Sunday, March 29, 2020

Vultures circling debt. Cash is king. Rich getting Richer.

From: "JOHN
Serious developments discussed.
It's a good thing you-all stocked up on everything.
Ammo will be very important when the SHTF.

John

From: Ron
Good post.
Couple points.

Ford Motor Company is operating with approx. $40 billion in outstanding debt.

The oil shale industry depends on $100. a barrel oil.

Per a Bill Holter interview about two months ago
Texas drillers continue drilling at high rate and selling at a loss.

A zombie industry continueing to go through the motions.

Utilities have cash flow for now but I understand for example LA mayor Garcetti will be shutting power down to businesses that dont close.

In general if shelter in place remains businesses will not be buying power and or not paying power bills.

PG and E in California after bankruptcy is in dire need of complete infrastructure.

rebuilding and in agreement with the state of California intends to pass the rebuilding costs on to Calif. power users.

Power users under unprecedented financial stress.

Ron

joe wrote:

Crashes have a predictable boom/bust pattern.
Bubbles will burst.
Booms help the rich get richer.
Busts help the rich get richer.

Rich 1% have lots of money, especially after years of stock market booming
they got capital gains and commissions from buying and selling stocks, bonds,...

Rich 1% have sold off most of their stocks to idiot doctors and workers 401Ks and pension funds CalPers idiot portfolio managers.

Rich 1% got rich from "corporate finance" fees allowing businesses to borrow and invest into
more and more cruises, casinos, airplanes, hotels, movies,… that spread germs and make people sick.

Eventually something will happen "black swan event" that will cause a crash,
Deep in debt companies and people's debts will not be payable,
and businesses that over-borrowed will be nearly defunct.

Their bonds and loans will be sell for pennies on the dollar as everybody except the rich lack money and frightened.

Rich 1% buy that debt for pennies on the dollar.
Then Rich 1% Shylocks use the court system to attack borrowers for year after year until they extract all the dollars they can from the poor borrowers.
Poor borrowers pay the taxes to keep the court system running to attack those poor borrowers.

Pattern established in all previous crashes,
for example I got out of the market well before the 1987 bubble crash.
Other big bubbles, tech 1990s crashed in 1999-2000,
then 2001 9/11 crash
2008 mortgage derivatives crash
Now Covid coronavirus crash.

You never know when the crash will happen or why.
But it is easy to sense when you are in a boom or a bust.
And easy to see who is getting rich off the boom/bust cycle.

Lots of news stories:

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The amount of distressed debt in the U.S. has quadrupled in less than a week to nearly $1 trillion,
reaching levels not seen since 2008
as the collapse of oil prices and fallout from the coronavirus shutters entire industries across the globe.

In total, the tally has ballooned to $934 billion of U.S. corporate bonds that yield at least 10 percentage points above Treasuries and loans that trade for less than 80 cents on the dollar,

That's nearly double the amount from less than a week ago.

The total is probably even higher,
because the calculation excludes debt of small-to-medium sized companies whose loans trade rarely, if at all.

The coronavirus pandemic has caused the worst sell-off since the global financial crisis and deepened stress in credit markets.

Driven by some of the lowest oil prices since the early 2000s,
the amount of distressed bonds has surged to the highest level since April 2009.

"What we are seeing now is fast and violent,"
unlike the gradual sell-off in the 2007 and 2008 crisis

If the virus isn't suppressed, even more distress is possible,
"The worst is yet to come,"

Distressed debt describes the borrowings of companies that are perceived to be under significant financial pressure,
and often suggests there's considerable risk that
the debtholders won't get paid everything they're owed.

As a global recession looms and businesses remain under forced closures,
more issuers are likely to end up in similarly dire situations.

The Trump administration struck a deal overnight on a rescue package worth about $2 trillion in spending
and tax breaks to bolster the U.S. economy
and fund a nationwide effort to stem the coronavirus.

The size of the stimulus package would be historic,
dwarfing the approximately $800 billion Obama stimulus that passed five months after the 2008 financial crash.

The fiscal lifeline may not be enough if the government can't also combat the global health crisis,
"Unless the pandemic is controlled,
consumers and businesses will look to save the money they're given and spend it only on necessities,"

Most of the distressed debt outstanding stems from U.S. energy companies battered by less travel demand
and an all-out price war between Saudi Arabia and Russia.
The capital-intensive industry, which financed its shale production largely through debt,
suddenly faces the prospect of deeper losses
after oil plunged below $20 a barrel.
Last month, it traded above $50.

The amount of distressed debt tied to the oil and gas sector stands at over $161 billion, up from $128 billion a week ago.

One of the biggest casualties has been Occidental Petroleum Corp.,
which has seen its funding costs skyrocket and its credit rating cut
to make it the biggest fallen angel in the current downgrade cycle.

Energy isn't alone.
Every sector except utilities is under stress, with distressed ratios growing by double or triple digits.
Telecommunications, retail, entertainment and healthcare industries make up the bulk of distressed debt.

Retailers such as Neiman Marcus Group Inc.
and theater chains such as AMC Entertainment Holdings Inc.
have been hit hard as companies are forced to close and customers are told to stay home.

Distress in the automotive industry also jumped as consumers decide to cancel travel and stay put.
Even investment-grade giants are at risk.

Ford Motor Co. now makes up one of the largest issuers with debt tumbling to distressed levels,
with a dozen issues hovering near or below 75 cents on the dollar.

Debt Turmoil

U.S. junk bonds entered distressed territory for the first time since the global financial crisis after spreads on the securities topped 1,000 basis points at the end of last week.
The index move marks a period of turmoil in the credit markets as investors flee funds that buy all types of corporate debt.

High-Grade Bond-Fund Outflows Hit $35.6 Billion,
Smashing Record

Investors with an eye on troubled assets
have been waiting for a surge in distress
after years of easy lending and low interest rates made potential targets scarce.

Apollo Global Management Inc., one of the largest and most aggressive investors in the credit market,
is tracking more than 250 potential opportunities to scoop up distressed assets,
Bloomberg reported.

Oaktree Capital Management LLC, led by Howard Marks,
is planning a new distressed-debt fund.

The dislocation of valuations in the leisure and travel sector has presented an opportunity that arises only once every 12 or even 50 years,
according to Apollo partner

"We're very excited about it," he told limited partners on Tuesday during a private briefing.

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