The Daily Shot - 12/8/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Tue, 9 Dec 2014 02:11:20 -0500
The Daily Shot™
Greetings,
Energy exposure has become the new sub-prime. In 2006 we saw numerous leveraged
mortgage funds marketed (I remember getting pitched a home-grown one by a team
from Bear Stearns). Remember those mortgage-dedicated teams and a spike in
mortgage securities issuance?
How about credit issuance in the energy sector more recently?
Source: @NickatFP, Dealogic
Similarly, some large asset managers have been pitching energy funds recently.
Here is one from this summer. The manager’s name has been redacted.
And now we have an “adjustment” such as the one shown below. Ouch…
All of a sudden energy credits are viewed as "toxic" assets and everyone is
combing through their portfolios in an attempt to assess their total exposure.
Meanwhile oil prices keep falling – with WTI crude futures dropping below $63
in after-hours trading tonight.
Source: Investing.com
… as the equity markets punish oil & gas exploration and production names,
which take another leg down (7% drop today).
Source: Investing.com
We are going to see some good buying opportunities on this capitulation – as we
did in mortgages.
_____
The situation in Russia continues to deteriorate, as government bond yields go
vertical.
Source: Investing.com
The pressure on governments of other oil producing nations worsens as well.
Source: @divyachowdhury, @Fundumbmentlist
_____
As discussed yesterday, this is not a demand issue. China continues to import
crude at a steadily growing pace.
Source: @TomOrlik
_____
Speaking of China, the Shanghai composite continues to rally (as I suggested
back in November). It busted through the 3000 level on the link-up with HK. The
volume is rising as well with foreign money coming in.
What’s particularly interesting is the spike in new brokerage accounts, as
China’s retail investors get back into the equity game.
Source: @M_McDonough
_____
In another China-related story, the yuan had a relatively sharp drop today
(chart shows the dollar moving higher against CNY). With the dollar rallying,
China’s peg to USD is proving painful. I am watching for signs of China
attempting to decouple somewhat from the dollar and join the “currency war”.
This will infuriate US politicians pushing to label China a “currency
manipulator”.
Source: Reuters
_____
We’ve entered another risk-off period – similar to what we saw in October
(except without the Ebola fear). Risk assets are revisiting or breaking through
the October lows. In currency-land we have the Australian dollar getting
hammered…
… as Australian business sentiment worsens.
_____
While everyone keeps talking about falling rates in the US, the 2-year treasury
note snuck up on us.
With the 2-year yield higher, it’s no wonder that the dollar has been bid up
and emerging markets currencies remain under pressure (on the whole at the
lowest level in over a decade).
EMG currencies index
Source: @RobinWigg , FT
_____
In credit-land BDCs may be revisiting the October lows, as risk-off sentiment
returns.
And HY bonds already fell below the October lows due to high energy
concentration. More pain is likely.
Source: Stockcharts
_____
With gasoline prices sharply lower, …
… equity investors are turning to retail shares, as many expect better spending
patterns going forward.
Source: @FactSet
_____
Now some food for thought – three items today:
1. US middle class net worth has really taken a beating (some of it is housing
related).
2. One way or another, those running higher education institutions will take
their pound of flesh.
Source: The Economist, @michaelshermer
3. Sign of the times: there is a Rembrandt on the wall?
Source: @EpicureanDeal, @TriVestWealth, @HarriettSG
_____
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