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The Levered Canary In The Coalmine: High Yield Is Flashing A "Sell Signal", Says Barclays
The growing divergence between equity and credit markets this year have seldom been far from our pages (especially how, over many cycles, credit has led and stocks followed at trend turns), and now it appears Barclays also recognizes this fact. As they note, in 2007, as hints of the financial crisis were unveiled, spreads in the high yield market increased sharply. Meanwhile, the equity market climbed to a new record high. Had equity investors heeded the warning being sent from high yield, significant losses may have been avoided... and currently high yield sell signals suggest equity investors should position defensively!
Click image for massive legible version
You were warned:
High-Yield Credit Crashes To 6-Month Lows As Outflows Continue
High-Yield Bonds "Extremely Overvalued" For Longest Period Ever
High Yield Credit Market Flashing Red As Outflows Surge
Is This The Chart That Has High-Yield Investors Running For The Hills?
* * *
Between a sudden shift to a preference for "strong" balance sheet companies over "weak" balance sheet companies (the end of the dash for trash trade), and this rotation from high-yield to investment-grade, it is clear that investors are positioning defensively up-in-quality ending the constant reach-for-yield trade of the last 5 years.
Why should 'equity' investors care? The last few years' gains in stocks have been thanks massively to record amounts of buybacks (juicing EPS and also providing a non-economic bid to the market no matter what happens). This financial engineering - for even the worst of the worst credit - has been enabled by massive inflows into high-yield and leveraged loan funds, lowering funding costs and allowing CFOs to destroy/releverage their firms all in the goal of raising the share price.
Simply put - equity prices cannot rally for long without the support of high-yield credit markets - never have, never will - as they are both 'arbitrageable' bets on the same capital structure. There can be a divergence at the end of a cycle as managers get over their skis with leverage and the high yield credit market decides it has had enough risk-taking... but it only ends with equity and credit weakening together. That is the credit cycle... it cycles.
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Always check the *true* weighted average maturity of the underlying. If {hedge funds, e.g.} they are using interest rate reset dates to calculate the average maturity of their shit - sell the fuck out of that, asap.
Thank me later.
SELL SELL SELL!!!
Hit it!
http://www.cnbc.com/id/100000942
Kramer likes Snapchat!!!
Ummm,
If I'm reading that chart correctly, equities increased an average of 4% over the 8 months following Barclay's so-called HY "Sell" Signal.
Looks more like a "Buy" signal to me...
NO ONE is listening. Just something for CNBS to mock.
Dana Perino defends Obama's supposed legal right to declare amnesty for millions of illegal aliens:
http://tinyurl.com/mdkemhe
Who?
I clicked on this story, and then decided to click on 'Biggest Cheerleader Wardrobe Fails!'
Tyler: "Thank you for supporting our sponsors."
There are ADS on 0-hedge? Who knew?
The FED is watching this, and loading QE4 into their cannons, with some nails and chain link, along with the iron debt cannonballs.
The banks have their back, and vice-versa. They may wait for a solid decade to crash the ponzi again so that the memory of the last fleecing seems like an "unforseen event" versus coordinated theft.
Neo-Keynesianism is the definition of insanity, over and over again.
It - all kidding entirely aside - the fact Paul Krugman and his ilk is taken seriously at this point absolutely amazes me. My theory is that people who are very political/ideological, e.g. people who think "right wing" is a semantic and epistemic substitute for "wrong" {or vice versa, sure}, conflate their political worldview and arrogance with the fuckin' hopey changey magic beans economics and accounting of the New New Left.
Obama is isn't a mass murderer via bombing weddings and claiming, as in Libya, he was seeking UN aurthority rather than Congressional to bomb Libya for the bankers and petrodollar - because he's a black guy.
Israel isn't a terrorist, apartheid, nuclear rogue lunatic state because they;re Jews and Holocaust Hitler Nazi Sacred-Victims....
And the Ferguson rioters {not 'protesters, mind you} aren't...fucking asshole criminal vigilante fucks aren't such because they're black, and racisms, and "White" privilege, and they know not what they do and it is the 'burden' of the state to transfer weath to 'aid' them with fishes for a day forever...
Et cetera.
Look - QE hasn't worked, and won't work, except to delay the inevitable while transferring wealth upward. That's it. And the people at the Fed and the chattering classes of academic economists either know this, and so are evil, or simply assume their economics must be right because they're only ever thinking of the children, in which case they're idiots.
In any case - the blame for the transition from Republic to Empire, and its accelerating decline, is squarely at the feet of the American people, who should have been marching to Congress and state capitals to tar and feather our bought and paid for politicians who have been selling us out to the banks, the MIC, large corporations, and Israel for 40 fucking years or more.
40 years in the desert.... and nobody seems to notice, nobody seems to care.
Rantum terminus.
Really?
Hey, pal, 'delaying the inevitable' isn't chopped liver. There are about 7 billion people scooting around who would like to keep on 'delaying the inevitable'.
Sure, QE was an ugly, messy thing that greatly and unfairly favored the rich, but smoke a joint and imagine the 3rd Quarter 2009 GDP and corporate results without QE. Then think about everything that would follow in it's train.
