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What is a “Blood in the Streets” Moment?



  • edited September 2022

    Would it grieve anyone here to think all of that past performance is meaningless and no guarantee of future results?

    I guess that what I'm saying, to put it in technical financial terminology, is that with all of the crap going on right now this time really may be different... at least until most of that stuff is sorted out. And I'll be very surprised if that doesn't take at least a few years. For Europe, this is about as perfect a storm as it can be.
  • edited September 2022
    Per Moody’s, the first eight months of this year saw 59 corp debt defaults, compared to 55 for the entire 2021. I did not expect that given it was so easy to refinance in 2021 to push maturities out and lower interest expense. As they say, you have to wait for the tide to go out.
  • edited September 2022
    Is there any chance that over valuing holdings would cause the Corperates not to get their debt funded ?
    I also see BaluBalu point of view.
  • When bad news is good news.
  • edited September 2022
    Corporate financing is I believe similar in determination to that of individuals, based on credit history and cash flow. Depending on the environment and type of debt, lenders want borrowers to have the debt be below a multiple of cash flow or in technical terms EBITDA or EBIT—I forget which. So you’ll hear “that company has a 5x EBITDA debt level.” The higher the number is, the greater the default risk. So stock valuation has little to do with this.

    The type of debt matters a great deal, though. Say the debt is floating rate. Just like in the 2007-08 mortgage crisis with floating rate mortgage loans, many corporate borrowers today may be regretting their decision to go that floating-rate route as rates rise. I expect there will be some defaults there.The other thing that matters for borrowers is the maturity of the debt. While investors tend to like short-term debt in a rising rate environment, it’s not so great for borrowers. Suddenly, the borrower not only has to pay the interest but the debt’s principal back in its entirety when that debt matures. Then, if they still need debt, they have to issue new debt in a higher rate less credit friendly environment. There may thus be more default risk in short-term debt than long.
  • I may inject my typical cautions about ST-HY. Many think, mistakenly, what can go wrong in few months. Plenty, if credit conditions tighten. Then the rollover/re-fi of maturing HY becomes difficult. Defaults don't have to happen. Investors then wonder what the heck happened.

    And remember that FR/BL is really ST/IT-HY if rates stop rising. So far so good, but at some point, rates may stop rising and credit conditions may remain tight.

    I think that GFC showed that ST-HY and FR/BL shouldn't be treated as low-risk options. Of course, GFC couldn't happen again, but then 2020 pandemic happened, and we are so soon in 2022 with credit conditions tightening again. So, be careful.
  • ST debt risks are under appreciated (especially now with interest rates closer to the top than to the bottom and Duration risk decreasing). I was surprised when PIMCO introduced HYS.
  • edited September 2022
    Have Stocks Become Cheap?

    John Rekenthaler's view:
    "Today’s stock prices are nowhere near cheap enough to forestall further losses, should the economic news worsen. If the Federal Reserve is still raising interest rates early into next year, and/or corporate earnings head firmly south, then equities will take a further beating. If, however, the economy avoids those problems, then stocks figure to rally. As the 30-year averages show, equities can profit handsomely at these levels - assuming the economy plays its part."
  • Following up on the prospect that Europe is in serious difficulty and the possibility that "this time it may be different", here's an overview on the world economy from this morning's Wall Street Journal.

    Russia’s War in Ukraine to Cost Global Economy $2.8 Trillion, OECD Says—
    Research body says loss of output could be larger if Europe faces energy shortages during a severe winter

    Following are excerpts from the WSJ article, severely edited for brevity:
    Russia’s invasion of Ukraine will cost the global economy $2.8 trillion in lost output by the end of next year—and even more if a severe winter leads to energy rationing in Europe—the Organization for Economic Cooperation and Development said Monday.

    The estimate by the Paris-based club of advanced economies lays bare the magnitude of the economic fallout from the biggest military conflict on the continent since World War II. Russia’s attack has sparked a surge in energy prices that has weakened household spending and undermined business confidence, particularly in Europe.

    Western governments fear that Russia’s order of a partial mobilization and its preparations to annex swaths of Ukraine could prolong the conflict for many months, perhaps years, further fueling the uncertainty now weighing on the global economy.

