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Mapping The Divergence In Credit And Equity

Tyler Durden's picture





 

Another side effect of excess liquidity and computerized stock markets has been the divergence between stock and credit indices. As the chart attached demonstrates, since the beginning of August we have seen a very rangebound market in roll-adjusted Investment Grade spreads, represented by the CDX IG (inverted axis to keep it apples to apples with stock moves), while the equity market in turn has been on a unstoppable tear ever higher, as captured by the SPY. In fact, even as the IG has been making higher "lows", the SPY has gotten completely detached from the underlying economic reality of which credit seems to be at least partially cognizant, and ploughs ever higher on nothing else than goodwill and excess liquidity. Now, not only has the S&P bubble diverged with the Nikkei as presented earlier, but with underlying US credit metrics themselves.

h/t CreditTrader

 


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Wed, 12/02/2009 - 17:14 | Link to Comment pooplagrande
pooplagrande's picture

move along...nothing to see here folks...just a silly blogger with some pretty pictures...move along please.

Wed, 12/02/2009 - 17:31 | Link to Comment Screwball
Screwball's picture

I was watching that.  What's up with this?  I have no idea.

Wed, 12/02/2009 - 17:40 | Link to Comment Anonymous
Wed, 12/02/2009 - 17:53 | Link to Comment deadhead
deadhead's picture

someone upgraded SPG today as i recall...sorry, don't have a link but it's in the news.

naturally, all the momos are expecting more.

then again, why not? it is the official Fed policy that banks will not be reprimanded by extending CRE loans that are multiples greater than the underlying collateral.

got a 50 million loan on a bldg worth 25 million? no phucking problem says the Fed. it must be the new math of lending...... to think i spend 16 yrs in banking saying "no" to people when their loan request exceeded their collateral or heavens forbid, i had to say "no" on a loan where their gross debt income ratio exceeded 40%.

Wed, 12/02/2009 - 18:16 | Link to Comment Gilgamesh
Gilgamesh's picture

DH, my comment (and Screwball's) was mostly about the 3:30ish monumental spike in IYR - price and volume.  This has happened often lately with IYR.  If you haven't already, look at the volume accompanying the EOD move.  Something is afoot - I had assumed it was prop jobs for painting secondaries on the underlying stocks, but haven't seen much of that lately.  Also, there seems to be some algo(s) correlating the big CRE REITs with gold price.  I get the inflation link (inverse USD) with both, but these REITs are trading so far decoupled with reality... And it's not like gold is trading with the inverse DXY anymore, what's with the coupling?

Wed, 12/02/2009 - 18:28 | Link to Comment Screwball
Screwball's picture

Thanks to both for the info.  I have noticed the same on IYR, Gil, and it seems funny.  Your point on the Fed announcement about the REITs is a good one DH, I had forgot about that.  Looks like they may have given back the last half hour ramp AH.  Somebody fat fingered a joy stick.

Wed, 12/02/2009 - 17:31 | Link to Comment Anonymous
Wed, 12/02/2009 - 18:18 | Link to Comment VegasBD
VegasBD's picture

or they forgot to add the </sarcasm> tag

Wed, 12/02/2009 - 17:36 | Link to Comment Anonymous
Wed, 12/02/2009 - 17:54 | Link to Comment Anonymous
Wed, 12/02/2009 - 18:15 | Link to Comment Chopshop
Chopshop's picture

TD, this is neat n all, but what does it say about how high gold will go tomorrow?  

how does this snapshot prove that uncle buck will close with a 6 handle tomorrow?  LOL ... 'silly bond n credit markets, equities are for kids!' 

seriously though, who in their right minds is still actively selling vol here? 

Wed, 12/02/2009 - 20:45 | Link to Comment longjohnshorts
longjohnshorts's picture

CS, fact is, nobody has a clue about where anything is going.

A committee that meets half-way between Wall Street and K Street has decided it has become too risky to permit fundamentals to dictate asset pricing.

Hence, the only operational factors now are liquidity and crisis. Whenever the latter is absent (and the precise timing of a crisis event is, by definition, unknowable), the former holds sway. Hence, the ongoing asset-price melt-ups across the board.

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