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What Do Credit Markets Know That Stocks Don't?
Two weeks ago we warned of the 'shift' we were seeing in the high-yield credit market. Equity market participants remain bereft of the ability to realize that releveraging to fund buybacks (which are the only driver of EPS growth) and dividends (the only reason many are buying stocks) is simply not long-term sustainable. The reason - quite simply - is that high-yield markets (no matter how much liquidity you throw at them) will hit a wall of spread-per-leverage or 'risk' vs reward that simply is non-economic. As we noted here, we appear to be turning the credit cycle corner - a message many ignored just as vehemently in 2007. The last few days have seen credit markets take another leg lower (remember this is spread not yield risk and so is unrelated directly to the Treasury selloff). To clarify, one cannot believe that investors rotate from HY credit to equities - they are simply different parts of the same capital structure; if one hurts, the rest of the business will hurt (perhaps with a lag) and in this case (as is often the case), credit anticipates and equity will confirm.
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Simple answer:
Tapering has already started. Full halt quite soon.
Must never turn spigot off, most go moar faster
Never forget:
Base Money is created (printed) by BUYING SOMETHING.
The Fed CANNNOT ...repeat CANNOT ...type up numbers on a computer.
The Fed MUST BUY BONDS, SECURITIES ETC in order to create money.
Hence, moar printing = less bonds available for trading = less liquidity = repo collapse = defaults in shadow bankiing
EKM the fed is not limited to just the bond markets when it comes to buying. If there aren't enough U.S bonds they will soak up the sovereigns. If there aren't enough sovereigns they will soak up reits. They will do whatever it takes to keep the system on life support until somebody decides they don't want to play along, or they are ready for the next leg of the crisis.
Correct, thus....pulling liquidity from the market thus......collapse of repo market ...thus defaults in shadow banking
You mean what do Stocks know that everyone else dont....coz thats the ongoing theme for the past six months going onto seven
This no longer an issue of leaders "knowing".
This is purely panic and nothing can be explained by logic any longer.
all Money is borrowed into existance then fractionalized.
no
Speed kills, but acid gives thrills.
Definition:
LIQUIDITY = AVAILABLE SECURITES FOR TRADING.
The only logic to continue QE is to buy up all assets, hence a full political conversion from Capitalim to Communism or Fascism.
If that is the goal, then QE will continue, because it is STRUCTURALLY GOVERNMENT OWNERSHIP OF MEANS OF PRODUCTION.
We used to call that...communism.
An that in the end is the goal. Obama's stated goal while running for office was to fundamentaly change America. The bankers don't care what "ism" is in place they only care about how they can profit from it. Greenspan spoke in the past about having the capabilitiy to buy up private companies, and what we are witnessing is the largest leverage buy out in the history of the world.
That may be true Doc, and I believe it is. But they will destroy the currency in the process and the bankers will have bought themselves Detroit with a 300 mil population.
The hollow points, don't forget them.
...and that's why .gov has a Billion Bullets!
If you were a callous bastard, you could go long on Mass Grave real estate.
Or Industrial Ovens.
I'm thinking the Ayers Firestorm 5000 (TM).
At 5,000 YTs and Christians and gun and gold clingers per hour, one of these babies could wipe out resistance in 416.666 days!
(resistance based on 50 million resistors. local conditions may vary)
So when they round up everybody it'll be called the "Billion Bullet March"
They don't care about the currency fonz. When the next system is in place they will be well positioned to take advantadge of it. That's why they put so much effort into disparaging gold. They want to make sure the proles don't have any. And as far as Detroit goes, that really fits into their game plan for the NWO. They haven't been beefing up the police state for nothing.
we keep having the same conversations over and over and reaching the same endpoint.
The definition of repeating the same behavior and expecting a different result.....
I don't know where we go from here but I am very thankful that Francis Sawyer has decided to be our big toe.
LOl....I know, but everybody else is throwing in the towel and disappearing. The Bernank has QEed them out of existance.
I don't think anyone here is expecting a different result other than the ones we keep talking about. There's a lot to be optisimistc about..... there's...... well, and there's......and I will get back to you on the optimism bit.
And they care why? They are already printing 52% of the population food, housing, and Iphones.....
and right now the fed is buying equities ekm. they just did not include us on that memo.
