No inflection is ever expected in the real economy since everything is always extrapolated in straight lines by orthodox economists using econometrics. Similar interpretations are being used in stocks, and not just in the “earnings recession” that is already declared “unexpected.” In terms of share prices, there is little doubt about what is holding up the S&P 500 and larger [...]
The energy sector may account for a good proportion of risky credit, but that doesn’t necessarily mean that all negative price action in high yield and junk is entirely energy. While certain markets have regained comfort with the world’s various potentials, the outer echelons of US credit remain on alert. That is typically the pattern of an impending inflection in [...]
The central insight into the Minsky moment is really about saturation, as that point represents where any system can no longer sustain growing marginal inefficiency. In fact, it becomes so inefficient that its entire forward dependence is predicated on simply more debt being issued to pay off old debt. In terms of the economy, that means so much financial resources [...]
Deutsche Bank over the weekend announced a significant dilution to existing shareholders, raising some €8 billion in equity capital in two distinct transactions. About 60 million shares are being sold in a single transaction to a new “anchor” investor, Paramount Holding Services, the investment fund of the (a?) Qatari Shiek. The second transaction is a fully underwritten offering of up [...]
Now that we have a very good idea that small companies are having trouble with their bottom lines, that leads to the debt question. The major procyclicality associated with high yield bubble behavior is that it extends the “useful” life of smaller businesses beyond where they otherwise would have potentially scaled back or gone into bankruptcy. In macro terms, that [...]
There are certain compounds that just do not go together without creating volatile reactions. These binary substances, when mixed, are exceedingly dangerous under even stable conditions. It seems as if there is a lot to be said of the latest near miss in Chinese bond defaults. Again, we are dealing with a relatively tiny business that should, on its own, [...]
In February 2013, more than a year ago, Jeremy Stein, Federal Reserve Board Member, openly expressed concern over behavior in certain sectors of the financial markets. He categorized this as “reaching for yield”, but there was more than a whiff of caution in his exposition of leveraged loans and junk debt. “The annualized rates of PIK bond issuance and of [...]
There has been a lot of discussion about the Chinese credit markets, and rightfully so, as unusual events are in the midst of probing “market” sensibilities as they relate to great imbalances. Along that line, this passage in a CNBC article caught my attention: Strict government controls, and the fact that state-owned companies own the bulk of government debt prevent [...]
Ever since the December FOMC, the credit markets have seen a dramatic decline in volatility that had previously been a major factor in sowing turmoil. Perhaps it is markets simply settling in to the idea that the Fed finally tapered and it wasn’t the end of the world, but my sense is that there is still a great deal of [...]
The immediate response to the December taper was to sell off in dollar funding markets, but overall the shape of the yield curve has been decidedly toward flattening. That started conspicuously on November 20 (with the Fed’s sudden POMO interest in the 10-year) and has only increased in the weeks since taper. We will have to see about today’s additional [...]
Stay In Touch