Earlier this morning, we laid out a list of junk bond-focused mutual funds which based on their atrocious YTD performance, have the highest risk of being the next to follow Third Avenue in gating and/or liquidating, noting that Catalyst, or Nuveen or Franklin are most at risk.
Submitted by Eugen von Bohm-Bawerk via Bawerk.net,
We have argued for a long time that 2016 will probably be a year of recession in the US and the Federal Reserve’s intent on raising rates will only help expedite it. We believe the current rate cycle will be short lived as the Federal Reserve is constrained by the heavy debt load weighing on the US economy. Or more specifically, the large share of unproductive and counterproductive debt that drain the US economy for resources.
Below we present total business sales, which just dropped another 0.2% in October to $1.317 trillion - the lowest since March and down 2.7% from a year ago - without a comment (we have said all there is to say about the US already being in a recession), suffice to say: clearly the time for a rate hike that "boosts confidence in the economy" has come.
The writing has been on the wall for a few days/weeks, but it appears a combination of global FX and equity turmoil and domestic corporate debt market collapse is finally starting to roil US equity markets. The Dow is down over 600 points in the last week or so, bond yields are collapsing, the USDollar is tumbling, crude is crashing, and junk bonds are in free-fall.
As expected in the aftermath of the Third Avenue gating (and as previewed weeks and months ago) Junk debt is getting destroyed:
And stocks are catching on:
Following the wholesale inventories-to-sales jump, business inventories-to-sales just shifted once again to cycle highs, deep in recessionary territory. With inventories unchanged in October, slightkly lower than thge expected 0.1% increase, Q4 GDP will start to be affected (and Q3 as prior data was revised lower). Nevertheless, with sales dropping 0.2%, with manufacturers tumbling 0.5% MoM, the looming production cuts set up The Fed for an epic policy error.