused investors to chase yield, buying up ever riskier bonds, and thereby driving up their prices, and thereby lowering their yields. And this ravenous appetite for high-risk bonds made the whole scheme possible.

  22. Brent says:

    Does anyone remember rotating dummies during the Basic Training ?

    You stick it with the bayonett and,unless you jump back ASAP it turns and hits you in the back of the head.

    Then you slowly regain consciousness and see scowling face of your beloved DI (actually,2 faces which slowly merge).

    Hopefully all short sellers became extinct after the Great Bear Market of Nov 26,2021

    • Old School says:

      With a trillion dollars in margin debt, trillion dollar Tesla, trillion dollar crypto, trillion dollar junk loans if we ever really have a panic a lot of wealth is going to get evaporated lickety split or in two shakes of a lamb’s tail whichever is faster

      • Brent says:

        I could not care less about fictitious,hallucinated wealth…

        Real diamonds can get evaporated too.If the temperature is high enough diamonds can burn.

        Motorola,first car radio in the 30’s (installed inside police cars to chase bootleggers), first portable radio for individual soldier during WWII,first this,first that,Nobel Prizes,huge stockpile of patents…

        Then poof ! Gone with the wind ! Shadow of its former self.Pathetic Moto smartphones nobody takes seriously.

        Courtesy of modern financial engineering gone wrong.

        There is no book yet exploring Motorola demise,all I can do is to collect newspaper/magazine articles and try to piece together the puzzle.

        • Old School says:

          I was reading on Westinghouse and how he got wiped out in the panic of 1907 with too much leverage.

          Reminds me of Musk. Your dreams can be bigger than your cash flow to meet your debt payments in a recession. The bank takes away your keys. Happened to our CEO and destroyed his lifes’s work. He committed suicide when they took the company away.

      • Nathan Dumbrowski says:

        Well put. Trillion is the new Billion. Growing up the only thing that got to be included was the US government figures. Nothing else would ever reach that sum of money. Guess Google was onto something with a name like Google which comes from…

        A googol is the large number 10 to the hundredth power. In decimal notation, it is written as the digit 1 followed by one hundred zeroes

        • Brent says:

          “Googolplex” = 10 raised to the power of “googol”

          Google invented this number with the sole purpose of making me throw away my Texas Instruments calculator 😀

    • 91B20 1stCav (AUS) says:

      Brent-note that the number of our fellow citizens who completed Basic (not the computer language) and service beyond is small and has been declining for decades…

      may we all find a better day.

      • Brent says:

        MS Basic = Basic Training
        Jeez,how come this analogy never occurred to me before ???
        Henceforth I’ll use it to make fun of one of my high school buddies,a computer nerd,who is not street-smart at all 😀

  23. DR DOOM says:

    Financial Engineering has a payday attached to it. Not for Saver schmucks like me. This is Powell and the Fed serving its interests. The boomerang grift payday back to Congress will be enormous. The fact that very little real economic activity other than the inflation of Montana Ranches, Art , Yachts and high dollar hookers is a good thing as far as the Fed is concerned because Main Street is unaware they are getting poorer from the ZIRP that helps fuel it. Powell will not and can not end the easy money that fuels this activity. 4% interest rates would hit this jackpot for the connected and therefore it ain’t gonna happen. The Mindless Elecorate which could hold Congress accountable is at this very moment foaming at the mouth with flared nostrils buying any and everything they can find whether they need it or not.They ain’t even started to feel the pain. Get ready for December and Powell jawboning that he has discovered inflation again and then watch him turn his back and print baby print. 30% inflation might focus the bleary eyes of the poorly informed electorate and Lo an behold look at whom is to blame, it’s Vlad and Xi .

  24. Swamp Creature says:

    Was Radio Shack a casualty of this process when it went bankrupt a few years ago? I used to shop there a lot. They were based in Ft Worth Texas. They provided a lot of services that the little people needed the most.

    This is getting old. All the stores that I used to shop at are gone. No wonder I don’t spend any money at retail stores.

    • RockHard says:

      IIRC there was private equity involved at the end. It’s usually the end game for these places that fall on hard times, private equity LBO, leave the bond owners holding the bag. Sears was basically the same story.

    • Jake W says:

      radio shack dug its own grave, from being a niche store that appealed to hobbyists and “tech” people, to being a cell phone kiosk. there was no way they would be able to compete with the bigger stores on that.

      • Swamp Creature says:

        Jake W


      • NBay says:

        When I was breadboarding TTL and +/- 12V ckts, I got everything through the Digi-Key catalog and a (gone now) local electronics junkyard. Radio Shack was too expensive.
        But if I needed just one common component quick (like a 555 timer), I paid up there.

