H/t reader squodgy:
“The actual event won’t last too long, but the results will.
If you don’t prepare, you will lose.”
* * *
If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too? Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis. For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U.S. Treasury bond yields. Normally, long-term rates are higher than short-term rates, but when investors get spooked about the economy this can reverse. Just before every single recession since 1960 the yield curve has “inverted”, and now we are getting dangerously close to it happening again for the first time in a decade.
On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points. According to Business Insider, this is almost the tightest that the yield curve has been since 2007…
This will surely end ‘well’.
* * *
This will “surely” end well.
* * *
Ahead of Trump’s much anticipated tax announcement on Wednesday, the WSJ reports that the president has ordered his (mostly ex-Goldman) White House aides to accelerate efforts to create a tax plan “slashing the corporate rate to 15% and prioritizing cuts in tax rates over an attempt to not increase the deficit” which means that without an offsetting source of revenue, Trump is about to unleash the debt spigots, a proposal which will face fierce pushback from conservatives as it is nothing more than a continuation of the status quo under the Obama administration, and may well be DOA.
The WSJ adds that during an Oval Office meeting last week, “Trump told staff he wants a massive tax cut to sell to the American people” and that it was “less important to him if the plan loses revenue.”
April 29? Oh wait, …
The wedding of Prince William and Kate Middleton will be a joyous occasion but it also marks the 66th anniversary of the bizarre and macabre union of Adolf Hitler and Eva Braun as the Third Reich collapsed.
The Nazi dictator married his long-time mistress deep in the Fuehrer’s bunker below Berlin as the Russians closed in. The pair committed suicide together the next day.
April 2017 could turn out to be one of the most important months in U.S. history that we have seen in a very long time. On April 6th, Donald Trump attacked Syria on the 100th anniversary of the day that the U.S. officially entered World War I, and now at the end of this month we could be facing an unprecedented political crisis in Washington. On Friday, members of Congress left town for their two week “Easter vacation”, and they won’t resume work until April 25th. What this means is that Congress will have precisely four days when they get back to pass a bill to fund government operations or there will be a government shutdown starting on April 29th.
Up to this point, there has been very little urgency by either party to move a spending bill forward. It is almost as if everyone is already resigned to the fact that a government shutdown will happen. The Democrats will greatly benefit from a government shutdown because they can just blame the entire mess on the Republicans. But for the GOP, this is essentially the equivalent of political malpractice.
To me, there is simply no way that Congress is going to be able to agree on a bill that funds the entire government in just four days. And it turns out that this upcoming deadline comes exactly on the 100th day of Trump’s presidency…
From the outside looking in, the Danish economy appears as blissful as the country itself, which usually tops “The Happiness Index.” The unemployment rate ticked down to 4.2% in the most recent release from 4.3% in 2016. Denmark, ranked 20th in economic complexity in 2015, has a mostly even trade balance, and $50K GDP per capita in 2016, making it among one of the richest nations in the world.
Moreover, Danish GDP-per-capita growth led in the Nordics for the past ten years, from 2007 to 2016: Denmark +28.5%, Sweden +22.0%, Norway +14.6% Finland +12.2%. Although Denmark exports substantial agricultural and natural resource-based products, they are also major players in pharmaceuticals and machinery. Top companies include AP Møller-Mærsk, Novo Nordisk, Vestas, and Danske Bank, representing shipping, pharma, clean energy, and finance.
This will surely end ‘well’.
From a practical perspective, operating leases are pretty much the same as debt. They reflect a contractual obligation on the part of one counterparty to make defined stream of cash payments to another over a set period and with an implied interest rate embedded in the payment stream. In fact, within a bankruptcy context operating leases are treated exactly the same as debt and rank pari passu with the other general unsecured obligations of a business. That said, accounting rules treat operating leases differently than debt and do not require them to be included as a liability on a company’s balance sheet. That is, until 2019.
As Bloomberg points out this morning, starting in 2019 new accounting rules, called IFRS 16, will force companies to include operating lease commitments as part of their reported debt obligations. And while the end result will have far-reaching implications, the biggest will be the addition of roughly $3 trillion in debt to corporate balance sheets.
* * *
We always knew that this would start happening. Earlier this month, I wrote about the severe economic problems that are plaguing South America, but up to this point I have neglected to discuss the horrific famines that are breaking out all over Africa. Right now there is a desperate need for food in South Sudan, Somalia, northeast Nigeria, Eritrea and Kenya. And Yemen, even though it is not technically part of Africa, is being affected by many of the same factors that are crippling nations all over eastern Africa. The United Nations says that more than 20 million people could die from starvation and disease if nothing is done. When I write about economic collapse, this is the kind of thing that I am talking about, and we are starting to see alarming conditions spread across the globe. Many believe that we could never possibly face this kind of food crisis in the western world, but unfortunately wishful thinking will only get you so far.