Bravery, persistence and hope in the never ending fight for enlightenment.
Nobel Peace Prize winner Malala Yousafzai from Pakistan gives her acceptance speech during the Nobel Peace Prize award ceremony in Oslo. Here is a direct video link.
You have to hand it to the bankers, they were able to rig the game in their favor for a remarkable run the past few years. This December 28, 2012 chart of the Commodity Index (CRB) courtesy of my partner Cory Venable, showed it all.
Prop after prop in prices with QE assurances and investment bank manipulation (see the remarkable facts in this article, Scale of Wall Street holdings, unprecedented in US history) were able to hold prices higher for longer than any fundamental assessment could imagine. But no one gets it all their way indefinitely.
The weight of inventory as prices fall is beginning to panic participants. As shown in the updated chart below, the QE support line is now broken definitively to the downside. A measured move back to where commodity prices began the late, great secular boom in 1999 (green band), is now likely. This would be a further 25% price decline for the basket of commodities from present levels.
Most importantly however, at the end of secular booms prices typically not only retrace their lows, but also languish there for several years while excess supply and capacity are slowly absorbed to a state of scarcity once more. Then the boom begins again just as the masses are least interested in the story.
Over the past 5 years, aggressive central bank ‘stimulus’ policies have fuelled a rampage of cheap money into many asset classes, forcing prices up and income yields down. A prime beneficiary of the ‘free money’ orgy has been speculative grade companies (rated Ba1 and lower by Moody’s and BB+ and lower by Standard & Poor’s) who issued record amounts of debt to indiscriminate buyers.
Capital-intensive energy companies were some of the most active issuers. Rapidly expanding operations, employment in the energy sector surged 70% since the US recovery began in 2009 and contributed the lion share of well paying job growth.
And then the plot thickened. As West Texas Crude plunged 43% over the past 5 months (so far) cash flow has evaporated and borrowing costs for energy companies have nearly doubled from just 5.7% in June to 9.5% this week (Bank of America Merrill Lynch index data). All of a sudden, companies are realizing that their debt payments are massive. At the same time investor interest has dried up, and companies with B ratings and less are being cut off from bond issuance and forced into asset sales and credit lines to pay their bills.
Bubble policies have struck again. Reminding once more of that timeless dialogue from Hemingway’s 1926 novel, The Sun Also Rises: “How did you go bankrupt?” “Two ways: gradually and then suddenly.”
Human behaviour around debt, is nothing if not consistent. See: Fed Bubble bursts in $550 Billion of Energy Debt
