Companies ‘drowning in debt’ despite almost $2 trillion in cash

 

While I view almost all of the economics writers out there as clueless, I will continue to praise and highlight those that are doing a good job. This gentleman at CNBC, Jeff Cox, wrote an excellent article (click here to read) debunking the myth going around that corporations have deleveraged tremendously and they have a huge cash safety net. Therefore, analysts claim, that companies will be able to withstand severe economic conditions. That’s completely false. Do any of these analysts understand that with all of this debt issuance, the only reason that balance sheets appear to be solid is because of record low interest rates. Do they not understand that fairly soon, rates will begin rising. And what happens when these record low rates will have to be refinanced over the next decade at ever increasing rates, into a horrific economic environment.

There are scores of industries, both globally and domestically, that are only surviving thanks to the low rates. One of those is shale drilling, which would have never become so widespread with anything close to “normal” interest rates. And these concerns are why I’m so bearish on ALL the industries that for the past seven decades have relied upon more and more and bigger and bigger debt issuance. This would include all consumer goods, real estate, all sectors of finance, futures and derivatives markets, universities, autos, etc. Cash only markets will continue to overtake the previous debt fueled activities, such as we are now seeing in real estate or even the gold market.

The upcoming global default cycle will rival anything in history. And that’s just corporations. When we add in the colossal orgy in the global government bond market, it’s going to be a supernova explosion. The private sector will work itself out and there will be great opportunities there eventually. But it’s the govt. bond market that should terrify all of us. I have stated several times that I currently have a big long position in US Govt. bonds, but I bought these bonds 15 years ago when rates were much, much higher than currently. Anyone buying these bonds now for anything but a shorter term trade is insane. My seeming contradiction can be explained this way: it took me a long time to understand that I must not allow my very long term views of markets to bias my views of the shorter term technical conditions of a market. So long term, I might be wildly bearish, but short term I might be very bullish. This mental gymnastics causes most people to have to deal with plenty of losing investment positions, at least for a while. And let me add, when I say that I would not buy something that does not mean that I would sell, although it could.

And back to governments, not only are they not using these low rates to get things in order, they’re doubling, tripling, quadrupling, and more in the other direction. They’re like kids in a candy store with all of the “free” money around. Wow, what a mess.

So what are my market views currently:

Bonds, long term you know. Shorter term, if 10 year yields, get back above 1.9%, I would likely buy them for a short term trade, possibly for a (probably unsuccessful) attempt at getting yields
down to 1%.

US$, a bit bearish short term, but I still have a big position in the US$, and I would buy the next bout of weakness, possibly into all of the hysteria of a Commander in Chief Trump.

Agriculture, very bullish long term, and using weakness to buy RJA into support. Crude oil, no position. Would buy only into a retest of the lows, if it were to trade below $30.

PMs, along with Bonds, my biggest position. I would not currently buy PMs, but I will say that a lot of people continue to call me an idiot (which is fine, truth hurts) since first espousing my bullishness on PMs, especially the miners, back on Dec. 9, 2015. We’ll see who’s right about that, but for those who are bullish I highly recommend that you get yourself a chart of the 1976 – 1980 bull market.
Gold went from $105 in August, 1976 to $875 in January, 1980. I do have a chart and I eventually will post and discuss its’ significance, but it will sink in more if you make the effort yourself.
As for gold, I will eventually lay out a more detailed road map of how I believe things will unfold, but I expect that the retesting process of the all time high will occur within the next 17 months.
That all time high was on 9/6/2011 and the price was $1923. And I highly suggest that you ignore all of the experts who are going to tell you that if gold goes below a certain price of XXXX Dollars,
then it’s bearish and it’s time to freak out. Instead use the price weakness and the market participant’s resultant bearish views to step up and buy.

As for the stock market. I have a small TRADING position short the NASDAQ QQQ, which continues to be a losing position for me. I am quite astounded at the level of complacency in the stock market – specifically in technology stocks, energy stocks, and the junk bond sector. So while I am getting more and more concerned about the stock market, especially into late this year and then again next Spring, I am extremely bullish long term. The March 6, 2009 lows in stocks was a massive, generational low, which will very likely never be seen again. However currently I absolutely would not buy stocks as an INVESTMENT. I say as an investment, because a good trader can always make money.

And I have previously explained how I only do active short selling, not passive short selling. Staying passively short is what most folks do and they invariably will end up with very poor results over time doing it that way. Individual trades may work out well, but those results rarely repeat. But, the main focus for most of you should be keeping plenty of dry powder for a much, much lower RISK buying opportunity.



Missing Podcast?

If you see an error with an archived podcast or know that an episode of our show is missing, please press the button below to send us a message so we can look into it.

Enter your name and email if you want to be notified when this podcast is fixed:

'Trader Scott – Companies ‘drowning in debt’ despite almost $2 trillion in cash – July 29, 2016' have 5 comments

  1. July 31, 2016 @ 12:45 pm Peter

    Could you please explain the difference you mean by active vs passive short selling?

    Thanks
    Peter

    Reply

  2. August 2, 2016 @ 2:49 pm Catherine Lee

    Hey Scott – two quick things. First … As I understand it, interest rates will not rise unless conditions improve – that is, when the economy (and companies) can tolerate it. Second … shale gas only has to compete with other energy commodities that are operating under the same economic conditions – as such, is it reasonable to assume that shale wouldn’t continue to succeed under higher interest rates?

    Reply

    • August 4, 2016 @ 1:43 pm scott

      I’m not sure why you believe that rates can’t rise unless economic conditions improve. I have stated several times that I believe rates will rise as the confidence in govt. debt falls . Meaning default risks rise, just as in the private sector. It’s happened throughout history in every country including mine (USA).
      I am still quite bearish on the shale gas companies themselves. And while I’m not super bearish on crude, I’m not that bullish currently either. I’m beginning to get bullish on nat gas tho.

      Reply


Would you like to share your thoughts?

Your email address will not be published.

©Copyright One Radio Network 2014 • All rights reserved. Site built by RedLotus AustinThe information on this website and talk shows is solely for informational and entertainment purposes. IT IS NOT INTENDED TO PROVIDE MEDICAL ADVICE. Neither the Editors, producers of One Radio Network, Patrick Timpone, their guests or web masters take responsibility for any possible consequences from any treatment, procedure, exercise, dietary modification, action or application of medication which results from reading or following the information contained on this website in written or audio form, live or podcasts. The publication of this information does not constitute the practice of medicine, and this information does not replace the advice of your physician or other health care provider. Before undertaking any course of treatment, the reader must seek the advice of their physician or other health care provider and take total responsibility for his or her actions at all times. Patrick Joseph of the family of Timpone, a man...All rights reserved, without recourse.