Crisis Progress Report (14): Global Margin Call

Posted by straightlinelogic 9 years ago to Economics
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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.

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SOURCE URL: http://straightlinelogic.com/2015/12/13/crisis-progress-report-14-global-margin-call/


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  • Posted by $ MichaelAarethun 9 years ago
    Ripple effect this time preceding the next or impending inflation devaluation cycle? Or is this connected to the 2008 crash?
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    • Posted by 9 years ago
      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.
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  • Posted by $ jbrenner 9 years ago
    I 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.
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  • Posted by $ jbrenner 9 years ago
    My financial advisor just correctly recommended moving money out of bonds of some of the more economically challenged companies last week into cash.
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    • Posted by $ MichaelAarethun 9 years ago
      does economically challenged mean going broke? The government would call it a depression.
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      • Posted by $ jbrenner 9 years ago
        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.
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        • Posted by $ MichaelAarethun 9 years ago
          no big deal law of supply and demand says, quit pumping and conserve assets to a later time. Governmet solution is tariff or tax the crap out of the source with the lowest prices. Common sense says buy about ten 55 gallon drums or 15 42 gallon barrels when prices are down and take advantage of the best deals. Better yet let the neighbors think it's a fallout shelter and bury a couple of tanks off an 18 wheeler.
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