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 someth

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 corpora

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, unce

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