Saturday, December 12, 2015
"Wishful thinking and the denial of unpleasant facts are simply not survival characteristics." Jeremy Grantham
Good Times, Bad Times, Next Time: During the boom in oil prices energy companies – especially fracking companies - loaded up on debt. Now as prices slip below $40 a barrel many (most?) producers are pumping as much oil as they can into a market that is already oversupplied. They are cannibalizing their assets in hopes of surviving but increased production is increased downward pressure on prices. At least half of oil-patch junk bonds are likely to default, maybe as much as $180 billion. Joining them are about 72% of bonds in the mining, metals and steel industries. And if China is to be the savior, there is no joy, for China's insatiable appetite for raw materials seems satiated as seaborne imports (iron ore, coal, bulk commodities) are down year over year for the first time in a decade. The Baltic Dry Index of shipping rates for bulk materials fell to an all-time low last month.
At That Point In Time: A recently declassified report shows that the US government knew, within days, that 100% of Fukushima Unit #4's spent fuel was vented into the atmosphere, and that the cores of others had completely melted down. But the public didn't have the need to know.
Just Said No: The $800 million (marked down from $2.4 billion) Third Avenue Focused Credit Fund has lost its focus and is telling its investors that they can't have their money back, pretty much because they don't have it. What they said was that because reduced liquidity in some parts of the bond market it is impractical to pay off departing investors. Doing so would “unfairly disadvantage the remaining shareholders.” Wonder who got to get their money out before the door slammed shut?
Slow & Steady: On a monthly basis, retail sales were up 0.2% from October to November and up 1.4% from November 2014. Sales were greatly boosted by the sale of cars. On six year loans.
Glad Tidings: Investors are people and people prefer good news and somehow disbelieve the inconvenient. The most inconvenient truth is that which gives the lie to our entire economic and financial system: compound growth cannot continue forever. A simple chess board and a sack of corn can illustrate that. Yet we continue to believe in the ever rosier future, one where global warming is miraculously (and effortlessly and inexpensively) stopped and we find that we can feed 40% more people in 50 or 75 years because... grubs?
Posted by Charles Kingsley Michaelson, III at 8:10 AM