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Business/Finance See other Business/Finance Articles Title: Credit Stress: It Isn’t Just Energy Credit Stress: It Isn’t Just Energy Mike Larson | Thursday, December 10, 2015 at 4:18 pm “Well-contained.” 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 … FIXED 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. Poster Comment: Graph at source. Post Comment Private Reply Ignore Thread
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