- In a note Friday, Michelle Meyer, U.S. economist at BofAML, says it's not likely a wave of oil bankruptcies would lead the U.S. economy into recession:
- ""It is important to note that if defaults rise due to non-macro events – which means without being triggered by a recession – there seems to be somewhat limited feedback into the economy."
- Meyer says high-yield bond defaults could hit 6% this year. Still... "If we assume the companies who default are average size, this would mean that 600K workers are vulnerable. However, many bankruptcies result in restructuring rather than the demise of the company, suggesting a portion of the workforce would likely be retained. For argument’s sake, let’s say half of the workers in companies going through bankruptcy proceedings become unemployed over the course of a year. This would result in 25K job cuts a month. As we have seen in the energy sector, a lot of these layoffs may already be happening so the incremental layoffs would presumably be less than 25K per month. This is clearly just illustrative and assumes that bankruptcies are narrow and do not spread to the broader economy."
- Further, Meyer is not seeing signs that oil-sector fears are leading to a broader tightening in credit markets: "While it is still early, there is little evidence of bank credit tightening thus far. "
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DWTI, DBO, DTO, USL, FRAK, IXC, DNO, IPW, OLO, SZO, GNAT, SZC, OLEM, FILL, IOIL, YLCO, EMEY