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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (492)	2/23/2004 3:38:14 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

It is possible, at much higher prices and at huge cost of pollution, than its proponents would have you think. My guess is it becomes economically feasible on a large scale at a crude price of 50/bbl and higher. Why do you suggest $50? Can't they recycle the wastewater? M

To: patron_anejo_por_favor who wrote (492)	2/23/2004 3:42:00 PM
From: mishedlo	Respond to of 116555

Watch Junk Brian Reynolds At the beginning of January, we feared that we were at the beginning of a bubble given how heavily corporate bond investors were shoveling money at companies. Retail money was surging into junk, bringing yield spreads in that sector to 5-year lows and a number of speculative stocks began to have parabolic moves. At the end of January, the change in the language of the Fed's statement took some steam out of that momentum. Retail flows into junk halted, junk spreads rose 40 basis points (after tightening almost 750 basis points since October 2002) and led to a mild equity correction. Fed Chairman Greenspan's subsequent testimony before Congress indicated that the Fed did not intend to deflate financial markets, but both fixed income and equity investors are still trying to sort things out, and the equity market correction continues. Junk yield spreads stopped deteriorating after Greenspan's testimony, and we have written that we have seen tentative signs of institutional support for junk. Spreads are still significantly tighter than the yield levels of last fall that we pronounced were good enough to produce at least modest equity gains. However, the momentum that attracted the flood of retail money has dissipated, and spreads still look to be too 50-100 basis points too narrow to attract a great deal of institutional support. That has left the junk market in a type of limbo: activity has slowed as neither retail nor institutional investors are strong buyers or sellers. Issuers, having already met a large portion of this year's funding needs, also have been in no rush to access the market, which is a big change from the crush of issuance of early winter. The result has been that both the junk and stock markets have paused to catch their breath. From a longer-term standpoint, that is a good thing. If junk spreads were to stay in this area, it would be consistent with eventual moderate gains in stocks; a return to December-January type of pace in the junk market would likely bring a return of the equity bubble, which we would view as a long-term negative given the amount of corporate debt that is due to mature in the '06-'08 time frame. There are some signs that junk issuance will pick up modestly in the next few weeks, as a number of companies test the market. This would be the first pickup in issuance since before the Fed meeting, and the type of reception that those issues get will likely have an impact on the equity market.