President Trump: The NEW one and only politics thread

I don't think there was any coincidence that Trump had been talking and tweeting about oil prices for months, calling out the Saudis in particular. ... the journalist was killed. ... and exactly 2 days later oil prices started one of the most precipitous plummets we have ever seen. I have no proof. But it just seems way too coincidental.

I won't get too into it, but Trump is clueless, too. We have been in a massive credit bubble. At the corporate level, trillions upon trillions of dollars of debt and leverage that was brought about not because of Trump, but because of the Federal Reserve over the last decade. They have gingerly been trying to extricate themselves from it. It has caused a few ripples in the credit markets (see General Electric's debt and short-term funding adventures over the last few weeks) recently, but not the outright credit crisis that is going to be the end result. Among other things, there is a half trillion dollars of debt in the US shale oil industry. They can't afford, 1) the rising rates we are seeing, and 2) oil at low prices. There are going to be massive defaults unless the price of oil remains high and allows them to stay on that treadmill. I am certain Trump doesn't understand this dynamic. In any case, with credit spreads starting to blow out recently -- high yield and investment grade corporate -- it hasn't outright popped all of the asset bubbles that have been blown over the last 5 to 10 years. But there has been a general risk off sentiment, which is what has been going on with the sharp decline in US equities, among other things. See what is happening as the bitcoin bubble deflated a bit more. There is a general skittishness out there. It is mostly due to worries about overleverage -- trillions of dollars that were conjured out of thin air and that blew up asset prices. But Trump hasn't helped with the irrational trade nonsense. Nor did tax cuts and increased spending, which has had the treasury trying to sell even more debt at a time that the Federal Reserve is trying to get out from under a $4.5 trillion balance sheet it built. Between us selling more debt and them letting small amounts of maturing bonds roll off their balance sheet, and with them gingerly trying to raise the overnight rate in little 25 basis point increments, which creates stress when you are coming from rates that were negative in real terms. ... and it is creating skittishness in the credit markets, which got used to liquidity being injected, not taken out. The plummeting price of oil has only added to that skittishness because of how overleveraged that industry is in the US. If the Saudis are dumping oil on the market to bring prices down to appease Trump (just an educated guess on my part) because they killed that journalist, he is perhaps unwittingly lighting another match that is going to bring on the deleveraging (and pain) that is inevitably coming. And he has no clue. But he's a guy who walked into the biggest risk asset bubble in history and tied his fortunes to it, by talking endlessly, and tweeting a lot, about stock prices as if it was some barometer of him, and not a product of a decade of ridiculous liquidity being added to the credit markets to create a ton of margin and leverage.

 

One addition to that last post. ... I speculated in that post, and I get that it is more theory than anything I can know for sure. ... but if the Saudis are dumping oil right now in a Quid-Pro-Look-The-Other-Way-on-the-Journalist-We-Dismembered because Trump is a moron. ... it's a win-win for the Saudis. Yes, it hurts them in the short term. But they can afford to play the long game, too. In the long-term, I am certain they would love to bankrupt the US shale industry, which they know can't produce oil and service their debt unless oil stays above a certain level. And even then, they are going to drown in their debt eventually. Under a normal US presidency, they never could have gotten away with dumping oil to try to bring that about quickly. We have too much leverage -- we protect the royal family and keep that country from becoming an Iranian province. But here. ... We have the biggest moron president ever, basically begging / cajoling them to do the thing that actually benefits them. If that is the dynamic behind the scenes (and I really wouldn't be surprised), they are laughing their asses off. It's not funny, though, for real, because even though there is a serious credit crisis on the horizon either way (at this point, the globe is way overleveraged on artificially cheap credit and that mispriced things throughout the world, gave rise to zombie companies, governments way overspending, etc.), it is going to have serious global consequences when something somewhere gives. It's sad that we have a president who is so unsophisticated, that he could potentially be lighting matches for it without any clue, rather than letting an external event be the cause.

 

Not sure I can answer that. Dunno you, what it was for and what the banks were. ... but generally, credit conditions have started to tighten. For example, the average 30 year fixed rate mortgage is coming in just over 5 percent. That is the average. There are people with lower credit scores who still somehow manage to get loans paying more than that. I don't know what the threshold is, but at a certain level, those loans totally dry up. At some level, people with adjustable rate loans are going to find it hard to service their loans. Not necessarily talking about mortgages, because the next crisis won't the same as 2007. But in particular, there is trillions of dollars of shaky corporate debt out there. And largely, that money was borrowed -- essentially for free, no cost because interest rates were being kept at zero in real terms -- and companies have done massive stock buybacks with it to drive up the price of their stocks. In the case of bank lending, though, yes, loan applications have been drying up, and as that happens at the end of a credit bubble / cycle, it's not uncommon for banks to start reaching to try to get more borrowers. But I can't say that is what is behind what you are experiencing.

I saw an interview this morning with Jim Grant from yesterday, who I have posted videos of in the past. He was talking about the central bank and all of the mispriced credit. ... but he was talking about it on the corporate debt side of things. If you are interested, here is a link. It has the video in it:

Market research guru Jim Grant predicts the Fed 'will definitely blink' on interest rates

For what it is worth, he seems to think the Federal Reserve is going to try to step back and keep their credit bubble inflated, but it is going to be impossible for them, because with more and more debt (and where we are at now after they reinflated things after 2008), the efficiency of that debt reduces. I guess he'd argue that outright asset buying to the tune of trillions of dollars (what central banks did) was very extreme. And now that we are sitting with insane levels of debt as a result, to keep playing that game would require something even more extreme on their part.