The End of Libor: Are You Prepared for the Coming Storm?

The End of Libor: Are You Prepared for the Coming Storm?

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well an interesting thing is happening on the progress toward the transition between the Libor and the sofa and it's happening in the clo Market these are all things that we've talked about in the past but you need to have an update because we now have less well we have about six months to go in this transition and when it's super quiet it always makes me wonder what are they trying to hide because that could indeed create a huge surprise and you don't want to be surprised in a negative way coming up [Music] I'm Lynette Zhang Chief Market analyst here at itm trading a full service physical gold and silver dealer but really specializing in custom strategies the powers that be have a strategy and quite honestly so should you so if you haven't done this there's so many things that are going on if you haven't subscribed yet make sure that you hit that button and click on that Bell we'll let you know when we're going on but you need to know what's going on almost Moment by moment now that we're in 2023 and if you don't have a plan already click that calendly link below and set up a time to talk to one of our Consultants because you really need to have a plan and you really need to have it in place now and you need to execute it it's not just the plan you need to execute it so I wanted to give you an update on what's Happening Now let me just redefine cloth which collateralized loan obligations these typically go to below investment grade and even well below in these loans for investment grade corporations so these corporations are already dicey and a clo takes these all these different loans and packages them up into one big loan that they can then sell to investors are you sitting on some Clo's that you don't even know about you might want to double check if you're sitting in the Fiat markets in somebody else is managing this for you because we know that over 610 trillion emotional value contracts have to shift before or buy I should say June 30th of 2023 and you know in that run up so many new contracts not just with Clos but so many new contracts up until January of 2022 already had Libor embedded in them and they're going to have to shift but let's just focus in this one little area right now because some really interesting things are happening that you need to know about and the reality is is when you know that there's a bankruptcy near well gosh if somebody sends you a credit card when you know you're going to be declaring bankruptcy what are you most likely to do unfortunately not ethically but unfortunately you're likely to go out and load that credit card up so in the lead up to this transition that is exactly what Clo's did by the way this is 2008 2009 and 2010. so it's pretty clear that in 2021 oh didn't give me that but I'm sorry about that but in 2021 we had new highs of issuance in the clo Market something similar is happening now but let's just stay on this for now Esther's losing Millions on Libor switch because start to fight back goodness gracious Borrowers offer loan amendments not accounting for a lower sofa so what borrowers are attempting to do is have to pay the lenders less money You and I by the way are the lenders okay but investors us lenders begin to reject proposals among mounting frustration because when you sign that contract when you bought that mutual fund Etc I mean you as an individual aren't going to know this but the institutional investors will it made a difference in the valuations in how much interest they're going to pay and also in the value of the contracts and and while you know I mean when I did it it didn't seem like that much or looking at pennies but the reality is is when you're looking at Pennies on trillions of dollars worth of contracts it adds up and it's a moving Target because because sopher is not identical to Libor against which all these contracts are written no there's your zero so what you're looking at on this top graph is the difference between three-month Libor and the sofa and you can see it should be here if there's no difference it should be at zero and it's well above zero you see what I'm saying I know this is complicated but you can see here's zero that's where it should be at at any point in this is it at zero no it's not that's your difference this bottom piece here is the difference between one month Libor and sulfur and so if zero is here do you see it at zero no you do not so this proves absolutely what I've been trying to tell you all along when this shift occurs it changes the valuation of the interest payments as well as the value of the underlying contracts that could potentially really devastate the markets and bring everything down I expect that this is going to we're going to run into a lot more volatility in the first half of the Year leading to this transition that's supposed to happen on June 30th now look I could be completely wrong it could be a big Booth nothing except that it's never been done before it's a huge experiment involving well they'll admit to 610 trillion but we're really looking at quadrillions this could well take down the Global Financial system I believe it will in fact there are just in the leverage loan Market that is what is inside of those Clos okay so just this one little area 112 trillion that still needs to Pivot to Soffer and we are running out of time in which to do that and everybody's got to agree now they're getting some pushback and people don't want to agree the value of interest payments on more than a trillion of debt is at stake ahead of the much maligned and I'd be one of those reference rates phase out mid next year because this article was in 2022. companies have all the incentives in the world to continue to accelerate the process of transitioning from library to so far if lenders continue to allow them to save money doing so right so because sofa always tracks lower than Libor they save money but now they're getting pushback when people see that when entities see that because valuations are based on X and if x changes so do the valuations it's that simple honest to goodness but Clo's are particularly vulnerable to the risk of a mismatch between rates on the loans they buy and bonds they sell to investors yes they are because the clo is actually that that new mishmash of bonds much like the CDO collateralized debt obligation was a mismatch in mortgages and that's what took the system down in 20 and 2007 2008 this has replaced it I've done pieces on it go back and look I know it's complicated but this is critical this is probably the single most important thing that I talk to you and I guess I will have egg on my face if June 30th comes and there's no crisis or if there's no volatility and everything is hunky-dory at oh maybe we'll have a soft Landing we're not going to have a soft Landing into a recession it's not going to happen that's my opinion I can't prove it but we'll find out historically it's never happened before but hey this time is different at any rate credit cracks widen with distressed debt ballooning now why do you care about credit cracks winding with this with distressed deaths because that's what goes into the Clo's foreign this is really you know when when the Central Bank lowered rates to zero and made created all of this cheap money right corporations that that should have could have used that to reduce their debt burden just load it up on more debt because their payments were the same oh great but now guess what's happening with interest rates and they're committed to it but these strains are showing in the credit markets this is where the strain was and distress that was which is which is bad enough in November 2021 right look at where it is now and this goes to December 28th right it's huge so you can see that distress is happening in the credit markets that make up those Clos you may not realize it but ignorance does not make you immune it just leaves you vulnerable the pile of troubled debt in the U.S has more than quadrupled really since me of last year not even a year not even a year do you think that's going to get better particularly with the Fret with the FED raising continuing to raise rates and much as the market doesn't believe the fed the FED keeps telling us they're gonna keep going that means that there's going to be more and more and more distressed debt are they going to have the ability to roll that debt over because credit is tightening so you know this could take down the whole system I'm not kidding companies are more leveraged than ever before and a lot of funny accounting tricks can hide that leverage but this is simply the fact thanks to Central bank's free money and and zero interest rate policy zerp zero interest rate policies corporations level levered up there we were with the leverage in 2007 that toppled the system and here we are through September of 2022. what do you

