Business

Submitted by Pater Tenebrarum via Acting-Man.com,

Economic Conditions Continue to Worsen

It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just never right for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. That only happens because we have “too few regulations” (that’s what Mr. Bernanke said after the 2008 bust – no kidding).

Following an epic stock rout to start the year, one which has wiped out trillions in market capitalization, it has rapidly become a consensus view (even by staunch Fed supporters such as the Nikkei Times) that the Fed committed a gross policy mistake by hiking rates on December 16, so much so that this week none other than former Fed president Kocherlakota openly mocked the Fed's credibility when he pointed out the near record plunge in forward breakevens suggesting the market has called the Fed's bluff on rising inflation.

On Saturday, Iran marked what President Hassan Rouhani called a “golden page” in the country’s history when the IAEA ruled that Tehran had stuck to its commitments under last year’s nuclear accord.

Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion.

More than six weeks after the governing council of the European Central Bank has met in Frankfurt, the ECB has finally published the minutes of the meeting which paved the way for a disappointing action from the ECB. The expectations before the meeting and monthly decisions were set very high, and the market was clearly disappointed with a deposit rate cut that was just 0.10%, resulting in a new deposit rate of -0.30%.

According to Citigroup's Matt King, it is now officially too late to save junk debt, which has entered the final stage of the credit cycle, the one where defaults for high yield bonds rise with every passing month.

Both what about investment grade, which according to Citi is still just ahead of the "bubble bursting phase"? Here is UBS' credit strategist Matthew Mish with one take on what happens to IG debt over the coming 12 months.

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