The Credit Market Sees Things Differently

Tyler Durden's picture


Both the absolute levels and the implied volatility of credit markets are significantly divergent from the recovering exuberance in stocks. As we discussed here and here, this cannot last. If you 'believe' that Bernanke was bluffing and the taper is off then credit is grossly cheaper than stocks; if not, equity shorts seem an appropriate position into Q3.


Easy Come, Easy Flow...


Which leaves equities 9-sigma rich to credit... (approximately 3x HYG to 1x SPY delta)


Of course, the fund flows are affecting credit (as we are constantly reminded on CNBC) and as we saw here, the selling pressure is dramatic; but - as we noted previously -

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.

Charts: Bloomberg and Barclays

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Wed, 06/26/2013 - 15:36 | 3696442 Joe Sixpack
Joe Sixpack's picture


Wed, 06/26/2013 - 17:10 | 3696809 Panafrican Funk...
Panafrican Funktron Robot's picture

Was interesting to see the failed push to get the 10 yr below that magic 2.5% level.  

Wed, 06/26/2013 - 15:37 | 3696446 markettime
markettime's picture

Holy Shit Batman!

Wed, 06/26/2013 - 16:07 | 3696582 Rainman
Rainman's picture

Go right ahead and short, Robin.... i dare ya .

Wed, 06/26/2013 - 15:37 | 3696447 SheepDog-One
SheepDog-One's picture

It's all just a completely fake illusion at this point....why anyone is bothering with trying to read the chicken entrails is foolish to me.

Wed, 06/26/2013 - 15:38 | 3696450 Joe Sixpack
Joe Sixpack's picture

Because the tea leaves are not available, and Bernake broke the crystal ball.

Wed, 06/26/2013 - 15:49 | 3696504 BandGap
BandGap's picture

Bernanke's Magic Eight Ball just told him FUCK YOU!

Wed, 06/26/2013 - 15:58 | 3696542 CrashisOptimistic
CrashisOptimistic's picture

"If you 'believe' that Bernanke was bluffing and the taper is off then credit is grossly cheaper than stocks; if not, equity shorts seem an appropriate position into Q3."


Or why not STOP THE BULLSHIT WALL STREET THIS OR THAT, sell everything away from those lying commission-seeking leeches, and buy farmland. 

Trade pieces of paper for the ONLY thing that matters in the post-Peak world ahead -- calories.

Wed, 06/26/2013 - 16:16 | 3696605 SheepDog-One
SheepDog-One's picture

That's what I've been saying people should do for years. Let these wall st clowns go circle jerk themselves.

Wed, 06/26/2013 - 16:17 | 3696610 SheepDog-One
SheepDog-One's picture

Idiocracy said one of the most important things will be burrito toppings....we'll see.

Wed, 06/26/2013 - 16:45 | 3696709 Serenity Now
Serenity Now's picture


Amen.  Bought a sailboat rather than land, and a whole lot of food.  

You are my favorite poster, by the way.  :)

Wed, 06/26/2013 - 15:39 | 3696453 Dr. Engali
Dr. Engali's picture

I'll take short SPY for 1000 Alex.

Wed, 06/26/2013 - 15:42 | 3696470 Gypsyducks
Gypsyducks's picture

I have watched LNKD puts expire worthless for 5 straight quarters... why stop now?

Wed, 06/26/2013 - 15:57 | 3696536 Aknownymouse
Aknownymouse's picture

Did you ever think about getting calls? They do sell both

Wed, 06/26/2013 - 15:41 | 3696464 fonzannoon
fonzannoon's picture

why taper vs no taper?

Why not (hypothetical)

July- 65 bil

August- 95 bil

Sept - 35 bil

October - 125 bil


Wed, 06/26/2013 - 15:52 | 3696513 NotApplicable
NotApplicable's picture

Better yet, have them choose a random number to prevent front-running. Maybe last week's powerball number or something?

That would be fun, no?

Wed, 06/26/2013 - 15:54 | 3696519 fonzannoon
fonzannoon's picture

They never announce the number, except to the Goldman etc. It just adds up to whatever it adds up to throughout the month.

Wed, 06/26/2013 - 16:09 | 3696565 knukles
knukles's picture

666 for everybody!


I'm really beginning to wonder whatthefuck is going on.  Maybe they're right about the end of the world, after all.  But oh, fucking no, Knukies, you're just gonna stave to death out in the rain under the hot sun, breathing bad air, covered with pustules and cancerous bleeding oozing lesions, being eaten alive by bugs, mumbling unintelligible gibberish whilst bouncing your pecker about for entertainment...

Wed, 06/26/2013 - 16:19 | 3696618 SheepDog-One
SheepDog-One's picture

Well I don't know about 'the end of the world', it's been here a very long time after all....but any chance of Homo Sapiens species surviving much longer seems to be highly questionable.

Wed, 06/26/2013 - 15:44 | 3696475 ghostzapper
ghostzapper's picture

spend a few days tickling and finger fucking the 1620ish area then a sharp decline over a month or so to the 1340-1355 zone.  if it was "taper off" it woulda already rocketed above the recent highs. 


the financials have not yet broken down (of course not when Benny keeps supporting all the key ones!!!) but if they do the recent high of 1687 might be THE high and not seen again for a very long time.  but, those scam artist, slimey, scum financials need to break down and they have not yet done so.  also, oil holding in the mid 90's for no other reason than Bernanke needs it there to support Spider is a problem for the bears as well.   

