Cannabis
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Crash Course on Crash Courses
Lumber Part 1
Lumber Part 2
Crypto vs Fiat 2018
Hank Paulson Lies
Credit Spreads
Mish Comments
- I confess. This idea was not mine. Rather I picked the idea up from Lindzon Lindzon@howardlindzon.
- I believe Bilello’s Tweet on credit spreads is the key. As long as junk companies can get cheap junk financing, it is highly unlikely there will be the crash that many have called for.
- I am positive the market is insanely overvalued, but that does not imply a “crash” as we saw from 2007-2009. Nor have I called for a crash. I define a crash as a 30% or greater decline in a year.
- My favored scenario, and the most painful one, is not a crash but rather a slow bleed over 5-10 years that takes the S&P 500 50%-65% lower.
- When does it start? Sorry, I don’t know. My crystal ball refuses to say. All my crystal ball is willing to say is that credit spreads will looking nothing like they do today at the end of it all.
Thanks to Charlie Bilello and Lindzon Lindzon
Mike “Mish” Shedock
I might add a couple observations:
If interest rates rise enough, one would surely imagine a Minsky Moment can’t be far off. But for now, low spreads to junk are a sign the Punch Bowl was spiked again. Keep dancing, the music is playing.
How much debt is too much? It’s not the payments that are the problem, it’s the vulnerability of the entire edifice to a collapse in underlying capital value of the debt itself. We err by thinking of $250-$500 trillion in debt like it’s some sort of car loan we can just wait out, paying the vig monthly. On the contrary, the looming disaster is capital value collapse when this long period of collective insanity WRT debt finally ends.
The cause of excess debt is low spreads and low rates, both functions of pathological trust and optimism. Unfortunately, debt is sticky, each dollar of it is someone’s asset/expected future cash flow. People build their expectations (and their lives) around those, the same as manufacturers build plants and equipment to serve demand. If that demand is fake/false/temporary, but the plant consumes capital that cannot be repurposed, capital consumption (destruction) ensues.
Any cryotos out there backed by weed?
/s
Any NOT backed by sales of at least some form of dope??
Shanghai is down close to 20% YTD. They may see a crash of 30% or more before the year is done.
I can see a crash in the US. A sudden drop leads to margin calls which leads to a bigger drop, etc… . I would think the FED would step in and buy every future, but it may be too much and too fast for them.
“B/t taxes & regulation, there will be little left for “investors”… the states will make sure of it.”
Likely be true in lots of areas of the World/US, and for more than just cannabis, as some turn more socialist.
Early public cannabis plays like Tilray are going to get killed after this initial hype run-up… industry winners will be private, not public. And margins will NEVER support these valuations – never. B/t taxes & regulation, there will be little left for “investors”… the states will make sure of it.