JNK vs S&P 500 – The correlation isn't great but interesting divergence. High yield leading or #BTFD? pic.twitter.com/GNyW1J8LGw
— JP Scott, CFA (@JackPScott) November 8, 2017
Lower prices on junk bonds means yields are rising along with perception of risk. This is interesting, especially since the US yield curve is now flattest since 2007. Although the data isn’t suggesting cause for concern, the bond market and pin action in the banks are, which should garner your mosquito brain tier attention spans when trying to analyze your next moves in this market.
JNK ETF down six days in a row, closing near its seven month low. SPX up five of last six days, closing at an all time high. Which is right?
— Jeffrey Gundlach (@TruthGundlach) November 8, 2017
Meanwhile, markets closed at record highs.
BREAKING NEWS: The Dow Jones Industrial Average, S&P 500, and Nasdaq all close the day at record highs. This is the 76th record close for the Dow since Election Day 2016, and 59th record close under @POTUS. pic.twitter.com/rpIi3OUfVz
— FOX Business (@FoxBusiness) November 8, 2017
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“JNK ETF down six days in a row, closing near its seven month low. SPX up five of last six days, closing at an all time high. Which is right?”
With the long-term downtrend in oil now broken, junk overall should be doing better.
correct, which is why you should short oil.
Just wait what happens when the Aramco IPO analysis is leaked and shows the Arabs lied about their reserves.
No way will any audit ever show that Aramco overestimated its oil reserves.
To understand why, you have to understand that oil reserve numbers are very subjective, depending on how easily and profitably the oil can be extracted. While something like the US Strategic Petroleum Reserves is a relatively fixed quantity (having already been recoverd and then pumped into giany holes), unrecovered oil reserves numbers are dependant on current oil prices as well as the current and predicted future state of oil recovery technology.
Well if that’s the metric (yours, not mine) you use to establish “reserves” then their reserves would be around 0 (zero) since S.A. is hardly breaking even taking their oil out of ground these days.
You don’t have a fucking clue about this.
KSA is making money on their oil. They aren’t making enough to pay their annual budget, but that isn’t what numbers was talking about.
Pimp, get you head out of your ass before you open your mouth.
oct 31/2017:
The kingdom will need oil to trade at $70 a barrel next year to break even
https://tinyurl.com/y9rmu2qj
educate yourself!
There was a good paper by the CFA Institute a few years back arguing that there is a mathematical limit to how high a high yield index can go. At a certain point, as most issues are callable, negative convexity kicks in.
Before the oil downdraft, JNK and HYG pretty much reached that limit. Now this is just hypothesizing, but given the forced refinancing’s that would have had to happen during the oil crash, this recent move may just be pulling back from the mathematical peak. Which would be a lot less worrisome.
I would tend to agree with you. I also monitor HYG and JNK. While the divergence between them and the S&P is worth noting, it’s not a reason to panic. Since energy companies make up about 25% of the junk bond issuance, a divergence from an S&P that has a 6% energy sector weighting and driven by tech is not unusual.
Do a little homework on the interest deductibility caps in the tax reform bill–which reduce the attractiveness of HY bonds.
P.S. Gundlach is a lazy pea brain.