Wednesday, September 30, 2020

Reaching The Minsky Moment In Trump Casino

Today's CEOs are as dumb as Trump when it comes to running their businesses into the ground. Corporate debt is the new subprime, aided and abetted by the belief that the longest cycle in U.S. history will go on forever.

Because who wouldn't believe that?

First, on the topic of who won last night's first presidential debate, the answer is no one. Watching a deranged orangutan pummel a senile geezer for ninety minutes straight was impossible to watch. Since Trump got elected, the human race has been the definitive loser. Republicans never know when it's over. Always doubling down on greater rage and venality while pretending to be great again. My question is who comes after Trump? Charles Manson?

Back to the topic at hand: This circus is running on borrowed time and money, because today's CEOs can't seem to accept the fact that the cycle is over. For once, the household sector got the memo ahead of the corporate sector. Households are deleveraging at a frantic pace, as indicated by the record savings rate.

Below is the savings rate going back six decades. As of July, it's still higher than at any time in modern history:

In contrast to households, corporations have been massively loading up on debt. Why? Because they are addicted to stock buybacks to facilitate insider cash outs.

This situation has turned most major U.S. companies into call options on the end of the cycle. Which, they all conveniently deny is NOW. 

"Since the 2008 global financial crisis, American corporations have taken advantage of historically low interest rates to gorge themselves on debt. Then came the pandemic and the sharpest economic downturn in history, which resulted in an odd solution for the companies that did all that borrowing: more debt"

“During a standard recession, and that would include the global financial crisis as well, you would expect to see corporate debt as a percentage of G.D.P. begin to come down”

Investors have been so emboldened by the Fed’s actions that even companies viewed as especially risky are having no problem borrowing heavily"

One of these cycles is not like the others:

Which gets us back to the non-existent stimulus package. At this late hour, it appears that the various sides are still far apart in their negotiating positions. This is the last week before the election recess to hammer out a deal. No matter what they agree upon, it's already too late, because it won't arrive in time to make a difference for the election, and the magnitude will be inadequate in any case. Only the House Democrats seem to comprehend what is needed at this juncture. The GOP has made a colossal and potential fatal mistake in NOT grabbing as much stimulus as possible in front of the election. They are standing firm on their principle of only handing out money to rich people. As usual, throwing the middle class under the bus.

In summary, this circus is running on MAGA glue fumes.

The stock market now mirrors the U.S. economy - ludicrous inequality between the wealthy and everyone else. Amid rampant denial. 

By my reckoning, all hell is about to break loose. 

And time is running out.