Much has been said, and many charts shown demonstrating how collapsing oil prices equate with a recessionary (and, according to at least one Dallas Fed respondent, "depressionary") hit for the US energy space and manufacturing sector first, and subsequently, contagion for US banks various other investors in the US shale space, and ultimately the broader economy. Perhaps too much.

So in an attempt to simply some of the confusion, here are just four charts which, in our opinion, are among the scariest for energy investors.

First, plunging oil prices mean sliding revenues, resulting in collapsing cash flows and soaring leverage ratios...

... Ratios which will likely deteriorate substantially if one takes the price of oil as a leading indicator where EBITDA will be 8 months from now:

Should the deterioration continue it will suggest even further widening of junk spreads, which will mean a spike in default ratios, which will result in substantial impairment charges for underreserved banks and a hit to both profitability and capital ratios.

This feedback loop can be short-circuited: all that would take is for the soaring trade weighted dollar - the key driver of plunging oil prices - to tumble. However,  for that to happen, Yellen will have to not only relent, but admit full blown defeat and undo the past year and half of preparation for rate hikes because the "global economy is ready", which we now know it isn't and virtually everyone has admitted the Fed made a mistake.

Summarizing all of the above: the vicious spiral of low oil prices, collapsing profits, impairment provisions, and economic contraction will continue until the Fed finds a way to weaken the Dollar... something it is now unable to do without losing all credibility.

In short, the Fed remains trapped and with every passing day it does not "fix" its policy error, these charts will only get scarier.

Oil prices around USD 30/bbl mean that an increasingly significant volume of future oil projects no longer make sense. Although Deutsche Bank does not expect US crude inventories to reach capacity, rising US inventories and high US crude imports may heighten downside pressures to push prices closer to marginal cash costs of USD 7-17/bbl for US tight oil.

With few plausible scenarios for a strong price recovery in the short term, Deutsche lowers their Q1-2016 price forecasts to USD 33/bbl for WTI and Brent.

We see downside risks stemming from a lower demand growth outlook this year in the event that US product demand remains extremely weak, and from the possibility that equity market declines feed through into lower consumer confidence and spending. Upside risks may arise from either a weak or unsustained rise in Iranian exports, which may then lead to OPEC production in 2017 below our assumption of 32.4 mmb/d (excluding Indonesia).

One might be tempted to claim that prices have detached from fundamentals given the rapidity of the decline since December. Although we could choose to attribute some part of price movement to outside factors such as market psychology, an undeniable rise in risk aversion since the start of the year, and associated equity market weakness, this would do little to advance the state of knowledge regarding oil fundamentals. Therefore we prefer to (i) identify a possible fundamental basis for the further decline in oil prices, which could sustain prices at a low level, and (ii) assess the likely impact of prices remaining around USD 30/bbl on the forward balance.

With regard to the first point, the disappointment in Chinese economic growth for Q4-15 should not be a key driver as the most recent data on apparent consumption remains strong as of November 2015, with average year-on-year demand growth of +400 kb/d for the three months ending in November, Figure 2.

The further strengthening of the trade-weighted US dollar (TW$) may be a more substantial influence as since mid-December we have seen a further 1.4% appreciation, along with a continuation of the newly negative correlation of crude-oil daily returns with the TW$. However the dollar-oil correlation is still not nearly as strong as that observed over the 2006-2013 period and appears to be reverting to a more neutral level, such as that observed over the 1991-2002 period, Figure 3.

Perhaps the most negative piece of fundamental data originates from the United States where despite a more normal weather from the start of January, Figure 4, total product demand is down versus 2015 by -230 kb/d in the most recent week of data, Figure 5.

We note that more substantial demand worries may yet surface over the balance of the year as slowing economic growth outside of the US may infect the domestic outlook, particularly if equity markets do not recover materially and translate into weaker confidence and, in turn, consumer spending.

Finally Deustche Bank shows two long-term charts that hopefully make for interesting reading when considering just how "lower" for "longer" oil could be...

Firstly a long-term real adjusted chart we publish every year in our annual longterm study that shows that the average price (in today’s money) since 1861 is $47/bbl. So current levels are low but not exceptionally low relative to longterm history. Nevertheless in this year’s long-term study if prices stay at similar levels it will be the first time our long-term mean reversion exercise will show positive return expectations for Oil since we first started it over a decade ago.

Although we don’t claim to be experts on Oil markets our long held belief is that commodities that are factors of production are unlikely to outstrip inflation over the long-term as if they do there will be alternatives found. Clearly this can take years if not decades to resolve so even if we’re correct commodity cycles can still last a long time before they eventually mean revert. Overall the graph doesn’t suggest that current levels are as extreme as many would suggest even if long term value has returned. The $140 prices a few years back look especially bubble like in a long-term prospective.

