And so it begins… Collapsing crude prices are quickly making their way through the energy sector, as unprofitable oil and gas rigs close down. Those flashing red numbers are not just on your screen.
The US dollar index (DXY) closed at the highest level since 2006. This in my view could become a major problem for risk assets in 2015.
Energy stocks (red) have diverged sharply from crude oil (blue). Equity investors betting on recovery in crude prices?
Some futures traders also seem to be betting on recovery in crude, as net spec positions (green below) rise. Enough people out there still in the business of trying to catch a falling knife.
While everyone tracks each basis point move on the 10-Year treasury note, few seem to be paying attention to a visible increase in short-term rates.
US corporate loan growth is back above 12% per year. This is in contrast with the Eurozone where corporate loan growth is negative (-1.5% per year).
Speaking of corporate loans, we’ve had a 23nd consecutive weekly withdrawal from leveraged loan funds and the largest one in over 3 years ($1.8 billion)
As a result, the leveraged loan market is shifting, with CLOs increasingly dominating the investor base. That makes the loan market quite vulnerable to the US “risk retention” regulation which could damage the CLO market.
Now some food for thought – 2 items:
1. 
2. I continue to be amazed when I see academic papers still use normal return assumptions to model asset price behavior.
It seems that asset price movements resemble earthquakes far better than what’s typically used to model returns - “random walk” diffusion processes. And we
wonder why many financial models fail so badly.
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