Month: May 2022

Financial Times/Joe Rennison, Andrew Edgecliffe-Johnson, Peter Wells and Nicholas Megaw/5-12-2022

“Diebold Nixdorf’s $400mn bond maturing in 2024, which carries a low rating of triple C, cratered after the company reported weak earnings, slumping to just above 40 cents on the dollar — territory investors consider to be distressed. It had traded above 90 cents on the dollar as recently as two weeks ago.”

USAGOLD note: it is disconcerting how quickly we have gone from stability to inflation and inflation to general systemic risks – the corporate bond market being one of the latter. Even more disconcerting when one takes into account that we aren’t even to first base on the Fed’s monetary tightening program. A bond dropping 65% in value over a two-week period is a sure sign of general market stress. There’s is always the fallback position of holding it to maturity which works until the issuer finds itself unable to meet its obligations, or worse, ends up in bankruptcy proceedings. Most investors are acutely aware of the impact a weakening economy has on stocks, but few take into account the effect it has on the corporate bond market. This article connects the dots.

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Fortune/Will Daniel and Taylor Locke/5-12-2022

“The overarching and justified concern is that this first major confidence crisis sends a shiver through smaller investor sentiment as margin calls of any ilk tend to do, Retail investors have traditionally played the role of the canary in market selloffs. Because crypto is where so many smaller investors have placed their bets, the losses sustained could become a driver of a broader risk-off move in the stock market.” – Danielle DiMartino Booth, Quill Intelligence

USAGOLD note: It is interesting to note that the Treasury Secretary found it necessary to offer a few words of assurance on the crypto meltdown in testimony before Congress last week. “I wouldn’t characterize it at this scale as a real threat to financial stability,” she said, “but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs.” In the case of Terra’s crash, there was no time for a run on the bank. It took roughly a week for it to go from $87 a token to zero. The problem with contagion is that once it surfaces, no one can be certain what might be affected next and how widespread the damage can become. The black swan often travels in the dark. The concern with TerraLuna’s collapse, in particular, is how quickly it happened – and without any warning whatsoever.

Terra Luna cryptocurrency
(In USD)

Chart courtesy of TradingView.com

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