    The OECD expects the eurozone economy to grow by just 0.3% in 2023, with Germany’s economy set to contract by 0.7%. When it last released forecasts in June, the research body expected to see growth of 1.6% in the eurozone and 1.7% in Germany.

    The OECD warned that Europe’s economy could suffer an even sharper downturn if energy prices were to rise again. Should natural-gas prices rise by 50% over the remainder of the year, European economic growth could be 1.3 percentage points lower in 2023, while the global economy would grow by just 1.7%.

    Such a surge in prices could arise if Europe faces energy shortages over the coming winter, driven by particularly low temperatures. To reduce that risk, the OECD estimates that energy consumption will need to fall by between 10% and 15% compared with recent years.

    The cost of supporting households and businesses is pushing government debts higher, and that has led to an increase in borrowing costs that may further weaken growth. To avoid further big rises in debt, the OECD said that help should be targeted at the most vulnerable households.

    It estimates that the 35 governments whose policies it tracks have committed to spending roughly $150 billion on broad-based measures to keep prices down through December of this year, compared with around $15 billion on more targeted price measures.

    The OECD lowered its forecast for U.S. economic growth in 2023 to 0.5% from 1.2% previously, but said a steeper slowdown is possible if inflation doesn’t fall as rapidly as the Federal Reserve hopes.

    The organization expects China’s economy to rebound modestly in 2023 from sluggish growth in 2022 that reflects lockdowns to contain the Covid-19 pandemic. In June, the OECD forecast growth of 4.4% in 2022, but now expects to see an expansion of just 3.2%. For 2023, it projects growth of 4.7%.

    “The forecast for this year is for the lowest growth since the 1970s, with the exception of the pandemic,” said the OECD. “Next year, we expect growth that is still significantly lower than has been registered in China for a long time.”
  • Thanks, Old_Joe. The question then becomes from a valuation perspective, are these risks priced in already to foreign stocks or not? It's also worth noting that there is a distinction between a company being domiciled in Europe versus a company doing business in Europe with regard to macroeconomic impacts on the Eurozone.
  • edited September 2022
    Fears of sabotage as gas pours into Baltic from Nord Stream 1 and 2 pipelines

    Seismologists detect spikes in undersea activity, possibly indicating explosions, amid three simultaneous leaks


    A current report from The Guardian

    Following are excerpts from the report, severely edited for brevity:
    Gas is pouring into the Baltic Sea from three separate leaks on the Nord Stream 1 and 2 pipelines amid claims by seismologists in Sweden and Denmark of two sharp spikes in undersea activity, possibly indicating explosions, and speculation about sabotage.

    A seismograph on the Danish island of Bornholm, near where the leaks occurred, twice recorded spikes on Monday, the day on which the Nord Stream 1 and 2 gas pipelines underwent dramatic falls in pressure, the German geological research centre GFZ said.

    A Danish military flight over the leaks brought back striking images from the ruptures, including one showing an area of bubbling gas a kilometre wide on the sea’s surface.

    The seismograph recorded near-silence until just after midnight GMT (2am local time), when there was a spike representing a tremor in the earth followed by a continuous hissing wave form. The pattern was repeated at 5pm GMT.

    Amid the speculation over sabotage, suspicion immediately turned to potential culprits – with fingers pointed at Russia, whose pipelines were hit, suggesting a further weaponisation of energy supplies to Europe in the midst of the conflict in Ukraine. Not least it was seen as a possible message about the vulnerability of other marine gas infrastructure.

    “There are some indications that it is deliberate damage. You have to ask: Who would profit?” one European security source told Reuters. The Danish prime minister said sabotage could not be excluded. Poland’s foreign minister was more forthright, suggesting that the damage could be an act of provocation on behalf of the Kremlin.

    Meanwhile the Kremlin spokesperson, Dmitry Peskov, called the news “very concerning” and said that “no option can be ruled out right now”, including sabotage.

    The steel pipe itself has a wall of 4.1 cm (1.6 inches) and is coated with steel-reinforced concrete up to 11cm thick. Each section of the pipe weighs 11 tonnes, which goes to 24-25 tonnes after the concrete is applied.

    British sources said they believed it may not be possible to determine what occurred with certainty.

    One UK insider speculated that any explosions were unlikely to have been caused by a submarine or underwater vehicle, because their presence would have been detected in the relatively shallow Baltic waters. Sections of the pipelines are between 80 metres and 110 metres deep.

