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Biotech / Medical : Immunomedics (IMMU) - moderated
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From: ghettogoulash5/3/2020 1:33:21 AM
2 Recommendations

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Farmland
royalbg

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Hedging

I am not terrified of a 30% decline in the stock market from here. IMMU should hold up better than most stocks. What worries me is a global financial meltdown. One name is popping up again, one very familiar to gold bugs throughout the 2000s. A global bank whose insolvency seemed to be a foregone conclusion.

On Sept. 19 of last year, we had an alarming intraday spike in the U.S. repo market. This forced the Fed to pump more than $500 billion of liquidity into the repo market, which was rumored by some to be an emergency bailout of a primary dealer. As one writer put it, "For a brief moment, US dollar repo enjoyed the same overnight funding cost as Brazil."

No surprise, really, that some major institution(s) was getting in over its head in a stagnating economy. CLOs (Collateralized Loan Obligations) have become the new CDOs-- those risky instruments that nearly destroyed the global economy in 2008. A CLO is a package of speculative-grade (“junk”) loans in which payments from multiple middle-sized and large business loans are pooled together.

But what happens when an unparalleled number of businesses simultaneously cannot make a payment? What happens when there is one massive, devastating non-payment of loans across the globe? And then another? It's hard to believe that an unimaginable event like Covid has been properly hedged. And these CLO business loans are already ranked below investment grade.

CLOs are illiquid and opaque. A large percentage exist in the financial shadows. Anyone remember the "Shadow Banking System" from 2008? We do know who is the second largest buyer AND second largest underwriter of CLOs. It is the same bank vilified by gold bugs nearly twenty years ago for its insanely over leveraged debt (not to mention illegal suppression of precious metals.) It is the same bank whose name was later indicted as a key player in the Fed's repo bailout: JPMorgan. It is not encouraging to hear the CEO's outlook in the most recent Annual Report: "We don't know exactly what the future will hold – but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008."

Too big to lend? JPMorgan cash hit Fed limits, roiling U.S. repos - Reuters
reuters.com

Leveraged loans risks are growing, regulators warn (This was written before Covid hit.)
qz.com




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