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usually when I make YouTube videos one of the things I love is having the perspective of bear pieces so that I can evaluate what do I think is going on in the world around me how do people feel about the economy how do consumers act how are consumer spending what's going on with uh businesses incomes and expenditures everywhere around me and I like to take that information and then compare it to what I see in earnings reports at companies then I like to read bullish reports and I like to read bearish reports basically I try to read everything that I can about what's going on in the economy as of about the last I don't know maybe two weeks here ever since TS Lombard flipped there's been a really big change and it's a big flip-flop that I'd like to talk about because I find it quite interesting uh potentially also important but remember TS Lombard's flip-flop first of all in case you don't remember TS Lombard the way you have to look at them is as a bear they've pretty much consistently written bear pieces for the last two years and what's remarkable is just about a month ago they flipped and how did they flip well you might remember they wrote a bear piece and said we're bearish but we're going to go neutral on stocks in other words we're going to increase our allocation to stocks because stocks might go up in other words TS law enforce like we don't think the FED could stick a soft landing and we're really big bears we think inflation is going to continue there'll be a second wave of inflation Commodities are going to Boom rates are going to stay higher for longer we're all screwed basically but we're flipping because stocks might actually go up now after that moment I've noticed it's been extremely difficult anywhere to find really bearish information from people mostly because it feels like every day somebody else is flipping and now this on one hand sounds really great because it means if everybody's flipping from being a bear to actually being positive about the market that eventually we should start seeing even substantially more allocation to the stock market uh and the rising stock market which I suppose if we look at the NASDAQ and just take a pause there and a breather for a moment oh wait that's exactly what's been happening it's the Nike Swoosh which is something we've been talking about for what a couple about a year and a half now and the reason it works is because not all bears capitulate at once they slowly roll off and then as they roll off they realize they are underweight equities and they allocate to various different stocks and companies and they become less bearish and as they become less bearish they don't immediately go from you know let's say 10 stocks to 100 stocks but they slowly rotate that dial to allocate it rather than under allocated and that's actually what we've seen in not just the NASDAQ Rising but also I mean you could see nvidia's meteoric Rise here Beyond nvidia's meteoric rise we could look at the djx as well uh Dow Jones Industrial index that's been a little bit more stuck but as of what recently it's also starting to rise uh let's look at the Spy all right same thing so every index we look at even the Dow which has been a little bit slow picked up yesterday where the NASDAQ took a little breather and so even though uh we're going to take a little piece look at a bit of a bear uh or um uh piece here on debt uh billions and corporate debt coming to you even though we're going to look at what is maybe a big take on a bearish piece I wanted to start this video out by arguing it's getting increasingly uh difficult to find a contra argument to where the economy is going which seems to be a relatively soft Landing maybe if there was a recession a super minor recession with most employers seeking to retain their employees and essentially supporting spending through any kind of recession that we might face which could really be base effect based but that's a way of saying that like hey even if we're just like 0.1 percent slower of an economy than we were last year we're still technically in a recession which I always find very weird that you could have such a massive run-up and then the fact that we didn't know ready go substantially negative after that crazy spending we had during 2021 blows my mind but whatever so let's take a look at this here's a Bloomberg bear piece mind you it's it's so hard to find bear pieces these days and look you've got like a lightning bolt striking a building it's it's supposed to appear scary anyway it talks about this 500 billion Dollar corporate debtstorm building over the global economy and on a daily basis I'm seeing more and more talk about corporate debt now what I'd like to do is first mention that yesterday I was reading a front page story on the Wall Street Journal that was talking about one of the reasons the consumer has been so resilient is because they actually took advantage of consolidating their personal debt during the pandemic so they have less personal debt than they did going into the recovery after the pandemic which is one of the reasons potentially the consumers continue to spend so the consumer's been okay so if we can't talk bearishly about the consumer maybe we have to talk bearishly about corporate debt see corporate debt is an interesting one because if we look at corporate debt we think okay well this would be bad right I mean like a massive amount of corporate debt could end up destroying companies and leading to bankruptcy right maybe when you're going into a bearish market but not when you're looking at what carvana just pulled off consider for a moment what carvana just pulled off carvana was literally about