    • Wolf Richter says:

      Radio Shack filed for bankruptcy twice, not involving PE firms. A PE firm bought the brand out of the second bankruptcy and has since re-sold it.

      Here are some of the retailers that had been bought out by PE Firms and filed for bankruptcy as of early 2018:

      There have been a slew of big retailers that filed for bankruptcy since then that were not owned by PE firms. That was the second wave of the brick-and-mortar meltdown.

  25. Michael Engel says:

    Silk road Entebbe airport was confiscated by China.

  26. JParry says:

    If anyone is still surprised at any of this or if anyone still thinks this is temporary, their head is in the sand. It’s mathematical certainty that despite what they say, the Fed cannot entirely stop QE nor can they substantially raise rates.

    USD dilution/debasement will accelerate. Easy money will continue.

  27. Wolf Richter says:

    Here is what Powell said today about inflation in his testimony, which is roughly unchanged from what he said in his thank-you statement:

    “We understand that high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation. We are committed to our price-stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.

    “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.

    By intensify supply-chain disruptions, he means more inflation spreading into the economy.

    • Depth Charge says:

      Talk is CHEAP. Powell is full of shit, Wolf!

    • cb says:

      Powell: “We are committed to our price-stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”
      His price-stability goal has been to provide continuous inflation. He doesn’t bother to define which “tools” he will use and what actions and magnitude of those actions he will use with those tools.

      He, and the other FED Heads have shown themselves to be liars and manipulators. The whole FED complex with their over-educated egghead workforce and proud relatives are complicit scum, many unknowingly, but scum none-the-less.

    • Lynn says:

      Another variable that none of them seem to get is that many workers can no longer afford to live where the jobs are..

      I’m getting a kick out of lurking on a community forum of a town where RE and rental prices have rapidly hit sky high. Most workers and even their parents have now moved out and the town is fairly isolated. The gas stations, grocery stores etc are in a crisis. I have to say I Looove hearing people on the forum ask around for anyone handy who can do landscaping or fix a toilet. Lots of $multimillion homes are not going to have their landscaping, be cleaned or have roofs done in any sort of a timely fashion.

  28. otishertz says:

    Let’s be honest here. The LBO firms are not buying these companies to run them. They are buying them to gut them and burn up any value by leveraging their assets and revenue streams, collect fees and salaries, then comfortably resign.

    • HowNow says:

      Let’s be honest here: Unless financial rape and pillaging is made illegal, it’s an inevitability of “laissez faire” capitalism, the capitalism that the free-marketers insist is somehow a God-given right. And let’s be honest here: there is no large-cap company that wants a “level playing field”. Invisible hands and level playing fields are bedmates of tooth fairies. Capitalism needs guardrails, it needs to be “governed”. That sounds sinful, doesn’t it? So why did gubmint get criminalized and financial engineers and fraudsters (think GOP Presidential candidates), become objects of worship? Let’s be honest here…

      • cb says:

        Capitalism and free markets are not the same thing.

      • Nacho Bigly Libre says:

        FAA regulating Boeing and approving Max 737 is the guardrail.

        SEC regulating and approving of front running if order flow is the guardrail.

        Building new roads taking up a decade is the guardrail.

        Big companies writing regulations hand in glove to keep competition away is the guardrail.

        Let’s be honest here, guardrails are holding us back, not free markets.

        • Nacho Bigly Libre says:

          You edited out one regulating agency and its error from my comment. I can understand you don’t want to go off-topic, but what I wrote about that is 100% accurate.

  29. Tbv3 says:

    Wolf, I wish you’d update your blog post from June 2020 on CLOs.


    Your post cited an informative Federal Reserve report that doesn’t appear to have been updated.

    I’m curious to know who is buying the equity tranche of CLOs. Or are dealers retaining that tranche (because they can’t sell it) ?

    • Franz Beckenbauer says:

      That’s what the “C” in CLO, CDO, C-you-name-it is all about. You don’t “buy a tranche”. You buy the whole thang. That’s the point of wrapping up dog shit in cat shit.

  30. drifterprof says:

    Powell’s statement that “We are committed to our price-stability goal.” seems weak. (I read elsewhere that: “… Powell clarified the Fed has no specific definition about inflation moderately over +2.0% for some time and virtually acknowledged Fed is clueless.”)

    Probably be better for me to go into ignorance-is-bliss mode, since my economic / financial knowledge is shallow. But it’s hard to ignore – sort of like being fixated on the data coming in about an asteroid heading to smack down in your country, possibly catastrophic.

    Why has the Fed gone on a historically diehard and bizarrely huge QE extravaganza, as described so clearly in WS articles and graphs? Could modern QE be a preliminary quasi-proof of concept for MMT?

