The effort to recreate the disaster of 2008, but on an even more colossal scale, is moving along at a brisk pace. In the past several months, we have seen the triumphant return of many of the worst practices of 2006/07 to such an extent that I have made it a key theme of this site in 2014. For those of you playing catchup, I suggest reading the following:
Junk Borrowers Are Increasingly “Adjusting Earnings” to More Easily Sell Debt
Credit Mania Update – The Chase for CCC-Rated Bonds
Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled
Guest Post: Is There a Massive High Yield Credit Bubble?
The signs of credit and financial market insanity are everywhere, and it appears we have now entered the late stages of what Mises called the “crack-up boom.” When this cycle runs its course and crashes to the ground is of course impossible to predict, but cycle work from folks like Martin Armstrong point to a turning point sometime in mid-to-late 2015.
In the latest piece of news, we find out from Bloomberg that the issuance of collateralized loan obligations (CLOs) is on pace to hit a record this year. Indeed $46 billion has already been issued compared to the $82 billion for all of 2013.
We learn from Bloomberg that:
The business of bundling junk-rated corporate loans into top-rated securities is booming like never before after the implementation of regulation aimed at making the financial system safer.
More than $46 billion of collateralized loan obligations have been raised this year in the U.S. through the end of May, after $82 billion were sold in all of 2013, according to Royal Bank of Scotland Group Plc. JPMorgan Chase & Co. boosted its annual forecast to as much as $100 billion, which means 2014 may end up as the biggest year on record, while Onex Corp. said yesterday it will expand its CLO business.
Issuance of CLOs, which helped finance some of the biggest leveraged buyouts in history during the last credit boom, has picked up following an early 2014 slump brought on by the publication of the Volcker Rule designed to limit risk-taking by banks — major buyers of the funds. CLOs are investors in speculative-grade loans, an asset class in which U.S. banking regulators have said underwriting standards have become too lax.
CLOs were the biggest buyers of junk-rated loans in the first quarter with 58 percent market share, the most since 2006 when they had a 61 percent share, according to a report from the LSTA, citing Standard & Poor’s Capital IQ Leveraged Commentary and Data. Retail funds came in second at 26 percent.
The deals helped propel issuance of new leveraged loans to $357 billion last year, the most on record, Bloomberg data show.
The Fed said it intends to give banks an additional two years to abide by Volcker, pushing the conformance deadline to July 21, 2017, according to an April 7 statement. U.S. banks own about $70 billion of the debt, according to the LSTA.
Of course, it is primarily the very wealthy financiers who are making all the big money from all of this financial alchemy. Meanwhile, the private equity boys at Carlyle want to eat from both sides of the table. Not only do they use financialization and frothy credit markets to make a fortune, they also intend to directly make money from the decimation of the middle class. Not just in the U.S., but also across the pond.
I have previously highlighted Carlyle’s move into the U.S. mobile home market, but they have now started targeting Europe as well.
The Financial Times reported that:
US private equity investor Carlyle has entered into exclusive negotiations to take control of Homair Vacances, a French operator of camping and mobile homes that seeks to expand across southern Europe.
Well naturally they want to expand across Southern Europe, that’s where the peasant class growth rate is most robust.
The move comes after Homair on Monday said it had agreed to buy its main competitor, Eurocamp, from UK-based Holidaybreak to expand in Europe in a deal that will double its size.
An increasing number of customers have been drawn to mobile homes and self-catering holidays as they sought budget holidays during the downturn.
Serfs up suckers.
In Liberty,
Michael Krieger
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