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Did The Fed Just Begin To "Pop" The Credit Bubble?

Tyler Durden's picture


When Jeremy Stein warned in February of "froth" in the credit markets, it was much discussed but little action'ed. However, today we start to see some actions:


With cov-lite issuance at all-time record highs (as we explained here most recently and Moody's tried to ignore), Stein's bubble is even bigger and whether or not the Fed 'tapers' it is clear now by this signal that their concerns over bubbles are growing day by day.


Of course, as we warned here, this is Carl iCahn's worst nightmare...

...But we have seen this "credit cycle end, equities ramp" before - in 2007 - where leverage (both firm-wise (debt/EBITDA) and instrument-wise (CDOs)) provided the extra oomph to send stocks higher on the back of credit fueled extrapolation of earnings trends.

(charts: Barclays)

In the end we know this is unsustainable - the question is when (in 2007 it last 10 months or so...).

We already see 30Y Apple bonds trading at 5% yields - admittedly low still but notably higher than when they issued previously. The Verizon deal recently now trades at around 5.7% yield and is considerably worse financially pro forma. Of course, just as in 2007, things change very quickly once collateral chains start to shrink.

Perhaps this is why Carl iCahn said the Apple CFO/CEO shunned him - iCahn's worst nightmare is simply the inability to proxy-LBO each and every firm...

Given these charts - which market do you think is in a bubble - equity or credit? Bear in mind that the Fed's Jeremy Stein has already made his case that the latter is a bubble for sure... and the fragility that reaching for yield creates...


and here is Stein's most recent warning...

Stein 20130926 A


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Thu, 10/24/2013 - 15:36 | Link to Comment fightthepower
fightthepower's picture

Fuck you Yellen!

Thu, 10/24/2013 - 15:50 | Link to Comment Looney
Looney's picture

S&tuliP 500 mania, bitchez! ;-)


Thu, 10/24/2013 - 16:10 | Link to Comment TruthInSunshine
TruthInSunshine's picture

As judged by his words, spoken & written, Stein is the only intelligent, rational member of the Federal Reserve Board of Governors.

I'm confident that he believes Bernanke has created the mother of all bubbles, and in more asset classes simultaneously than ever before.

The only question I have is whether he speaks with the quiet blessing of BernYellen, or is actually mounting a mutiny in an attempt to finally prick the massive, malignant bubble that BernYellen monetary policy has now blown -

- so that he can try and help mitigate the inevitable harm to the economy it causes when it does inevitably burst; he's aiming for a less harsh "crash landing," if you will.

Thu, 10/24/2013 - 16:27 | Link to Comment zaphod
zaphod's picture

This is probably the fed's plan. Print M0 up to the moon to cover all debts, while at the same time reducing credit leverage in the system. This fixes the banking issue, while hiding the inflation.

This might just work, except for the fact that the federal government is leveraging itself to the moon and won't stop.

Thu, 10/24/2013 - 15:53 | Link to Comment knukles
knukles's picture

Exactly the way that the CB can offset some of the "speculative" excesses.  Got tons of covenant light loans, bonds and deals being done.  A shortage of high yield makes folks stretch, demand higher yield paper.  When they start lining up for it, the protection falls as its a seller's market.
So the Fed tells the banksters to tighten up the loan deal terms.
And boy, can they do so with loans.
They can raise the haircuts on the dubious quality ones...

Meaning what's already on the books!

SOP when the sun goes down.

Cyclical phenomenon.
Got stocks?

Thu, 10/24/2013 - 15:38 | Link to Comment vote_libertaria...
vote_libertarian_party's picture

Could also explain why the retail brokerages have been inching margin requirements tighter over the past few weeks.

Thu, 10/24/2013 - 15:39 | Link to Comment THECOMINGDEPRESSION

Just look at my name..that answers everything

Thu, 10/24/2013 - 16:10 | Link to Comment Charles Nelson ...
Charles Nelson Reilly's picture

Coming Depression?  The fucker is already here!

Thu, 10/24/2013 - 21:52 | Link to Comment Incubus
Incubus's picture

I know a bunch of christians are waiting for Jesus' 2nd coming. 


Guy's a bit of a snail with the ladies.  He first came over 2,000 years ago.

Thu, 10/24/2013 - 15:42 | Link to Comment Grande Tetons
Grande Tetons's picture

If this hymen pops there will be blood. 


Thu, 10/24/2013 - 15:48 | Link to Comment DaddyO
DaddyO's picture

I didn't know reptiles had hymen, thought that was reserved exclusively for sheep and other mammalian female progeny.


Thu, 10/24/2013 - 16:06 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

No hymans in this economy. More like zombie sores popping all over the place: Ugly, contagious and harmful.

