Posts Categorized: Bill Holter

Posted by & filed under Bill Holter.

We have been telling you it is all about credit for years…you will soon see the real world reasons why. It is clear the real global economy was already seriously slowing down in Q4 prior to the coronavirus outbreak. Now, China who has been the supplier to the world and the great hope to be the engine of growth to pull the world forward, is all but frozen up.

Within a very short period of time, we will begin to see more and more real world examples of products not being produced which affects downstream ability to get final products to market. The latest example of this is the Audi electric vehicle plant “pausing” production because they cannot procure batteries. Just watch how many other various products cannot and will not be produced in the coming weeks…and remember, businesses have both accounts receivable and accounts payable, not to mention boatloads of DEBT!

As for the coronavirus, all one must do is take a look at the travel and leisure industry. Airlines, resorts, etc., not to mention restaurants and other ancillary businesses have already reported severe drops in traffic, some as much as 30-40%. All of these have both accounts receivable, accounts payable, and debt. Can the industry survive with lower traffic flow? Can the industry survive if even one part of the chain breaks?

Please understand the entire global financial AND real economic systems only function as long as cash flows function. Lack of parts or product means no final sale which means the entire supply chain chokes because the final product is not monetized. This is where accounts payable and receivable come in. How does a business pay another business if they are not being paid? Or how do they pay their bank debt with less or no cash flow? This episode already looks like a chain breaker in not one but several links!

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Posted by & filed under Bill Holter.

We have been harping on the question “are you prepared?” for years. We have asked if you were prepared financially, mentally, physically, and with your maker? The potential boogeyman as we suggested could come from anywhere or any angle but the end result would affect the economy and thus finance (credit) and would then spill over socially.

I have to admit, a “pandemic” was low on my list of possible sparks, but after thinking it through, a pandemic is a financial disaster. Yes it is a human disaster and many will die, but the odds of dying from the virus are and will remain quite low. The real problem is what the human response will be. I say this because we live in a world of just in time inventory AND production. We also live in a financial world with more debt and financial leverage (and thus monthly debt service) than ever before. So much so that even a small hiccup (which this does not appear to be) where business slows and contracts will be enough to quickly default some credits. The problem is not the initial defaults, rather, it is the “contagion” throughout the system because our world is so inter connected (globalism).

We saw this back in 2008 where one entity (Lehman) going down had the ability to torpedo the entire system if it were not for $10’s of trillions mobilized from the central banks. Remember, back then “liquidity” was shoved into the system so the banking system could withstand the shock of a small handful (but large) of upside down institutions. I would use the analogy that 2008 was a snapshot event which lead to the motion picture of what they called “recovery”…expansion never came. Today is different, because back then the central banks and sovereign treasuries had the ability to print/borrow in an effort to reflate…which they have continually done since then. Now, in a world with a debt to GDP ratio of 332%, who has the ability to step up and reflate?

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