• It's Coming...

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded?

Takeaway: Here's our take on some of today's top financial stories.

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded? - balloon

China's Ever-Inflating debt balloon

A report from S&P Global published Thursday says that Chinese companies will account for nearly two-thirds of new credit raised globally by 2020. S&P forecasts that outstanding debt will expand by half to $75 trillion by then. 

"Indeed, investors are buying speculative-grade corporate debt, including those from emerging markets, and extending maturities to generate positive yields ... the reward is becoming increasingly unsustainable."

 

OUR TAKE: Another risk to monitor closely.

International Credit Outlook | Prognosis: Not good

According to Fitch, sovereign credit ratings are on track for a record number of downgrades this year (the worst since 2011). "At 30 June, there were 22 sovereigns on Negative Outlook and only six on Positive Outlook. The former include major economies such as the UK, Japan, Brazil and Russia as well as Saudi Arabia." 

OUR TAKE: Our subscribers have long had "0%" exposure to International Equities precisely because the global growth continues to slow.

 

Helicopters Grounded

"No need and no possibility for helicopter money," BOJ head Haruhiko Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates." The Yen popped 1% on the news, even though a Wall Street Journal article this morning reported that the conversation was recorded in June before helicopter money speculation began.


OUR TAKE: Helicopter money or not, the slow growth slog will continue to plague 
Japan's economy

Draghi: "Whatever it takes" 2.0?

European Central Bank head Mario Draghi argued, on Thursday, that a "public backstop" would be "very useful" in helping Italy's problem-plagued banks sell down bad loans. Italian bank UniCredit finished up 2% on the statement. 

OUR TAKE: Much like helicopter money speculation in Japan, Draghi's comments don't change economic reality. #EuropeImploding

IMF: "five [OBVIOUS] ways to spark growth"

After cutting global growth expectations again (see chart below), the IMF is out with proposals on how best to "spark" economic growth. Here they are:

  • Reducing uncertainty around “Brexit” and its repercussions, through a smooth transition to a new relationship between the United Kingdom and the European Union that as much as possible preserves gains from trade.
  • Implementing a stronger and more balanced set of economic policies that exploits policy synergies of well-sequenced structural reforms with growth friendly fiscal policy and continued monetary support.
  • Addressing the post-crisis debt overhang that saddles advanced economies and the rising corporate debt that burdens many emerging economies.
  • Lifting long-term growth and making it more inclusive, through structural reforms by making workers and business processes more productive.
  • Reinvigorating trade, making sure that the gains from trade are widely shared, and reviving the spirit of multilateralism, including to address geopolitical spillovers that could threaten the global recovery.


OUR TAKE: Thanks for coming out.

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded? - imf growth