The second chart looks at US recessions since the early 1970s and the price of Oil.

The Oil price was broadly fixed for much of the post-war Bretton Woods period but has floated since its collapse (average real price since then $57.7). As can be seen ahead of the five recessions seen over this period, all have been preceded by a significant spike higher in the price of Oil. While there are many potential drivers of a recession it is food for thought when you look at the current situation.

As we say on a regular basis we are firmly in the secular stagnation camp but have some sympathy that the consumer is getting a big benefit at the moment from the sharp fall in Oil. If only there wasn’t huge amount of leverage in the financial system exposed to commodities that could potentially be systemic.

“The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” Mark Williams, chief Asia economist for Capital Economics told Bloomberg on Sunday, describing the panicked reaction to Beijing’s adoption of a trade-weighted currency index.

Over $1 trillion in capital flowed out of China in 2015 as the PBoC’s bungled move to devalue the yuan caused investors to question whether a much larger depreciation is in the cards.

According to Bloomberg’s estimates, $158.7 billion left the country last month, the second highest monthly total of 2015 after September’s $194.3 billion hemorrhage.

Things had calmed down going into December and probably would have stayed calm at least in the interim had the PBoC not introduced a new trade-weighted index for the yuan which pretty clearly indicated that China still thinks its currency is overvalued.

Indeed, assuming the dollar continues to appreciate versus global currencies, the yuan will need to fall significantly in order to keep the trade-weighted RMB stable.

In short, China is no longer willing to take it on the chin in the global currency wars. The days of Beijing sitting idly by and watching as the dollar peg kills the country’s export competitiveness are over.

As 2015 turned to 2016 we got still more volatility and indeed, fresh devaluation fears contributed mightily to the market turmoil we witnessed in January.

“China’s yuan policy has a communication issue” the IMF’s Christine Lagarde said last week.

Indeed, but one thing that has been clearly communicated to Chinese citizens is that they need to get their money out of China - and fast. Technically, Chinese are limited to $50,000 in terms of how much they can move out of the country in a given year, but as we’ve documented extensively, there are any number of ways to skirt the restrictions.

“Thanks to incremental reforms to China's capital account enacted while the yuan was still strong, it is easier than ever for Chinese companies and individuals to get money out legally,” Reuters writes, adding that Chinese “can buy property, or invest in offshore stocks, bonds or managed hedge funds; they can purchase offshore life insurance that can be used as collateral for further loans, or even buy a foreign company outright.”

And those are just the legal outlets. Chinese can also use the UnionPay end-around (although Xi has cracked down on that) or simply visit “Mr. Chen” at his “tea” kiosks. Here’s more from Reuters on Beijing’s “more holes than fingers” problem:

As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai's Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe.

Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear.

"The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets," Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal.

Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing's latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world's second biggest economy as its growth slows to a quarter-century low.

One Shanghai-based investment company, Zengda, plans to guide Chinese money into mines, land and gas projects in Africa.

Others use trade and even tourism transactions to get money out of the country - contributing to the $200-$500 billion Chinese tourists are estimated to spend abroad annually.

The trend has grown so rapidly that some international banks are bolstering their wealth management divisions, encouraged by data showing money pouring out of China.

China's central bank and commercial banks sold a net 629 billion yuan ($95.61 billion) worth of foreign exchange in December, nearly triple the figure for the previous month.

Estimating capital flight out of China isn't an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. "In the wake of the small devaluation of the renminbi in August 2015, and more recently the weaker fixes in the first week of the new year, we have received a large volume of questions about capital outflows from China – how big they are, what the main sources of outflows, and how long they can continue," Goldman says, in a note out Monday.

In an effort to shed some light on where to look for accurate data on capital flight, Goldman breaks down the relevant data points on the way to determining that from August to December, $449 billion in capital left the country.

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From Goldman

Each month, official sources publish three different data sets that are relevant to the FX flow situation. These are not comprehensive either individually or collectively, but together shed a fair amount of light on the likely degree of FX outflow.

PBOC FX reserves (Exhibit 3). This dataset captures the FX assets held by the PBOC. It is reported based on market prices and therefore subject to valuation effects (both with respect to exchange rate and asset price movements). It does not include forwards but captures PBOC’s FX-RMB (cash) settlements with other parties; these settlements may include drawdown/repayment of PBOC’s FX entrusted loans to other entities (e.g., policy banks). It is released the earliest of the three indicators, usually on the 7th of the month.