six months ago defaulting on their debt that is step one to bankruptcy textbook bankruptcy you stop making payments can't afford to actually pay your debt holders that's where carvana was six months ago fast forward to today carvana Dave 80 of their bondholders a middle finger and said we are writing you off and we're not paying you any more suck it basically extinguished about 400 million dollars of corporate interest expense and now their Stock's gone from three dollars to 46 dollars like what is that I don't know 15x or something like that it's insane and they did that by being able to middle finger off the death holder so even stories where you have corporations that are like they're going bankrupt they're not even making their payments anymore somehow have been able to survive maybe it's all driven by Insane uh liquidity reserves that still exist either at companies or with consumers or maybe because the stock market is recovered it's able to prop up zombie companies or maybe carvana has truly turned around and maybe they're unique but it's fascinating nonetheless and so it's worth going into this Bloomberg big take and remembering that all of these super bearish things so far just haven't really come to fruition I mean a couple more things banking crisis it's basically a nothing burger and that was like scary when I was going on not only that but what about the liquidity crisis oh as expected the buffer of the fed repo facility is filling the treasury General's coffers again and now people are people are literally punching the air in real life like Kevin see this is the air punch what is going on did you see that our debt is already up another trillion dollars what is this man our country's been misbearing it's just supposed to crash and it's like all the Bears literally pissed off in real life too like how is this possible how can carvana survive how can the country uh continue to expand its debt like this and and all these crises that we're supposed to have end up not happening leads to very unhappy bears anyway Let's uh try to touch a little bit of a bear piece here let's just say you know there's still plenty of ways to build your wealth specifically with the zer and of course the stocks and site group all very popular bundle right now linked down below you can email us at staff meet kevin.com if you want some more insight into those or just go to meet kevin.com to check him out you can join me daily in the course member live streams we'll have some new lectures coming out as well soon so a 500 billion Dollar corporate debt storm builds over the global economy the concerns of a credit crisis have receded but a wave of corporate bankruptcies is building now that an era of easy money has come to an end yes yes I yeah of course it's they're all gonna go bankrupt okay you're going to see a lot of defaults it feels different from the prior cycle because other companies might not be able to withstand the debt burden they have and we'll either choose to default or restructure which could really hurt the economy should many of these occur at the same time well maybe maybe not see bankruptcies are actually a beautiful thing they take bad ideas and they delete them they take people who are working for inefficient companies and they say hey you're working for a company that's not that efficient would you mind going and finding another job see I made that all like 2023-ish it's really more like we're going bankrupt you're laid off and you're like gosh I lost my job if you can go find something else and you're like oh I got a better job oh this place is better anyway that's capitalism right that's the whole point you're supposed to see bad companies go bankrupt the fact that we actually haven't seen more bad companies go bankrupt via corporate bankruptcies or restructuring or whatever blows my mind anyway continuing uh so here's an individual who's talking about this 500 billion dollar storm of corporate debt distress that's already starting to make a landfall according to data compiled by Bloomberg the tally is all but certain to grow okay and that's deepening worries on Wall Street by threatening the slow economic growth and strain credit markets just emerging from the deepest losses in decades okay on the surface much of it looks like the usual churn of capitalism of companies undermined by forces like technological change or the rise of remote work and emptied Office Buildings see that's kind of what my impression was yet underneath the surface there's deeper more troubling info that loads have swelled during an era of usually unusually cheap money and now that's a heavier burden as central banks ratchet up interest rates I mean we've heard this one for quite a while but okay all right whatever total outstanding corporate bonds and Loans trading at distressed levels exceed 590 billion dollars okay so let's touch on that for a moment the The Innovation uh dare I said of the corporate bond is actually quite quite brilliant because think about a corporate bond for a moment you go to a corporation and you say Hey look this is you right here um uh let's draw like the oh dear lord okay uh that's our problem oh okay here we go all right this is you okay that's you and uh this right here is the uh paper mill okay so that's the factory you're going to give a thousand dollars to the factory and the company is going to give you an IOU and which is a promise to repay right so they're going to give you a promise to repay but they're also going to give you uh potentially some form of coupon book where you could redeem your you know quarterly uh Bond payment or whatever that's your your yield right when you paid a thousand bucks maybe you signed up to get a four