Is Credit Trying to Tell Us Something?

CrownThomas's picture

As retirement is evidently on again in 2012, let's not forget to keep an eye on HYG (high yield corporate credit).

The start of 2012 has led to a pretty significant decoupling of the S&P (equity) and HYG (credit), which begs the question which is right - as both are "risk on" asset classes, does S&P have a significant correction ahead, or does credit just have some catching up to do?

Over the past few years, it's been equities that have gotten out ahead of themselves.





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savagegoose's picture

but no matter how cheap you can make american cars, theyre still american cars.

Nobody For President's picture

Back to the thesis - Is credit trying to tell us something - HYG probably ain't gonna catch up as long as ZIRP is around - the Fed is gonna hold corporates down like a big boat anchor.

Maybe the question is - is the chart of HYG and equities really meaningful? Both are risk-on assets, but HYG probably always considered less so - how much and how high is the long term correlation between the two? Tyler(s) and Crown Thomas seem to believe these two always revert to some sort of equality - is that historically true? Guess I just don't understand the coupling mechanism.

Ned Zeppelin's picture

Equity and HYG are right next to each other in the corporate capital stack, but have dfferent flavors, so (absent ZIRP) for a given company I'd think their equity and HYG issuances would be coupled.  ZIRP is absolutely the reason for the decoupling (less interest, more money remains after debt service to flow to equity, etc., not to mention PPT activities bidding up equity.)

Chartist's picture

There's a whole lotta things I don't like about this market.  I don't like how most of the earnings in the S&P are attributable to Apple.  I don't like how the individual investor refuses to get sucked in at the top.  But I have real trouble fighting the Fed.  Some folks say we're like Japan with perpetually low interest rates controlled by the government.  But, we're not landlocked, we have a military and we have natural resources.  So, we're not Japan, never will be in my lifetime.  Like all governments, ours is a lying sack of shit.  The ultimate end is we have to inflate our way out like all the other countries.  China won't like it just like Germany doesn't like it now.  It will work out because it has to.  The only thing I'd like to see is a return of is public hangings.  A nice sunny Sunday afternoon, folks bring a picnic basket.  And we execute crooks who did harm.  Of course we'd expand beyond the usual murderers and horse theives and include NY bankers.  It's just me but I really want to see Blankfein swing.


gallows_humor_me's picture

It's not just you that would like to see a grand neck tie party.

Nobody For President's picture

Beat me to it. Corzine, Dimon, oh my, what a long list it is...

ltsgt1's picture

How about all the politicians who have taken money from these bankers? Corzine is still bundling for his get out of jail card.

trulyslide's picture

Markets can remain irrational longer than you can remain solvent.


sessinpo's picture

And one can remain insolvent longer than the market can remain irrational.