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Energy Bond Risk Soars To Fresh Record High As Stocks Slump To 20-Month Lows

Tyler Durden's picture




 

The S&P 500 Energy sector stocks are down over 12% year-to-date, tumbling over 3% today to fresh 20-month lows. The spread (or risk) of high-yield energy credits surged again today, breaking above 850bps for the first time... The overall high-yield credit market is being dragged wider by this contagion as hedgers try to contain the collapse that is possible. For now, the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector...

 

High-yield energy sector risk is exploding...

 

and stocks are imploding relative to every other sector...

 

and for now, the S&P remains ignorant...

 

Stocks just dumped to catch down to credit weakness on the day as even investment grade credit is getting hurt...

 

*  *  *

Here are the facts, per Deutsche Bank:

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spend, 15-20% US

 

 

In short, while nobody knows just how many tens of billions in US economic "growth", i.e., GDP, will be eliminated now that energy companies are not only not investing in growth spending or even maintenance, being forced to shut down unprofitable drilling operations and entering spending hibernation territory, the guaranteed outcome is that US GDP is set to slide as the CapEx cliff resulting from Brent prices dropping below the $75/bbl red line under which shale is broadly no longer profitable will offset any GDP benefit unleashed from the "supposed" increase in consumer spending.

Charts: Bloomberg

 

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Mon, 12/08/2014 - 13:26 | 5529114 jubber
jubber's picture

So I presume JPM are holding the Oil derivative bag?

Mon, 12/08/2014 - 13:31 | 5529136 SandiaMan
SandiaMan's picture

US Taxpayer gets that bill

Mon, 12/08/2014 - 13:45 | 5529202 KnuckleDragger-X
KnuckleDragger-X's picture

If the derivatives take a crap even the sheep will notice.

Mon, 12/08/2014 - 14:17 | 5529348 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The first air filled bubble is leaking the Fed's hot air. More to come...

Mon, 12/08/2014 - 13:40 | 5529170 LawsofPhysics
LawsofPhysics's picture

No, they, and the other TBTF primary dealers have passed that bag over to the taxpayer already...

Mon, 12/08/2014 - 13:47 | 5529207 Stoploss
Stoploss's picture

LOL!!!

Mon, 12/08/2014 - 13:26 | 5529119 Glass Seagull
Glass Seagull's picture

 

 

Nice to know the composition of future US jobs will change from high-quality energy positions to cocktail waitresses at strip clubs (that take tips in US food scrip)

 

Mon, 12/08/2014 - 13:32 | 5529142 lakecity55
lakecity55's picture

I'm not keen on seeing burly oil workers taking it off at strip clubs.

I think we are in a lot of trouble.

Mon, 12/08/2014 - 13:46 | 5529201 ParkAveFlasher
ParkAveFlasher's picture

If the money isn't good, what kind of strippers do you think you'll see? 

Mon, 12/08/2014 - 13:36 | 5529153 Jlasoon
Jlasoon's picture

Strip Club? 

What is this 1972?

Chaturbate is a little safer for the young female suburbanite with $72,000 in student loans. All u need is a computer, willing participants, and a Sharebuilder account with direct access to the S&P 500. Let it ride baby. Now there's a nice plan to pay off those debts. 

Mon, 12/08/2014 - 13:30 | 5529133 Victorio
Victorio's picture

Wonder how many correlations can be broken before it all comes down?

Mon, 12/08/2014 - 13:50 | 5529226 Stoploss
Stoploss's picture

They are in the process of discovering any correlation breakdown, causes a crash.

Mon, 12/08/2014 - 13:31 | 5529139 Manthong
Manthong's picture

the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector...

Yeah, like the SnP is actually affected by fundamentals anymore.

Mon, 12/08/2014 - 13:36 | 5529161 Pareto
Pareto's picture

Janet's buying the Emini

Mon, 12/08/2014 - 13:34 | 5529148 tc399
tc399's picture

So much for the US replacing Russia as a gas and oil supplier to the EU.