percent yield so you're getting 40 bucks a year congratulations here's your coupon and maybe you could redeem that at 10 bucks a quarter okay great so what's happened now though is as we've gone into turbulent times these corporations are still responsible for paying this thousand dollars plus forty dollars but what freaks people out is that these Securities right here these bonds these ious are able to be traded on the public market so you go to like the New York Stock Exchange and you're able to say hey you know what look I have this thousand dollar Bond here and I need liquidity because I want to buy a boat and you bring it to the New York Stock Exchange and the New York Stock Exchange is like for that company bro I'll buy it from you for 700 and because it's a public market we see that as a fair price for what you paid you took a 30 haircut change it somebody else got it at a newly marked fair value and you walk away with a 30 discount but you still go buy your boat because you had enough anyway so now all of a sudden what does that mean when Bloomberg goes and writes a story well Bloomberg goes to write the story and it says oh hey we just saw corporate bonds fall 30 percent meanwhile you look over here and the company's like well that didn't affect us because that was traded on the secondary Market and the person you it's like well I don't care whatever man so I got a little bit less back but I still got my boat so in other words in my opinion when we're when we're looking at these these debt reports and we're looking at something like this right here outstanding corporate debt trading at distress levels who cares to some extent it doesn't really matter where it's trading it's just trading at distressed levels because the bond markets those things were going into a recession but there are plenty of people actually buying the dip on these bonds because they have this impression that well if we actually stick a soft Landing these will actually recover quite well when you go bring that thousand dollar coupon to the stock market for you know now you like if you took a coupon or or a bond for carvana that was originally a thousand bucks to the New York Stock Exchange in November maybe you'd get 10 bucks for it like they were written down like nothing now go bring it to the New York Stock Exchange you might get 800 bucks for it right like it's massively increased in value so there's a buy the dip opportunity in these bonds as well for companies that just don't end up going bankrupt somehow end up Surviving so really just measuring how much de-stress there is in like corporate bonds it doesn't really matter the people are taking advantage of the free market anyway I mean think about it like you could have literally said that last year the stock market went through a 40 level of de-stress as everything got written down 20 to 40 right it's the same thing it's just an instrument that's traded freely anyway the rising tide of de-stress is of course to a certain degree by Design caught by surprise as inflation has surged monetary policy makers have been aggressively draining cash inevitably this means some companies will fall the pockets of corporate credit look particularly vulnerable to the ballooning debt in the U.S the amount of high-yield bonds and leverage loans which are owned by risky or less credit worthy businesses has more than doubled from 2008 to 3 trillion dollars in 2021 before the Federal Reserve started its steepest hikes and over a generation a lot of those Securities will need to be repaid in the next few years contributing to a 785 billion dollar wall of debt that's coming due false a lot of the Securities don't have to be repaid but that's the thing like if the company goes bankrupt then the Securities don't get repaid and then people like I'll put them in the company's bankrupt so maybe it was supposed to go bankrupt but that means that money doesn't necessarily have to be repaid on the other hand some of those companies will just go middle finger baby we saw what carvana did we will do that too or you'll end up going to Courtney you get you know maybe a little bit more of a left-leaning judge who's like hmm even though you have secured bonds given that some of those against carvana were deemed unsecured we'll just assume y'all are willing to take a negotiated haircut and prevent the company from going into bankruptcy via chapter 7 liquidation and we'll just restructure the company negotiating even your secure debt down with a 50 haircut and then boom guess what you get a judge that's like 785 billion dollar wall of debt is now half of that it ain't that big of a deal anymore it's crazy and I like like every day I I feel myself sitting here going just it just can't be there's not enough bad news to talk about that that must be good but then on the other hand and what are we missing because or I look at bad news it's just not that bad or it ends up working out I know we got the Teamsters Union ups and you know somebody returned drama we still got the weed issue with Ukraine we've got China's economy massively slowing down people like oh don't worry they'll be war with Taiwan and China I don't see that happening at all unless they really want to destroy their economy and really solidify the fact that they're not going to be a manufacturing base in the future there's no way in hell China is going to go for that uh look they like to hold on to power but I don't want to give it either let's keep going with cooling growth in China and Europe the FED expected to continue raising rates those repayments may be too much for some businesses to bear in America alone the pile of troubled bonds and Loans has already surged over 360 percent since 2021.
