There’s been a steady stream of recent articles claiming that austerity is dead. This one from James McCormack at Fitch argues that populist politicians are responsible for killing off pragmatic economic policy. Whilst I don’t deny the medium term tide is against austerity, the very high levels of sovereign debt... Show More
It's worth reflecting upon the staggering level of international debt. Financial crises are invariably caused by debt. The Bank of International Settlement (BIS) has recently warned that a new financial crisis is looming. Part of this is simply its job and it's routinely warning against this. But it does have... Show More
Last month I wrote about how we are ten years on from the beginning of the credit crisis, but are seeing many of the same signs of hubris that were present then. There’s no reason to believe that this time is different, highly priced assets and easy credit are likely... Show More
Another month of small gains in equities and credit, whilst commodities continued to fall back. Equities were up in Japan (2.4%), China (1.5%) and the US (1.2%) with Europe pretty much flat (-0.1%). Australian equities (-3.4%) were the standout loser. High yield and investment grade credit in the US and... Show More
While the profit and loss statement is doubtless very important for investors, the balance sheet should not be underestimated; it may even be more important. Below we run through the top points to consider when coming face-to-face with a balance sheet. Show More
It is widely acknowledged that the outlook for economies and markets is unusually uncertain, given the huge political changes that we are witnessing globally. It is also widely acknowledged that most assets are expensive and priced to offer sub-normal prospective returns. Why then is volatility (the VIX) so low? History... Show More
We recently attended the well supported Capital Economics (CE) Conference on The Outlook for Global Growth. In total there were more than 90 slides and charts presented. At the risk of over-simplification, 6 key points stood out to us: Show More
In The Australian Financial Review I relay chats with billionaire Howard Marks and former US secretary of state Henry Kissinger that can help shape the way we think about investing; highlight that Aussie inflation expectations have surged to 4%-5%, which is way above the RBA's 2%-3% target and the highest... Show More
The fundamentals of gold remain strong; inflation should outpace interest rates and global debt remains high. I think gold will find a floor at some stage, and when it begins to move up again it could be quite aggressive. Key catalysts will be ‘the three I’s: Inflation, interest rates, and... Show More
These days, it’s not easy for investors to feel relaxed and comfortable. Pouring more fuel on investor anxieties is a report by the Bank of International Settlement that shows global debt spiralling out of control. Show More
Higher wages are making China a less attractive hub for manufacturing exporters and foreign companies are pulling production from China or relocating planned plants elsewhere. Foxconn from Taiwan, for instance, which has long made iPhone components in China, plans to build 12 factories in India that will employ one million... Show More
Satyajit Das, author of “A Banquet of Consequences,” sees a crisis brewing in financial markets. "There's a lot of kindling, and people are walking around flicking lighters." Das says there are three basic ingredients required to cook up a crisis. 1) Overvaluation. "You can take PE ratios, you can look... Show More
Equities and credit delivered gains in May, commodities were mixed. Japan, France and Germany posted good GDP numbers, forward looking data for the US is weak. US equities are looking overvalued and a range of prominent investors have come out as selling down or going short. High yield credit is... Show More
When I started Narrow Road Capital in 2012 many people would question why an Australian credit manager was so negative about lending to commodity linked companies. Australia has a plethora of miners so why wouldn’t I want to lend to at least some of those? The journey that Fortescue has... Show More
We believe are in early stages of a credit event where increasing Corporate defaults translate into higher unemployment, weaker consumption and dampened business sentiment. For the past 15+ years, a number of emerging market and commodity-driven countries have been rewarded by the secular upturn in resource prices. Foreign capital soon... Show More
The biggest risk for the global economy is that debt levels are elevated. Rather than deleveraging after the financial crisis debt levels have continued to grow, particularly government debt. In 2009, governments bailed out banks, corporates and consumers with a range of capital injections, guarantees and stimulus measures. The risk... Show More
In its most recent credit update for Transurban - following the announcement of the acquisition of AirportLink M7 - Moody’s highlighted that the company’s ratio of funds from operations to debt was expected to remain the mid-6% range compared with the rating tolerance level of 6% and drew attention to... Show More
When the tide goes out all boats are effected. Unfortunately for Aussie corporates with offshore debt, 2016 is shaping as a challenging year in global debt markets. Investment Grade credit spreads (a measure of corporate debt quality) have been widening/cheapening since mid 2014, however, the high yield and leveraged loan... Show More
Slater & Gordon's stock price has now fallen by over 75% this week on "speculation" that the UK government would change some key thresholds. UBS, Macquarie and Credit Suisse slashed their respective price targets and Deutsche's $1.65 was the most optimistic in the market, post the revisions. They key issue... Show More
The chart below from the latest RBA Chart Pack shows (on the left hand side) the level of debt held by Australian households as a percentage of disposable income. As you can see, debt levels have been on something of a bender for the last few decades. Associated with this,... Show More