    Both QE and MMT involve the central bank printing money to purchase government bonds. Supposedly, QE is the responsible sibling, only printing money to prevent catastrophic debt freeze-up, and expects to reduce it’s balance sheet (transfer owned debt instruments back to private holder). On the other hand, MMT is the indulgent sibling with no qualms about never-ending printing of new money for government supplied services, and maintaining gargantuan long-term government debt. Just roll the debt over for the benefit of less-well-heeled society as a whole – no problem.

    But it’s getting difficult to identify the real fiscal difference between the QE and MMT. Supposedly, “A central bank [QE policy] that is at least more independent would be able to target the issue of inflation much more effectively than [MMT juiced] fiscal authorities focused not on the economic or business cycle, but only on the next election cycle.”

    However, both quasi-interminable QE, and MMT, result in excess liquidity causing inflation. For both, decisions will have to be made about who ends up holding the bag. Does the central bank (private cartel) *really* care so deeply about inflation that disproportionately hurts the less advantaged?

    • cb says:

      drifterprof said : “Supposedly, QE is the responsible sibling, only printing money to prevent catastrophic debt freeze-up,”

      here is a core of FED propaganda. Don’t let them suck you in. Know they are liars and manipulators.

      And that aside, why would a debt freeze up be catastrophic, and if it did prove to be catastrophic, why buy the assumption that QE is the way to handle it?

  31. Rosebud says:

    Echonomic Ron

    … Was

  32. Michael Engel says:

    1) The more Entebbe International airport confiscations, the stronger
    the dollar. China’s debt slaves will build a wall against the silk road.
    2) US dollar might lose it’s status only if we will be defeated in a major war. We didn’t. Afghanistan was cut your losses before they run. Wuhan 1:3 Moderna, Delta 1:2 PFE. OmiXi vs …semi final.
    3) J&J are two cool Irish guys. J Sr will raise taxes and cut spending in real terms. Junior’s negative rates and cut assets.
    4) When the poor scream, Chuck & McC will cut a fusion with deflated value, in real terms.
    5) If the Foxes cont to Hunt, Gamala will takeover.

    • Cookdoggie says:

      Agree completely with point #2. That’s why we aren’t heading for Weimar. You can hate our military spending, but that’s the only thing left holding this dike together.

  33. Jos Oskam says:


    It seems something has gone wrong with your BOLD tag after “supply-chain disruptions”, all following text is now bolded as well…

  34. Franz Beckenbauer says:

    So PE firms can borrow at 5% in a currency that depreciates at 10%.

    And who’s operating the printing press these days ?

    “From 1984 to 1990, Powell worked at Dillon, Read & Co., an investment bank, where he concentrated on financing, merchant banking, and mergers and acquisitions, rising to the position of vice president.

    In 1993, Powell began working as a managing director for Bankers Trust. He left in 1995 after the bank faced upset when several wealth generating customers opted-in to derivatives as their higher-risk/higher-reward-or-loss investment choice and realized the downside risk of large losses. He then went back to work for Dillon, Read & Co. From 1997 to 2005, Powell was a partner at The Carlyle Group, where he founded and led the Industrial Group within the Carlyle U.S. Buyout Fund”


  35. Old School says:

    At some point the mania will give way to fear and then things will be different.

  36. Gilbert says:

    Once again the FEDs actions jeopardize the economic health of everyone except their friends.

  37. Brewski says:

    The Fed is spinning the financial system merry go round with money pumping.

    Round and round it goes; where it stops, nobody knows!

    Bottom line: The Fed is out of control.



    • Franz Beckenbauer says:

      You go back, Jay, do it again,
      Wheels turning round an’ round,
      You go back, Jay,
      do it again

  38. drifterprof says:

    11/30/2021 – Dow Jones Editor’s Picks
    “Powell Warns Omicron Variant Could Worsen Inflation-Boosting Bottlenecks”

    [Powell “grappling” with unexpected inflationary surge which may become more unpredictable due to new Omicron variant intensifying supply-chain disruptions]

    “Fed officials pledged to keep interest rates near zero until [1] they are confident inflation will achieve their longer run 2% goal after years of undershooting the mark and [2] the labor market reaches conditions associated with maximum employment.”

    Okaaaayyyyy, … wait a minute … wut?

  39. Harry Houndstooth says:

    Again, Wolf documents that it is time to sell.

  40. Beardawg says:

    Never understood LBO’s, but this article was helpful in that regard. The scheme seems immoral, but that’s life in America I guess.

    After the gutting, however, the debt is offloaded somewhere. I hear “…pension plans, private investors, yadda yadda…” That debt is not going to be paid off, so has anyone actually seen or heard of an actual investment fund which collapsed under LBO off-loaded debt, whether historically or present day ? Otherwise, the debt off-load just sounds like a myth to me.

    • Franz Beckenbauer says:

      There’s a clip on Youtube from “The big short”. It’s called “Pitch to Frontline Partners”.

