That’s the phrase government and Federal Reserve officials used to describe the subprime mortgage problems in 2006 and 2007. They said the stress wouldn’t spread to the rest of the mortgage and housing industry, much less the broader economy.
I said the exact opposite at the time. Sure enough, the entire credit and stock market collapsed, while the economy fell into its deepest recession in decades.
Now, many bullish pundits are saying today’s credit-market problems are largely bottled up in the energy sector. A handful of them are willing to admit the problems are also evident in the broader commodities industry. But that’s about it.
There’s just one problem. It’s not true.
Take a look at this chart that was published in a credit market analysis by Deutsche Bank (DB). It shows the percentage of high-yield bonds trading with yields more than 1,000 basis points (10 percentage points) above comparable Treasury bonds — broken out by sector …
|High levels of stress|
You can see that the energy and materials sectors are clearly in the worst shape, as noted by the large blue bars at the bottom of the chart. The percentage of distressed bonds in those sectors has also more than doubled since this time last year (shown by the pink bars).
But check out the notable deterioration in several other sectors. More than 20% of commercial services junk bonds are now trading in distressed territory, as are more than one-fifth of high-yield retail bonds.
Credit stress is rising fast in transportation and consumer products, too.
And it’s pushing into double-digit territory for gaming/lodging, media, technology, capital goods, telecommunications, and utilities.
|Credit stress is also surfacing in the health-care sector.|
In other words, this isn’t just an energy story … or even a commodities story. It’s a broader, underlying rot that is spreading throughout the credit markets.
Wall Street pundits can try to lie, obfuscate, and sugarcoat things all they want — but make sure you don’t fall for it!
What’s your take here? Is Deutsche Bank onto something? Is this increasing credit turmoil a troubling sign for the broad market? Or should investors ignore it as long as “FANG” stocks are rising and the major averages aren’t breaking down? Do you believe we’re going to rally into the end of 2015 and beyond … or is a day of reckoning approaching for stocks? Share your thoughts online here.
Yesterday’s column on the lack of vision and sensible transactions in Corporate America prompted several of you to weigh in.
Reader M.P. said: “You are 100-percent correct that CEOs are flailing around trying to impress Wall Street. It may have to do with 24/7 media coverage of financial markets and the resulting hyper-importance of Wall Street’s valuations as the raison d’être for corporate decisions. One can tell that this phenomenon is reaching ridiculous heights when the Yahoo (YHOO) ticker may soon be a proxy for Alibaba (BABA) and nothing more.”
Reader Henry A. added: “The merger of Dow Chemical (DOW) and DuPont (DD) may produce an increase in asset price (probably temporary), but it’s unlikely to increase real wealth. You need gains in real net investment, entrepreneurial activity and gains in labor hours to create wealth. Most likely the result will be just the opposite.
“It makes me think of the Studebaker and Packard merger in the 1950s. You just get a bigger dinosaur.”
Reader Billy also took a jaded view, saying: “The Fortune 100 is running out of ideas and capabilities to grow their businesses after squeezing all they can out of workers as part of a financial engineering ploy to become fabulously wealthy over the last several decades.
“This is unfortunately the price you pay for concentrated global elitism. Now that the middle class (a.k.a. the golden goose) has been killed, is there any reason to wonder why there are no more golden eggs?”
But Reader Jim suggested the jury is still out on the latest transaction, saying: “As for the current spate of seemingly pointless maneuvers in the corporate world, it may be like playing Solitaire. Sometimes when you’re playing Solitaire, you run into a hole. Moving cards around suddenly can unlock a stack and boom, the game is won. So these moves may seem uninspired, but they could unlock lots of unseen opportunities.”
Thanks for sharing your perspectives. As I said in my column, rational, well-planned and visionary transactions can benefit both companies and shareholders. But this latest spate of deals seems haphazard, desperate, and anything but focused on long-term wealth building. Time will tell either way.
If you have additional thoughts on this topic, don’t be afraid to share them below.
Regardless of whether you take a fond or skeptical view of the Dow-DuPont merger proposal, government officials are likely to go over it with a fine-toothed comb. They could block it outright on antitrust concerns, or force several divestitures to ensure the combined firm wouldn’t have too much market power, according to the Wall Street Journal.
The troubled commodities giant Glencore (GLNCY) is at it again, trying to assuage market concerns about its future by promising to cut even more debt and sell more assets. It has already slashed its 2016 dividend and raised $2.5 billion by selling more shares to investors. But that didn’t keep the stock from plunging 80% this year.
The Pentagon and American intelligence agencies are looking to build more bases on foreign territory in order to fight ISIS and other regional terrorist groups. The idea would be to base more special operations forces and spies in small installations in Africa, Asia, and the Middle East, who would conduct surveillance and raids as needed.
Have New York City rents finally hit a point where no one can afford them anymore? Maybe. Apartment vacancies in Manhattan just hit a nine-and-a-half-year high of 2.87%, according to Bloomberg. Median monthly rents had surged 18% in the past few years to $3,361, but now landlords are responding to rising vacancies by offering the most concessions since 2011.
Will Glencore’s fire sale succeed in keeping the company afloat? What do you think about the plan to base more troops and operatives in far-flung corners of the world? And can anyone really afford to live in New York anymore … or has it become a playground for foreign oligarchs and the uber-rich? Add your comments to the mix here at the website.
Until next time,
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