Tuesday, December 15, 2015

SAR #15349


Remember 2007? Not soon enough, I'd wager.
The Wheels On The Bus: Six years of free money from the fed fed a mindless search for returns that built up a junk bond market that is now unraveling. Exhibit one are the dozens of con artists and true believers who issued billions in junk bonds to frack for oil that wasn't profitable at $80 a barrel and is suicidal at $37 a barrel – they'll make interesting wallpaper one day soon. But lots of corporations away from the oil patch jumped into the bond business to finance non-productive borrowing, much of which will turn out to be ephemera, too. Profits without products is a form of Ponzi scheme and like all Ponzi's this one is coming undone.
Exhibit one was Third Avenue Focused Credit Fund which suddenly announced that it would no longer let investors get their money back... for a while. That was followed by similar announcements by a couple of hedge funds, Stone Lion Capital Partners and LionEye Capital, and Lucidus Capital Partners, another high-yield bond fund.
How Much How Soon? Moody’s values the high-yield bond market at $1.8 trillion – double the $990 billion in 2008 as the bottom fell out the last time. The question is not “will the collapse of these bonds spread to the entire bond market, to stocks, to real estate?” But how far will the damage spread, how quickly. With commodities crashing (natural gas has joined petroleum and coal in the surplus surpluses ring) a global, er, decline seems most likely. Pray we don't get Yellen on the TV assuring us that there won't be any “systemic contagion this time.”
- - - - - / / / / - - - -
 
Noted: In a story about explosives found buried in a clearing in a wooded area near Fort Leonard Wood, MO was a line about it being near “where a man was spotted by a trail camera,,,” A trail camera? So much for escaping to nature.
Saving Face: On Wednesday the Fed will raise its interest rate for the first time in nine years. This is not necessary and certainly is not indicated by wages pushing inflation. It is necessary to save Janet Yelen's face. So be it. Let's hope it is not 1937 all over again, but if watching the financial/economic circus teaches us that lessons are never learned. Enjoy.
90 Day Warranty ? The Navy's newest combat ship, the $362 million USS Milwaukee, 20 days into its first sea trials suffered a “complete loss of propulsion” and lay dead in the water. It is being towed back to port. I hope we kept the receipt.
Plunder: The head of the World Coal Association says its members should be the first at the trough, gobbling up clobal warming funds to develop “carbon capture and storage” - a process that has never worked worked except as pretense to let coal mining continue.
Regulatory Humor: Several days late “SEC commission staff” is on site at the ailing Third Avenue Focused Credit offices and is “closely monitoring the situation.” They are there to help “ensure... an orderly process that best protects investors.”
Porn O'Graph: How high is up going to be?

6 comments:

Anonymous said...

Re: Fed raising interest rates - I don't know much about this stuff, so take it for what its worth. Is it possible the Fed is going to raise the rate *because* things are about to get FUBAR? To give themselves wriggle room in order to bail out the banksters again?

Charles Kingsley Michaelson, III said...

While it's possible that the Fed is raising rates because things are "about to get FUBAR", I more suspect that their raising rates will help things get to FUBAR. Or would, if they weren't already there.

I subscribe to the theory that the Fed is raising rates to keep wages from rising while pretending that the unemployment rate is really 5%. There are no inflationary pressures at present - mainly because unemployment is too high (in reality) to empower workers to seek raises or to leave one job in search for another.

The object continues to be keeping the workers afraid, insecure and docile, just as Greenspan admitted back in the Good Old Days.

McMike said...

The Fed needs to raise rates to maintain credibility. And to give themselves room to lower them again.

A freaking quarter pt. They've been warning wall street for, like, five years.

Sure, this'll dislodge a bit of flotsam, but the insiders have long since priced this in and protected themselves.

kwark said...

re "90 day Warranty": Three weeks, $362 million. Wow, at that rate the Navy's newest destroyer, the Zumwalt, at a cool $4.3 billion should last 3 or 4 months! Proof that there are much better uses of taxpayer funds than subsidizing college or repairing bridges!

Anonymous said...

Trail Camera: Based on the bait/material on the ground, I'd expect that trail camera was put in place to capture pictures of wildlife. An interesting question would be who put the camera there, a poacher or a wildlife scientist?

Anonymous said...

Market based capitalism: Coal is now so cheep, and predicted to stay so, that South Korea and Japan will be adding dozens of large coal fired plants. Korea in particular taxes coal imports at 1/3 the rate of natural gas. Fracking technology has actually driven demand for coal back up while depressing demand for solar, wind, and even hydroelectric.