Thus removing stocks from the market, ........thus NYSE went bankrupt ........thus horrible liquidity........
well then to follow along on Doc and my point let me state very VERY clearly on here for anyone that may be watching....my entire Michael Bolton CD collection is for sale. That's right, i celebrate his entire collection, and so if we need something else to monetize....
LOL You got it.
I received a call from a Banker from Wells Fargo stateing that they are serious about lending on "anything that makes sense for those with good credit including their art collection and their wine collection"
Seems the fed needs moar for sure
Don't get down on Michael now. The best cha cha I own is Dance With Me
http://www.youtube.com/watch?v=_Yf1iPqEA54
How long do we have, 6 months? A year?
Why so optimistic?
By September or October things will be really ugly.
Less than two months. July options look good to me
I'm thinking less than two months as well.
In effect, QE-Forever is already over. Never for forever.
BINGO!
they are just warming up. you ain't seen nothin yet.
i disagree fonz...............they wont print to oblivion.....absolutely wont do it..........they will go heavy on the skanking before they print the currency into oblivion
lol can't it be both?
i dont think so...why skank something you intend to destroy??????....................bernankes entire source of power is derived from dollars..................hes NOT going to let it go...............i have said this 1000 times........if he knows the ships going down.............no matter what..............he picks the dollar over the people....
You based the same logic to conclude they would never do QE3. I am not convinced you are definitely wrong, but so far it seems to be going the other way.
The bernank works for the Castle dwellers that like Gold and the Euro. The USD is a well used whore.
This will not be the first time that U.S.A. inc. destroyed it's currency, but it may be it's last.
QE enternity is dead. long live QE eternity!
credit markets have Kevin Henry's health records
yields are going higher. this should be fantastic for banks as higher rates is generally good for them right up until they go into cardiac arrest.
Optimist. Sorry, history demonstrate one thing with great confidence; sovereign debt grows or sovereigns and thier currencies die.
the ten year just turned higher. this is getting really interesting laws.
Yes, but in line with an "internal struggle" among power brokers in the west. The BRICs, probably don't care either way...
It's all about Japan. How the hell they keep the yen in check is beyond me...and when they don't and can't treasuries will be barfed up en masse and our yields will continue to rise....and we will continue to ponder whether they are tapering while they are buying their asses off.
fonz, they are using everything else to keep the yen in check...one day its the EUR, next day is WTI, next day is USD, next day is Gold, then Silver, then Gold and silver, then copper, then WTI, then gold and silver again for next few days, then bonds.....dont know how long they have been doing this financial improv gong show but they have succeeded thus far
theres no tapering....its only taping up all the remaining holes of liquidity left in the markets and right now there aint much holes left to patch up in a soon to be a vacuum.
They may have succeeded so far but only in buying time. They always lose control. I just literally don't know what the consequences will be this time.
just shut the markets down....indefinite halt....then no one knows wtf is going on or how bad the damage really is....but dont think they can halt it until something happens first.
I could see it start in Japan. They open....something breaks. They halt, and stay closed.
fonz, can it be more obvious? the japs the 2nd or 3rd largest tbill holders are liquidating and repatriating to the Yen, thats why the dollar is down relative to the euro, the yen is up and bonds are getting hammered... The question is are they bailing enough, and fast enough. They gotta be shitting themselves everytime the Nikkei opens..... Its just that simple. They catch a limit down day in either JGB's or the Topix and they are toast..... and frankly so are we....
Exactly. Which is why it is so hilarious to listen to the msm try to tie yields to tapering and economic improvement.
They even marched out Bill Gross before and he conceded that the rise in yields could start to affect the markets.....wait for it....wait for it.....in 2016!!!
Yep. that rat weave head must be under some serious duress to have had to come out and pitch that line of shit.
I posted this yesterday. I think the 10 year is done at 2.25 or so, constituting a 3 pt. reversal on the PnF chart. 2.25 or better will constitute significant resistance, in my opinion. http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$ust10y,pltad[pa][da][f!3!!]&pnf=y
the 10yr is done when the yen is done IMO and gundlach says the Yen/Usd is heading from here to 200.
