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Leverage Lurches To Post-Crisis Highs
As we noted yesterday, the credit bubble is in full swing as high-yield covenant protections hit a new low in January. At the same time, new issue premia in high yield credit has remained extremely low (meaning demand is high) - even as leverage (measured in a number of ways) surges to post-financial-crisis highs. With low yields and technical demand so abundant, firms appear to be leveraging-up in favor of shareholders. But, as is always the case, there is a limit to just how much leverage can be piled on before credit spreads 'snap' and raise the cost of capital - hindering the equity price. Finally, for the 'cash on the balance sheet' advocates, US firms' Cash/Debt is its lowest (worst) since pre-crisis. Banks continue to delever, sovereigns relever, and non-financials taking their lead - this didn't end well last time... and this time, exuberance and positioning is very heavy.
Investment Grade Leverage in the US is rising rapidly - but its the sovereigns that are leading the post-crisis releveraging...
And High-Yield leverage is also surging... and for all those 'cash on the sidelines' hopers, Cash/Debt is now at its lowest (worst) since before the crisis...
as Global banks slowly but surely delever...
Though demand remains high for bond issuance...
But where is all that leverage going? Straight to the shareholders...
But those shareholders better hope that nothing goes wrong - as they are all in complacent...
and we have seen these 'releveragings' try and drag stocks higher before - with disconnects between HY credit (being priced for that higher leverage) and stocks...
but soon enough the realization comes as credit traders shift from picking winners to avoiding losers...
The credit cycle is called a cycle for a reason - and now firms are in the releveraging mode, that systemic demand for credit may just become a little more idiosyncratic and remove a leg from the equity market's stool of exuberance.
Charts: Bloomberg and Morgan Stanley
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Proof that Keynesian stimulus works.
Speaking of stimulus, I ate at Panda Express last night…now I have to go take a giant Paul Krugman.
+1!
Give me a fulcrum [security] and I will move [my bowels on] the world!
and everything else is numerology!
What does 1524.69 mean ? And where is Topcallingtroll
Leverage?
ECB bank reserves are 1%.
That is all.
Oh well... when you drive your car and the "empty" light turns on, you can still drive your car. No need to worry... let's just take a shortcut into WolvesForest....
Indeed.
Draghian philosophy states:
There can be no more bank runs;
Thus, there will be no more bank runs.
Jesus Christ, it's happening again:
http://i461.photobucket.com/albums/qq331/zweiewz/random/notthisshitagain...
Who cares about leverage with this epic ground swell of sideline money pouring in.. oh wait
http://fiatflaws.blogspot.com/
But Ben and his smirking pack of jackals said that QE1,QE2, and QE squared will prevent the 2009/10 and 2010/11 debacles. This isn't a bubble, this the the new normal...it's called Hope and Change.
Didn't you hear LBJ 1964 Great Society speech last night?
As he campaigned in 1964, Johnson declared a "war on poverty." He challenged Americans to build a "Great Society" that eliminated the troubles of the poor. Johnson won a decisive victory over his archconservative Republican opponent Barry Goldwater of Arizona.
American liberalism was at high tide under President Johnson.
The Fed is populated by idiots. It’s like watching a house on fire. Most of us would want to get as much water on it as fast as we could. The response of the people at the Fed would be to expand the water works. Even if you could expand the water supply to infinity and do it in a timely fashion, it doesn’t mean a thing if it doesn’t go where it’s needed.
Perhaps the prime reason we are so screwed and depression is all but inevitable is that when we look to the policymakers who might avert the coming disaster there is no one to be seen but fools, liars, and thieves.
The Great Moderation Part Deaux. "We didn't mean to take away the punch bowl...we meant to create the biggest punch bowl in history!"
The Great Moderation Part Deaux. "We didn't mean to take away the punch bowl...we meant to create the biggest punch bowl in history!"
The Bernank has Pavlov's dogs trained well.
These charts are great and all, but if you really want visuals of what-the-fuck-all this means, I give you this brilliance:
http://youtu.be/Z-4v4I7Gzk0
Since Karl Denninger is big on "leverage," I'll post this here (I refuse to register at his site). But I'm sure some of you saw his "It has started...that is all..." post. Wish I had a silver dime for every time he's said "Here it comes." Wonder if that's code for a bowel movement. If the "it" he refers to is the fact that everything is going to cost more...well...he's a little late to that party.
He's been calling for a bond crash for at least the last ten years. http://www.youtube.com/watch?v=stdi-1tIUhM
Just a wild guess, but I bet that's about the same length of time he's been bashing PMs...
Banks slowly delevering, those pole smokers are selling their junk at the top. They know shit is going to hit the fan. That green chart makes me want to puke acid all over Bernanke.
[ Leverage changes since 2007]. The levering up is substantially more then the delevering was after the GFC. This shit is beyond laughable!
Get ready for some more tape bombs, the US T10 auction is just under 2 hours away, and they are up 3.5bps.
whats happening, this is unacceptable, dow is down 60 pts, did bernankes printer run out of ink?
how soon before these fraudsters bring it back to green?
fucking criminals.
The writing is on the wall for all to see.
Ships about to hit the sand.
Why did it crash last time? The squid and friends wanted to change the rules... They won't crash this until they have another reason.
There are no fundamentals
They need the right number of people to feel comfortabe to go back into the market.
Once loaded they pull the trap door.