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Dr. Fly

18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.

A New Credit Crisis Emerges: Leveraged Loan Market

First, let me preface by saying market crashes are RARE events and credit is protected by government. In order for a full blown crisis to foment, they’d need to lose total control. Again, RARE event.

Having said that, I’d like to touch upon something you’ve been hearing about and reading about online — the leveraged loan market. This relatively new and chic form of financing has quickly emerged as the preferred method by which private equity FUCKTARDS use monopoly money to seize control of real businesses and then leverage those balance sheets in order to make EXTREME commissions.

I have a lot of fancy graphs to display in this post, but first this from CNBC and then FT.

Source: FT

An important shift in how companies finance themselves has reached a milestone. The leveraged loan market has officially become a $1tn asset class and is catching up fast with US high yield or junk bonds.

Since 2010, the leveraged loan market has doubled in size from $500bn while US high yield has expanded $250bn to $1.1tn, according to Bank of America Merrill Lynch.

The growth in loans reflects a post-financial crisis shift away from being a “private bank-loan model to a thriving syndicated market with hundreds of participants” that has coincided with retail money flowing into the market, says the bank.

Money has continued to pour into loan funds, where interest rates are floating and adjust higher as the Federal Reserve tightens policy.

That kind of demand has helped fund and drive a record era for merger and acquisitions. “A higher proportion of capital raised today goes towards LBOs [leveraged buyouts] and acquisitions than was the case in 2010,” says BofA, noting how half of money raised since 2016 has reflected M&A, up from a level of 30 to 40 per cent at the beginning of the cycle.

As loans increasingly gain sway, the issue of weakening terms or covenants has been ignored by investors in their hunt for yield. That may be an approach they come to rue once the current cycle turns.

Recently, S&P Global warned investors that weak lending terms for loans posed a risk as the credit cycle approached a peak and deal making had surged in recent months.

The quality of covenants — the protections in a bond or loan document that can limit the amount of debt a borrower can take on or how much it can pay its equity investors in dividends — has steadily weakened in recent years. That has allowed companies to win better terms from investors.

In the past, loans were prized in part for being higher in a company’s capital structure than junk-rated debt. But as more companies pay off their junk bonds via loans, investors face the prospect of being exposed to greater losses in their next credit downturn.

“While we think that compromising on covenants is a natural outcome of where we are in the credit cycle, and that the cost of doing so is low in today’s environment, it does pose a threat for recoveries when the next default cycle arrives,” says the bank.

Sounds awfully reminiscent to the great wonderful credit crisis of 2008, when homeless men were buying mansions and tapping into their HELOCs to buy drugs with, no?

Current CLO issuance, the repackaging of leveraged loan horseshit, now ~50% of overall market.

This is now ~5.5% of GDP.


Perhaps the most dangerous of all is the packaging of these ILLIQUID AF products into ETFs. The ETFs trade wonderfully, but the underlying product usually has a 1 month settlement time. In other words, these ETFs may one day pose as roach motels and exacerbate an already stressed market.

How are those ETFs fairing? Not good.

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NOTE: The Capstone Programme went live this week. Book your appointment now and be taught what you need to be told.


I booked a 19.5% gain in WPM. My largest holding is TLT — higher by 0.35%. I’m in a 30% cash position, supremely positioned to buy into the blood.

I won’t bored you with more fears of a credit crisis, but you should be monitoring SNLN, SRLN, and HYG.


Off to drink some gin.

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A few narratives at play here with short oil.

1. Slowing global growth
2. Trump squeezing Saud
3. Oversupply
4. Long term switch to electric cars
5. Technical deterioration
6. High yield pressures

On the matter of high yield. We’re at the top end of the recent channel, poised to break lower.

Oil itself isn’t attractive here. More importantly, the underlying companies will soon become extremely distressed with the price so low. I suspect share prices will dive lower, in anticipation of these companies forced to raise capital via secondary offerings.

