Business

With "significant" financial stress pervading the markets, it is hardly surprising that systemic risk concerns are rising rapidly. What we have been experiencing in markets this year, as BofA's FX team notes, is the impact of multiple shocks, at a time when central banks cannot come to the rescue, in a market that has been addicted to the central bank policy put. This leave cross-asset correlation soaring as shocks become larger leaving market fragility increasing.

With plenty of Tail risks lurking...

Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

In a recent article by Kessler Companies (hat tip Zerohedge) they correctly point out that inflation, as measured by the consumer price index, have a tendency to accelerate as the US economy moves into a recession.

Contrary to popular belief, the beginning of a recession is not deflationary but the exact opposite. As can be seen from the chart, consumer prices do indeed move higher into recessions as represented by the shaded areas.

So much excitment but by the end of the month...

Some high-/low-lights for February...

Via EvergreenGavekal.com, 

“Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history.”

 

– Charles De Gaulle, Leader of the French resistance during WWII and 18th President of France

SUMMARY

Over the past two weeks, we’ve begun to document (see here and here) what may end up being a dramatic unwind in the CLO market.

Supply all but vanished in the wake of the crisis but staged a comeback starting in 2012 and by 2014, issuance was running at a $125 billion per year clip. As we noted last week, that’s roughly the equivalent of how much auto loan-backed paper came to market last year.