What Does Credit Know... Ah Forget It!

Tyler Durden's picture

It's been a great 2013 so far for risk-assets right? Wrong. Credit markets have hardly budged (spreads, as opposed to yields) as stocks have surged. We have seen this 'risk' disconnect a couple of times in the last few years and, well, it didn't end well for stocks... but this time is always different.

In 2009/10, stocks surged as credit stalled... then stocks collapsed...


In 2011/12, credit's highly correlated rally stalled and within a month the equity market had topped and rapidly fell back below the decorrelation level...


and now in 2013, HY and IG credit spreads have not partaken of this rally in risk at all...


It appears, as we have noted before, that credit anticipates and equity confirms. And just for clarity, this is credit spreads (not yields) and therefore does not represent a 'rotation' from bonds to stocks - these are apples to slightly different apples comparisons of two different markets' perspectives on market risk...


Charts: Bloomberg and Capital Context

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Manthong's picture

I am so relieved that you give up, too.

slaughterer's picture

The new normal: credit no longer matters.   

Xibalba's picture

don't let yourself be distracted by all the facts! 

bonzo112358's picture

Facts and godless tax raisers will always try to convince you otherwise.


derek_vineyard's picture

i gave up 2 years ago and bought an industrial building

NotApplicable's picture

Good thing there's a war coming to "fix" all of this!

AlaricBalth's picture

“It’s pretty clear that the stock market is the most important transmission mechanism of monetary policy right now,” said Peter Hooper, chief economist at Deutsche Bank AG in New York. “That’s where you’re getting most of the action in terms of lift to the economy. It’s the stock market that’s going to have to be carrying the load.”

If confidence in the stock market is the best mechanism to lift the economy, we are in serious trouble. The disconnect will become more severely detached until everything comes crashing down.

NotApplicable's picture

At this point I don't think confidence is seriously considered (other than to keep the race for the exits squelched). To me, it's all about maintaining a fictional stock market while the Boomers consume their retirement in the form of monthly fund redemptions.

blindfaith's picture

There now, you see...all that trickle down stuff really does work.  As soon as the college kids get those 100K loans paid off, they can start 'investing' in their 401Ks to keep the circus going.  Say, isn't that a bit like Social Security...put the money in and the government borrows it and replaces it with inflated toilet paper.


By the way everyone....are you looking at was the grocery items are doing to cover up inflation.  WATER the new main ingredient in everything ( including 8% added to finished beer) except toilet paper (which has fewer sheets and more air to fluff up the package).

Groundhog Day's picture

Ahh yes same here, so we'll get a 40-50 pt sell off and were off to the races again 1550 here we come

Dollar Bill Hiccup's picture

Capitulation is Bliss ... now time to get down and dirty on where this pig flies to before it's time to really make some bacon ...

Cognitive Dissonance's picture

Trying to understand or make logical sense of the madness is.........well, it's madness.

<Don't bogart that joint my firend. Pass it over to me.>

youngman's picture

I thought the Flying Burrito Bros did that first???

Cognitive Dissonance's picture

The smoke is so heavy in here that I can't see the damn screen. <cough cough> Please call back later.

youngman's picture

To me this stock market is like APPLE last year....everyone is buying into it.....all of it....and the way the pundits talk about it....I have this wierd feeling whoever is leading this show...is selling ...while he leads the rest to buy buy buy..just the hairs on my back making funny feelings

disabledvet's picture

I hate being normal. I feel like I'm out on something...

Confundido's picture

What does gold know that....

davidsmith's picture

This time it is different: the commitment to NEVER LET STOCKS COLLAPSE AGAIN.  Just think through what is involved in that.  Because that's the way it is: suburbia will not allow another collapse in stocks.  So...you do the math.  Forward, march!

Boilermaker's picture

Well, no shit.  Especially when 90% of the public only knows that the 'Great Depression' started with a 'stock market collapse'.

Of course, they'll literally do everything to keep the shit show moving along.

NotApplicable's picture

Somebody's gotta look out for all of those widows and orphans.

NoDebt's picture

I have to admit that HYG and JNK were one hell of a fun ride since 09 when I bought in on them.  But I'm out since a couple weeks ago.

Thanks for the fiat.  I know it's worthless, but people keep giving me real stuff for it, so I keep buying things with it.  (Are you aware you can purchase gold with it still?  I was shocked, too.) 

