The Fed Just Gave These Four Stocks A Reprieve (But Not for Long)

What a shock – the Fed didn’t raise interest rates yesterday. Their next chance is in December – we’ll see if they chicken out then, too.

Markets continue to obsess over whether Janet Yellen will raise interest rates this year.  But when it comes to corporate credit quality, they are missing the big picture.  Corporations are in bad shape.  They are far more leveraged than they were on the cusp of the financial crisis.  Their precarious condition is disguised by 8 years of zero interest rates.  Now that the Fed is contemplating raising interest rates, their disguise could be ripped off.

But that isn’t their biggest problem.  Because if the Fed chickens out and doesn’t raise rates, they are still in big trouble – maybe even bigger trouble.  Because if the Fed doesn’t raise rates, it means that it believes the economy is too weak to handle even a tiny 25 basis point rate increase.  And that’s downright pathetic.

Right now, there are a number of zombie companies that are still haunting the landscape solely because of low interest rates.  These companies carry huge debt loads but the cost of servicing that debt is very low due to the fecklessness of the Federal Reserve.  They are losing tons of money in their businesses but have been able to borrow (or extend their existing borrowings) due to complacent financial markets.  Remember – bond and bank loan investors don’t want to report defaults to their investors if they don’t have to. So they are perfectly content to allow borrowers to “extend and pretend” their loans until some time in the future when they are forced to face the music.

Thus far in 2016, 122 companies have defaulted around the world.  The tally would be much higher if interest rates were anywhere near normalized.  Here is a short list of companies that will join this list if interest rates begin to rise, either because the Fed gets aggressive (which is highly unlikely) or because investors wake up to the fact that their businesses are weak and incapable of repaying these debts.

No matter how you slice it, these four companies are headed for disaster… Continue reading…

The Most Disturbing Thing Central Banks Are Doing Right Now

At the end of August, the Federal Reserve met in Jackson Hole, Wyoming for its annual confab and investors hung on every word uttered by the former tenured economics professors comprising the committee to destroy the global economy.  There were strong hints from Fed Chair Janet Yellen and Vice Chair Stanley Fischer that they want to raise rates in the near future, but they have broken such promises before. (This “will-she-won’t-she” romantic comedy is really getting old.)

The worst thing the Fed could do is keep interest rates low; instead, it should announce that it will start raising rates by 25 basis points each quarter until the Fed Funds rate reaches 2% and then urge Congress to act on meaningful tax reform and fiscal stimulus that are the only policies that will help minorities and all Americans.  And then this nation should embark on meaningful civic and economic education for all of its children (and even the adults) to insure that they understand how economies work – which is not by increasing entitlements and reducing the cost of money to the point where it has no value.

When you look deep into Fed policy, all that stares back is a black hole. And the hole keeps getting deeper and deeper. While it went largely unnoticed at this meeting, the Fed also made some very disturbing noises about its plans to deal with the next recession.

These plans are unconstitutional and dangerous.

And they’re the next step in a quiet revolution that’s already being waged by central banks worldwide.

Here’s the most disturbing thing central banks are doing right now (and how it can hurt you)… Continue reading…

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