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Something Did Blow Up In Junk
Submitted by Jeffrey Snider via Alhambra Investment Partners,
Now that Kinder Morgan has come out with a massive dividend cut, I think it will get harder to ignore that this isn’t just about crude oil prices and the death of “transitory.” There is a financial element here that is perhaps even more important.
Kinder Morgan Inc., the biggest North American oil pipeline operator, cut its 2016 dividend by 74 percent as the free-fall in crude markets reduced cash flow needed to cover payments on $41 billion of debt.
Kinder Morgan stockholders will receive a payouts totaling 50 cents per share next year, the Houston-based oil and natural gas shipper said Tuesday in a statement. As recently as Nov. 18, the company was promising investors a 6 percent to 10 percent increase from the $2 per share it budgeted for this year, which would have meant payouts of $2.12 to $2.20. [emphasis added]
In the space of just three weeks, the company went from expanding its dividend to cutting it by three-quarters? That is far, far more serious than just oil trading below $40 once more. Again, as noted from Anglo American’s earlier statement, you have to believe that the huge and dramatic turmoil in junk right now is playing a role in these decisions. That includes not just 2008-level prices recently, but also much, much more discrimination in trying to float anything (cov-lite of 2014 is as dead as transitory).
The huge spike in the BofAML High Yield CCC’s that we noted last week is proving to be a real event, real trading and possibly a wholesale reset of the whole funding and liquidity environment.
“Something” didn’t just blow up in junk, it may have been the whole prior financial paradigm. This has, again, not just financial aftereffects but also deep economic consequences as more and more actual businesses turn toward actively managing a very real combined economic and financial threat, instead of desperately trying to ignore it all as Yellen still demands.
What was theoretical before is becoming active circumstances; the media and economists will spin this as “just oil” or “just commodities”, but they also said that oil prices were “transitory”, beneficial and non-concerning in any way. It will be interesting, and vitally important, to see how long manufacturing and general industrial companies can resist marking these same kinds of adjustments with funding and credit applying as much to them.
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Get you're Popcorn here!
A soon to be energy Kindred spirit..
PPT please call Mr Jack Meoff
paging Mr Yellen, please answer the white courtesy phone in the lobby....
She's a Man!
Seriously though, aren't HYG's always the canary in the coal mine......
No better buzzer for an incomming slowdown.
I work right in the thick of the real economy... construction / utility / etc. It is happening right now on the ground floor, sales are drying up, inventories going up. It is as serious as you are projecting in these articles.
Toppling dominoes. Wheeeeeee! Are we going to see banksters in jail? Of course we know better.
My experience exactly. The industrial market (except for the flash in the pan oil boom) has been struggling since 2008. But something changed in September/October of this year. I can't tell you how many times I've heard "it's like someone flipped a switch."
Most people have no idea of how many highly technical and specialized products (valves, cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water going to their homes. Many of these manufacturers are teetering on the edge. If this situation does not change for the better in the next few months we will begin to see major and spectacular failures in our infrastructure.
I can't overstate the potential devastating social and environmental chaos. It's all great fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go out and don't come back on, there won't be much laughing.
Holy Exploding Underwear Batman!
they also said that oil prices were “transitory”, beneficial and non-concerning in any way
As long as Putin is in Syria, US will maintain downward pressure on oil. There is no end in sight unless Putin bombs Saudi Arabia or Qatar.
So in other words, risk an economic 'event' for sake of Wolfowitz Doctrine continuity...?
OPEC is pumping because they are all being attacked fiscally, if the CarbonNazis pass some Carbon tax then watch this accelerate. A glut of supply with demand falling of a cliff, we "may" even see oil in the teens before its over. Venezuela, Saudi Arabia, and add on to that Russia, Iran, Iraq, Mexico and any number of other producers.
Demand for US treasuries will plummet as a result, and the swirling sound you hear will be deflationary spiral emptying the bowl, at which point in time the inflation monkeys will be let loose by Yellen and company. Better stock up on toilet paper now, you will be able to sell rolls of it for a good steak dinner in the hyper-inflationary blow off.
you can't mention kinder morgan and junk in the same paragraph. that's investment grade chit there bub. /s
Somthing tells me we should be investing in popcorn.
So when does the Fed just begin purchasing stocks?
all in good time.
investing, lulz
Umm, they already do.
more carnage in commodity land (Pluto in Capricorn, until 2026) Freeport closes AZ mine lays off 1000+
http://www.tucsonsentinel.com/local/report/120915_sierrita_close/sierrit...
Thanks for the link, as I live in AZ. Been wondering about how Carl Icahn is taking this since he bought 100,000,000 shares during the 3rd quarter, which ended 9/30/2015. He had to have paid over $20 and the stock is now about $7. Geez, losing 2/3rds of your capital in less than 3 month. Anyone know how his backers feel???
