This page has been archived and commenting is disabled.
Deutsche Bank Is Stumped: The Broad Market Is Ignoring The Bear Market In Energy, "Something Has To Give"
First the BIS came out with the following stunner when discussing markets: "The highly abnormal is becoming uncomfortably normal. Central banks and markets have been pushing benchmark sovereign yields to extraordinary lows - unimaginable just a few years back. There is something vaguely troubling when the unthinkable becomes routine." And now the routine of the unthinkable has forced Deutsche Bank to look at the unprecedented disconnect between the collapse in energy assets and the general market - which continues its hypnotized, low-volume levitation - and conclude that it makes absolutely no sense: "We find current dislocation between deep distress in Energy assets and marginal reaction in broad market indexes to be inconsistent with each other. Either energy has to rebound noticeably, or it could pull broader market indexes lower. Exceptions to this assessment are rare."
Oh, but under central planning things which are rare, such as a 1400-point, virtually straight-line run up in the S&P, are the new normal.
More on this disconnect from Deutsche's Oleg Melentyev:
One of the most interesting disconnects that we are currently witnessing on the valuation landscape is that broad market indexes – in equities and in credit – have largely ignored a bear market that has hit energy assets. S&P500 energy stocks are down 19% since their late June highs, while overall index is 5.8% higher and at its all time highs. In credit, energy bonds have widened by 50bp in IG and 310bp in HY, whereas non-energy bonds are wider by 20bp and 60bp respectively. Taking into account the fact that energy is the single-largest sector in all of HY, second-largest in IG, and third-largest in S&P500 (on a level 2 industry basis), this strikes us as an unusual outcome.
In fact, when we went back in history to confirm our suspicions, we found that it is indeed a rare occurrence. In HY, looking at top-three weight sectors trading 200bp above the rest of HY, the only instances that fit these criteria going back to 2000 are Financials in 2009, Media and Autos in 2008, Autos in 2005 (F/GM downgrades), Telecoms in 2001/2002, and Materials in 2001. This makes Autos in 2005 the mildest instance, where a large sector went into distress and the broad market widened by "only" 130bp. Autos were 10% of the market and peaked out at 630bp, whereas Energy today is 15% and trades at 710.
A similar exercise in equities – top three sectors down 20% or more – yields hits in Financials in 2010 and 2007 and Technology in 2000 – all instances where a distress in one sector pulled the rest of the market lower. The smallest impact was left by Technology in early 2013, where the sector dropped 25% and S&P 500 responded with just a 7% pullback.
These observations form the base underneath our view that something has to give here. Either the market is too negative on Energy, or it is not diligent enough in thinking about broader implications. The only argument that stands against this view is that the rest of the economy is supposed to benefit from lower oil, which as we have shown earlier, has its own limitations.
Or visually:
And while we eagerly await Deutsche Bank's answer to these rhetorical questions (perhaps just ask the Fed - after all the "market" is now entirely a centrally-planned creation), it is worth noting that no matter what, junk bond defaults are coming: "We believe HY defaults have seen their lows for this cycle at 1.7% in September, and are now heading towards a 3.5% level next year." In other words, a doubling of HY defaults, and that's in DB's optimistic case.
»
- 13555 reads
- Printer-friendly version
- Send to friend
- advertisements -
Meanwhile Ben is stacking eagles like he's going for the bald one...
"That which cannot continue won't".
-- Herb Stein, economic advisor to Richard Nixon
... And the band played on... on the deck of the USSA Titanic...
If it was real capital being "invested" in the "markets", then capital expenditure would follow, along with job creation etc.
I guess it's not real capital.
DB is stumped?? Central banks are buying the equity markets. How possibly could DB be stumped?
Because the CB's are saying they are not buying equity markets and financiers are trained to believe whatever their masters tell them.
They should be worried as we all should be. Several top chemical engineers I know in the O&G field are getting the ax this Christmas … all formerly solid Middle Class wage earners ... now jobless in Barry's Robust Economy.
“We annihilated some Middle Class folks.”
you can fool mother nature some of the time but you can't fool her all of the time. and when she decides she's had enough of the CB bullshit she'll close down the casino and YOU wont be exiting until they drag you out by your boots.
It's almost as if the markets are manipulated.
I on the other hand love $2.00 a gal. gas.
DB is like the rest of Germany: They are not leaders. but followers; followers of the US "fiat-doctrine-de-jour."
And followers are easily stumped. Puzzle solved.
"That which cannot continue won't"."
-- Herb Stein, economic advisor to Richard Nixon
Duh, it's because the Spy is manipulated by the Fed
Come on it's been 6 years. Get with the program!
