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Slides and Links: https://www.itmtrading.com/blog/investing-on-borrowed-time-how-close-are-we-to-the-meltdown/
A leveraged loan is typically used in LBOs (leverage buyouts) where a corporate merger or acquisition is funded by debt initially funded by either a bank or a non-bank. Then, “using the leveraged loan market as a wallet” additional debt is put on the corporation to fund dividend payouts. Once that money has been paid out, it’s no longer available to the company and may put the ability to repay these loans at risk.
Because of the low quality of leveraged loans, they are not typically liquid (easily bought or sold). You might ask, who buys them? According to the BIS, CLOs, Pensions, Mutual Funds, Hedge Funds, Asset Managers, Insurance Companies and Banks.
You may hold some of these risky loans and not even know it because, like the CDOs that triggered the 2007 financial crisis, these loans, when bundled together, magically have a higher credit rating and become “marketable securities” that are sliced and diced into “tranches” then “pitched to more risk-adverse investors.”
Feeling an impending market collapse, many people are flying to safety of gold.
Because of this and the recent trend in no (apparent) fee wall street products, Barclays Bank has launched the “first zero-fee gold investment product”. This new product is an ETNs (Exchange traded note) which is actually an unsecured debt obligation of, in this case, Barclay’s. But it does not pay interest and repayment of principal is based on a very complicated formula tied to 3-month gold and silver derivatives.
In the meantime, Barclays will use investor deposits to speculate and hopefully, make more money than they’ll have to pay out.
In fact, ETNs are so risky that FINRA (Financial Industry Regulatory Authority), who regulates Wall Street, has increase the margin requirements (amount of money down) because of the ETNs “complexity and substantial risks”. So those who do not understand what they are buying, may want the safety of gold but are getting complicated risk. Free will likely end up being far more expensive than the fees you know about.
How can you avoid these mistakes? It’s easy, just buy real physical gold and silver that you hold.
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