Juggling Dynamite

The second episode of the six-part Netflix docu-series ‘Dirty Money’ is on payday loans and should be seen.

Payday loans have grown into a booming predatory business over the past decade.  The cost of borrowing exacted through transaction and ‘administrative’ fees effectively circumvent criminal interest rate prohibitions and are helping to keep poor people poor.  Greater protections from predatory financial products and services are much needed and are a vital part of the financial and social strengthening phase ahead.

Here is a direct link to the trailer for the series.

Danielle was a guest with Kerry Lutz on The Financial Survival Network, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.  Here is a direct audio link.

As shown here, corporate debt as a percentage of GDP has reached historic cycle extremes once more, similar to levels that preceded the last 3 recessions (olive bars).  As energy prices and interest rates have risen the past 2 years, free cash flow is naturally eroding.

Meanwhile covenant-light bonds–those lacking in usual capital protections for investors– have been more than 80% of those issued over the past 5 years. As defaults rise, losses are coming to yield-desperate buyers who have been acting like suicidal speculators.

It’s not just ‘junk’ debt but also investment grade corporate bonds that are vulnerable.  As shown in this chart of the investment grade corporate bond index (LQD) since 2003, high leverage and depleted cash levels cause all types of corporate bonds to be sold along with equities at the end of each credit cycle.   Attractive investment opportunity comes for those who buy near cycle bottoms when income yields will be 2 and 3 x present levels, with a fraction of the capital risk (because valuation multiples are much lower). Not there today, but we can see good things coming to those who wait.