if the spread continues it could lead to the first broad-based cycle of defaults since the great financial crisis bring it on man it's like an elastic band you could get away with a certain amount of tension but there will be a point where it snaps see these these make such good like clicky arguments uh in in these these news pieces it's like yes something's going to destroy and then I'll finally get my chance to buy cheap real estate and cheap stocks false and that's the pisser right I think there are a lot of people who are like Kevin I want to buy real estate I want to buy stocks but I'm looking at them go what the hell dude I thought socks worse must be a good deal like because we're like a recessionary time or whatever and I thought I was going to be able to get a chance to buy real estate cheat and I just can't get anything right that's that's what a lot of people are very frustrated about now I'm not worried for example for the real estate startup but I I have a very unique position in that in any Market we're in I know I could get phenomenal deals below market value so it's it's it's absolutely possible you could do it as well just have to know what to look for and how to handle it instruction Arbitrage anyway that's already starting to happen with 120 bankruptcies so far in the us alone this year how many have you really heard of anybody talking like crypto bankruptcies here like companies don't really matter or are these companies that have been going Vancouver were like yeah well we kind of saw that one coming and even the companies that are filing bankruptcy aren't necessarily going to go to liquidation either anyway even so less than 15 percent of the nearly 600 billion dollars of debt trading at distressed levels have actually defaulted bingo exactly look at that even though that debt is like they just shot themselves on the foot with the article at least they're being transparent here about that but it's kind of what I was saying earlier with like who cares if it's trading for a lower level that doesn't really mean anything and now we find out what only 15 of that distressed at is actually not being fulfilled so going back to this picture right here uh when you have this bond from this company in this IOU default is when they stop paying you your forty dollars every year but only 15 percent of companies in this situation have actually defaulted huh it's just not that bad okay great Moody's said the default rate for speculative great companies worldwide is expected to hit 5.1 percent next year up from 3.8 last year and under the pessimistic scenario oh okay it could go as high as 13.7 percent reaching uh exceeding the level reached during 2008-2009.
the other thing to consider is that you know this is sort of a flip side argument I'm not saying it's definitely not going to be a big deal I'm just saying so far it's a pretty weak argument and I get it yeah oh oh under the most pit under the most pessimistic scenario you're gonna tempt me by saying it's gonna be worse than 2008 and 2009.
