Tuesday, December 8, 2015

Four Stats to think about from last week

There were four key stats or factoids that caught my attention this last week.

1. High yield spreads have exploded higher. We are now at the highest levels since the Financial Crisis. The only times the market has gotten to these types of levels were during or right after a recession. At this time, the reach for yield is over for high yield.

2. 101 defaults this year, most since 2009. The defaults have been centered in the energy and commodity sectors, but it is still disruptive to the overall global economy. The impact of the credit problems in energy seem to have had a contagion to other sectors.

3.  Commodities hit 13 year low based on CRB index. This is not a Financial Crisis problem. This is not a short-term inventory problem. This is a reversal of the super-cycle and it may not be finished. Technology has lowered costs, so production in many commodities has continued even with massive price declines.

4. China's foreign reserves fell again last month. Their reserves have declined from just under $4 trillion to $3.43 trillion. It is likely that 1/3 is from changes in valuation, but the market has been seeing a steady decline that ripples through capital flows and the holders of assets. The pressure on the yuan will continue. The reserve outflows are being sterilized but this is a dislocation that have to lead to price adjustments.

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