Fear! Dow “Smart Money” Index Drops To Lowest Level Since April 2009

The Dow “Smart Money” Flow index has dropped to its lowest level since April 2009.


The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the  first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. 


Russia Dumps US Treasuries As Rates Climb (From Russia With Love?)

As predicted, Russia has reduced its holdings of US Treasuries as US rates continue to rise.


But Russia is a relatively small player in the US Treasury market (unless they are using proxies like postage-stamp sized Luxembourg, Ireland or the Cayman Islands).


As The Federal Reserve SLOWLY unwinds its balance sheet, I am surprised that Japan and China have not unloaded MORE of their Treasury holdings.

Here is Vlad Putin singing “From Russia With Love.”

Vladimir Putin


Mall Madness! Sears Declares Bankruptcy, Neiman Marcus, Digicel, David’s, Blackboard And Others On Distressed Watch

As expected, Sears has declared bankruptcy!


There was a time when Sears sold houses, rifles, electric belts, autos and groovy (Eleri) pants in their catalogs. But alas, those times are gone. There is only so long that a company can survive of negatve EPS.


Forty-four CMBS have exposure to 30 Sears properties that are closing as part of its Chapter 11 bankruptcy filing, according to a Morgan Stanley. That is $2.3 BILLION of exposure to Sears.

  • CMBS has exposure to six K-Marts and 24 Sears, Morgan Stanley analyst Richard Hill wrote in a client note. Seven of the Sears properties are owned by Seritage
  • Two SASB deals have 100% exposure: BBCMS 2015-VFM (a loan for Vintage Faire Mall in Modesto, California), and WTOWN 2017-KNOX (a loan for West Town Mall in Knoxville, Tennessee)
    • Seven deals have 10%+ exposure, according to Morgan Stanley
    • CMBX.10 has exposure to three properties across six deals with $336m of debt
    • CMBX.6 has exposure to five properties across four deals with a balance of $302m

But Sears is not alone.  These companies are on Bloomberg’s distressed list.

  • Neiman Marcus
    • Oct. 15: Interest due on 2021 senior unsecured notes
    • Oct. 31: Payment due on 1L term loan
    • NOTE: Co. said to discuss debt overhaul with creditors; lender Marble Ridge asserts potential default on MyTheresa transfer; co. appoints new CEO amid restructuring talks with creditors; owned by Ares Management and Canada Pension Plan Investment Board
  • Digicel
    • Oct. 15: Interest due on 2021 senior unsecured notes
    • Oct. 19: Deadline for debt swap
    • NOTE: Ad hoc group bondholders sign lock-up agreement; bondholders said to hire Moelis to improve debt deal; co. offers to swap 2020 and 2022 notes for new cash-and-PIK securities and extend maturities, seeks to eliminate covenants and events of default; Bloomberg reports bondholders organize
  • David’s Bridal
    • Oct. 15: Coupon payment due on 2020 notes
    • Co. working with Oaktree Capital and Evercore on reworking debt as creditors hire advisers; controlled by Clayton, Dubilier & Rice
  • Blackboard
    • Oct. 15: Interest due on 2021 2L notes
    • Nov. 15: Interest due on 2019 senior unsecured notes
    • NOTE: Price of debt falls as colleges switch to other systems; S&P changes outlook to negative, citing “tightening covenant headroom” that leaves “little room for error” in managing liquidity
  • Windstream Holdings
    • Oct. 15: Interest due on 2020 senior unsecured notes
    • Nov. 8: 3Q earnings call pre-market
    • NOTE: Court decision pending after Aurelius claims spinoff of Uniti Group amounts to a default; co. refinances bonds, extends maturities, focuses on pushing out maturities on revolver and TL, per CFO
  • Intelsat
    • Oct. 15: Interest due on 2020 unsecured notes
    • Nov. 15: Interest due on 2024 senior unsecured notes
    • NOTE: Co. announces plan to sell 2024 notes to finance repurchase or redemption of 2021 bonds; co. buys back $1.72b of 2020 senior notes; Moody’s and S&P say capital structure is still unsustainable; Cowen says balance sheet has been repaired
  • Ultra Petroleum
    • Oct. 15: Payment due on 2022 senior unsecured notes
    • NOTE: Co. unable to reach pact with lenders, may need to request another break on loan covenants, Bloomberg reports; S&P downgrades on expectation leverage will exceed estimates
  • Uniti Group
    • Oct. 15: Interest due on 1L April 2023 notes
    • NOTE: Bonds fall to record lows as noteholders await Windstream verdict; Moody’s downgrades in June on potential failure to meet debt obligations; S&P affirms B- rating on expectation that Windstream will continue to make rental payments on lease agreement
  • Acosta
    • Oct. 30: Payment due on 1L senior secured term loan
    • NOTE: Bonds fall after co. says customers cut spending; bondholders organize with Davis Polk and seek financial advisers; Moody’s cutsto Caa2 in April on increased likelihood of distressed exchange, calls capital structure unsustainable; co. reports 20% drop in Q1 Ebitda, names new CEO; owned by Carlyle Group
  • QGOG Constellation
    • Oct. 31: New maturity date on $150m credit line after extension and on project financing loans after extension
    • NOTE: Co. hires Evercore to advise on debt talks, Bloomberg reports; S&P downgrades in May after co. says it won’t make interest payments
  • Fresh Market
    • Nov. 1: Interest due on 1L notes
    • NOTE: Moody’s downgrades to Caa2 in July on possibility of distressed exchange within 12 months; notes rally as same-store sales improve; controlled by Apollo Global Management
  • California Resources
    • Nov. 1: Conference call on 3Q results
    • Nov. 15: Interest due on 2024 senior unsecured notes
    • NOTE: Co. amends credit agreement so it can repurchase debt below par and use permitted refinancing indebtedness to refinance
  • Community Health Systems
    • Nov. 15: Interest due on 2019 senior unsecured notes
    • NOTE: Moody’s downgrades, says $262m DOJ payment weakens liquidity; co. “dangerously close” to breaching covenant, but it’s likely to be waived, per BI; co. offers $1b new senior notes to pay down term loans; co. said to hire restructuring advisers, continues selling assets with proceeds likely to pay down term loan
  • Bellatrix
    • Nov. 15: Interest due on 2020 senior unsecured notes
    • NOTE: Co. completes swap that cuts debt by $10.5m and sets stage for more 2020 exchanges; revolving credit facilities extended; co. in discussions with potential new lenders
  • PetSmart
    • Dec. 1: Interest due on 1L notes
    • NOTE: Term loan holders sue, claiming credit agreements breached by Chewy asset transfer; co. denies wrongdoing; Wilmington Trust says transfer must be reversed and a default declared; lenders organize and enlist restructuring advisers

