A financial ‘blockbuster’ year fueled by death and disease
The numbers arrive for 2021, indicating that this is sure to be one of the greatest years of financial madness of all time, fueled not by a surge in the economy, but by a feed of death and death. cheap money.
Earlier this month, the Bank of America reported that, according to its calculations, central banks had injected $ 32 trillion into financial markets since the start of the COVID-19 pandemic, increasing global market capitalization by 60 trillion dollars.
Other data tells the same story.
the Financial Time (FT) reported this week on what one financial analyst called a “blockbuster” year as companies around the world raised $ 12.1 trillion by selling stocks and taking out loans to the following a “torrent of central bank stimulus”.
This is up almost 17% from 2020, which was itself a record year, and almost a quarter above the 2019 level before the pandemic. More than $ 5,000 billion was raised in the United States, where the S&P 500 index hit a new record yesterday, its 70th for the year. The Dow Jones also hit a new record, its sixth consecutive daily rise and the longest streak of rise since March. The last ascent has been described as a “gathering of Santa Claus”.
But the reality is that Christmas has come every day of the year for the financial oligarchy in the form of Father Fed, as millions have lost loved ones or been stricken with disease.
The debt-fueled frenzy, fueled by largesse from central banks, is also illustrated by the data on subprime lending. According to Leveraged Commentary and Data (LCD) published by S&P Global Market Intelligence, reported by the FT, around a third of leveraged loans were sold to investors under conditions considered risky by financial authorities.
At the end of November, 33% of the 954 leveraged loans issued at that time for the year had a debt-to-earnings ratio above six, according to figures from LCD. Leverage loans are those made to companies that have significant debt and are considered to have a bad credit history.
The ratio of six was established by US regulatory authorities in 2013 as a guide for leveraged loans, not as a formal rule. The guideline said that “typically” debt greater than six times more than earnings before interest, taxes, depreciation and amortization “is a concern for most industries.”
But these “guidelines” are being pushed aside as financial investors take increasingly risky bets to secure a return in an environment of ultra-low interest rates.
According to Dennis Kelleher, president of Better Markets, quoted in the FT report: “There is incredible leverage in the system. It created a time bomb.
As the article noted: “The fear is that if U.S. economic growth weakens or lending rates rise, significant debt could become unmanageable, accelerating the decline of heavily indebted companies and potentially spilling over into the economy. economy. “
S&P leverage finance chief Ramki Muthukrishnan dismissed short-term fears over continued economic growth and support from central banks, but raised longer-term concerns.
“Obviously, the fact that these companies are heavily indebted means that the business conditions have to be extremely favorable for them to be able to repay their debts or refinance themselves in the future,” he said.
The rise in the S&P 500 index to some extent masks the underlying economic problems. Goldman Sachs has calculated that since April, only five high-tech stocks – Apple, Microsoft, Nvidia, Tesla and parent company Google Alphabet – have accounted for more than half of its rise, while 210 stocks are 10% below. of their 52-week highs. On the tech-rich NASDAQ Index, more than 1,300 out of 3,000 stocks are down more than 50% from the highest levels of the past 12 months.
These numbers indicate inherent instability. Earlier this month, the Swiss central bank pointed to “signs of overvaluation in the stock and property markets in various countries. At the same time, the global public and corporate debt is high. These vulnerabilities make financial markets more sensitive to shocks, in particular to sharp increases in interest rates. “
And with an inflationary surge underway around the world, particularly in the United States where it has reached 6.8%, the Fed and other central banks are preparing to tighten their monetary policy. Their main fear is that this will lead to an increase in the wages of workers – the first expressions of which were observed in the United States where the business community is worried about the inclusion of cost of living adjustments in the costs of living. recent wage contracts.
The Fed and other central banks are walking a fine line. On the one hand, they want to lower wages – Fed Chairman Powell insisted that if inflation takes hold, the central bank will use all the tools at its disposal – while on the other hand, they fear that a rapid rise in rates will cause turmoil in heavily leveraged financial markets.
The rapid spread of the Omicron variant of the coronavirus adds to the growing uncertainty. It threatens to exacerbate supply chain problems, causing further inflation, and hurting economic growth and corporate profits.
Bloomberg reported that he estimates the global economy will only grow 0.7% in the last three months of this year, half the pace of the previous three months.
Bloomberg Economics chief economist Tom Orlik warned: “As 2021 draws to a close, the global economic recovery is at risk of being disrupted by the Omicron variant of the coronavirus. Europe seems particularly vulnerable: the recoveries of Germany, France and Italy are increasingly strained by the resurgence of cases. “
the the Wall Street newspaper also reported a slowdown in growth. In an article published on Monday, he noted that Omicron’s push “is prompting economists to downgrade growth expectations in the United States and around the world in early 2022 and companies are battling absenteeism and losses. consumers stay away to avoid getting sick ”.
He cites estimates from Mark Zandi, chief economist at Moody’s Analytics, who cut his forecast for annual growth in US gross domestic product to 2.2% from 5.2% because he could “see the damage. economic accumulation in the first quarter “.
Right now, the claim is that the loss of growth in the first quarter will be offset by increased growth in the latter part of the year.
However, such claims have extremely fragile foundations and are based on the belief that COVID-19 will simply recede.
But with virtually all public health and safety measures having been removed, the level of infections is rising. In addition, there is the ever-present danger that a new variant will emerge due to the unwillingness of governments around the world to pursue the necessary elimination strategy, fearing its impact on the unstable financial system.
And in an expression of the perversity of the global finance capital system, some hope that the slowing of economic growth, due to the spread of the Omicron variant and the increase in the number of illnesses and deaths, may remain in the hand. the Fed and other central banks to raise interest rates, ensuring that the speculative madness that has siphoned hundreds of billions of dollars into the coffers of financial oligarchs can continue.