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.

1. Agcapita Update
August 7, 2012

2. Agcapita Update
ROLLOVER RISK WORLD TOUR 2015
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.
Here is a concrete example of rollover risk that may
be unfolding right in front of us: Bloomberg estimates
that the developed economies have $7.6 trillion of
debt maturing in 2012 led by Japan ($3 trillion) and
the U.S. ($2.8 trillion) and more than $8 trillion must
be financed when interest payments are included. By
2015 it is estimated that half of the debt of the top 10
global debtors ($15 trillion) will mature and must be
rolled.
DEBT MATURING IN 2012 ($)
Japan 3,000 billion
US 2,783 billion
Italy 428 billion
France 367 billion
Germany 285 billion
Canada 221 billion
Brazil 169 billion
U.K. 165 billion
China 121 billion
India 57 billion
Russia 13 billion
1

3. Agcapita Update (continued)
Sadly, as the political class has become aware of the
CUMULATIVE DEBT MATURING OUT TO 2015 rollover issue, rather than take any productive steps
to address their debt addiction, they have partnered
100% with the central banks to attempt to keep interest
By 2015, half of TOTAL outstanding debt
90% in the world’s top 10 debtor nations will rates suppressed for an extended period - hoping this
80% come due, which is more than $15 trillion will allow business as usual to continue. Politicians
dollars of sovereign debt! want to continue to run deficits and central banks do
70%
not want “too big to fail” financial institutions to suffer
60%
losses on their loan portfolios. What both parties
50%
have yet to learn is that you can control interest rates
40% or the purchasing power of money, but not both
30% indefinitely. I am confident that the law of unintended
20% consequences will be sure to provide that instruction
10%
in due course.
0%
2012 2013 1014 2015 2016 2017 2018 2019 2020 2021 2022 2023+
USEFUL INFO
Source: PFS Group Austerity Chooses You, You Don’t Choose Austerity
- Media and Keynesiam nostrums that the insolvent
sovereign borrowers of the world have a choice
Considering that global GDP is estimated at $70
between austerity and a continuation of their debt
trillion the magnitude of these numbers beg the
binges are baffling to read to say the least. When you
questions of 1) how this will be financed and perhaps
are bankrupt you do not choose austerity, it is forced
more importantly 2) at what rates?
upon you in one fashion or another.
Other than the US bond market which seems well
ZIRP is Old News - Watch out for NIRP - Yes ZIRP
bid for now (at least by the Federal Reserve), private
is now officially out of fashion. Pulling firmly into the
lenders are retreating from peripheral markets at
lead in the race to the bottom, the Danish Central
the first hint of trouble. If this continues, either the
Bank recently announced that it was implementing
monetary authorities will have to step in and monetise
a Negative Interest Rates Policy on certain deposits.
the maturing debts or interest rates will have to rise
ZIRP is dead, long live NIRP.
considerably from current historic lows. We are
seeing the outcome of this process taking place on
Bank of America - In the Long Run - Recent report by
a relatively modest scale in Spain and Greece - what
Bank of America on some long-run relationships and
will it look like when it goes global?
trends.
2

4. Agcapita Update (continued)
North American Gas Prices in 2015 - Recovery to RECENT INTERVIEWS
$5/mcf? - Further to our developing thesis of getting
long shut-in North American NG reserves, First Marketwatch - Investing in Farmland
Energy recently published a report saying the worst Money Morning - Why Jim Rogers is Investing in
for the North American NG space was still in front Farmland
of it (next 12 months) but then rapid price recovery BNN Commodities Show
was expected as drilling investment is collapsing and Macleans - What’s the Use of Saving Money
marginal operators are forced out of the market. Mises Institute Presentation - Myth versus Reality in
the Global Economy
3

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