    The day of drama began when the Danish energy agency said it had found the leaks on the Nord Stream 1 pipeline north-east of the island of Bornholm, and a third in the Nord Stream 2 pipeline in Swedish waters south-east of the island. “This is not a small crack. It’s a really big hole,” the energy agency said.

    Underlining the significance of the event, Javier Blas, an energy and commodities commentator for Bloomberg, described the undersea gas pipelines in the region as one of Europe’s most important strategic assets. “The subsea pipelines linking the North Sea gas fields, and then Norway with the rest of the continent and the UK are among the most strategic assets right now for Europe. High time for maximum protection. Cyber-attacks against energy assets are, too, a key risk for Europe,” Blas tweeted.

    A five-mile exclusion zone for shipping has been set up around Bornholm, and flights below 1,000 metres have been banned in the area. Methane, the primary component of natural gas, partially dissolves in water, is not toxic and creates no hazard when inhaled in limited quantities.

    “Breakage of gas pipelines is extremely rare”, Danish authorities said in a statement. “Therefore we see reason to raise the preparedness level as a result of the incidents we have seen over the past 24 hours.”

    Nord Stream AG, the pipeline operator, had on Monday morning reported an unexpected overnight drop of pressure from 105 to 7 bar in Nord Stream 2, which is filled with gas but was cancelled by Olaf Scholz, the German chancellor, shortly before Russia’s invasion of Ukraine.

    A further drop of pressure was reported on Monday afternoon in Nord Stream 1, which Russia shut down indefinitely at the start of September, initially saying it needed repairs.

    Since no gas has flowed through either of the pipelines since the start of the month, German authorities have been quick to reassure people that the leaks will not affect its plan to fill gas storage tanks in time for winter.

    Environmental NGOs said the leaks were likely to cause large-scale damage to the environment. “As soon as methane in gas form raises from the surface of the sea into the atmosphere, it will massively contribute to the greenhouse effect,” said Sascha Müller-Kraenner of the pressure group Environmental Action Germany.
    Note: I'm also going to post this as a new topic for those who may not be following this particular thread.

  • You should. This is horrible news that goes way beyond the financial markets.
  • This is total speculation, but I have to wonder if Russia may not be responsible for this. They had already shut off the gas supply, but retained the possibility of restoring delivery. Now, that ability has been removed- Russia no longer has control over the situation.

    Very interesting.
  • Natural causes are unlikely. Who would benefit from this? This could shut off all gas flow to Germany. They are getting gas from tankers, and the price is likely to be much higher.
  • edited September 2022
    I kind of have to agree with Old_Joe on this. I can't see any advantage in Russia sabotaging their own pipeline. All that does is to cut off the flow, and that had happened previously. Now, if someone wanted to prevent any backsliding in supporting of the Russia economy, or, to promote alternative reliance...
  • Guys...what happens if we have a dead decade ahead of us in the markets (Reference Druckenmiller's recent commentary)...who says the CBs/Fed will come to the rescue again with the brrrrrr money printer...I really don't think that is going to happen.

    Why take the drawdown in an environment like this? I get it, really tough (impossible) to time the markets, ya might get lucky but likely not repeatable...I could see staying in during more "normal" times but this is some real wacko jacko markets we done got here, no?

    I think we are due for a bounce within the next couple weeks, too many Puts have been bought....but....I think many are sanguine, hearing maybe down another 10-15% then markets should turn up as the fed again starts easing....and The Gundlach thinks we are going to overshoot to the downside next year...from the 9% (really more like 14-15%) to mayb even -3, -4%.....and if he is right, I don;t see any way how markets rally...

    Hey, like they say, it;s your money. do what you need to do to feel sexy, don't listen to clowns on a chat board especially not me.


    Baseball Fan

    You make a case for owning something that pays dividends/interest. Most folks it seems need income from their portfolio.

  • Hate to say it, but a nuke on Ukraine is looking like the poster child for the original post in this thread.
  • One cannot rule out Putin's use of nuclear weapon, as he gets desperate. Now is the time to see how the China's "no limits" support really is.
  • This is why there should never be just one person completely in charge of anything anywhere. To put it bluntly, autocrats suck.
  • That's for sure.
  • Agree. That would be an extremely black swan. I perceive some of the war related risks are priced into equities now - but not all. One can run the N scenario to whatever extreme one wants. Should the worse occur (total destruction of the human race), than who would need money anyhow? So why bother to invest?
  • A yes, the N-word.