Position for FX purchase of the whole banking system (PBOC plus banks). This dataset captures the amount of RMB supplied for FX purchase by the entire banking system (i.e., both the central bank and commercial banks), free of valuation effects. It is based on cash settlements and therefore does not include any changes in forwards. Transactions between the onshore banking system (PBOC plus onshore banks) and other parties with access to the onshore FX market would be covered in this dataset. This data is usually out around the middle of the month, after FX reserves data. Note that given possible PBOC balance sheet management (e.g., short-term transactions and agreements with banks, e.g., forward transactions), neither PBOC’s reserve data nor its position for FX purchase necessarily forms a complete picture of the FX situation.

SAFE data on banks’ FX settlement . This dataset captures banks’ FX transactions with onshore non-banks, both in the spot market and via forwards. It is transaction-based and therefore free of valuation effects. While the headline series is cash-based, which includes outright spot transactions in the reporting period and settlement of previously entered forwards, we can adjust the forward component by subtracting the settlement of forwards and adding back freshly entered forwards. After this adjustment, the SAFE data capture the underlying currency demand both in spot and forward by corporates and households—it is therefore our preferred gauge of onshore FX flows. The SAFE data is usually released in the third week of the month, after FX reserves and FX purchase data.

Based on the different characteristics of the various data sets as summarized in Exhibit 4, we can roughly deduce the underlying FX flow situation as follows.

Our preferred gauge of onshore FX flow—again, based on SAFE data but adjusted for settled/freshly-entered forward contracts--suggests a net flow of about -$449bn during August-December (and -$620bn for the full year). Note that this gauge refers only to onshore FX flow, not including any FX intervention in the offshore CNH market—hence it is likely an underestimate of the overall (onshore and offshore) outflow situation.

From an accounting perspective, though, it would be the unadjusted SAFE settlement data (including settlement of previously entered forwards between banks and non-banks, but excluding freshly- entered ones) that are more comparable with other related FX data sets (which are also cash-based). Exhibit 5 shows the changes in the various FX data sets from August through December 2015.

A main difference between SAFE settlement and banks’ position for FX purchase is that the latter captures onshore banks’ FX transactions with other institutions that also have access to onshore interbank FX market (e.g., offshore banks, some other non-bank financial institutions). Data from these two data sets were fairly close in August-December, except for October, where the SAFE FX settlement suggested continued FX outflow while the position for FX purchases pointed to FX inflow. The discrepancy, along with the meaningful increase in non-bank financial institutions’ RMB deposits during the month, suggests the possibility that some non-bank financial institutions sold a significant amount of FX for RMB in the interbank market in October.

One area where none of the official data can give much guidance on is the possible scale of CNH intervention through forwards Judging from observed market behavior, there has likely been significant volume of CNH forward intervention. To the extent this has been the case, the outstanding amount of the forward positions would be additive to the amount of outflows we calculated above and could be an additional drag on PBOC reserves going forward.

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In other words, when you see the spread between the onshore and offshore spot suddenly compress after blowing out dramatically, China has just spent more money to combat capital flight and as regular readers might have noticed, CNH interevention isn't exactly uncommon.

And so, as money flees the country for the "safety" of Spanish real estate and African mines, watch the FX reserve headline figure and recall what Bank of Singapore chief economist Richard Jerram said earlier this month: "The burn rate has been worrying. It’s not about how long it gets to zero, its about how long it gets to about 2, which is what they need."

Based on 43 large sell-offs in the world's major equity markets, Morgan Stanley gauges how the current market slide compares to bear markets and bull corrections through history. While they have tended to last about 190 business days, with drawdowns around 30%, the current environment is considerably weaker than the typical bear market beginning...

The Bear Necessities – What’s the ‘Typical’ Sell-Off Environment?

Valuations tended to be cheaper than those seen at current sell-off’s peak, while macro (GDP, inflation) tended to be stronger at the start of bear markets.

If ACWI followed the script precisely, it would imply ~10% downside from current levels over the course of four weeks.

Equity markets started the current sell-off from a more expensive point on most valuation metrics and remain more expensive vs. previous troughs.

The weaker macro vs. previous market sell-offs argues for being defensive and avoid stretching for beta. Overall, we prefer credit over equities, as it is almost priced for a recession.

Full Bear Market Almanac below:

MS BearMarketAlmanac

Submitted by Tom McClellan via MCOscillator.com,

• For the selling culprit, responsible for the recent market weakness look no further than China, whose reverse "flow" has been responsible for the terrible start to 2016 capital markets.
• For the Beijing politburo, halting capital outflows is becoming a matter of life or death, because there are only so many liquid reserves China can liquidate before it enters dangerous territory; worse, the less the reserves, the greater the desire will be on behalf of the local population to take their money and run.