Corporate Debt – Is this the Disguised Cause of this Recession?

Coronavirus may become the distraction that many companies need but the true reason we may head into a global recession could be debt. Cheap money since the GFC and a bubble that didn't deflate. But is there a way out of it?

*** Sorry guys, clearly had two microphones on today. Apologies. ***

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Video Transcription:

Welcome, today's coronavirus and property investors. So I'm back in the live stream now and hopefully, I've got the issue sort of redlining now, a dedicated one so yeah hopefully we get back on to be able to do live because I had to drop there for a while it's just to stop-start. I'm sure everybody is having problems with the internet.

So today is the disguised cause of the recession that we're currently in or going to be in which officially I guess we'll start July first due corporate debt and not coronavirus and I think this is really important. I mean it's all good to say coronavirus calls it and blamed on coronavirus it's a bit like Trump yeah I mean but bottom line is, there is coronaviruses reason for the global recession that we were going to it is one of the causes correct yeah and it is a reason for the lockdown that but actually there's been a lot of systemic problems and the fundamentals leading to.

There's been a lot of talk and even myself you know has been now you know mentioning that you know the recession we're looking to turn into recession soon. Coming up you know and really are you know I'll see him May, June 2021 so next year so I thought we had this year but what coronavirus done has brought it forward. Now this is always a scapegoat this always a name is always a label a place on recession whether it be oil prices, oil shock, savings and loan scandal .com bubble, the subprime or subprime mortgage crisis whatever it is is a name for it you know even now they're calling it the great lockdown yeah we just I thought was quite interesting around to see is that you know that you know the great walk down the Great Depression and you know what we'll see which one prevails.

Because often there are lots of names that come out of it and in one prevails. But what's probably unlikely to come out is corporate debt as being the reason. A lot of people talking about corporate debt a lot of people thinking that's gonna be the reason for the recession. And the bottom line is is that you know the coronavirus has come and probably build it out you know you see the world has a corporate debt problem and all this is gonna cause the next recession for quite some time, that and Trump is gonna be the largest economy in the world US Trump leading that. Trump with all is you know trade wars and things like this all be going to but also the big thing has been since the previous recession the global financial crisis so now we've been investing his name really really sheet money sending you to know giving out debt you know all over the place and you know so that what we've found is that the bubble didn't deflate last time what happened was we propped it up by giving all these big corporations main which is exactly what's happening this time now with the same as this time.

You know I mean that's probably a topic for another thing but no the bottom line is you know if you look at corporate they're confident in the US, yeah and obviously being a large economy you know we can look at that and sort of it looks at the whole world because corporate debt in the US 10 trillion dollars that's 47% of the entire economy the GDP yeah that's massive it's never been an actual fact since 2008 the scale is just been going up like that which is pretty phenomenal you know you've then got worldwide 30 trillion if you think about that you know in the US is 10 which is a third of all the corporate debt okay and the way that's tracked is not actually when all corporate debt some financial and things'll happen anyway to do that but yet always we have been if you you know if you look at the issue.

In 2008 global financial crisis we didn't address the issue okay and and we didn't really deflate the bubble that was there we did to very certain the housing bubble deflated but a lot of corporates and a lot of other financial issues that would normally have dealt with them didn't get dealt with and all we did was we going cheap money away and it cheap money allowed us to effectively fun pseudo growth okay it probably wasn't real growth it was lets borrow money and then stimulate you know grow the economy people say there's been soft buybacks and things like that and and that is true you know a lot of that money has got to stop by that which is great for the shareholders and the owners and the mega wealthy people who own that, there but not necessarily for the companies and so there's a lot of problems and you know I was looking at the stats here today you know AT&T, GM, Ford, Dell and no one was there the biggest holders of corporate debt by far America like amazing how much money they've got you know anybody giving out bailouts and then yes it's amazing.

But anyway bottom line is we didn't solve the problems last time and so we're gonna have to pay them this time. But maybe not because mainly the economies turn the problem is nobody has a crystal ball, okay and you know it doesn't matter who you read I mean I watch all sorts of different Economist's around the world you know and I listen to what they're saying, all this data when I go to the source data I so to put it all together all that and sort of try to come up with my own thing anything. the interesting thing that I find is that there is no consensus yeah and a guy who's absolutely certain this it happen gets it wrong but they do not explain why they got it wrong because their model you know all their assumptions were incorrect and that's their problem here is it what's the correct model we don't have one, yeah nobody has one.