Thu, 10/24/2013 - 15:42 | Link to Comment Dr. Engali
Dr. Engali's picture

"Given these charts - which market do you think is in a bubble - equity or credit?"


I'm going with the FRN. 

Thu, 10/24/2013 - 17:29 | Link to Comment DosZap
DosZap's picture

"Given these charts - which market do you think is in a bubble - equity or credit?"


I'm going with the FRN. 


I'm with you, read an article this morning said at CURRENT rates of .goober spending, we would be at 22T Nat'l debt by mid 2014.Way to go Oboombox!


Thu, 10/24/2013 - 15:54 | Link to Comment CitizenPete
CitizenPete's picture




CFTC Will Hold an Open Meeting to Consider Proposals on Position Limits and Other Business


Washington, DC – The U.S. Commodity Futures Trading Commission will hold a public meeting on Tuesday, November 5, 2013 at 9:30 a.m. to consider:*




Position Limits for Derivatives

Aggregation of Accounts Under Part 150, Position Limits

*Note: Other items may be added to the agenda


CFTC Headquarters Conference Center, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581


Tuesday, November 5, 2013 at 9:30 a.m.

Viewing/Listening Information: The CFTC has made available the following options to access the meeting:


Watch a webcast of the meeting at or call toll-free to be connected to an audio feed. Call-in participants must provide first and last name and affiliation.

Dial-in information:


Domestic Toll-Free Number: (866) 844-9416


International Toll Numbers: International Numbers


Passcode: CFTC

Thu, 10/24/2013 - 15:59 | Link to Comment Grande Tetons
Grande Tetons's picture

Tuesday, November 5, 2013 at 9:30 a.m


They might want to pull that one up a bit. 

Thanks for the post!!

Thu, 10/24/2013 - 16:02 | Link to Comment Sofa King Confused
Sofa King Confused's picture

What about position limits on shorting PM futures.

Thu, 10/24/2013 - 16:06 | Link to Comment somecallmetimmah
somecallmetimmah's picture

Pfft.  "Futures".  That is sooo 1980.

Thu, 10/24/2013 - 16:07 | Link to Comment hmmmstrange
hmmmstrange's picture

Thank god you posted the password, i would have never guessed.

Thu, 10/24/2013 - 16:12 | Link to Comment SDShack
SDShack's picture

Maybe Prince Bandar called the CFTC and said "About that US Petrodollar status...."

Or maybe the NSA intercepted Prince Bandar's call to the Chinese and Russians.

Thu, 10/24/2013 - 16:36 | Link to Comment NDXTrader
NDXTrader's picture

"Did the Fed Just Begin to Pop the Credit Bubble?"

AHahahahahahahahahahahahahahaha! Whoooooooooohhhh...that's a good one. Forgot to mark it Thursday humor

Thu, 10/24/2013 - 16:44 | Link to Comment NDXTrader
NDXTrader's picture

I'm just not sure what some of the Tyler's don't understand. You can't compare this to 2007, 2001, 1987, 1929, none of those times was it the stated goal of the US central bank to devalue the currency into oblivion. Think about how low the dollar would be if every other central bank wasn't trying to devalue just as fast. Credit has been "wrong" for almost 5 straight years - because the credit market is even more rigged than the equity market.

We could be in something 10 times worse than the Great Depression and the Dow might hit 50,000 - it's measured in DOLLARS and the measuring stick is getting SMALLER

Thu, 10/24/2013 - 18:41 | Link to Comment SDShack
SDShack's picture

Correct except for one thing.... your theory holds true for Western Soverigns, but doesn't take into account the new rise of the Far and Mid East, as well as South America and N.Africa. They are not going to keep playing ball with collapsing Western Soverigns causing triple digit rises in commodities (food & fuel) needed for their emerging economies. The Arab Spring was just a little spark compared to what could be coming when the masses really get fed up with the USA.

Thu, 10/24/2013 - 16:53 | Link to Comment NoWayJose
NoWayJose's picture

There is nothing 'LAX' about it -- it is all done intentionally.  The only way it would be LAX is if Goldman, JPM, etc let those $25K Walmart employees write these up.  Since they are being written by $300K+ bonus babies, this is all intentional in hopes of attracting someone stupid enough to buy at an even higher price.

Thu, 10/24/2013 - 17:49 | Link to Comment silverserfer
silverserfer's picture

the pimp just told the ho's to quit ho'in...

Cause the pimp know when the heat is on his ass

Thu, 10/24/2013 - 19:42 | Link to Comment chump666
chump666's picture

hahahahaha  The Fed underwrites everything anyway.  Reason why Merkel was tapped by Obama's floppy schlong is the big worry that Germany says, they will one-day, f*ck you to the EU (hey that rhymes).  The Feds holdings will collapse, the ECB one way credit line from NY Fed will blow up etc

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