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Agcapita August 7, 2012 Briefing - Rollover Risk World Tour 2015

Agcapita August 7, 2012 Briefing - Rollover Risk World Tour 2015

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Published by Capita1
Rollover risk can be defined broadly as the possibility that a borrower cannot refinance maturing debt. If combined with insufficient funds/liquid assets on hand to fund the shortfall, the borrower will experience a liquidity problem and technically may be considered insolvent.
Rollover risk can be defined broadly as the possibility that a borrower cannot refinance maturing debt. If combined with insufficient funds/liquid assets on hand to fund the shortfall, the borrower will experience a liquidity problem and technically may be considered insolvent.

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Published by: Capita1 on Aug 09, 2012
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08/09/2012

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 Agcapita Update August 7, 2012
 
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ROLLOVER RISK WORLD TOUR 2015
Rollover risk can be dened broadly as the possibilitythat a borrower cannot renance maturing debt.If combined with insufcient funds/liquid assetson hand to fund the shortfall, the borrower willexperience a liquidity problem and technically may beconsidered insolvent.Here is a concrete example of rollover risk that maybe unfolding right in front of us: Bloomberg estimatesthat the developed economies have $7.6 trillion of debt maturing in 2012 led by Japan ($3 trillion) andthe U.S. ($2.8 trillion) and more than $8 trillion mustbe nanced when interest payments are included. By2015 it is estimated that half of the debt of the top 10global debtors ($15 trillion) will mature and must berolled.
 Agcapita Update
DEBT MATURING IN 2012 ($)
Japan 3,000billionUS 2,783billionItaly 428billionFrance 367billionGermany 285billionCanada 221billionBrazil 169billionU.K. 165billionChina 121billionIndia 57billionRussia 13billion
 
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 Agcapita Update (continued)
Considering that global GDP is estimated at $70trillion the magnitude of these numbers beg thequestions of 1) how this will be nanced and perhapsmore importantly 2) at what rates?Other than the US bond market which seems wellbid for now (at least by the Federal Reserve), privatelenders are retreating from peripheral markets atthe rst hint of trouble. If this continues, either themonetary authorities will have to step in and monetisethe maturing debts or interest rates will have to riseconsiderably from current historic lows. We areseeing the outcome of this process taking place ona relatively modest scale in Spain and Greece - whatwill it look like when it goes global?Sadly, as the political class has become aware of therollover issue, rather than take any productive stepsto address their debt addiction, they have partneredwith the central banks to attempt to keep interestrates suppressed for an extended period - hoping thiswill allow business as usual to continue. Politicianswant to continue to run decits and central banks donot want “too big to fail” nancial institutions to sufferlosses on their loan portfolios. What both partieshave yet to learn is that you can control interest ratesor the purchasing power of money, but not bothindenitely. I am condent that the law of unintendedconsequences will be sure to provide that instructionin due course. 
USEFUL INFO
 Austerity Chooses You, You Don’t Choose Austerity- Media and Keynesiam nostrums that the insolventsovereign borrowers of the world have a choicebetween austerity and a continuation of their debtbinges are bafing to read to say the least. When youare bankrupt you do not choose austerity, it is forcedupon you in one fashion or another.ZIRP is Old News - Watch out for NIRP- Yes ZIRPis now ofcially out of fashion. Pulling rmly into thelead in the race to the bottom, the Danish CentralBank recently announced that it was implementinga Negative Interest Rates Policy on certain deposits.ZIRP is dead, long live NIRP.Bank of America - In the Long Run- Recent report byBank of America on some long-run relationships andtrends.
100%90%80%70%60%50%40%30%20%10%0%
CUMULATIVE DEBT MATURING OUT TO 2015
2012 2013 1014 2015 2016 2017 2018 2019 2020 2021 2022 2023+
By 2015, half of TOTAL outstanding debtin the world’s top 10 debtor nations willcome due, which is more than $15 trilliondollars of sovereign debt!
Source: PFS Group

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