Black Friday would mean Obama going to Camp David.
Get back to us on Thanksgiving.
Why don't you ask the Japanese how QE is working? The average citizen is impoverished. In fact 6,930,000,000 (99%) are 2 paychecks away from living in a fucking van down by the river! And smoking a joint - like it or not - will only emphasize this reality even more.
Hey, my only point is that if we didn't have TARP and QE early in 2009, the global economy might have imploded by 2010.
I don't know for a fact that it would have and you don't know that it wouldn't have.
Without 6 years of QE in America to prop ud the global economy, Japan wouldn't be doing QE now. They'd be doing Mad Max and the Thunder Dome.
Along with everyone else, with a few notable exceptions.
+1 The banks have their back, and vice-versa. Fuck aint that the truth. Its what pisses me off most - that the abuse of law is so in your face - and that nobody, not a fucking soul sees the fucking permanent damage this relationship is creating. Coordinated and legitimized theft to the nth degree. Its fucking insane!! And what sucks even more (if thats possible), is that it can go on for another 20 years, and that as time passes, so do memories as you have decidedly pointed out, to the extent that when it happens - when the chaos ensues - everybody will start blaming each other and both FED and Banker will quietly whistle past the graveyard. Thats the fucking tragedy. NOBODY will be held accountable because the people are complicit - and EVERYBODY knows it.
Remember way back when we used to look at these indicators to make portfolio decisions? Yeah me neither..... BTFD. Hello, my name is Pavlov, and I have a few dogs I would like for you to meet.
What divergence? S& P up about 12% YTD; 10 Y Treasuries up in price at least the same (not sure on the math). Everybody wins! /s
I might start breeding canaries cause we're sure as hell getting through them. Barclays. Why is it that everytime i see or hear a banks name i get this sickly void in the pit of my stomach making me want to throw my fist down my throat and reach up every last content of my gut. gggaaaaaaaaaaaaaaaaghhhhhhh. aaaaaaahhhhhaaaaaggggghh. GaaaaahhhGGGGAAAaaa
Barclays is stoopid
about 2 years ago they mailed me a cc offer. Charge $750 over 3 months ... get $400.
I charged a little under $800 ... got the $400 ... and never used the card again.
Thank you!
You too? I did the same with chase freedom.
They didn't get YOU... congrats.
However, I bet they got a lot of dopes hooked on their credit drug. Mission accomplished.
another canary *coughing* *coughing* is subprime auto loans
Had equity investors heeded the warning being sent from high yield, significant losses may have been avoided... and currently high yield sell signals suggest equity investors should position defensively!
Ummm... for every sell parachute that opens, there's a sucker who's grtting on the plane, and buying. I always wondered how the gurus could say "sell high" without saying who would have to BUY high! It's a revolving door - and no cell is empty. If you are in, you can't leave until someone comes in and lets you out.
SELL, SELL, SELL? Not to me. I divested my stocks and such a long time ago - when things started to go off the rails, before Paulson waved a single sheet of paper around demanding BILLIONS in bail out cash without spelling out who and what was being bailed out and the STOOPID Congress GAVE HIM THE MONEY!!!
Morons should not be allowed to buy stocks or bonds... or be elected to the govamint... which I guess is a way to say morons should not be allowed to vote either.
High yield is in a unique position that it has not really been in before. What I mean is that yields on junk bonds can only rationally go SO FAR before the value proposition becomes absurd. That is the trick with bonds. There is an upward limit to the value.
Now, I am not a perma-bull in the market. I would not want to own the S&P 500. I would own busineses that I understand, that appear to have decent margin-of-safety protection.
I think that the stock market could go higher, mostly on the fact that, there are many companies that are not absurdly valued and there are some that are good values. A high quality business compared to a junk bond yielding less than 5% and trading way over par is a no brainer.
Stocks should diverge from high yield because high yield SUCKS as an investment and everybody is starting to recognize that.
No offense, but I could swear you were Jim Cramer. Just saying.
the credit cycle... that's funny. there is no credit cycle there is only the fed. sell equities when the ffr > 5% i.e. never. go blow a goat barclays.
+1 true dat buzz and 5% aint NEVER gonna happen. EVER!!
This is why so many big macro hedge funds are badly underperforming the S&P for the last few years. The only thing that really matters is what the central banks are doing in regards to providing liquidity. Right now, 3 of the 5 major central banks are doing some form of QE. It's taken me a while to understand this as well, so I can sympathize with these guys (actually, they don't need my sympathy when they're making billions). I still believe we are getting close to the point when the market makes a vertical move higher like in the late 90's. We'll see soon enough.
The 'market' is tracking the Harare bourse to perfection.
How did that end again ?
Do I smell gas?
Not if you live in Ukraine.
Ba-dum-bum!
Time for another $3 trillion on the balance sheet of the Fed, Bank of Japan of now maybe ECB.
Banks only make recommendations after they have positioned to make a profit.
The article implies Barclays are slow in their thinking, maybe it's just taken a while to unwind and take the next fleecing steps.
That chart gave me a semi.