I am sorry that I don't know how to convey sarcasm correctly with typing. :^(
They've been doing that since March 9, 2009.
"They've been doing that since March 9, 2009."
This.
!988 actually, but who's counting.
Oh no, some billionaire may lose his bet and his net worth may go down by a few million!
These guys are so self absorbed and they think we should worry about their issues. Maybe, just maybe, they should have been worrying about what their gambling is about to do to the eveyday guy.
sschu
they should be worried about their imminent ride on "mr. bonestripper".
https://www.youtube.com/watch?v=enUo-1TjdEs
The level of contempt billionaires have for common people exceeds your wildest imaginings
Annnndd ...it's gone.
Maybe something like the IMF messing with Ukrainian and Russian debt? If you buy 'junk bonds' and no Central Bank or other Entity 'backs them' - then maybe they ARE junk?
Okay; so how does one profit from this turmoil; I say Yellen does not raise rates and we witness the largest short squeeze in histroy.
Did you say "short squeeze"? Don't you EVER, EVER say those words again!!! As for how to make some money? Well I just sold a few USO puts I've been sweating over for a few weeks. Also back in August, I had bet an oil industry friend of mine that we would see west Texas oil in the 30s before Christmas. He said, "No, I KNOW the oil fields and it's going to $70." Well here we are now in the 30s and my UNEMPLOYED friend has to cough up some money! So that's how I'm making some money. I can't tell YOU what to do. I'm not an anointed financial planner. But I do think most of their clients are pretty much treading water with the waves lapping over their heads.
Houston is in a panic. I am in (un-related to oil) business meetings in houston last week, and people just start talking about the oil price out of the blue with fear in their hearts.
Houston is huge, oil industry is huge there, what CAN happen there if oil hits 20's and sticks?
It's a shithole now too. What's this new trend of angry blacks hanging around gas stations angrily leering at the whites bying gas? I am not a native there I feel like one wrong turn or gassing at the wrong station can lead to a gunfight.
Chemicals and process industries are rocking and rolling due to the low input prices....but when demand goes and inventories fill I am afraid it will be the same for these guys. Hopefully by then oil inventories will be depleted and oil will start back up....it can't stay at $30 forever (but it can't go to $100 forever either).....
HYG close below a critical price level last friday. If it closes below 81.20 at weeks end...look out below...
Once the party gets started with layoffs, div cuts, Capex cuts, EVERY CEO/CFO sees it as an opportunity to clean the slate and jump on the bandwagon because their company won't get as shellacked as if it was the only one...everyone gets to blame "demand" or the "weather". Q1 will be that after Xmas junk bandwagon.
Yellen, either you do QE4 and gold goes up or you do nothing and stocks go down. Either way you choose, you lose.
So... connecting to all the "JNK, LQD, HYG have easy and cheap puts" -- is that all a laymonkey can do? Place puts on HYG, LQD, and JNK?
What exactly is the thesis? Rates go up .25% on Dec 17th... to which the overall market will react with a dip down to 1800, or rather, will be pushed down because big money wants their $1T in options to not expire worthless.
What to do then. Puts at current prices on HYG, JNK, and LQD? Add S&P 500/SPY puts to the mix? To expire whenever, since Gandalf says it's gonna happen? So January would be a safe expiry I'm guessing to capture the downward momentum. Then sell on Dec 18th since Janet will obviously say "oh oops no I mean rates are going NIRP as of right now".
Anyone with an opinion other than "Doom, Gold, it's all going to 0"? I already know this, stay focused people, how do little guys with a PA make some USD to trade for gold?
Cheap OTM calls on Oil, Gold and Silver if the rates go up or stay the same expry Jan and March
Cheap OTM calls on broad reverse indexes if rates go down, expry Jan and March
I closed all of my energy 3x swing trades this week and will not be trading at all until after Dec 16th, but still have my long positions in Oil and Natural Gas.
any fav 4 letter tickers to short long term? my criteria are: expanding # of shares, negative net income, negative cash flows, optionalbe and prices over 100/share. panw, incy, ulti vrtx lgnd come up.....nflx tsla lnkd premiums are way too high. am thinking puts post dec 16 into march expry....then wait then reload for sept/oct expry.
what say you?
I no longer mess with individual stocks. I swing trade 3x indexes where-ever there is nice volatility and volume, and I like stuff that's beaten down.
A perfect example is UWTI, has been great lately, easy trades.
As soon as they find other ways to reward CEOs & others dividends will go the way of the dinosaurs and investors will be disregarded as the IPO money is long gone and nothing left but to trade shares like baseball cards. (as it mostly is anyway)
What a scenario! On one hand, the Fed is all but guaranteed to raise rates in about a week if to do nothing more than to simply safe face. Although still not a sure thing and in my book, may actually raise less than 25 basis points (as in this digital age, why not simply raise by say 12.5 basis points to please both sides of the equation), pushing rates higher in the face of enire HY/Junk Bond meltdown looks to be nothing short of a dissater.