DB, the great communist bank, is going to sit there and tell us that they don't know that sovereign yields and energy prices are set in accordance with the marxist credo: From each according to his ability, to each according to his need ?? That was a remarkable tale comrade, tell me another.
I don't get it. Last October world grain prices got cut in half, and no one ran around with his hair on fire.
No one commodity is that big a deal. Now when McMansions take a 50% hair cut, that will at least be entertaining.
That's just the point. After the manufacturing and real estate busts they were counting on the energy business to add a bunch of usa jobs and investment. From back in 2012: http://www.bloomberg.com/news/2012-08-13/america-s-energy-seen-adding-3-...
Then you don't understand oil. It is the lifeblood of the economy. When oil demand drops, the economy is dropping. On top of that, you have hundreds of billions, possibly over a trillion worldwide, of debt borrowed for energy related projects. You don't have the same issues in the metals and ag industries. You're talking about entire countries being taken down by oil prices. Nigeria, Venezuela, Mexico, Russia, Norway, North Afria, Middles East etc
Even more balanced economies like the US, Canada, UK, and Australia are dependent on oil prices over $80
If the price of copper, gold, cotton, corn, or silver drops, there is almost no effect on the world economies. Cheaper inputs, that's about it. No countries are so dependent on any other commodities prices than oil.
Humbug. It's an input price. One of thousands. It's gone up and down for a hundred years. Lots of substitution.
This too shall pass.
Oh goody .... double up HY defaults and they gonna be some rectal rehydration Lehman-style .
So what pin drops next? We've got rates at historical lows, along with employment and incomes, and now - gasp - oil price dropping of all things!
If the World economies are in recovery, populations growing, and all of them using oil in one form or another - how could oil prices possibly be collapsing!?!?
It couldn't be that the economy sucks ass, and that central bank monetary hijinks has mis-allocated and mis-priced every single fucking thing on the planet, could it!?!?
Why yes, it is: possible, probable, and true.
Death to the money-changers!
It's amazing isn't it? Buy stock in that company that added that chemical to the water that made people stop thinking.
It's tempting to believe that oil dropping will be the thing that finally makes the CBs fess up and start telling the truth- that the economy has sucked ass for a long time, everything was supported by their massive liquidity injections and now, finally, the tide goes out and reveals all the naked swimmers.
Sit back, have a little patience and watch it NOT happen like that.
Yeah, sure...they'll fess up like that Gruber fella...what a pathetic display that was.
Nobody pays much attention while that $ press is running. Kind of like US sheeple. Everything is fine until the TV stops working.
as they call 911 when facebook down more than 15 min...
I would be interested to know if that really happened somewhere. Intuition tells me it has.
August 1, 2014
LOS ANGELES – Facebook was down for about 30 minutes Friday morning and officials said the 911 calls flooded their lines.
The Los Angeles County Sheriff’s office even tweeted about the incident, reminding the public the Facebook outage was not a public safety issue.
Source: http://fox13now.com/2014/08/01/facebook-goes-down-for-30-minutes-911-cal...
Leave Brittany Alone! Whaaaaa!
Thanks for sharing that. Big cities are gonna tear themselves a new one when unexpected power outages >2-3days go down.
Wait till the EBT cards go silent. That's when the real fireworks start.
Facebook going down for 30 minutes may not be a public safety issue, but it is a national security issue.
300 "Likes" added to everyone's accounts and all is well.
sudden off grid for 5 days = 5000.BC
crasy psychos will kill for phone battery.
When you get a draft notice in the mail. That's when I ..............
Manipulated
Broken
Manipulated
Juiced
Manipulated data
Suppressed pricing
HFT scalping
Fake broader market.........broken broader market......a fantasy broader market
How the fuck are you stumped douche bank? You know exactly whats going on....
Remember in Nuremberg I was only following orders really didn't cut it as a defense then and it won't cut it for you scum bag bankers and regulators etc NOW
In 2007 everything told me the mortgage market was fucked up and the real estate market was a disaster waiting to happen. But, after five years of the same shit and loan agents telling me this was the 'new normal', I made the mistake of buying in. In 2008 I got my ass kicked in for accepting the new normal. Anyone who can't see what is going on is either stupid or greedy and playing with someone elses money. I fear this could get real fugly before its all over. 'New normal' is only used to justify a situation that's fucked up and out of control. If the markets were operating 'normally' TPTB would not need words like 'new normal'.
nature abhors a surplus, any excess oil will be consumed shortly, a glut of energy is a good thing, the Japs are celebrating their good fortune and can turn on a few more mothballed robots that print Hondas and Mazdas and Toyotas like yen.