well first of all that assumes that your pessimistic scenario is going to be correct and second of all is it though because think about it today we're in this really weird environment where the rich really get richer the big companies make the most money and so the speculative smaller companies matter less to the economy than the big companies do Apple today is way more of a Goliath than it was in 2008 when they were releasing the app store for the iPhone yeah who here remembers that when I had the iPhone 1 in 2007 didn't come with an app store there was no flashlight app you had to open your stupid camera go to video and Press light at least there was no light sensor to know if it was like bright or dark so you could turn the light on even in bright areas but anyway I mean Apple was way smaller 2008 it wasn't even an iPad I mean my children don't even know a world that didn't have an iPad Pro so uh you know it was a little we're in a little bit of a different environment the economy for one has remained surprisingly resilient in the face of high borrowing cost yes yield spreads in the US junk bond market a key measure of perceived risk have narrowed since March huh interesting in other words people are buying the dip on these junk bonds so understand that for a moment people are literally doing this they're going over here and going oh you're willing to sell that bomb for a 30 discount on that trash company while inflation is going down and it looks like we're trending towards a soft Landing yes I'll buy that dip and the more they're buying this dip the more these bonds actually recover it's crazy okay uh because remember the more you buy and this I know gets confusing so let me add this in the more people buy the junk the lower the yield goes on the junk and so if quality debt is trading for five percent let's say and junk debt is trading for ten percent that's a spread of 500 basis points right well if a bunch of people buy the junk and the yield on the junk goes down to eight percent and treasuries on the two years say five percent now you have a 300 basis point spread so that's yields compressing okay cool so the more defaults rise the more investors and Banks pull back on lending right well this is like the credit squeeze argument but so far we're not seeing that in fact we're seeing like the opposite more people are buying the dip on these bonds because they want a higher yield especially after carvana it has more than one point okay who's this all right here's a the Canary Wharf group who cares about the Canary Wharf group who cares literally who cares I mean listen to this that's Fallen particularly hard on the Canary Wharf two buildings owned by Chinese property developer Chang K Group or take it over by receivers after loan payments weren't made and June came more bad news HSBC said it's planning to leave by late 2026 who was an occupant of this Canary Wharf group the developer whose credit rating has been cut deep into junk as vacancy rates rise it has more than 1.4 billion dollars of debt coming due in 2024 in California 5.
who cares though okay so some Office Buildings are going bankrupt guess what the buildings don't call apps somebody takes a haircut on their debt the building still has equity in it to some extent I mean think about it if you have a hundred million dollar building and now it's worth 50 million dollars well the debt on it was probably only 60 million dollars so some bondholder gets burned by 10 million dollars the person who loses most is the person or entity that owned the equity you know the 100 to 60 part so they get wiped out who cares Chang whatever and his Canary Wharf group dissolve nobody cares like you don't wake up going oh the canary wolf group is going bankrupt wolf group sorry I started watching Game of Thrones and eldest direwolf talking is is getting to me but anyway you nobody cares and oh no you know the bondholders had to take a little haircut okay uh uh but again they they're not looking at what is the part of the debt that's actually a risk they're just saying well all uh you know 60 million dollars is at risk even though there's a big Equity buffer in real estate to where it's really only the top edge of the debt that's at risk right let me picture that just just to draw you a picture here's a building it's worth a hundred million dollars it's got uh 60 million dollars in debt uh now the value of the building falls all the way down to 50 million dollars okay who lost most of the money well the investor data the original building owner the equity holder the equity holder lost all the money the bondholder only lost 10 billion or 10 million dollars but Bloomberg's telling you oh no all 60 million dollars is at risk shut up it's it's just nonsense anyway continue on what else uh all right the bio machine private Equity firms have thrived on easy credit that often left companies deeply indebted frequently with floating low rate loans fine uh soured uh PE back companies account for more than 50 billion dollars of distressed debt KKR has a distressed portfolio company you know whatever black zones in here Apollo Global Management Carlisle Group a lot of these are Office Buildings who cares it's the same thing as Global wolf Wharf I just talked about uh okay meanwhile raid straw jumped Brewing troubles one of the biggest U.S radio station owners audacity has more than 800 million dollars of debt due next year and in May the s p slashed the company's rating into junk am I gonna wake up tomorrow sad that audacity isn't here anymore I don't even know who that is I'm sure some people will be sad their radio station isn't there anymore but guess what then you open the Twitter app and oh my gosh wow there's plenty of stuff for you to listen to or YouTube or whatever uh so again whatever so there you go there's there's what is you know an example of a scary big take of disaster and hell and the title of a 500 billion Dollar corporate that storm builds over the global economy and then you throw some realism in there and you're like damn time to close my short
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