Mon, 12/08/2014 - 14:54 | 5529476 disabledvet
disabledvet's picture

Well we certainly are the buyer of last resort.

Too bad no one really needs the shit anymore...

Mon, 12/08/2014 - 13:38 | 5529154 firstdivision
firstdivision's picture

This shit is going to break one way or another.  Hedge accordingly.  Going Tepper long below 62.  What I cannot figure out is if the Saudis informed the bankers prior to the crushing blow.  I am curious how the banks were positioned, though I'm certain that HF's were positioned long when it dipped below 90.  This will be a blood bath come EOY closing. 

Mon, 12/08/2014 - 13:41 | 5529179 LawsofPhysics
LawsofPhysics's picture

Good questions, but I am wonder whether or not one could get a significant tax break if one were to claim certain losses...

Mon, 12/08/2014 - 13:50 | 5529220 KnuckleDragger-X
KnuckleDragger-X's picture

That's why we have tax lawyers but considering the big players in the game I imagine there are 'holes' in the tax code....

Mon, 12/08/2014 - 13:38 | 5529167 youngman
youngman's picture

High yield is High risk baby....and they are about to find that out....but beware of GS selling you a bunch of oil patch loans right now....the squid will sell their mothers if they could

Mon, 12/08/2014 - 13:51 | 5529228 KnuckleDragger-X
KnuckleDragger-X's picture

Shhhh.... the "R" word must never be mentioned.

Mon, 12/08/2014 - 14:57 | 5529482 disabledvet
disabledvet's picture

How about the "c" word ("collapse") or "p" word ("panic")?

Mon, 12/08/2014 - 13:42 | 5529186 SheepDog-One
SheepDog-One's picture

Take THAT Vlad!
Oh, wait....

Mon, 12/08/2014 - 13:45 | 5529195 LawsofPhysics
LawsofPhysics's picture

Who are we kidding, no one is actually allowed to default or go bankrupt anymore...

Mon, 12/08/2014 - 14:28 | 5529230 KnuckleDragger-X
KnuckleDragger-X's picture

At least no one important......

Mon, 12/08/2014 - 13:45 | 5529197 Bay of Pigs
Bay of Pigs's picture

Everybody has a plan until they get punched in the face.” - Mike Tyson

Mon, 12/08/2014 - 13:55 | 5529247 jubber
jubber's picture

"The difference between stupidity and genius is that genius has its limits." - Albert Einstein

Mon, 12/08/2014 - 13:51 | 5529229 Dr. Engali
Dr. Engali's picture

"Risk"... now there is a funny word in the new normal.

Mon, 12/08/2014 - 14:00 | 5529274 LawsofPhysics
LawsofPhysics's picture

yes, much akin to the word "minority"...

Mon, 12/08/2014 - 14:10 | 5529317 abgary1
abgary1's picture

The reason the S&P 500 has not fallen is because the central banks only know how to buy.

Mon, 12/08/2014 - 14:23 | 5529376 ghostzapper
ghostzapper's picture

A bunch of banks imploded on some folks. 

Mon, 12/08/2014 - 15:17 | 5529558 Spungo
Spungo's picture

Double stars! Bailouts for everyone!

Mon, 12/08/2014 - 17:04 | 5529964 The Nugget
The Nugget's picture
F-R-R-R-R-A-A-A-C-C-K!!!!

THATS THE SOUND OF THE OIL FRACKING INDUSTRY IMPLODING!

First the oil price comes down then the stock prices drop but they are still paying those dividends (you think to yourself) so I'll just hang on!! Then they cut their dividends and the share prices really get killed (I've seen this game played before) better sell all those oil assets and buy some real investment insurance!!!

Unlike the western central banks war on the precious metals, Saudis actually have the physical oil in their war on oil!

HMMMMMMM! Lets see now- demand for gold and silver skyrocketing! Demand for oil dropping like a stone- or that guy on the pole (or so were told)! where do you think we go from here!

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves”

--

There are two mistakes one can make along the road to truth - not going all the way, and not starting." ... Buddha

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