The markets have been pushing new all-time highs this past week as earnings season begins to wind down. Starting next week, much of the focus will shift back to the economy and holiday retail sales. Expectations are for a robust season but the early arrival of winter could have a more negative effect on the economy than anticipated should current weather patterns persist.

As I discussed earlier this week:

“Unfortunately, economic predictions may once again be set up for disappointment as another wave of cold air is set to smash temperature records across the country the winter. As reported by Reuters this past weekend:

“The coldest air of the season is set to reach into some 42 states this week as an Arctic blast drops temperatures from the Canadian border down to the Gulf of Mexico. Some 200 million people are expected to be affected by the cold, with only Florida, Hawaii, and the Southwest being spared.

Monday also marks the start of two weeks of subfreezing temperatures in the Midwest, including Illinois and Missouri. The weather shift can be blamed on what forecasters call a polar vortex reaching into the United States from the north.”

This weekend’s reading list is a hodge-podge of articles that cover more of the macro issues that may weigh on the economy and the markets. While the majority of analysts and economists are currently very ebullient on near term prospects, it is always important to remember Bob Farrell’s Rule #9:

“When all the experts and forecasts agree – something else is going to happen.”

Let’s get to our reading:

1) Zero Rates, Resource Misallocation & Shale Oil by Edward Harrison via Credit Writedowns2)

“The nexus of zero rates, resource misallocation, and risk on has favoured shale oil. But the drop in oil prices will call many of these projects into question precipitating a high yield energy funding crisis and a panic dash for the exits. There will be carnage and the question will be whether this carnage causes contagion into other markets.

What we should be concerned about here is that, just as with subprime mortgages, this is not a particularly big market but one with interconnections to others. The leveraged loan and high yield market could be affected and other riskier US debt markets like student loans or auto ABS could be affected by sentiment. Right now, it is still early days. So the oil price might even recover. But the abundant liquidity of zero rates, resource misallocation and shale oil simply do not mix.”