Wed, 06/26/2013 - 15:46 | 3696495 NOTW777
NOTW777's picture

APPL trades like a gold stock

Wed, 06/26/2013 - 15:48 | 3696501 ghostzapper
ghostzapper's picture

AAPL is a piece of shit.  if/when it breaks 390 and 379 then say hello to 250.  Bernanke threw in the towel on this one I don't think he is even having his momo dipshits try to prop up this turd anymore.  lost it's juice. 

Wed, 06/26/2013 - 15:56 | 3696524 NotApplicable
NotApplicable's picture

When you start seeing "unfunded pension liabilities" hitting the news again, you can bet he'll (or Yellen) will send a little love that way. Might even get 'em to repatriate a buck or two in exchange for some good PR.

Hmmm... although the degree of difficulty is going up.

Wed, 06/26/2013 - 16:14 | 3696599 ghostzapper
ghostzapper's picture

my feeling is that Lord Benny has some serious TA guys that do in fact know their shit and the AAPL chart is broken beyond where they can rather easily artificially prop it up like they do and have been doing with all the usual suspects such as IBM, MCD, JPM, GS, AMZN, etc.  they find the ones that have the most influence over the sheep watching CNBC and momo chasers and juice them higher to contribute to their overall war effort which has evolved into a last ditch effort to create a bubble in equities and hope for the best. 

Wed, 06/26/2013 - 15:58 | 3696541 Hedgetard55
Hedgetard55's picture

Went from hero to zero quick, didn't it?

Wed, 06/26/2013 - 16:09 | 3696581 NoDebt
NoDebt's picture

Lay a chart of AAPL over a chart of Microsoft "peak to peak" (MS in the Dot-Com days and AAPL from last September).  There's your BEST case scenario for Apple (because they don't have neary as many juicy long term licensing agreements as MS did back in it's day).

I have posted this same comment probably 20 times in the last 8 months. 

Apple is dead money.  The only thing left to gripe about is who gets how much of the $100 billion they've got at their "internal hedge fund" or if they just slowly piss it all away on bad acquisions that still won't save them (like HP).


Wed, 06/26/2013 - 16:21 | 3696622 SheepDog-One
SheepDog-One's picture

And I remember those 6 months ago, when people said Apple would never ever fall and $1,000 was a done deal.

In this New Paradigm, things change very fast.

Wed, 06/26/2013 - 15:51 | 3696509 Aknownymouse
Aknownymouse's picture

Did you consider that this divergence is because of the great rotation? Better late than never. Also the same rotation applies from gold to equities. This is the market adjusting to deflation with a FED induced bubble in equities. The real divergance will show up in july IMO. When the masses start chasing.

Wed, 06/26/2013 - 15:53 | 3696514 101 years and c...
101 years and counting's picture

quarter end window dressing.  mm's unloading on hedgies that are painting their pigs a better color than blood red.  tomorrow, we return to reality.  ie, no cb lies while we sleep tonight.

Wed, 06/26/2013 - 16:18 | 3696606 Rainman
Rainman's picture

Naw..! They be cookin shorts like scouts cookin marshmallows....btfd dammit....2 and 20 rules still on !

Wed, 06/26/2013 - 15:53 | 3696518 NotAMathWhiz
NotAMathWhiz's picture

Everyone knows the endgame is going to happen when the world changes its mindset from 'debt is good' to 'debt is bad'.  Highly encumbered DM bonds pull a hockey stick and the wheels fall off those economies.

I don't think we're there yet, but I think this is what it will look like when it starts.  Keep your powder dry.

Wed, 06/26/2013 - 15:58 | 3696543 NotApplicable
NotApplicable's picture

Well, since debt is money, that means the sheeple will have to believe that 'money is bad.'

That's gonna be one tall cliff to scale.

Wed, 06/26/2013 - 15:56 | 3696533 buzzsaw99
buzzsaw99's picture

A little song for equities buyers:

Wed, 06/26/2013 - 15:59 | 3696546 NotApplicable
NotApplicable's picture

So, you down with the clown?

Wed, 06/26/2013 - 16:35 | 3696612 buzzsaw99
buzzsaw99's picture

I like two or three songs of theirs so far. Don't get into the extremely violent ditties so the answer is probably no.

Wed, 06/26/2013 - 16:18 | 3696614 gatorengineer
gatorengineer's picture

End of the month Window dressing.  Lipstick on a pig, doesnt mean its still not a pig....  

Wed, 06/26/2013 - 16:26 | 3696635 azengrcat
azengrcat's picture


9 sigma = (Out of Control)2


Wed, 06/26/2013 - 18:24 | 3697058 Tombstone
Tombstone's picture

So forget AAPL.  TSLA to $1000.  When Obama dictates his global warming nonsense, he will be buying Teslas for the welfare crowd.  Expect to get free lifetime batteries and a free windmill for the backyard.  Throw in a couple a dozen solar panels and he will drive a stake into the coal industry and drive oil and gas companies out of business.  Benny and bonds? Who cares, the government will provide all.

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