Crisis Progress Report (14): Global Margin Call
The prices of debt issued by commodity and raw material producers have crashed and their debt has been downgraded by the ratings agencies. The margin call is rippling; the yield spread between junk bonds and US Treasury benchmarks has widened for all issuers. Last week a junk mutual fund and a junk hedge fund, faced with mounting losses and customer withdrawals, refused to honor further redemption requests for an indefinite time period. They cited fire sale prices for junk debt and illiquidity: the failure of the market to provide deep enough bids for them to unload their positions. However, the liquidity they were counting on is funded by debt. When debt contracts, that pool gets shallower and eventually evaporates, usually just when sellers are stampeding to get out.
This is an excerpt. For the full article, please click the link above.
This is an excerpt. For the full article, please click the link above.
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- 1Posted by $ jbrenner 10 years, 2 months ago in reply to this comment.Yes, they are going broke. A couple such companies are oil and natural gas drillers. The price of those commodities is now low enough that the drilling companies can't sell their product for the cost of obtaining it.| Permalink
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- 1Posted by $ jbrenner 10 years, 2 months agoI made a long term investment in Au a number of years ago. I am going to have to wait for the banks doing the shorting on precious metals to lose their shirts, but my patience will eventually be rewarded.| Permalink
- 1Posted by $ jbrenner 10 years, 2 months agoMy financial advisor just correctly recommended moving money out of bonds of some of the more economically challenged companies last week into cash.| Permalink
- 2Posted by straightlinelogic 10 years, 2 months ago in reply to this comment.Right now yes, and mostly bills and short maturity notes. This too shall pass, but most investments currently represent little value.| Permalink
- 2Posted by CircuitGuy 10 years, 2 months agoAs I read the article, I really want to know what it means for various investments. Are you basically saying you invest mostly in Treasuries?| Permalink
- 3Posted by straightlinelogic 10 years, 2 months ago in reply to this comment.Yes, indeed.| Permalink
- 3Posted by straightlinelogic 10 years, 2 months ago in reply to this comment.If you have cash, deflation enhances your buying power. I am bearish most financial instruments and if your investments are in those, your buying power will be reduced by losses on those instruments.| Permalink
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- 3Posted by straightlinelogic 10 years, 2 months ago in reply to this comment.This is part of the recently commenced debt deflation and economic contraction, more severe than the 2008 crash because that crash was not allowed to run its full course (the standard response since the Great Depression). Govts. and central banks addressed a debt contraction with more debt, which ultimately makes this debt contraction that much more severe. Govts. and central banks have reached the limits of debt, so their efforts this time will not forestall the full debt contraction process as they did last time.| Permalink
- 4Posted by edweaver 10 years, 2 months ago in reply to this comment.I was referring to subconscious of course. AS - now non-fiction. :)| Permalink
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- 4Posted by straightlinelogic 10 years, 2 months ago in reply to this comment.Not unless I'm subsconsciously channeling AR.| Permalink
- 4Posted by edweaver 10 years, 2 months agoDid I just read an excerpt from AS.| Permalink
