Showing posts from 2020

The corporate debt bubble: CLOs and company bankruptcies

In addition to monetary and fiscal bubbles, another potential issue that could be exacerbated by a prolonged period of low interest rates are rising corporate debt levels of publicly listed nonfinancial companies. Total corporate debt of such companies has already reached historical highs by surpassing $10 trillion in Q1 2020, and is likely to keep growing in the months to come. Adding to this another 5.5 trillion of corporate debt from SMEs and other non-listed companies the total corporate debt size in the US is now at 73% of GDP. This is still lower than household debt in 2009 which reached almost 100% of GDP, and with lower rates of growth. However, corporate debt will keep on rising – as it did during the 2009 crisis – as a necessary consequence of the pandemic and increasing risk exposure of many companies.
Leveraged loan market and CLOs
About $1.4 trillion of that market (also at historical highs) is comprised of leveraged loans, which include all loans securitized in something c…

Monetary and fiscal bubbles after COVID

In the previous blog I analyzed the stunning divergence between the markets and the real economy. I emphasized three particular reasons for why this is happening: (1) huge monetary and fiscal stimuli that started the V-shaped rebound on the markets in March; (2) exuberant (and by all means irrational) expectations driven primarily by the so-called retail investors (the subject of one of my next blogs), and (3) the asymmetry between firms driving the market (the top 5 big tech firms) vs the unlisted SMEs laying people off and declaring bankruptcies. In this blog I will touch upon the potential instabilities of the first effect: the monetary and fiscal stimuli. While the stimuli were designed to calm the market panic back in March, its continuation - particularly from the Fed - is creating massive instabilities elsewhere. Specifically, there is ample evidence of a growing monetary bubble, unavoidable fiscal instabilities due to rising debts and deficits, and even a potential corporate d…

Riding on a high: why is the market hitting records in a recession?

The US National Bureau of Economic Research (NBER), the official tracker of the US business cycle, declared that the recession in the country started in February 2020. According to NBER February was the peak of the business cycle as jobs already started disappearing (even though the huge COVID-driven unemployment claim spikes didn’t happen until mid-March). Over the next month and a half over 42 million Americans found themselves out of work. The official unemployment rate shot up to 14.7% in April (it was 3.5% in February), and has declined back to 10.2% in July, as a more encouraging sign of a recovery driven by business re-openings.
Due to the effects of COVID-19 the uncertainty in the economy is still huge, and is still the biggest it has ever been according to the Economic Policy Uncertainty Index. Almost every graph we see during the pandemic has a label “unprecedented” attached to it; we are usually looking at a very steep exponential curve facing up (for unemployment, uncertain…

Welcome to The Political Economist

It's been almost three years since I last wrote anything on my once very active blog. I stopped producing regular content by mid 2014, dropped down to 2 posts per month in 2015 (down from over 10 posts p/m in the years before that) and even though I picked it up again in 2016 with my series of book reviews, by 2017 the blog was basically dead. 
Reasons? I have two kids now, I've finished a PhD at Oxford, and I'm running a company that I co-founded. So yeah, bit busy. I've still been writing. In fact, now more than ever (papers are getting published, the PhD is finished, working on a book project, business stuff, etc.), but I never really motivated myself enough to go back to the blog.
Until now, that is. Time has come to revive it! 
Motivation? The crisis, of course. The COVID-induced economic downturn. 
The "Don't Worry" blog started after the previous crisis. I was very invested in tracking the consequences of the 2008/09 financial crisis as well as the E…