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The Weekend Effect
The Minsky Moment
BOJ Ready for another Hike
What Happened With The Banks Over The Weekend?
Your Global Preview of Next Week
The Upcoming Earnings Week
The Minsky Moment
The mere mention of a “Minsky moment” — a sudden crash of markets and economies that are hooked on debt — is enough to send shudders through policymakers.1
According to Minsky, there are three kinds of financing: hedge financing, speculative financing, and Ponzi financing.
Hedge financing is the safest: firms rely on their future cash flow to repay all their borrowings. For this to work, they need to have very limited borrowings and healthy profits.
Speculative financing is a bit riskier: firms rely on their cash flow to repay the interest on their borrowings but must roll over their debt to repay the principal. This should be manageable as long as the economy functions smoothly, but a downturn could cause distress.