Here are some of the pages from old Sears catalogs.





Maybe for my ailing back!


Why is there an electric wire attached to “The Netherlands”? Or as Ron Swanson called it, “The Nuggets”?

Just in case you thought malls were paranoid about Amazon and changing shopping preferences.


My Kuroda! Bank Of Japan’s Yield Curve Management Killing Japan’s Pension Fund

My Kuroda!

Haruhiko Kuroda, the Governor of the Bank of Japan (BOJ), is realizing that his “loose” or “zero interest rate” monetary policies are hurting Japan’s pension fund. Just like The Federal Reserves’ low interest rate policies have done the same to US pension funds.

(Bloomberg) — The world’s largest pension fund is the latest in an array of investors indicating that the Bank of Japan may need to do more to let bond yields rise to tempt them back to the Japanese market, according to Goldman Sachs Group Inc.

Japan’s Government Pension Investment Fund said Wednesday it will give itself more flexibility on how much it invests in Japanese bonds, raising the prospect that it’ll trim its $387 billion stash of domestic debt and sending a warning shot to the central bank, which owns over 40 percent of the market.

With the GPIF already near the bottom of its permitted allocation to government bonds to begin with, the move is effectively a formal recognition of an existing unofficial strategy, analysts including Michael Cahill wrote in a Sept. 26 research note.
“It shows that the rates selloff has so far not been enough to entice long-term domestic investors back into the market,” he said.

Japanese life insurers have proven similarly reticent to bring home funds parked overseas to invest in domestic bonds, even after the BOJ’s first policy tweak in almost two years in July, amid criticism the size of its holdings is distorting the market.


The Japanese Sovereign curve has gone from all-positive when Kuroda assumed the duties as BOJ Governor to having negative yields for tenors less than seven years. Hardly a great investment for Japan’s pension fund.


Like in the US, BOJ’s zero interest rate policies (ZIRP) and yield curve management have encoouraged pension funds to seek higher yields elsewhere.

Kuroda is seeing higher yields on Japanese Treasuries … and doesn’t like it.


Hong Kong’s HIBOR Index Rises Most Since Financial Crisis (As Hong Kong USDUKG Nosedives)

Hong Kong, with a stressed housing market with staggeringly high prices, just saw a surge in interest rates.

(Bloomberg) — The Hong Kong dollar’s surge reverberated across the city’s money market on Monday, with interbank rates climbing by the most since the global financial crisis a decade ago.
Both moves are underpinned by the same phenomenon: liquidity finally drying up. That’s pushing Hong Kong borrowing costs up toward the U.S. rates they’re supposed to track.
An expected hike in the so-called prime rate, which caps the cost of some mortgages; rising deposit rates; and an imminent increase in U.S. borrowing costs all suggest conditions will tighten further. That’s likely to support the Hong Kong dollar, which until recently had fallen to the weak end of a trading band, and undermine the world’s least-affordable housing market.

“It’s a warning shot” to Hong Kong’s overpriced assets, said Cliff Tan, Hong Kong-based East Asia head of global markets research at MUFG Bank Ltd. “I expect interbank liquidity to be even tighter and bank funding needs to be more pressing, hence higher money market rates and higher mortgage rates.”

Here are four charts to show Hong Kong dollar’s funding costs are spiking:


One-month interbank borrowing costs, known as Hibor, surged the most in nearly a decade Monday, as liquidity tightened amid bets local banks will increase the prime rate for the first time since 2006. That came as the Hong Kong Economic Times reported eight of the city’s lenders including HSBC Holdings Plc and China CITIC Bank International Ltd. raised time deposit rates last week.


And then we have the tanking USDHKD.



Rising rates could help collapse China’s housing market.


China And Gold: As The Yuan Goes, So Goes Gold (Trade War Effect?)

Over the past year, Gold has been looking quite similar to China’s currency, the Yuan. Eerily so.


Bloomberg had this story back in July of this year:  “China’s Gold Mystery: Is Nation Slowly Increasing Reserves?”

The case for China raising its gold holdings seems compelling.

A potential trade war with the U.S. that threatens growth, simmering tensions on the Korean peninsula and this year’s slump in gold prices are reasons to buy. But People’s Bank of China data show the country’s gold reserves haven’t risen since Donald Trump was elected President in 2016. Still, this wouldn’t be the first time the central bank has kept silent while adding to its stash.

I guess the answer is yes, but not since Trump was elected President. But I have the sneaking suspicion that China is adding to its gold stash.


I simply must buy one of those natty Mao suits to wear to George Mason University faculty functions.