Entries by Bob Loukas

An Epic Blowout

December 15, 2014 in /by

Through easy money policies and backstopping the market, the FED encouraged an energy resource boom that became speculative and unsustainable. And so long as Crude prices stayed comfortably above $90, investments made money and everyone was happy. But the debts behind the investments were structured based upon a certain level of Crude prices. The six-month, 47% decline in Crude has pushed price well below the level needed.

It’s not exactly a Black Swan event, since Crude and other assets occasionally move with incredible ferocity. But to a highly levered and speculative population who chose to ignore the risks as being far too improbable to worry about, it’s a situation where debt cannot be offloaded at any reasonable price. At $55 bbl Crude prices, much of the new debt simply does not work, meaning that significant energy company junk bond defaults will occur. Although this is obviously bad for the energy complex, it also has very real implications for broader systemic risk.

Bonds Still Have Legs

December 8, 2014 in /by

A solid U.S. employment report on Friday sparked a sell-off in the U.S. government bond market. And with the positive report, the FED is now under pressure to raise rates sooner than the market had been expecting. Considering that the bond market is already deep enough in the current Daily Cycle, it was surprising to […]

Reminiscent of Pompeii

November 24, 2014 in /by

We’re at the point in the equity bull market Cycle that every piece of news is construed as positive for the equity markets. In many cases, the news even appears to accentuate positive possibilities. The speculative nature of the current advance has by now captured the vast majority of market participants; the media and the pundits are no exception.

For example, the markets were pushed higher this week by several news events, even though the headlines hit the same themes that have been recycled for the past 3 years, and that are almost certainly, by now, fully discounted in prices. The news events included Japan calling off next year’s planned sales tax increase, China surprising with an interest rate decrease, and the ECB announcing that they will be buying assets. These are all related to the tired narrative that central banks and related authorities can alter the natural long term pricing/valuation trajectory of the markets. The world’s equity markets soared on the announcements, and in the process completely ignored the weak fundamentals that gave rise to them. The S&P and Dow even reached new all-time highs, in general very bullish developments. But in this case, the gains were built upon the shifting sand of sound bites rather than economic fundamentals.

The economic reality behind the