Bearish engulfing pattern is in effect.

Lastly, we have a clean breakdown below recent trend in the IWM, small caps. I expect small caps to underperform markets, and also provide insight into the overall mood of the plebeian investor.

Top picks: AU, NUGT, TLT, DRIP

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Shut up.

I was fortunate to have been long WPM heading into today. I sold and escaped with a 19.5% gain. Now that you’re quiet, you should also know my Quant is flat for the day.

Everything is say and do is wrong. All of your ideas, absolute shit. You should sit down and be humble.

I will not make any predictions, because the intra-day moves have often reverted back to the mean. Assuming we closed here, this is a right shoulder of a head and shoulders top, coupled with a god damned death cross. In other words, we’re heading back to the lows and then we’ll probably break lower by another 5% before settling in.

Raise cash.

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Happy Friday: $4 Trillion in Losses Achieved Since September!

Congratulations stockTARDS. You’ve managed to bid this market up to vaudeville heights, only to quickly abscond with said gains and now you’re trying to justify what you’re seeing in front of your fucking faces.

BEAR MARKET TRADING and the market has shed more than $4 trillion in value since September. According to BofA, equityFAGS fled stocks en masse last week to the tune of $39 billion — a new record.

Aside from the issues with stocks, there’s the unfathomable concern in the high yield markets — an ongoing fuckery of monumental proportions. Speaking of which, an ‘influential’ analyst just took down estimates on AAPL by 20%.

Here are the details.

Slashing iPhone shipment estimate for the first quarter 2019 by 20 percent to a range of 38 million to 42 million (previous forecast was range of 47 million to 52 million)

He estimates 2018 iPhone shipments of 205 million to 210 million.

2019 iPhone shipments will decline 5- to 10-percent from 2018 to a range of 188 million to 194 million
But Kuo’s note is titled, “2019 iPhone shipments likely to be under 190 million units.” That would fall well short of the current consensus analyst estimate of 212 million iPhone units shipped for the calendar year 2019, according to FactSet.

The analyst, known for having close ties to Apple suppliers, cites lower demand for the iPhone XR, the new more affordable iPhone.

“The increase in orders of legacy iPhone models cannot offset the decline of XR and XS series shipments because of the low season impact,” he adds.

What are we to do? Well, I’m gonna get lit up in my stocks and gold today, only buoyed by my TLT position. My quant account will fall in line with the market. I am not immune to the pangs of agony and the horrors of a market, quite possibly, on the precipice of explicit and irredeemable disaster. I am open to the idea of all this ending, unceremoniously, and without pause. I have cash and will chase momentum to the downside, and hopefully I will be fortunate enough to catch the break. The recent trend has been buy intra-day dips, sell intra-day rips — with an acute overnight bias to the downside. In other words, if you’re shorting at the open, you’re most likely going to lose. But if you hold until Monday on the long side, you’re also setting up for capital losses.

It’s a hard market, no doubt. Do not get discouraged by the vacillation, for it too will end one day, soon revealing a very easy to read trend.

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Here’s What You Need to Be Worried About

I’ve been compiling the data and parsing over this bond situation and want to remind you this is where it will all end. The series of events to come will start in the corporate bond market, leveraged loans, CLOs — things of that nature. ZH has a great article tonight highlighting the blow up in the leveraged loan market.

Again, there is ~$10 trillion in corporate debt now, about double from 2008 — much of which will need to be refinanced within the next two years. We are already seeing the stress rip apart high yield prices — and more specifically the BBB market — which has been torn to shreds with animalistic vigor.

After that freezes up, the crisis will move swiftly like a warm summer breeze into the pensions, both private and public. Their coverage ratios will get so low — they’ll need to be bailed out. We’ll get to the $1.2 in student loans another night.

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You will rue the moment you leveraged long inside of your bullshit Robinhood accounts. Let this be a stern reminder to all of you out there: MARKETS DO NOT BOTTOM ON FRIDAYS.

