Archive - Dec 14, 2015 - Story

With Nattie down 6% in early trading, the most in 2 months, pressing to new record lows and oil prices continuing their carnage, the energy complex is a mess. OilPrice.com's Nick Cunningham warns, while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning...

While this may well be the most important week for capital markets in the past 9 years, when the Fed is widely expected to hike rates on Wednesday, precisely 7 years to the day since it cut rates to zero, here are the other key events to watch out for.

In an effort to wrestle S&P 500 to VWAP, to enable panicking professional sellers out, a sudden bid for crude oil and commodity currencies appeared shortly after 8amET...

"The solution to uncertainty is cheaper valuations. If problems are priced in, investors can afford to look through near terms concerns and focus on the longer term. Worryingly, we have exactly the opposite situation today. Average stock valuations are close to historical highs – so we have lots of risk and little in the way of valuation cushion.... Time for a US rate rise then?"

"Our bond fund took a sizeable “hit” on Friday following the news of the refusal on the part of the Third Avenue fund to allow for immediate redemptions where those unable to sell their positions in Third Avenue sold what they could and where they could to gain access to liquidity."

Small doors, large crowds. Amid yet more liquidations (Brazilian Bank BTG flushing its European credit exposure and Lucidus US HY fund), the large high-yield bond ETFs are tumbling in pre-market as two years worth of under-water easy-money trend-followers head for the exits from the "highly liquid" ETFs.. . and crush what little liquidity there is in the underlying. When will The Fed step in and buy US HY debt to stymie "fire-sale" prices?

"One of the sad side-effects, is successful strategies, with liquid investments that are built for volatile markets and have no gates, become the piggy-bank for everyone that needs cash."

Moments ago, a third domino fell as Lucidus Capital Partners, a high-yield credit fund founded in 2009 by former employees of Bruce Kovner’s Caxton Associates, has liquidated its entire portfolio and plans to return its $900 million in AUM.

• Oil prices drop towards 11-year lows on worsening glut (Reuters)
• Third Avenue Seen by Top Investors as Fueling More Carnage (BBG)
• Lucidus Has Liquidated $900 Million Credit Funds, Plans to Shut (BBG)
• Investor nerves tested with yuan, oil, Fed in play (Reuters)
• Junk Bonds Stagger as Funds Flee (WSJ)
• Seattle lawmakers set to vote on allowing Uber, other drivers to unionize (Reuters)

Despite the decline in stock valuations, US equities have performed far better than credit, causing investors to ask us, “What does the credit market see that the equity market does not?” Credit markets are reacting to a real deterioration in corporate balance sheets that the equity market has yet to digest. High yield (HY) credit spreads have widened dramatically since June and are currently in territory typical of recessionary environments. In contrast, the S&P 500 is just 6% below its all time high of 2131 reached in May of this year. Here are five observations...

With just 72 hours to go until Yellen decides to soak up to $800 billion in liquidity, suddenly we have China and the Emerging Market fracturing, commodities plunging, and junk bonds everywhere desperate to avoid being the next to liquidate.