Michael Snyder posted in his Birth Pangs of the Coming Great Depression on January 29th, 2015 that due to the radical drop in oil prices, for the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. While they have been net buyers in the markets, driving up the asset base, they are now net sellers.
He added that if we see 8 to 12 months at these oil prices the U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock U.S. market, economy, and the dollar.
Then he moved to the emerging economies. He said that $260 billion in sovereign and corporate bonds, or one tenth of outstanding emerging market (EM) debt, is in danger of being relegated to junk, citing David Spegel, head of emerging debt at BNP Paribas. Many investment funds have rules that will require them to sell any of their holdings downgraded from “investment grade”.
Read the article here.