      It tells you all you need to know about any kind of C-O.

  41. Swamp Creature says:

    I heard from valuble sources that Biden wanted Brainard as the Fed Chief but was told that she would face tough confirmation hearings as she has some Chinese connections and is too far to the left. So Biden had to go with the safe choice of J Powell who will be easily confirmed. The problem is JP got wind of this and his ego took a big hit, and from this point on he’s not going to be doing any more push-ups for his boss. Look for the Fed to finish the taper earlier and begin increasing the Fed funds rate sooner than expected. That may explain the sudden drop in the markets today.

  42. sunny129 says:


    NakedCapitalism put the correct prediction on Omicron on Friday and again on weekend. My posting got removed! I am dissapointed! WHY? Your blog articles appear at NC periodically. So what is the beef? They are the only ones – a beacon compared to kool aid from MSM. They peddle any conspiracies. They have a virologist (GM) regularly commenting at that site, since last year. The comments section is intelligent and inflormative!
    I am an retired MD (3 bord certified) and self educated investor since ’82. I am a life member of AAIA ( American Association of Individual investors) and NOT crack head like you treat some comments!
    I had just my contribution to you last week! Now seriously I have to rethink about what’s allowed and not allowed at your site! On what grounds? Just plainly disappoited! Sorry, I had vent my true feelings.All the best for you and yours.

    • Wolf Richter says:


      What goes on at NC stays at NC. Don’t drag this stuff into here. If you like to wallow in it, go wallow in it over there. I don’t care what you are or who you are and what kind of omniscient powers you have, you will keep your Covid-related analysis, predictions, rumors, and nonsense out of this space.

      • 91B20 1stCav (AUS) says:

        thank you, Wolf. stay strong…

        may we all find a better day.

      • sunny129 says:

        Not unexpted response@

        Your blog, your rules, Got it
        Thank you.

      • Jacob Hunt says:

        Hi Wolf, I tried to find the best article to ask this question, as I’m confused.
        You seem to think this inflation is deep rooted, and some days I agree, but there still appears to be great deflationary forces dragging us down.
        I see a zerohedge article today showing the yield curve has inverted, and their take is the FED would want to drop rates soon, not raise them.
        I feel they need to drop them quickly too, and maybe print a couple more trillion before housing craps the bed…. but how can this happen without a crisis?
        Or did I answer my own question, in that a crisis, be it a 15% sell off, or this debt ceiling deadline is all they to change course.
        Even with a ‘crisis (15% decline is far from a crisis) how can they possibly pause rates with inflation surging?
        Mish mentioned another operation twist??
        Cheers mate

        • Wolf Richter says:

          Jacob Hunt,

          WHILE QE is still going on, and while the Fed still is not reducing its massive balance sheet, the yield curve is meaningless as a sign for anything other than QE and the balance sheet.

          The Fed needs to stop buying securities right now and let maturing securities roll off the balance sheet without replacement, and then watch the yield curve spike out the wazoo as the 10-year yield climbs above the rate of inflation.

          Until that happens, the yield curve is meaningless — it just represents the narrow band of trading that QE allows.

        • Jacob Hunt says:

          Thanks Wolf.
          I agree with what will happen if they stop printing. In my mind that can’t happen though, with the size of the debt, both government but more importantly mortgage.

  43. Jacob Hunt says:

    Hi Wolf, I tried to find the best article to ask this question, as I’m confused.
    You seem to think this inflation is deep rooted, and some days I agree, but there still appears to be great deflationary forces dragging us down.
    I see a zerohedge article today showing the yield curve has inverted, and their take is the FED would want to drop rates soon, not raise them.
    I feel they need to drop them quickly too, and maybe print a couple more trillion before housing craps the bed…. but how can this happen without a crisis?
    Or did I answer my own question, in that a crisis, be it a 15% sell off, or this debt ceiling deadline is all they to change course.
    Even with a ‘crisis (15% decline is far from a crisis) how can they possibly pause rates with inflation surging?
    Mish mentioned another operation twist??
    Cheers mate

    • Jacob Hunt says:

      Oh… now is see a zerohedge article stating the IMF will downgrade global growth.
      Is it really that easy? A new strain which is proving to be mild will be all they need to pause rates??

      • Wolf Richter says:

        Jacob Hunt,

        Downgrade from the HUGE growth rate of 5.9% that the IMF expects this year and 4.9% next year. These are huge unsustainable growth rates to begin with. No one expects that they continue.

        The US economy hasn’t grown 3% or over since 2005. In year 2021, it’s on track to grow over 5%. This is a gigantic growth rate for the US. It cannot be maintained in an advanced economy. So yes, growth expectations will eventually have to come down. If the US can average 2.5% over the next 10 years, that would already be good.

Comments are closed.