Page 25 - July-August 2018 GSE Report Flip Book

MONETARY POLICY
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• Will the growth of global corporate bond markets continue after the credit cycle turns and interest rates rise? While there are risks, there
is also significant headroom for further growth. Banks that have focused on lending to large corporates may need to shift their focus, finding new customers in small and medium-sized companies and individuals. They will need to improve their underwriting and credit scoring capabilities, and increase cost efficiency. Investors have had
a growing asset class to tap in recent years, but they need to carry out careful due diligence, particularly as the bull market ebbs; some will benefit from the potential rise in distressed debt sales. Policy makers and regulators should welcome the development of this market even
as they encourage a shift toward electronic trading platforms, promote transparency in corporate financial reporting, and monitor potential systemic risks.(Rising Corporate Debt—Peril or Promise?, Susan Lund, Jonathan Woetzel, Eckart Windhagen, Richard Dobbs and Diana Goldshtein, June 2018)
“I think the mother of all Minsky moments is building,” wrote analyst John Mauldin. “It will not be
an instant sand pile collapse, but instead take years because we have $500 trillion of debt to work through. Remember, that debt just can’t be pooped away. It is both money somebody owes and an asset on somebody else’s balance sheet. If you are retired, your pension and healthcare benefits are part of your net worth. They are assets on your balance sheet that you count on to cover future spending. We can’t just take that away without huge consequences to culture and society. But the fingers of instability, the total credit system, are seemingly growing with more red sand dots every month. All are inextricably linked. One day, another Thailand or Russia or something else (it makes no difference which) will start the cascade.” (Thoughts from the Front Line, John Mauldin, 09/01/18)
Venezuela implodes and neighboring countries suffer
Cumberland Advisors’ Bill Witherell wrote:
[The third week of August] Venezuela devalued its currency, the bolivar, by 95%, cutting five zeros off the exchange rate. This measure was a desperate response to hyperinflation that reached an astonishing rate of 83,000% YoY in July, with prices doubling every 26 days. The IMF has projected the rate could reach one million percent this year. Cash
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