China missed on various economic data points, effectively fucking futures. Boy do I wish I had the internal fortitude to hold onto TVIX.

Industrial output in November grew 5.4 percent from a year ago, lower than the 5.9 percent analysts in a Reuters poll predicted. That figure was 5.9 percent in October.

Retail sales rose 8.1 percent in November, lower than the 8.8 percent the analysts expected. November retail sales growth was down from 8.6 percent in October.

Fixed asset investment rose 5.9 percent from January to November, slightly higher than the 5.8 percent the economists had forecast. FAI rose 5.7 percent from January to October.

Dow futures are -188, gold flat, bonds sharply higher. The US 10yr is -0.55%.

Believe me, I know my opinions are changing on a minute by minute basis. The reason for the uncertainty and asinine trading is because we’re at the bottom of a channel, a dangerous place to be during Xmas and in the midst of economic turmoil. To my credit, I’ve traded small and haven’t let anything move more than 5% in any direction. I am trading like an absolute bozo the clown and I know it. But my financial future is not and has never been in jeopardy.

In my trading account, I am 25% cash, 15% TLT, 25% precious metals, 35% equities.

Prepare for a bastard day of trading. I have just two appointments in The Capstone Programme tomorrow, so I’ll be around most of the day in Exodus (get your free trials now) — teaching those who need to be told how to comport oneself in the midst of a ruinous market environ.

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Fuck off CNBC. I don’t care what Jim Chanos is shorting. Also, I don’t care, at all, what Coca Cola is doing. I hope that company dies in a fucking fire.

I thought I was being edgy when I bought TVIX today. I made it a large position and two hours later sold it for a 4% loss. This is an ordinary routine of mine, losing large sums of money in VIX products. God knows why the fuck I keep doing it, when the odds of winship is effectively zero.

My GE position purchased today — DOWN.

Most of my tech stocks purchased yesterday — DOWN.

My only respite was gold and gold miners. They did well, but I’m getting impatient and I am sick and tired of being led by the nose into vats of acid. I am sick and tired of trading poorly and limiting my experience to small sums of dollars. I’ve been heavy cash for more than a month and it has saved me countless dollars; but for the love of Christ — I am built to trade fast and with energy, and without fear. I need a direction. Listen to me now — I NEED OUT OF THE FAGBOX now.

The small caps are below trend line and on the precipice of a large leg lower.

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Hedging in Case of DISASTER

I’m hemming and hawing a lot, meandering about the house in search of inspiration. I bought some TVIX, a 10% position, here, in spite of being constructively optimistic here, eagerly awaiting market grandeur.

The hedge is for complete and total breakdown of this trend, back down to the lows. It’s a fair trade, but not if you’re naked. I have clothes on and plenty of cash left (25%) and have bountiful gains to cushion this nonsense I’ve recently partaken in.

My rationalization is end of year trickery coupled with an asinine tape. Up, down, up, down, down, down, up, up, down — a recipe for disaster.

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Markets Give it Up, Chop in the FAGBOX Persists

What a frustrating market to be in, right lads?


This is a wonderful tape. Get the losses out of the way — humble yourselves upon the altar of a market in flux. It’s never easy to trade the chop, especially at the bottom of a channel. It’s possible we blow thru and fade into oblivion — but it’s not likely — fuckers.

Here we are, important men of industry, rich and thin, beautifully BARRELING towards Xmas festivities. This isn’t the occasion, nor the time, for a market crash. Check in with me in January and I will side with your bearish bets. I do believe markets are near disaster and only a miracle can save it.

If you’re shorting stocks now, after the action of the past three days, you deserve to die.

If you’re heavily long stocks here, after the action of the past two months, you deserve to die.

What is a gentleman to do?

Trade with both honor and decorum. Do it small, like the size of your cocks. I am in a 35% cash position, 15% TLT, a bunch of gold. Only ~30% is allocated towards stocks and I intend to increase that level, should technicals improve.

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