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The Illustrated History Of High Yield
Buybacks, dividends, and M&A all depend on firms' abilities to borrow cheap. With leverage ratios rising (and micro fundamentals weakening) as we noted here, macro fundamentals deteriorating, and the visible hand of the Fed now lifting off the repressed neck of risk managers, we have a simple question - What Happens Next? Simply put, your glowing stocks cannot rally in a world of surging debt finance costs.
Remember - and it's important - there is no rotation that drives high-yield credit spreads wider without punishing equities. They are liabilities on the same capital structure and rise and fall in a highly correlated (well non-linear co-dependence) manner as the underlying business risk rises and falls. Do not, repeat do not, see high yield credit weakness as a sign of rotation to stocks - if the credit cycle has turned then stocks are set to fall. And bear in mind that while HY yields are at all-time lows, spreads are not and in fact being short stocks relative to credit makes more sense if you are you are a bear on the credit cycle here. The only problem being that the epic flows that sustained a credit market at non-economic levels for so long will exit in a hurry.
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Right now yield are not scary but if it continues, it's gonna be.
In other news, Snowden has just been charged with espionage.
And the US just increased the size of troops in Jordan to 1000...
And the LA Times reports that the CIA has been training Syrian rebels since at least late 2012.
Yet the fear guage was down 10% today. (The sling shot pull back?)
It's too paradoxical in a world where there is record debt and there is record low yield. These things should be in direct relationship if the money is sound. Therefore one can conclude that money is junk and woe onto those who holds these debts. As this realization is caught on by the masses and debts are unloaded, they become junk at the same times yield should explode..which should happen any day now....3..2...1.....Kaboom.
snowden is being charged as a spy
When do they charge Bush, Obama, CONgress members, Holder, and the others with Treason?
teehee, you're funny. That's like asking why don't criminals turn themselves into the police. It is the right thing to do, after all!
I know, but I can dream.
Lowest yields in history at a time when the US is most at risk of default in history...did somebody say bubble?
(S)ituation (n)ormal, (a)ll (f)ucked (u)p.
It's amazing that we're watching the biggest theft in history, for which no one will be incarcerated.
This time its different /Sarc
So the FOMC wants a market crash, eh!? Bring it!
So short the snot out of junk?
Had to have been at least five separate stock brokers today on CNBC saying that rising interest rates won't affect the sale of houses or their prices; and that the markets have gone up on improving fundamentals.
Talking their book - or the most unobservant numbskulls on the planet.
So it is absolutely certain that stocks are going to crash then? CNBC is the pied piper leading the muppets to slaughter.
Corporate junk? Makes sense to me.
Great chart. It shows a lot about the psychology of the market.
It makes me remember that the PIMCO twitter feed kept mentioning to that PIMCO was "buying TIPS". The last mention of that was April 19 - since then TIPS are down 9% YTD. That is a lot of years of return gone POOF.
Basically it doesn't sound like such bad advice but as will all things in investing (speculating really in this FED rigged / Wall Street levered environment) - the timing is everything.
The first rule as I see it is to survive as the elephants start to delever - which they will and violently as the know that the exit door is only so big and the first one through will get stepped on the least amount. My guess is that what we are seeing this week. Maybe the next couple of months will see the rest of the elephants calm down a bit as they all sort of edge up to the door but don't panic.
In summary everywhere you look you (emerging markets, Japan, China, EU, US) you see interesting spastic sell offs. It feels like the March 2008 timeframe when Bear went under (though no interesting failures have happend YET). The market is sort of waking up to the notion that the tide is going out and most players aren't wearing a bathing suit or a life preserver. Timing wise - who knows? My personal best guess is that the trigger might be China - as the biggest levered player - with an undimensioned exit door for all the shadow banking unwinds to navigate. It was bad enough for worldwide production when Thailand had flooding or Japan had a tsunami - what happens when China hits a Sudden Stop / Minksy Moment?
In our recent past heads would roll for a lot less even King's heads. It tells you a lot about the ability of Democracy and technology to conttrol people. Very interesting times for technologists and sociologists. Whole new chapters are being written as we speak. Greece, Cyprus, Island, Argentina, Brazil, Turkey, Egipt, Syria, North Korea, Iran, etc.
As you said: "Remember - and it's important - there is no rotation that drives high-yield credit spreads wider without punishing equities. They are liabilities on the same capital structure and rise and fall in a highly correlated (well non-linear co-dependence) manner as the underlying business risk rises and falls."
Some caritative soul may explain to me why DAX and Bund have been inversely correlated (bund in price , DAX up, bund yield up and bund price down), several weeks or months till the past two days?. They have done the same as 10 Yr T Bill an S&P500. Bund falling (price), and DAX too.
Please anyone knows what's happening now that didn't happen before, at least in Germany. twitter @allsfaked
Thanks for kind and sure answer :-))