When the CB printer is running through all markets....does anybody hear the screams of their victims (non bank participants, of course)???
Mr. Market is telling you crude prices are going higher.
Uh, yeah, that's what Mr Market was saying when he took crude from $80 to $65 in a week.......
I think there is a much simpler explanation than "efficient markets" jcaz. Goldman used to end their financial year Nov 30th. That made the thin markets of December a stomping ground for creating good entry points for the new year's positions. This involves grinding your counterparties' positions into the dirt. Driving prices down in thin markets is a piece of cake, especially when you are herding junior traders at other financial institutions. Remember, the boss at every bank is on holiday. ("quote and cover.") Then leg into the positions you really want between Xmas and New Year's Day. High-fives all around. Think I'm kidding? Look at the yield on Treasuries on the Wed bet Xmas and New Year's last year. Tell me that getting long T's wasn't the trade to have in 2014.
From all indications we are going to war again, and you can't do that without oil...lots of it. Making my list, checking it twice...I'm looking at Monday, Dec 29th....
Oleg just scsred the crap out of Putin who was praying for a rebound in energy prices. Sad reality is we are all in the same boat sailing ever closer to global debt default . Reserve currency, petrodollar and military bullying will not save us this time around.
Don't big fish eat little fish? Next year when all the little players get gobbled up, oil, gas, gold, silver, will be at record prices. Or WWIII. Pick one or the other or maybe both.
"We find current dislocation between deep distress in Energy assets and marginal reaction in broad market indexes to be inconsistent with each other."
Somebody at DB is a genius!!
Ladies and gentlemen, I am not making any sense! None of this makes sense! [/chewbacca defense]
Props! One of the best ever...
https://www.youtube.com/watch?v=xwdba9C2G14
and
https://www.youtube.com/watch?v=clKi92j6eLE
[NB:I feel like the juror at the end]
OIL has a long way down left to go...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
I wonder if the ancient Romans were tripping all over themselves with similar issues trying to keep their Ponzi's going? But of course, Ponzi wasn't around yet, but he was the one to give the concept a name. The practice may have been in place before he came along.
Runing a government Ponzi is the first oldest profession. Nothing even comes close to second.
It's all okay. Ben Yellin has this. Fuck you Bernanke
'We find current dislocation between deep distress in Energy assets and marginal reaction in broad market indexes to be inconsistent with each other.' Well, no shit, Sherlock. Dislocation is precisely the expected outcome when central banks operate to keep market indexes elevated.
This time IS different, in the sense that never before has their been this many central banks increasing the collective money supply at the same time and at the same magnitude. As such, historical indicators and relationships are increasingly breaking down. Or, perhaps more accurately stated, the old models no longer produce the expected range of outcomes and correlations because they are not taking into consideration the present reality of the increased money supply. It ain't the maths that are wrong, it is the formula that has changed.
When the CBs' collective thumb is on the scale, don't expect shit to weigh the same as before. Pretty fuckin' simple.
Oh, come on. The pigmen are not about to allow any downdraft to negatively impact their QTR and CY bonuses. At a minimum, this thing will remain aloft through the end of the year. They've come to far to screw up in the last three weeks of the money grab.
Yeah, like they don't know why the broad market is up every fucking day for six years. ... these people lie 24/7,
The TBTF's who cried to be bailed out are now surprised that markets are out of whack? Must be crunch time again, when even they who can't fail are having a hard time skimming a profit from their own deigned scam.
The fact that CBs are not buying those dying energy assets or dying miner assets should inform you that they don't buy serious garbage. Which means they are basicly big momo traders picking and choosing what they like. As it becomes obvious that each sector is dying, they won't be in there. They are not doing it for charity. They are trying to make a profit for themselves or for insiders. Only the Fed can print USD. The rest of the fks can't take USD losses. They will be crapping all over the Fed's attempts to prop in true whale fashion.
Kudlow said markets are fine on CNBC this evening
he also said that June & July 2008
Housing was fine he said
But what about the banksters Larry
Energy derivative Page issuesAn energy derivative is a derivative contract based on (derived from) an underlying energy asset, such as natural gas, crude oil, orelectricity.[1] Energy derivatives are exotic derivatives and include exchange-traded contracts such as futures and options, and over-the-counter (i.e., privately negotiated) derivatives such as forwards, swaps and options. Major players in the energy derivative markets include major trading houses, oil companies, utilities, and financial institutions.
Energy derivatives were criticized after the 2008 financial crisis, with critics pointing out that the market artificially inflates the price of oil and other energy providers.[2]
PRINT MORE MONEY... FED ASSHOLES, AS LONG AS THE PRINTER HAS INK, THE ECONOMY IS SOLID
truly sad world