#208 How a Chinese ban and careless recycling habits by households and businesses led to a market collapse in recyclables. More information, including show notes, can be found here. Episode Summary The biggest market crash facing the United States today isn’t entirely economic in nature. It’s actually surrounding the idea of recycling and recyclable goods. Recycling is a service that most communities require and demand. But is it economical? Why has the market crashed in recent months? What are the solutions? This episode of Money For the Rest of Us will answer all that and more, so be sure to listen. What are the current values of recyclables, given the market crash? Most types of recyclable products have fallen steeply in price. Mixed paper prices have fallen 98% in the past year. Corrugated cardboard has fallen 48% and plastics ranked 1 to 7 have fallen 78%. Co-mingled plastics, aluminum, and steel have been holding steady or even increasing, however, the vast majority of recyclables aren’t bringing in the high returns they used to. In areas such as the Pacific Northwest, you even have to pay a company to take it off your hands. What changed? Be sure to listen to this episode to find out. What has caused this massive market crash? The biggest influencer in the recyclables market crash was China’s decision in January 2018 to ban imports of 24 different types of recyclable materials. Americans recycle 66 million tons of material each year, and much of this material used to be sent overseas to be sorted, cleaned, and processed. However recyclable exports to China fell 35% in the first 2 months after the ban, and future rates aren’t looking favorable. Now, all of this recyclable material has nowhere to go. To get the full story behind the China ban and how it impacts the US recycling industry, be sure to catch the full audio for this episode. The 5 main ways we can improve our recycling habits To solve the market crash issue, Americans need to rethink their recycling habits. The problem with “aspirational recycling,” or thinking everything can be recycled just because we want it to, is a contributing factor to this complex issue. 5 ways to combat the recyclable market crash and current mindset about recycling are featured on this episode of Money For the Rest of Us. Here they are: Understand that recycling isn’t going away Consider recycling rate stabilization funds Consider banning certain materials at specific plants to reduce contamination and mixed goods Revamp educational programs about recycling Develop recycling markets right here in the US What’s the real solution to the recycling market crash issue? Even with all the great strategies discussed on this episode, simply recycling in better ways isn’t enough to solve the true issue. Everyone has to start considering the life cycles of the products we use every day. Changing the way countries around the world handle waste and preventing it from entering our waterways and contaminating our land is the real solution – basic recycling is just a temporary fix to a much larger issue. Episode Chronology [0:42] Why the recycling business is currently crashing and collapsing [4:28] The current value of recyclables, given the market crash [8:09] What has caused this crash in recycled goods? [9:32] The problem with “aspirational recycling” [14:38] Why we have to do better at recycling [22:05] The true heart at the of the recyclables market crash issue See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#206 Why the leveraged loan market (i.e. bank loans) is becoming more risky. What are collateralized loan obligations and how do they influence bank loans. Why I will sell my bank loans fund when the economy turns. More information, including show notes, can be found here. Episode Summary Just as you need to be “bear aware” when traveling in the backcountry, you also need to be aware of the risks and benefits when investing in asset classes such as bank loans. What may seem harmless on the surface could backfire within your portfolios if not treated with the appropriate level of caution and knowledge. On this episode of Money For the Rest of Us, David examines bank loans, also known as floating rate or leverage loans, and the various risks associated with this type of asset class. What are bank loans and why don’t they have interest rate risk? Bank loans or leveraged loans represent loans made by banks to non-investment grade companies. They have variable interest rates because the interest paid by the borrower is tied to short-term interest rates that are connected to LIBOR – the world’s most widely-used benchmark for short-term interest rates. For bank loans, as interest rates go up, values don’t go down. Bank loans also hold seniority when it comes to bankruptcy payback. Bank loans are getting more risky as investors move away from high yield bonds During the week of May 13-19, 2018 the net inflow to bank loan mutual funds reached $925 million – the largest intake in 55 weeks. The past 11 weeks have also had extremely high levels of bank loan intakes. Comparably, high yield bond funds had $1.3 billion during the same week in May 2018. The increased demand for bank loans from investors and from collateralized loan obligations is pushing up prices for bank loans, lowering their yields. The increased demand is also prompting more issuance. The bank loan market now exceeds $1 trillion – double the amount in 2010. Protections to those investing in bank loans are lessening There are more leveraged loans in the system as companies take on more debt. However, lender protections are weakening. Many bank loans are “covenant-light loans,” meaning they don’t have as strong of legal protections for creditors. Bank loans also have more flexibility regarding definitions of default. 82% of all leverage loans were considered covenant lite as of April 2018, compared to 60% in 2015. The lax lending standards should definitely cause investors to pause and consider the risks before investing in the asset class. Collateralized Loan Obligations David profiles the characteristics of the largest buyer of bank loans: collateralized loan obligations, also known as CLOs. Episode Chronology [1:02] What are bank loans and why do you need to be “bear aware” of them? [8:30] The price of bank loans can fall as spreads widen as investors worry about potential defaults [10:06] What yield are you receiving over LIBOR? [11:32] There indeed is a strong demand for loans in today’s market [14:12] High demand for bank loans has led to more issuances, but caution is necessary [22:38] Collateralized Loan Obligations are the largest purchaser of bank loans [27:55] A summary of things to look at when considering an asset class See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.