    .....Methinks that won't happen. Saber-rattling. Marcos did it too. But Marcos was a stupid jerk. As stoopid as the voters over there. (As stoopid as the voters over here?) In Russia, it doesn't matter who votes, what matters is who COUNTS the votes, eh? (uncle Joe Stalin.) Poot-face is a sac of pond scum. But I think he knows better. The Ukrainians will just have to win back all of that stolen territory. If there is any good news here, it is that there are battle lines, battle fronts. It's not impenetrable jungle, like Vietnam.
  • edited September 2022
    The countries with nukes get a free pass (zero accountability). We can see why so many other countries want to have nukes (may be as a deterrent) even at the expense of feeding their people.
  • Yes, I think that's true.
  • edited September 2022
    Excellent article linked by @LewisBraham Thanks. The question as to why Russia would want to contaminate an area they claim as their own has occurred to me as well. OTOH - watching Putin leading a pro-Russia rally on the evening news tonight might make one believe he’s out of touch with reality - or worse.

    Leapfrogging here … one might speculate on the personality types that covet / rise to power, not just in Russia, but in our own country as well.
  • edited September 2022
    "...Leapfrogging here … one might speculate on the personality types that covet / rise to power, not just in Russia, but in our own country as well."

    Some are power-hungry germs like the trumpster. too many simply enjoy the limelight. And there are no rewards in politics for Introverts like myself. Making sausage-laws requires a considerable watering-down of one's conscience. Then again, some laws and Bills are just nutjob ideas from the get-go. Creating a Respectful and,illegal under existing federal law.

    Bring back Ike. And JFK. Hell, let's resurrect HST. Things have taken a Turn Toward The Crazy since those days.

    Personality types?
    Here you go:

    But regardless of what personality-types might seek such public recognition and prestige, humans need to nevertheless at least own a conscience. GWB was something of a buffoon, but he was smart enough to recognize the ridiculousness of the trumpster's inauguration speech when he remarked to auntie Hillary: "Well, THAT was some weird shit."

  • edited October 2022
    The author at that link ends with, "[U]nder any reasonable strategy, using the weapons is unthinkable and so threatening their use is by definition a bluff."

    I would not be so sure. If he has to give up any territory he wants to control (probably smaller than what he claims to be Russia but making Russia contiguous to Crimea which has all along been his goal of this war (NATO threat is a red herring)), he will use all means. He has already made massive areas of Ukraine (he does not want / care for) uninhabitable; nuke is just a word. This war has been in the making for at least 10 years - he played a long, incremental game. USEIA shows Europe substantially increased its energy dependence on Russia after Crimea annexation, clearly sending Putin a signal that Europe is too selfish to stop him. ISTM, as long as he is in Power, either Ukraine gives up or there is going to be no resolution to this war. Does the West really have the resolve to isolate Russia and strangle its economy for at least 10 years if he does not withdraw from Ukraine to pre-2014 borders? It was not easy to strangle South Africa and Russia is a whole different ball game. The West are still working on getting Sweden and Finland into NATO - shows who is in control.

    ISTM, if there is a peace agreement in Ukraine, he will give up some of the Ukraine territory he claims to be Russia but does not control or need. IMO, the [most likely] outcome for this war is not much different from Russia's last war with Finland. Any agreement he enters is only as good as how much of it he wants to adhere to - we know how his agreement with Georgia is being implemented. There never was a Putin or Hitler, without enablers. In Putin's case, there have been plenty of enablers both inside and outside Russia.

    I hope my assessment is wrong for the world's sake and hope there is a speedy resolution to Ukraine's misery, but the above is how I am investing. A positive consequence of the Ukraine war has been that we now have far fewer serious cyber attacks from Russia. Let us hope Russia forgets how to do those for lack of practice!
  • @BaluBalu

    Individuals like Putin don't stop with "just a little bit". Button pushing for more won't stop. What's to lose???

    Not unlike Hilter doing a bit of government rework for the country of Czechoslovakia in 1939.
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