On this side of “dollar” funding, risk continues to drain, steadily, but rather methodical about it. While China is taking most of the attention, deservedly, credit markets are not enthused about any of what has taken place. Again, I think that is more the yuan’s relation to the “dollar” than of anything else interpreted for or about the PBOC. It [...]
Given the outward expression of the “dollar” in various proxies, it is not surprising to see the inward development continue in the same pattern. Interbank rates and estimates are in many cases surging, particularly in the second half of July which matches the acceleration in the outward projections. This direction is nearly uniform, which confirms that the latest “dollar” problems [...]
With almost everything turning lower this week under “dollar” pressure, it is imperative to keep in mind the apex asset class. In 2007, it was the ABX indices and various mortgage related structures that signified the how far along everything was; in this cycle it is clearly corporate credit. The disarray starts in the riskiest pieces and then moves inward [...]
While the outward-facing pieces of the eurodollar puzzle show a little bit of Greek reference, the inward parts seem much more defined by the systemic erosion in liquidity and capacity quite apart from all that. LIBOR and other money rates continue to rise, as do risk spreads. Since the QE system was laid out roughly on liquidity as function, the [...]
Stocks may be ignoring the “dollar” and liquidity more broadly (at least as far as repurchases are concerned) but the continued stress in the eurodollar world has had an accumulating effect in some places. Primarily that has been shown in the once-thriving junk space, including more illiquid “products” like leveraged loans, which has continued in disfavor more recently. The shift [...]
In its 84th Annual Report released last June, the Bank for International Settlements departed from usual central bankish conventions and decried the growing departure from market discipline and even reality. The BIS even used the loaded term “euphoric” to describe what it saw as risk market prices no longer affected by fundamental economic conditions. As the Financial Times noted then, [...]
If there is a set of data points that should be most concerning and useful (in that regard) to policymakers they are certainly related to junk debt. You can throw away even the irregular nature of GDP and surely ignore the Establishment Survey and unemployment rate. Given that those statistics are at least captured by a greater governing dynamic (which [...]
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 [...]
With liquidity running somewhat perilously noncommittal since June, you would think the riskiest parts of the credit market would be most affected. That is incorrect and once again stands out as to the bubbly nature of the current age. Aside from liquidity draining enthusiasm into and around October 15 and December 1, high yield debt has not only repriced itself [...]
Oh Europe. I have a growing sense that US credit markets are repeating the leadup to last October 15, though there isn’t any obvious expression of any such illiquidity (at the moment). For one thing, the eurodollar curve has taken the FOMC’s bluffs in complete stride, in fact doing the exact opposite as you would expect of a very close [...]
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