On the other hand, the Fed will be forced to step in and provide liquidity to the HY/Junk markets as no other party, banker, market maker, etc. will have the liquidity/resources to support the mass exodus. Of course they won't do this in the public's eye but will rather use one of the proxies, either in the US or abroad, to in some capacity, one way or another, funnel cash to this crashing market.
So tightening and easing all in the same month, if this isn't comlete and total FUBAR I don't know what it is. But then again, for the largest hedge fund in the world (i.e., the Fed), why not "diversify" your portfolio as they already own treasuries, large DM FX (via currency swaps, off balance sheet of course), MBS/real estate, equities (through their proxies), and now a large tranche of HY/Junk. Won't be long before they not only own just about everything but more importantly, that they are the only market maker left (just like the BOJ with JGBs).
This is what it has come to, the cold reality of CBs Gone Wild. Although not as sexy as Girls Gone Wild, just a tad more important and interesting to those paying attention. As for the masses, well let them eat at Chipoltes (with of course the obligatory settlement reached), abuse the health system, work at the local restaurant but not too much as to jeopardize their entitlement payments, be hoodwinked into a 120 month auto loan, and still for some reason believe in the twin "W" axis of evil (i.e., Wall Street and Washington), all to live in ignorance (and bliss of course).
This is just getting started as with dividends the first to be cut/chopped, cap ex next to go, it was only a matter of time and pressure before debt could not be serviced. That is the message the HY/Junk market is relaying for these dog companies/operations that all need to fail, its never a good idea to support debt service requirements with taking on more debt.
As pension funds start burning the furniture.
I want that $100 in Gold Price they collapsed for no reason, back up to $1200 immediately after Yellen burps into the microphone next week. Then another $300 up before New Year's Eve just because I hate Mr Yellen.
J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Well, I can tell you, where I live tourism is down sharply in Malaysia. The guesthouses in Penang are empty.
I just got off the phone after discussing this stuff with my mom in the contaxt of, "Your father left me very comfortable". Dad passes last year, casualty of socialized medicine, a story for another day.
And my dad did, he was fiscally a VERY conservative guy but I had a great childhood.
We were the last of my dad's six siblings to get a colour TV in the seventies even though my dad used to fix TVs.
My dad worked at the Ministry of Transport for 33 years as a technician even though there were strong pulls from private industry during the various oil boom years.....and subsequent busts.
So after dad's death mom is still pulling ~1600 a month in his pension/super annumation. I told her she should enjoy it because my brother and I will have no such thing. Her response was., 'But he paid into it' and I said "so what!".
American's have paid 13.5% of their saleries for life into SS and the vast majority will get NOTHING.
What do you think the consequesnces are of trusting your retirement to your government? You think private pensions are safe? Nope. By law, in Canada and the USA, the majority of the pensions must be held in low risk bonds, Federal bonds. How safe is a US treasury? How safe is a Canadian Bond? You sit at a kitchen table with your relatives with some garlic sausage, cheese, bread and wine/whiskey for a discussion and talk about this stuff. They always say, "The feds can just default, not pay the debt". I then illuminate them:
1. You know auntie Jean and uncle Mike there, the retired teachers, guess what the Alberta teacher's association pension fund holds as its largest investment? Can you say 'Canadian Federal Bonds"?
2. Guess what retired uncle Joe's ( 30 years in the provincial highways dept) pension fund is most heavily invested in? Canadian Federal Bonds,
3. Guess what uncle Pete's pension fund (Celanease Canada) holds as the majority of BY LAW? Canadian Federal Bonds.
4. Uncle Frank, retired from Texaco, guess what his pension fund holds the majority of, Canadian Federal bonds.
And you are all sitting at the table here, enjoying your drinks and sausage saying we should bankrupt Auntie Jean, uncles Mike, Joe, Frank and Pete because Justin Treadeu and every twat before him want to give seniors free eye glasses? When did eye glasses for seniors become a federal responsibility? Do you want to be on the street so that seniors can be bribed with free eye glasses?
Silence? No one says a word for about 30 seconds......."We actually never thought of it that way".
No, you didn't do much thinking at all. You after all have been voting these idiots in for 50 years.
The only way out is for the feds to STOP the free eye glasses program and every other voter bribery scheme or you will ALL lose your pensions, all of it.
But the Feds will not stop because most families don't have an asshole like me to bring this up at the kitchen table. In decades past they used to, but not any more.
Hedge accordingly.
Squid
pretty sure one could connect kinder - to - Enron
https://enronnext101.wordpress.com/
Three Truths
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