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This morning, copper and oil continue their great divergence.  Someone’s right on the global economy, we think it’s Dr. Copper.

The amount of metals and mining bonds trading at distressed levels is $26 billion after peaking at $86 billion in February and starting at $31 billion in October. With most commodity prices below last October’s levels, it appears these changes have been driven by the various measures that the companies have undertaken rather than an upturn in commodity prices. Additionally, companies with bonds continuing to trade at distressed levels may signal the market is expecting more drastic restructuring measures. – Bloomberg

 

Janet Yellen’s Fire Hose

A dovish turn yesterday from Chair Yellen put more goodies in the “risk on” bag.

“When would it be appropriate to resume normalization of interest rates? What she really said today was: ‘I have no idea.” And it was the right answer,” said former Fed Governor Laurence Meyer, who now heads the Washington firm LH Meyer Inc. “Normalization is a concept. There is no time frame.”

In January, the Fed told use they would hike rates 4x this year, today the market is telling us they’re nearly done for 2016.  The poorly thought through four rate hike promise to markets was a horrendous risk management move by the Fed.  In a little over a month, the U.S. dollar ripped from 94 to 100.

Next, China, emerging markets and commodities were crushed by the Fed’s unwise management of global risks.  Today, Janet Yellen doesn’t have her hand of the wheel anymore, China does.  She’s still putting out the fire.

“Coming credit crisis will put Fed on hold for 2016.”

Bear Traps, December 11, 2015

Global credit and economic risks have VETOED the Fed policy path for 2016, something we stressed back in December.

This green line is even LOWER after Friday’s Jobs Bomb.

The global economy is driving the U.S. rates bus.  Over the last year, what U.S. economists have been consistently getting wrong, is the fact that global conditions are overpowering the U.S.

Global GDP

Outside the USA: $61T

Inside the USA: $18T

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