TOP STORIES:
Oil
Plunge Sets Stage for Energy Defaults: Credit Markets - (www.bloomberg.com) Bond investors, already stung by the biggest
losses from U.S. energy company debt in six years, are facing more pain as the
plunge in oil leads analysts to predict defaults may more than double. While
bond prices suggest traders see defaults rising to 5 percent to 6 percent, UBS
AG said it may actually end up being as high 10 percent if prices of West Texas
Intermediate crude approach $50 a barrel and stay there. Debt research firm
CreditSights Inc. predicts a jump to 8 percent from 4 percent. A borrowing binge
by energy companies in recent years to finance new sources of oil has pushed a
measure of leverage among the lowest-rated firms above its 2009 peak, according
to CreditSights. The $203 billion of bonds outstanding have lost 14 percent
this quarter and are poised for their worst performance since the end of 2008,
Bank of America Merrill Lynch index data show. More than $40 billion of value
already has been wiped out, Bloomberg index data show.
The
Army Is Launching A Pair Of Billion-Dollar Surveillance Blimps Over I-95 - (www.businessinsider.com)
Next week, residents in the
Baltimore area will wake up to a major surprise: Two massive Army airships that
will be visible from Interstate 95 for the next three years. Tethered at the
Army's Aberdeen Proving Ground 25 miles northeast of Baltimore, the airships
will quickly become an uncomfortable fact of life for Americans living in the
Northeast. The massive airships, each about three times the size of a Goodyear
blimp, are the latest in aerial surveillance. The blimps, built by Raytheon and known as JLENS —
Joint Land Attack Cruise Missile Defense Elevated Netted Sensor Systems — will
defend against possible cruise missile attacks and other potential threats to
Washington, DC and other East Coast cities through the use of extremely
high-detailed radar imaging.
Russian
Food Suppliers Have Begun Halting Shipments - (www.zerohedge.com) Until now, when it comes to the fallout in the
Russian economy from the crude price plunge leading to a collapse in the
Russian currency, most of the interest has been on how the Russian financial
system recovers and/or survives and just as importantly, what Putin's response
would be. Just yesterday, we wrote that as a result of capital controls fears,
many western banks led by Goldman Sachs had halted liquidity to Russian clients
and other local entities. However while the adverse impact on the Russian
banking system has been mostly confined to the upper class - since there is
virtually no middle class in the country to speak of - the second cold war of
words, which rapidly morphed into a very hot financial war, is about to hit the
very ordinary Russian on the street, because as Russia's Vedomosti reports,
citing vegetable producer Belaya Dacha, juice maker Sady Pridoniya and others, Russian
suppliers are suspending food shipments to stores because of unpredictable FX
movements. And it is about to get worse: very soon Russians may have to live
without imported alcohol because at least on supplier of offshore booze,
Simple, halted shipments in "a two-day pause” to see what happens with the
ruble, Vedomosti reports.
Junk-Bond
Investors Facing First Global Loss in 5 Years - (www.bloomberg.com) Junk-bond investors worldwide are forfeiting
all the gains they’ve accumulated this year as a selloff triggered by plunging
oil prices thrusts the debt toward its first loss since the financial crisis. The
worst monthly performance in more than three years has eroded returns on
speculative-grade debt, shrinking the year’s gain to 0.15 percent after ending
November at 4.34 percent, according to Bank of America Merrill Lynch index
data. That puts the debt on pace to hand investors their first annual loss
since it gave up 27 percent in 2008, the data show. With energy-company bonds
making up more than 10 percent of the global high-yield market, investors are
shunning the debt on concern that oil prices below $60 a barrel will
precipitate defaults. More than $80 billion has been wiped off the value of
junk securities worldwide in the past month. “People are still on the edge of
their seats trying to get a sense of what’s going on,” said Christian Hoffmann,
a Santa Fe, New-Mexico based money manager at Thornburg Investment Management
Inc., which oversees $65 billion. “Oil prices are driving the bus, and everyone
is trying to reposition themselves.”
High-Yield
Fund Outflows Set to Expand Amid Energy Slide - (www.bloomberg.com) Investors are poised to pull money out of
junk-bond funds for a third straight week as plunging oil
prices roil the market and turmoil in the Russian currency
market spur the hunt for safer debt. This week already has seen
$2.4 billion pulled from funds that
purchase below investment-grade debt in the U.S., according to daily figures
tracked by data provider Lipper, a unit of Thomson Reuters Corp. That follows
redemptions of $1.9 billion last week and $859 million before that, Lipper data
show. The 48 percent collapse in the West Texas Intermediate oil price since
June has driven up risk perception on borrowings from energy companies, which
are among the biggest components of the junk-debt market. A decline in the
Russian ruble, which has lost about half its value against the dollar this
year, has contributed to the unease as investors seek a shield from any threat
of spreading tumult, according to Robert Lutts, chief investment officer of
Cabot Money Management Inc. “There’s panic going on in one sector of the market
and it’s rolling over into other areas,” Lutts said in a telephone interview.
“There’s also this air of panic relative to Russia and
that’s weighing on folks. People would like to see it stabilize before they
decide to step back in.”
