Credit Markets Are Starting To Collapse

Investment Research Dynamics

I kind of wish Alan Greenspan were still the FOMC Chairman.   He makes a great “Wizard” figure.   Bernanke looks more like an unethical elf – a spineless pansy who couldn’t bluff his way out of a paper bag but viciously vindictive when no one can see him.  And Janet Yellen…well, she just looks like Aunt Bea on the Andy Griffith show, only with a much lower IQ.

I mention this because it’s become glaringly apparent that the credit markets are starting to collapse behind the proverbial “curtain.”  Several analysts point to the Merrill Lynch triple-C junk bond yield index and remark that “something” blew up:

But it’s not “something.” “Something” is a general melt-down of the credit markets.  The C-rated high yield index reflects this reality.   If it were just one or two names blowing up, yields on related paper might drift higher, but not spike up like this.   This is the market’s realization that it has been overpaying for its risky investments not by a little bit, but by a gargantuan amount.   Add to that the well-publicized dearth of liquidity to accommodate general selling and we have the perfect recipe for the collapse of the entire credit market. The spike in the graph above is the market’s way of saying, “I want out.”

The unraveling of Kinder Morgan is another indicator of the malaise prevailing behind “the curtain.”  When KMI announced its earnings on October 22, it increased its dividend and projected growth over the next year of 6-10% in its dividend payout.  Seven weeks later, it slashes its dividend by 75%.

What the heck happened?  What changed?  If you look at KMI’s statement of cash flows,over the last three years KMI has funded both CAPEX and its dividend payout by issuing more debt every year.   How many Wall Street or Seeking Alpha Einsteinian analysts pointed out that fact?   Zero.   This is just speculation on my part – as it would be on anyone’s – but I suspect that Kinder Morgan was informed by its investment bankers that any continued debt issuance would be extremely expensive and conceivably not possible, especially given the collapsing price of oil and gas.  Yes Virginia, contrary to the popular myth of CNBC La La Land, KMI has business exposure to the directional movements in the price of oil and gas.

There are plenty of other market signals but perhaps the one that reflects the most desperation by the insider elitists to keep  a pretty cover page on the horror story unfolding is the daily price beating administered to the price of gold.  In a Groundhog Day scenario, every night the price of gold rallies while the physical gold buying heathens and NATO foes of the east feast on the cheap gold that the criminals of the west provide for them every day once the paper gold markets are in full swing.

If you don’t want everyone to run out of the coal mine when they see the dead canary, remove the bird before it dies.

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