They cant print it that far, they collapse on their energy bill long before that. 110-120 MAX.... and that is only after they address their liquidity issues. I think you will see 97 before 105.....
I think that is right. But you will see 105.....110....etc...
Ummm... That the Bernanke sucks?
I take the complete other side of this QE halt idea. This is QE4eva.
The taper idea was to cover up the Yen implosion.
Agreed. The fed will never stop printing in my view.
They can't keep QE going cause bond yields are starting to explode in the Fed's face!ala Japan. Remember the term DV01 not too long ago here? The Fed has got itself caught between a rock and a hard place keeping QE going far longer than even they knew better not to do. We now have rising yields on one side and an impoding economy on the other.
"They can't keep QE going cause bond yields are starting to explode in the Fed's face!ala Japan."
That is exactly what will force them to print moar. That is the point. That is why it truly is QE4eva.
more Q/E right now will give the undesired effect of higher rates, IMO. His Holiness BB stated that if they ended Q/E right now that rates would come down due to the market perception of it being a deflationary event (during Q&A last week). He will soon have to choose....rates or equities.
My guess it will be done very soon as they can't let the yields get away from them....really close to that happening right now.
They can and they will print moar. See my response to EKM.
Exactly. They won't stop until forced to.
Agree. They may pause for two seconds like pulling the plug on a coma patient but they will plug it right back in when the patient starts to die. QE 4EVAH!!
Agree completely. And now onto the next 'crisis' .....
What do credit markets know? It's not Tuesday or 330pm. Just wait, at 315 the HFTs are ready to pump it up.
Helicopter Ben is addicted to printing, just like a junkie to herroin. Come on, just a few more billion. This time is different. He can quit any time he wants...
Usually, the credit markets are a leading indicator of where the stock market is heading, but with all of these wacky central banks running amuck it's hard to say what this could mean.
http://dareconomics.wordpress.com/2013/05/29/around-the-globe-05-29-2013/
Sell. Fuck the Dip. Buy the F'Kn Bunker.
Tyler, you seem to be asking that question, alot lately
Hey Tyler, can you pull some charts and post showing the disconnect between the 2 going back to 2007 and again here in '13??
Thanks!
http://freedomoutpost.com/2013/05/whistleblower-exclusive-benghazi-cover-up-is-the-proxy-battle-with-the-war-with-iran/
http://www.voltairenet.org/article178638.html
Voltaire is the place to be.
They had an article on Ben Ghazi being a retaliation by a certain nation-state a while back.
Of course, this cannot get out in USA lest USA Citizenisms find out they are being driven to another war, but this one will be a
"War."
dow has come back 100 pts over past hour on nothing. only down 80 as i speak.
cant make this shit up.
what dumb ass is buying at these levels? i dnt get it
It's the BTFD mantra moe-rons at it again.
Stimulus + reward based operant conditioning has trained the BTFD crowd well. They will continue the behavior until traumatic aversion sets in just afyer their faces are ripped off. Expecting anything different suggests one misunderstands how the human brain works. Algo brains are a different question
" zerohedge @zerohedge 32m
ROSENGREN: FED `VERY ATTUNED' TO QE'S UNINTENDED CONSEQUENCES."
ROFLMAO that is one of THE most inaccurate statements/BIG FAT LIES since the Big Bang!
You're it's incomptence. It's not, it's malice.
I would like to see a chart correlating such downturns with the outbreak of new wars.
These things NEVER start out of the blue.
TPTB always know in advance in order to be able to batten down the financial hatches before depleted uranium starts flying.
i know why the market must turn green before days end.
if we sold off as hard as europe, then japan would follow our lead and god forbid the nikkei falls again. so we must finish either green or flat so japan can stay above the 14000 level,
fucking joke
This is why credit is drying up: http://www.bis.org/bcbs/basel3/basel3_phase_in_arrangements.pdf
Working as intended...
Could you provide a link to the Basel agreement as to exactly what will be considered Tier 1 and Tier 2 capital? Gold is still tier 1 I believe. Unfortunately the intentional obfuscation of the basel III agreement does nothing to deal with all the paper promises that will be defaulted on as treasuries are considered 0% risk even though there is a 100% chance of being a bagholder.
