Greece Is Like Lehman Brothers

Both Lehman Brothers and Greece were denied a bailout.

Specifically the United States Government and the International Monetary Fund (IMF) refused to bailout Lehman Brothers and Greece, respectively.

stop_bullrun

 

Unfortunately close behind were/are lots of other troubled and unstoppable financial organizations and debt-ridden countries.  [It is like trying to stop a bull run with your bare hands, oh yeah, and a red bandana.]

Countries like Italy, Portugal, Ireland, and Belgium all have public debt over 100 percent of their country’s GDP.  Japan is over 200 percent.  See the following for detailed statistics.

http://www.statista.com/statistics/268177/countries-with-the-highest-public-debt/

Unfortunately Greece had debt payments that looked like Mount Everest on a graph.

http://www.marketwatch.com/story/greeces-looming-debt-repayments-in-a-pair-of-charts-2015-06-02

The US Government and the IMF have been strict with Lehman and Greece, respectively.  Like the US Government, the IMF can be expected to panic with the next oncoming overwhelming group of debtors. 

To learn more about the Lehman Brothers bankruptcy, read this.

http://www.heritage.org/research/reports/2013/09/lehman-brothers-bankruptcy-and-the-financial-crisis-lessons-learned

Thanks

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Leveraged Loans Predict 2015 Crash

Multiple charts exist which predict another recession soon!

us_overleveraged_201501

 

Normally I am a very positive person.   But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed financial institutions to run wild again.  In summary, leveraged lending is out of control.   For two years, leveraged loans have risen as fast and to a greater level than 2007, the year before the Great Recession.

The New York Times reports that leveraged lending is greater and the associated rules more lax than in 2007.  Here is a portion of a news report.

What can’t be denied, however, is that standards in the leveraged loan market have become much looser in recent years. The companies that have taken out the loans are on average much more indebted than in recent years. Companies that have done deals this year have debt that is 4.9 times as large as their annual cash flows, measured using earnings before subtracting expenses like interest, taxes and depreciation, according to data from Standard & Poor’s Capital IQ. That multiple is up from 3.9 times in 2011 — and it is the same as the number for 2007, when the last boom in leveraged loans peaked.

This time around, however, one aspect of leveraged lending is much more aggressive. The special provisions within loan agreements that were once thought crucial for protecting creditors are fast disappearing. So far this year, 63 percent of leveraged loan deals lack such provisions, far higher than 25 percent in 2007, according to data from S.&P. Capital IQ. “Contractually, things are really at their weakest,” said Christina Padgett of Moody’s Investors Service.

You can read more details at one of these websites:

http://dealbook.nytimes.com/2014/11/04/a-recent-surge-of-leveraged-loans-rattles-regulators/?_r=0

http://www.zerohedge.com/news/2015-04-09/oil-hedges#comment-5977321

http://www.bloomberg.com/news/2015-01-06/private-equity-deals-spur-leveraged-loan-surge.html

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A second chart shows that recent Dow Jones record increases also occurred in 2008.

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

Unfortunately 10 out of 20 increases of 400 or more of the Dow occurred in 2008, the year of the last recession

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Can another Great Recession be stopped?  No.  Apparently the Federal Reserve did not act fast enough nor aggressive enough in 2014 to stop the out of control leveraged loans.

To protect yourself, read this website:

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Thanks for reading this.

Home Equity Bubble To Burst

Homeowners, that are PAYING ONLY INTEREST, are in for a shock.

home_equity_bubbleMany people bought homes during the crazy days before the Great Recession.  Many of them have been paying only interest on those mortgages.  Now their payments are about to jump up to include the principal.  Many people will have their house PAYMENT DOUBLE!

The number of homes involved constitutes a bubble as seen in the graph above.

For 2014 about $22 billion worth of homes are involved in home equity loans.  If the average house is $215 thousand, then that means a little over a 100 thousand homes are involved.  That is about 2.5% of the current home sales.

For 2015 the amount of home equity loans involved doubles from the previous year.  Thus over 200 thousand homes could be involved or about 5% of current home sales.

This could result in a lot of foreclosures again if they are not refinanced.

Then with Quantitative Easing ending by January 2015, we could see a return of cash payments to normal levels which could result in a 10% drop in home sales.

The 5% increase in home inventory combined with a 10% drop in buyers could be a double whammy to the housing recovery.  Let’s hope for the best.

Another Shocking Chart Predicts 2014 Crash

Multiple charts exist which predict another recession this year!

net_margin_bubble

Now, I am normally a very positive person.  In fact my first post for the new year was very hopeful.  But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed Credit to run wild again.  In summary, the Net Margin (Credit minus Debt) is out of control.   For the past year it has risen as fast and to the same level as the year before the 2008 Great Recession.  Daniel Fisher of Forbes reported this as found by Ricardo Ronco of Aviate Global.  Ronco says, “…equities are running away from borrowing levels.”

How do we fix this bubble? We convince the Federal Reserve to issue loans to cities and states rather than financial institutions that only buy stocks and bonds. Cities and states will use the money for infrastructure which will create jobs.

Here is another prediction for the S&P 500 to drop 30%.  See http://blogs.marketwatch.com/thetell/2014/04/03/sp-500-will-peak-around-1900-to-1950-then-drop-30-saxo-bank-strategist/

But based on the above chart, I predict a drop of 50% not merely 30% in the S&P 500.

scary_djia_chartThe second chart above shows how the Dow Jones Industrial Average (DJIA) is the same as 1929.   It has followed almost identically as it did in the years leading up to the Great Depression in 1929.

Big name investors like Warren Buffet and George Soros have cut their stock investments or shorted the market.

If another Great Recession occurs, riots will take place that are greater than the Occupy Wall Street demonstrations and President Obama will face impeachment.

Can another Great Recession be stopped?  Yes, the Federal Reserve can take two actions.

1. Put restrictions on QE funds to minimize leveraged lending.

2. Stop issuing QE funds to institutions that use “expected rent” as collateral.

You can make a difference by voting for the following White House Petition.

wh.gov/lQLCi

Thanks for reading this.

Shocking Charts Predict 2014 Crash

Multiple charts exist which predict another recession this year!

leverage_loan_chart

Now, I am normally a very positive person.  In fact my first post for the new year was very hopeful.  But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed financial institutions to run wild again.  In summary, the leveraged lending is out of control.   For the past year it has risen as fast and to the same level as the year before the 2008 Great Recession.

scary_djia_chartThe second chart above shows how the Dow Jones Industrial Average (DJIA) is the same as 1929.   It has followed almost identically as it did in the years leading up to the Great Depression in 1929.

Big name investors like Warren Buffet and George Soros have cut their stock investments or shorted the market.

If another Great Recession occurs, riots will take place that are greater than the Occupy Wall Street demonstrations and President Obama will face impeachment.

Can another Great Recession be stopped?  Yes, the Federal Reserve can take two actions.

1. Put restrictions on QE funds to minimize leveraged lending.

2. Stop issuing QE funds to institutions that use “expected rent” as collateral.

You can make a difference by voting for the following White House Petition.

wh.gov/lQLCi

Thanks for reading this.