With The SNB and BOJ already neck deep in their equity-buying experimentation, and even Janet Yellen hinting at it for The Fed, the most pressing question on most liquidity-hunting central-planer-watchers is - when will Draghi start buying stocks? The short answer, from ABN AMRO, is ECB equity purchases are unlikely in the near term.. and even so, The ECB would be increasing the risk on its balance sheet for uncertain, and at best modest gains in economic growth and inflation.
After one the biggest rallies in the last seven years off the Feb lows, high-yield bond investors are rushing into bearish (hedge) positions ahead of this week's Fed/BoJ spectacle. Put volume (protecting downside) in the last few days has soared to levels only seen around Brexit and last December's Fed rate-hike as Bloomberg notes, investors have already become skittish on signs that global central banks may turn off the spigot.
If yesterday one could "explain" the overnight stock levitation due to the move higher in crude oil, today there is no such catalyst with WTI down modestly, and yet the broader push higher across European stocks and US equities has reappeared following yesterday's muted close on Wall Street ahead of key central bank data on deck.
Moody's has caught up to what readers of Zero Hedge knew half a year ago. According to the rating agency, creditors of energy exploration and production companies that went bankrupt last year recouped less than half the usual amount for their claims, and 2016 is shaping up just as bad. Moody's even went so far as to even use the "C" word: "Recovery rates for 15 U.S. E&P bankruptcies averaged a “catastrophic” 21 percent last year, well below the historical average of 59 percent."
On the current path, the world is experiencing the largest artificial asset allocation in modern history, one that is driven by a misguided interest rate regime that has lost its efficacy and is producing more harm than good. Yet the fear of withdrawal pain is keeping central bankers from doing the inevitable: Quit. The response is predictable: "I need the drugs!"
...the revelation of a default event exposes the vast gap between 'real' asset values (upon liquidation or bankruptcy) and the artificially supported 'prices' seen in bond markets. In the 30 year life of the so-called junk bond market, the chasm between reality and central-planner-created markets has never been wider.
"With macro this dominant, credit no longer seems bothered by defaults. S&P pointed out this week that YTD defaults have now equalled last year’s full-year total, and are running at their highest pace since 2009. Once upon a time, that would have been associated with spread widening. But not this year."
Distortions in financial markets keep growing, as central banks all over the world are desperately intensifying monetary pumping. What is currently happening in various bond markets as a result of this and other interventions is simply jaw-dropping insanity. It is not so much that it defies rational explanation – in fact, all of these moves can be explained. What makes the situation so troubling is the fact that investors seem to be oblivious to the enormous risks they are taking. They are sitting on a powder keg.
While California may have the highest per capita debt, it also has the lowest default rate across the entire US. Which is incidentally where it also was in the years 2003-2005, just before its default rate exploded after the subprime bubble burst.
Various analysts believe that the close correlation between the junk bonds and crude oil - which have been together for quite some time - has now decoupled. Is this relationship really over, or is this parting of ways only a temporary separation?
The Fed's latest Senior Loan Officer Survey for July 2016 showed that banks continued to tighten standards on commercial loans in 2016 for both commercial and industrial (C&I) and commercial real estate (CRE). This was the fourth straight quarter of tighter standards: something that has never happened outside of a recession.
The crucial thing to understand about credit bubble dynamics is that borrowing money from people desperate to lend and using the proceeds to overpay for assets requires only monkey-level intelligence. So while a bubble is inflating it’s impossible for most of the media, banking and political communities to tell the legitimate operators from the hopelessly corrupt and/or extremely stupid. That’s the world we’ve created by handing monetary printing presses to governments, and by extension to corporate CEOs.