- Original Poster
- #1
The Global Financial Crisis (GFC) of 2008 was caused at its roots by the irresponsible issuing of dozens of bundled debt called Collateralised Debt Obligations (CDOs), usually about $1bn each and sold as shares at about $10k each. At the base of these CDOs were all kinds of dodgy debts, such as US medical debt and consumer debt, and the infamous subprime mortgages. In 2007, sales of shares in CDOs slowed down dramatically and - well - the rest is, as they say, history!
Now we have a new beast out there called Collateralised Loan Obligations - or CLOs. A CLO is the mirror image of a CDO. It is bundles of funds to cover loans that are actively looking for debts that they can cover. These are backed by private equity that has borrowed the money from banks and lent to companies seeking to cover their lending to customers and for other corporate obligations. Anything from a sale-and-lease-back for a supermarket building, to a "Buy now, pay later!" scheme for some kitchie furniture can be covered by a CLO.
Three months ago, Jamie Dimon, CEO of JPMorgan, the world's largest bank, said that these schemes are safe as they are "covered 100 cents on the Dollar!" Now he is warning us that investors in CLOs cannot pull their money out of a CLO as they are no longer safe. Similar warnings were issued by Morgan Stanley, Deutsche Bank, and many smaller operations. Because people are no longer able to pay their debts, CLOs are no longer safe and, for those who invested in them, their money is gone!
The above is the price of oil in dollars and in gold since the dollar came off the gold standard in 1971. The chart above shows that, priced in gold, oil is only at 26% of its long-term value, suggesting that in real terms it should rise by 300% to return to pre-Bretton Woods prices in real terms, last seen as recently as 2014. Dollar debasement will only add to this.
It is against this background that we must consider the consequences of the effective closure of the Straits of Hormuz. At the current gold/dollar exchange rate, that would be an oil price of about $400.
This is not so much a forecast, more an indication of what has been unleashed by the Trump administration attacking Iran. It will probably go down in history as the most reckless and foolhardy measure by a reckless and foolhardy administration.
CLOs are just one of many potential debt-based black swans swimming downstream towards us. Others include the $40 trillion in federal debt, over $100 trillion in unfunded federal liabilities, and about $7 trillion in state and local debts. Interest just on the federal debt alone comes to about $1.2 trillion p.a. and rising.
The seeds of this Roach Motel of debt were sown in 2008, when record sums of fresh dollars, pounds, and euros were created to rescue the banks after they discovered they had fallen for their own Ponzi scheme. So, unable to pump the CDO market, they have invented a new Ponzi scheme, the mirror image of the CDO, the CLO.
Two major wars in Europe's doorstep tell me that this is not going to end well. But now, by bombing Iran, Trump has lost control of the situation completely.
Now we have a new beast out there called Collateralised Loan Obligations - or CLOs. A CLO is the mirror image of a CDO. It is bundles of funds to cover loans that are actively looking for debts that they can cover. These are backed by private equity that has borrowed the money from banks and lent to companies seeking to cover their lending to customers and for other corporate obligations. Anything from a sale-and-lease-back for a supermarket building, to a "Buy now, pay later!" scheme for some kitchie furniture can be covered by a CLO.
Three months ago, Jamie Dimon, CEO of JPMorgan, the world's largest bank, said that these schemes are safe as they are "covered 100 cents on the Dollar!" Now he is warning us that investors in CLOs cannot pull their money out of a CLO as they are no longer safe. Similar warnings were issued by Morgan Stanley, Deutsche Bank, and many smaller operations. Because people are no longer able to pay their debts, CLOs are no longer safe and, for those who invested in them, their money is gone!
The above is the price of oil in dollars and in gold since the dollar came off the gold standard in 1971. The chart above shows that, priced in gold, oil is only at 26% of its long-term value, suggesting that in real terms it should rise by 300% to return to pre-Bretton Woods prices in real terms, last seen as recently as 2014. Dollar debasement will only add to this.
It is against this background that we must consider the consequences of the effective closure of the Straits of Hormuz. At the current gold/dollar exchange rate, that would be an oil price of about $400.
This is not so much a forecast, more an indication of what has been unleashed by the Trump administration attacking Iran. It will probably go down in history as the most reckless and foolhardy measure by a reckless and foolhardy administration.
CLOs are just one of many potential debt-based black swans swimming downstream towards us. Others include the $40 trillion in federal debt, over $100 trillion in unfunded federal liabilities, and about $7 trillion in state and local debts. Interest just on the federal debt alone comes to about $1.2 trillion p.a. and rising.
The seeds of this Roach Motel of debt were sown in 2008, when record sums of fresh dollars, pounds, and euros were created to rescue the banks after they discovered they had fallen for their own Ponzi scheme. So, unable to pump the CDO market, they have invented a new Ponzi scheme, the mirror image of the CDO, the CLO.
Two major wars in Europe's doorstep tell me that this is not going to end well. But now, by bombing Iran, Trump has lost control of the situation completely.