think you think this is not going to be a big deal it's going to be a very big deal that reach for yield these are what this is the unintended consequences because these guys couldn't figure out that this was what was going to happen or did they want it to happen because we're at the end of this currency's life cycle we've got to transition into a new system but we got to do it with a big huge crisis so much as people think that they want to kick the can down kick kick kick kick kick maybe they don't maybe they're ready for this to be over I don't know cbdc's I don't know but the erosion of Covenant protections which means investor protections also means the clo holders and other investors in leverage loans such as mutual funds are more vulnerable to losses than they were in the past and Recovery values as a result could be lower than average and so what they're really telling you here is that when this shift occurs valuations change so not only are you dealing with distressed debt but the value of the contracts are lower too who's going to eat it in the shorts the little guys we will people that just give their money to these institutional investors and expect them to truly have your best interest at heart when all they can invest in is a dying currency Fiat money dying currency worried about covenants particularly those that circumvent the priority of creditors well you would be a creditor if you own that clo but as people were more concerned about yield than they were about safety and protection they accepted less and less and less protection we've talked about this too you can see it in other videos so make sure that you go back I would I would make sure that I'd go back in and look at all of the videos and maybe we can put all of them because I've been talking about this for quite some time uh videos in there so you can follow this Evolution because we are now at the end could they kick the can down the road again well if they were going to I think they missed that opportunity but once they disallowed any new contracts being written against Libor I think it kind of sealed it that we're coming to an end and these covenants or the lack thereof these loss of Covenant protections are potential ticking time bombs sitting in the documentation and guess what in a court of law they don't care what your perception is they care about what you agreed to and if you didn't read the contract guess who's going to be impacted the most and how what's the result well gold buyers yes indeed bold buyers binge on biggest volume for 55 years and a bunch of those gold buyers are guess what central banks who've been buying the most in history or since they started tracking everything central banks binge on gold would you please look at the difference since we hit 2022 of how much gold they've been buying and remember we just went net positive in 2010 even though the gold buying from the central banks really started in 2005. so who knows more about what's coming than central banks that are creating this mess seriously this last time the last time this level of gold buying was seen was what year was that 1967 marked a historical turning point for the global monetary system do you know I never see those words thank you financial times thank you because they'll refer back to those dates but they never talk about what was happening during that period of time in the 60s the U.S was definitely exporting inflation to the globe and there was a run on the dollar foreign governments converting their dollars into gold and pulling the gold out of our system Nixon closed the gold window giving power to the central banks for inflation in 1971. this is not a shocker because we are already at a historical turning point for the global monetary system thank you financial times thank you for putting that in print it's nice when somebody verifies what I'm talking about so here you go this is the purchasing power of the consumer dollar since 1971. look at this pretty little zero right and even though it looks like it's flattening out it's not we've got inflation that tells you what's really happening with the currency spot gold which is a contract doesn't reflect its true fundamental value 1968 it was at 35 bucks an ounce on as far as nine uh 1 6 20 23 it was 1865.80

gold protects your purchasing power over time period end of discussion it's what it's done for 6 000 years it's what it will continue to do in the future there is no other alternative and certainly no proven alternative well hope to fix that piece because I didn't realize that was the end of it okay no proven alternative exists for protecting you from what we're facing geopolitical risk I mean there's a lot of that going around monetary risk we are in a reset this is not something I'm waiting for it's something we're already in the middle of what do you want to protect you that's what I have protecting me plus Food Water Energy security barter ability wealth preservation community and shelter so if you haven't already please do yourself a favor make sure you subscribe hit that button so you know when we post something new and if you haven't already go ahead and watch last week's video on exposing the scheme that Wall Street is trying to pull I mean just go watch it and then tell me what you think we love questions and we also love comments leave us a review on Apple or Spotify and listen to us anywhere anytime on all major podcasts podcast platforms and if you haven't again if you haven't already done it click that calendly link today get your strategy in place get it executed as quickly as you can do yourself a favor I would always rather be one I don't care if I'm 10 years too early then one second too late because that one second is the difference between your ability to make a choice so if you haven't already make sure you subscribe leave us a comment give us a thumbs up help us spread this message and share share share and until next we meet please be safe out there bye-bye

2023-01-11 16:54

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