Tim and John Show Episode 3: The Black Swan No-one Talks About CLOs.

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5 years ago
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Tim goes through the markets and their weekly performance.

The past week we saw almost every global market start to implode.
We had the Dow Down -12.36%
S&P Down -11.49%
Nasdaq -10.44%
Gold -3.57%
Silver -10.19%
Bitcoin -11.9% coming in at $8,500 many of the alts down 20% or more

10 Year US Bonds 1.163%
30 Year US Bonds 1.684%
3 Month US Bonds 1.298%
WTI Oil price -16.24% at $44.76
Since January, Tim’s Put Options are up 181%.

Of all the potential Black Swans, the one that next to no one is talking about is the Collateralized Loan Obligations. It is a derivative of underlying corporate debt. Tim and John get into how this corporate debt is mostly speculative grade. That means pension funds would not invest in them. Still, with some rating agency touchup, they can rate over 50% of the 70% speculative debt as AAA, a rating that is greater than most countries.

The Bank of International Settlements had meetings on the 26th and 27th of February. These were emergency meetings where they discussed the potential problems coming up in Collateralized Loan Obligation markets. It was by far their primary focus. Not Market collapse, bond collapse or commodities crashing. No, their focus was on the CLO market.

Tim and John also go through who has the most significant exposure to CLO’s and potential risks coming in these markets. Another market that uses CLO’s is Real Estate, and the underlying debt is now being issued into RE CLO’s.
They also look at what we can potentially see in the next week in markets. They think that we should possibly see huge volatility up and downwards over the next week. The debt that is crating zombies around the world is a way bigger issue than the COVID-19 virus. The reaction from Central Banks will most likely be with rate cuts up to -0.50% by the FED and a potential global QE as former FED Governor Warsh.

Tim and John think that the demographic cliff that most Western nations live in will further put pressure on this downturn in the global economy.

John has warned about the CLO’s for almost a year, and more people, including the BIS, are finally taking the threat seriously.

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