What We're Reading

Energy defaults have been heavy on my mind as their Bankruptcies are expected to increase greatly in the second half of 2016.  I didn't even touch on farms and other exploding debt. Clearly I'm not alone in this concern.  It's not housing this time; it's much worse.  If rates rise, what will happen? Emphasis in bold mine.  Read on.

This could not have come at a more perfect time, with the Fed once again flip-flopping about raising rates. After appearing to wipe rate hikes off the table earlier this year, the Fed put them back on the table, perhaps as soon as June, according to the Fed minutes. A coterie of Fed heads was paraded in front of the media today and yesterday to make sure everyone got that point, pending further flip-flopping.

Drowned out by this hullabaloo, the Board of Governors of the Federal Reserve released its delinquency and charge-off data for all commercial banks in the first quarter – very sobering data.

So here a few nuggets.

Consumer loans and credit card loans h

Dick Evans, chairman and CEO of San Antonio based Cullen Front Bank (CFR) made the rounds in December chatting with CNBC in an effort to reassure investors that the low price crude oil was only temporary and would not translate into a revisiting of the bloodbath of the 1980's, however their chart says that investors aren't drinking the koolaid.  (chart right - click to enlarge)

The same investor fear can be seen in southern lender BOK Financial which operates in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri. (chart below - click to enlarge)

I believe that barring an OPEC cut in production or some outside supply disruption, crude will NOT recover in 2015 as explained in this post.   Is this what these bank charts are hinting at?

The next question is if these banks begin to see defaults in oil and gas names, just how many dominos lie behind in the high-yield bond financial trail.  As Becky Quick points out, hedging only lasts for so long so i

Indeed, I've read much concern over this area as oil collapsed so it does merit a warning.  From ZeroHedge:

The S&P 500 Energy sector stocks are down over 12% year-to-date, tumbling over 3% today to fresh 20-month lows. The spread (or risk) of high-yield energy credits surged again today, breaking above 850bps for the first time... The overall high-yield credit market is being dragged wider by this contagion as hedgers try to contain the collapse that is possible. For now, the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector...

According to DB

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transpor