This market is bouncing like a North Korean rocket launch. It's going up right now, but who knows where it winds up ...
That QE will continue to infinity? Credit markets do NOT GET IT.
This is a newbie dumb question, maybe, but ok so money is credit on both debt interest and deposits of our money correct? So once we stop incurring debts/loans/whatever and we are no longer able to deposit anything because it's all taxed away or spent on trying to live, wouldn't that alone collapse the system?
Or would they start coming and trying to force us into things, buying our lands/houses/cars/food/anything to recreate the money supply? Which in a sense would be, as Dr. Ron Paul put it, "creating money out of thin air" ?
Junk bonds at 6%. Japan is committing hari-kari. Europe is a mess. S&P at allt-ime highs. Quite simply - the smart money is getting out while the getting is good. Pocket the profits and go party in the hamptons. Life is good.
Getting tired of all the predicitions from "stock market crash" to TEOTWAWKI. I tell you what, we need a new blog: A blog that will tabulate all the published "predictions" of these authors and gurus when a stock market crash defined as 20% or 50%, or a PM crash or spike, or a treasury crash are made. If it's a miss, it gets x'd out. If still pending or yet to be determined, it gets a yellow, or if the event occurs as predicted, like a drop in gold prices within a period of time, its gets a green.
Those that simply warn but do not give any time frame should have empty space by their name.
For example, the last one I heard was John Williams of Shadow Stats saying by May 2013 there should be some kind of financial disruption. We still have 2 more days for that one.
Hey Hubbs, interesting idea.
I guess a lot depends on what the Fed decides. I seem to recall that one Fed member said that Fed involvement could go "up or down" depending on how the economic data comes in. I am paraphrasing but that was basically the idea.
I think the Fed is trying to keep exuberance from getting out of hand but I am confident they know they could easily crash the global derivatives market. I wonder whether the Fed is or will be buying Japanese bonds if BOJ can not handle the volatility.
Seems the Fed is most interested in preventing a global financial melt down. I don't for a minute believe tapering will begin for at least a year because I don't believe the economic data is good at all. I guess we'll see if there are suprises tomorrow.
Personally, I believe the market is due for a correction but I don't see it happening in this month. I'm tempted to go long for Friday's end of month window dressing and the really big POMO day and then sell at the end of the day. I don't know what I'm doing. Frankly this market has me completely flabergasted. None the less, my intuition tells me we get a final push up to finish May, (hopefullu GDP suprises to the upside) and then we get some kind of healthy correction in June.
Frankly, I've been a bear for a long time and I still am one but like most bears over the last 4 years I've been crushed. Now, however, the evidence is becomming a bit too much to believe that even if QE increases there are lmits to how far the risk reward can continue to yield high returns. Whatever. I'd love to know what anyone thinks about the next two days as far as the S&P. I guess it all depends on the spin in the data and if Japan and the European makes it through the night.
Hey Hubbs, interesting idea.
I guess a lot depends on what the Fed decides. I seem to recall that one Fed member said that Fed involvement could go "up or down" depending on how the economic data comes in. I am paraphrasing but that was basically the idea.
I think the Fed is trying to keep exuberance from getting out of hand but I am confident they know they could easily crash the global derivatives market. I wonder whether the Fed is or will be buying Japanese bonds if BOJ can not handle the volatility.
Seems the Fed is most interested in preventing a global financial melt down. I don't for a minute believe tapering will begin for at least a year because I don't believe the economic data is good at all. I guess we'll see if there are suprises tomorrow.
Personally, I believe the market is due for a correction but I don't see it happening in this month. I'm tempted to go long for Friday's end of month window dressing and the really big POMO day and then sell at the end of the day. I don't know what I'm doing. Frankly this market has me completely flabergasted. None the less, my intuition tells me we get a final push up to finish May, (hopefullu GDP suprises to the upside) and then we get some kind of healthy correction in June.
Frankly, I've been a bear for a long time and I still am one but like most bears over the last 4 years I've been crushed. Now, however, the evidence is becomming a bit too much to believe that even if QE increases there are lmits to how far the risk reward can continue to yield high returns. Whatever. I'd love to know what anyone thinks about the next two days as far as the S&P. I guess it all depends on the spin in the data and if Japan and the European makes it through the night.