Now I'm going to go quietly to the corner and wait for the next thing to go "crisis mode" somewhere in the world.  I suspect I won't have to wait long.  Few months maybe.  Then back in I go because Benny's always got MY back.


NotApplicable's picture

Your back? You a bank?

Sure he may let you have some nominal gains, but eventually, every dime you've got in that system will remain there. You'll only be able to pull out by absorbing a loss, thanks to all of the financial controls that are coming.

At least that's what I'd do if I were evil, and in charge of raping and pillaging.

Dr. Engali's picture

The sheep are getting set up to be slaughtered again. It's hard to leave the table once an addiction has set in. This final wealth transfer will be epic.

NoDebt's picture

And won't come from the expected direction, either.  Too many eyes looking in the obvious places.  It'll hit broadside, as usual.

Sudden Debt's picture

What desturbs me even more is that our finance minister is at this very moment encouraging comon people to put their life savings into the stockmarket because returns will be great the comming years....

I hope they remember him when they build the guilotines after the house of cards implodes again...

Dr. Engali's picture

The water is fine..come on in and join the fun. Don't pay any attention to that pool of sharks over there.

Sudden Debt's picture

Ouch!! Just cut myself... oh well, the seawater will disinfect the bleeding wound...

Clowns on Acid's picture

SudDebt - That is "their" plan...if enough people get into equities then...."We can't let the market go down!". same thinking as cutting Gov't spending.

If equities (wealth effect) keep going up...who cares about unlimited amnesty ?

Resist and we take the equities market down and really fuck you. Now back to grazing sheeple.

Shizzmoney's picture

It’s easy right now, I think, to be very pessimistic about all of this never getting fixed, because you see what happened in the financial sector and you see, honestly, very, very little soul searching.

But at its core, the financial crisis, the financial meltdown was a moral crisis.

You can call it a crisis of regulation, or you can talk about misaligned incentives at the top, or a crisis of demand (Krugman)......at the core of these companies and a culture of greed.

But fundamentally, this is a morality play where every human vice was luridly displayed.

Boilermaker's picture

Wait...You mean this isn't going to stop?

Huh, I never made the connection.

Shizzmoney's picture

Wait...You mean this isn't going to stop?

It will...but not by sit-ins.

Ghandi only had to deal with the ball-less British Royal Elites; sit-ins and non-voilent action isn't going to fix this.= (although a objectionist campaign could help).

Guillotines, guns, and pointed violence on the other hand, will fix this.

buzzsaw99's picture

...just for clarity, this is credit spreads (not yields) and therefore does not represent a 'rotation' from bonds to stocks

Thank you for that note.

Sudden Debt's picture

HAHAHA look at those fools stepping into those lifeboats!
It's freezing outside! HAHAHAHA

Let's go back inside the Titanic Ballroom lounge and have brandy... those fools... they should know that even God can't....

francis_sawyer's picture

 "ah... forget it"... CLEVER Tylers... ["xxx"DAY] humor, or 'caption contests' can never come soon enough these days...


It's Tricky


ReptilianSlaveMaster's picture


LongSoupLine's picture

Muppets know nothing of credit spreads.



Fuck you Bernanke.

VonManstein's picture

oh no! credit puts the SP at 1450 !!!!!!!!!

jayman21's picture

Private vs. Public?  Has it started?

Boilermaker's picture

How high does the 'market' have to go to recapitalize the banks without congressional approval?

NotApplicable's picture

Or is it more of a function of leverage of other people' assets, rehypothetically speaking?

Boilermaker's picture

Golly, I wonder if they'll pop the cherry (again) on DOW 14,000 tomorrow?

Village Smithy's picture

The needle is only at "Crazy" right now. They will continue to inflate the bubble (using our children's future) until it reads "Fucking Insane".  I will go as far as to say that is another 12-15% higher in the S&P. The crash made people "more consevitive". They were waiting to make sure that the multi-year highs got taken out before they went all in again. After well over 100 years of playing the game Wall St. knows its sheeple.

The worst trader's picture

Bullish baby! all in!

viahj's picture

"What does credit know...?" 

someone trading UST/MBS knows what tomorrow's numbers and FOMC statements will be.

icm63's picture

What is the ETF or symbol for "IG CREDIT"  ? As per chart text.