Without giving any reasons, South African President Jacob Zuma has fired his finance minister (after just 19 months in office). This has shocked investors, already anxious about the nation's surging debt and sluggish economy and South African bonds and FX have collapsed andhas given rating agencies “perfect justification” for further downgrades and the loss of investment grade status. 10Y yields spiked 140bps to 10.18% - the highest since July 2008 - and CDS have soared. The Rand has crashed to new record lows above 15 to the USD.
When Time magazine announced the short list of its Persons of the Year for 2015, there was some consternation that the winner could be ISIS leader Abu Bakr al-Baghdadi or, maybe even worse according to the US press, Donald Trump. Instead, according to the just announced final results, the two gentlemen are in positions #2 and #3 respectively, with the winner being Germany's iron chancellor, Angela Merkel, whose position however in the aftermath of Europe's historic refugee crisis, has been downgraded from "iron" to quite shaky in recent weeks.
"It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions."
There is little question that bullshit is a real and consequential phenomenon (especially popular in the financial markets and central planning arena). Indeed, as the following scientific study finds, given the rise of communication technology and the associated increase in the availability of information from a variety of sources, both expert and otherwise, bullshit may be more pervasive than ever before. Despite these seemingly commonplace observations, we know of no psychological research on bullshit. Are people able to detect blatant bullshit? Who is most likely to fall prey to bullshit and why?
"Like most turns in the credit cycle, it is uncertain exactly when the bottom will fall out of corporate credit markets, but the catalyst is likely to be an unexpected major event, perhaps even a single company getting into trouble. While we have been bearish on high yield for over a year now, we didn't think the conditions were yet ripe for a collapse. Now they're ripe."
- Ellington Management
European Stocks, US Futures Surge On Last Minute Hopes Of "Extraordinary Policy Easing" By Mario DraghiSubmitted by Tyler Durden on 12/03/2015 06:52 -0500
Yesterday's market swoon which unwound all of Tuesday's gains on concerns about a hawkish Fed and fears about terrorism in the US, are now completely forgotten, and have been replaced with the latest daily round of pre-ECB euphoria, driven by hopes that Mario Draghi will announce even more dovish details to Europe's Q€ 2 than just a 10 bps rate cut and a boost to QE more than €10 billion, both of which have been already priced in.
"Do I think they’re going to pay within 30 days? No. The 30 days are not going to make any difference."
"... As the tide of leverage goes out, the full extent of irresponsible lending becomes apparent. The previously virtuous cycle between risk spreads and fundamentals goes into reverse, with lower prices, defaults, and downgrades forcing leveraged investors to sell, leading to even lower prices."
Americans today are blissfully distracted by their iGadgets, plotting out their holiday shopping strategies, leasing new cars, eating out, and buying advance tickets to the new Star Wars movie. They don’t see the wicked winter squalls ahead which will try their souls. We are experiencing the lull before the storms, but the storms are surely coming. The potential for catastrophe is high and burying our heads in the sand is not a strategy.
With at least 83 percent of these companies' operating cash being spent on debt repayments - the highest on record - the renewed collapse in crude oil prices of the last month has renewed focus on the tidal wave of defaults that the credit market is increasingly pricing in (and stocks not).
"On The Cusp Of A Staggering Default Wave": Energy Intelligence Issues Apocalyptic Warning For The Energy SectorSubmitted by Tyler Durden on 11/27/2015 21:24 -0500
The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. "I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession."
"This is legal?" Stephanie Ruhle on CDS after watching "The Big Short" (Bloomberg TV)
There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Some still recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Meanwhile, the foundation of the economy continues to look rotten (the newest round of Fed surveys has begun with another bomb and other manufacturing-related data continue to disappoint as well). This isn’t going to end well, if history is any guide.
Amid souring bets on Brazil and the general malaise across EM, PIMCO has been dethroned as the king of emerging market bonds. A fund run by Ireland-incorporated Stone Harbor has overtaken PIMCO's EM Local Bond Fund as the world's largest emerging market fixed income fund by AUM as rollercoaster bets on Brazil and the departure of both El-Erian and Gross weighs on investor sentiment.