Tag: credit

Rewarding Non-Productive Activities with New Money Leads to Price Inflation

Rewarding Non-Productive Activities with New Money Leads to Price Inflation

The punchline is that a significant percentage of new money creation over the past year was allocated to non-productive use cases. "Helicopter" money to individuals and non-performing firms are two examples. When capital is deployed for non-productive use (acquiring cryptocurrencies for example), that capital invariably bids up prices causing asset price inflation. Conversely, recipients that … Continue reading Rewarding Non-Productive Activities with New Money Leads to Price Inflation

Credit Risk Is Substantial and Underestimated

Credit Risk Is Substantial and Underestimated

There is significant credit risk that is not priced into the markets. Looming credit defaults and downgrades - especially high grade to high yield downgrades ("fallen angles") - are bound to create uncertainty beyond the credit markets. There is significant default and downgrade risk associated with Commercial Real Estate ("CRE") credits. Nobody knows when major … Continue reading Credit Risk Is Substantial and Underestimated

Cheap Debt: The Gift that Kept on Giving

Cheap Debt: The Gift that Kept on Giving

Policy makers have held interest rates artificially low since the 2008 financial crisis. This unnatural act - preventing interest rates from finding a natural equilibrium - made it difficult for investors to find yield and equity market valuations ballooned as a result. The cheap debt train has pulled into the station. (See the debt issuance … Continue reading Cheap Debt: The Gift that Kept on Giving