So yes we can say the general trend and that's trend that phrases with the property you know you can't pick the exact moment but you can track the trend. You investment based on the trends and you pull that based on the trends and you do now change your strategy based on trends and when you do that's generally good enough to see you through yeah look the real issue here is this is there's so much debt that needs to be refinanced now recently refinance when we're going to be in a recession because look I don't know to make parodies is I think what people think that I said that we weren't going to have a recession I think we are gonna have a recession this year in 2020. I think in the UK a relatively short one I think other countries will have a relatively deep one, I think the US. is going to get absolutely slammed you know those are employment rate is just you know how they gonna do is they are gonna have to do some serious serious thing and that's going to attack the dollar there's a whole range of issues around it.

But bottom line if you have to refinance your debt which is already a super cheap rates yeah all of a sudden now you're at risk so what happens is that rate increases and all of a sudden is a lot harder a lot more expensive which now if you refinance that debt at a higher rate you haven't got that money now we should put in that way out rather than hiring new people and doing things so that's going to slow the global economy down all right and that also said the problem is the more we get into this the more headwinds we get.

You do have you know you know can we survive look we've got these central banks the Fed Thank You England and you know the bank of shame always make me and release twice who basically can help out now normally what they would do is what's called monetary policy, raise lower interest rates well we can't do that you know that's effectively a big big gun with now ammunition to fire because the ammunition quantitative easing we have got that public been doing that for the last ten years so is that going to be worthwhile continue we'll see fiscal policy and I think this recession this you know the crisis is going to be dealt with via fiscal policy, government taxation and spending, in this case, there's not really the choice to tax you know if sometimes you increase taxes here and spend them here.

The reality is this one is going to be all about spending and so that means more debt, not corporate debt necessarily but it will be corporate debt because obviously with things like the seagull's program this grandma's business interruption loan scheme, you know the UK and the various schemes around the world whether you're in Australia they have one and where is what you're going to find is that corporate debt is connecting up at the same time as we've already got so much corporate debt but there's no government debt as well massive government debt.

Now, what is that going to mean well that's gonna mean that if I want to keep in money supply increasing and flowing and going then we're gonna have to take on more debt which means more inflation payoff yeah you know frankly that's pretty blunt but to be fair you know we've had what I would say it's deflation I mean if you look at the UK property market which I am involved in really we've had no growth there since 2016 really the whole of Brexit we've had virtually nothing happening and that is in London that's pretty much anywhere you know these pockets in that but let's not get into that the overall hasn't brought we're being dead flat okay that I think will help the UK. You know to give from the gods if you like because basically we haven't had that amount of growth but even before that you know post juices for us in 2008-2009 we haven't had a lot of places haven't had any growth and now our prices drop further yeah during this recession you know because they can but you know it's interesting this is the real question is you know can we get out this I think the answer is yes can we get out of the recession and recession no.

I think July 1st is going to be right all the world, you just don't close down the economy's like that and then wrap them back up straight away, in China which reports and looks like it's got back in actually if the engines or if the consumers that buy from them don't creep and you might see that actually they're bouncing on the bottom too.

So you know we don't have an answer this but it's any government-led. The government takes borrowing and borrowing causes inflation, inflation is gonna you know I'm saying 3%, 4%, 5% you know which is well above target remember 2%which is generally for most economies.

So you know we'll see it's going to be a lot of borrowing both governments gonna be a lot of and this is I think the key to in 2008/ 2009 we had direct money injected in the form of seamless to corporations and what do they bought back shares they feather their own nest trickle-down economics did not work whatsoever it didn't trickle down the economy what it did was make those shareholders richer and that's what I love Chamath you know it's Facebook guy talks about them go them die than fail because actually what we need to do is stimulate into the individual. If we do that and we do that well then let's see what happens it's you know it's a social massive, social experiment it's not deadly now before but I think is worthwhile.

Alright, guys, no answers, unfortunately, no real answers because you know this is bigger than any one person or autonomous or nobody really knows. I think you know the US is going to be slammed because of the way the whole approach to coronavirus, the whole approach to their citizens and the whole approaches stimulating. I think places like the UK and in Australia now I was critical of Australia to start but they're looking you know they're looking a lot better New Zealand response for this thing us huge my concern isn't maybe they've got a bit too far but we'll see yeah I mean good on Jacinda she is definitely showing leadership so we'll see different places different topics you know Singapore, Hong Kong, South Korea they're all looking pretty good still even though you know they still have coronavirus, I haven't totally sent it out but will see what happens, alright guys have a great day that the passion remember to stay safe stay healthy and stay at home all right

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