The Daily Shot - 12/19/14

From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
To: <thedailyshot@xxxxxxxxxxxxx>
Date: Sat, 20 Dec 2014 01:53:50 -0500
The Daily Shot™

 

 

Greetings, 

 

And so it begins… Collapsing crude prices are quickly making their way through 
the energy sector, as unprofitable oil & gas rigs close down. Those flashing 
red numbers are not just on your screen.

 



  _____  

 

The US dollar index (DXY) closed at the highest level since 2006. This in my 
view could become a major problem for risk assets in 2015.

 



Source: barchart

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Energy stocks (red) have diverged sharply from crude oil (blue). Equity 
investors betting on recovery in crude prices?

 



Source: Stockcharts

 

Some futures traders also seem to be betting on recovery in crude, as net spec 
positions (green below) rise. Enough people out there still in the business of 
trying to catch a falling knife.

 



Source: @boes_

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While everyone tracks each basis point move on the 10-year treasury note, few 
seem to be paying attention to a visible increase in short-term rates.

 



Source: Investing.com

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US corporate loan growth is back above 12% per year.  This is in contrast with 
the Eurozone where corporate loan growth is negative (-1.5% per year).

 



 

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Speaking of corporate loans, we’ve had a 23nd consecutive weekly withdrawal 
from leveraged loan funds and the largest one in over 3 years ($1.8 billion)

 



Source: @lcdnews

 

As a result, the leveraged loan market is shifting, with CLOs increasingly 
dominating the investor base. That makes the loan market quite vulnerable to 
the US “risk retention” regulation which could damage the CLO market.

 



Source: @lcdnews @millerLCD

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Now some food for thought – 2 items:

 

1. 

 



Source: @conradhackett  

 

2. I continue to be amazed when I see academic papers still use normal return 
assumptions to model asset price behavior. 

 



 

It seems that asset price movements resemble earthquakes far better than what’s 
typically used to model returns - “random walk” diffusion processes. And we 
wonder why many financial models fail so badly.



Source: @NickatFP  @PhilipEtienne, Bob Maynard (CIO, The Public Retirement 
System of Idaho)

 

 

Have a great weekend!

  _____  

 

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The Daily Shot - 12/19/14

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