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Explaining US Stock And Bond Markets In 5 Easy Charts
We’ve been saying for quite some time now that the US equity market’s seemingly inexorable (until this week) tendency to rise to new highs in the absence of the Fed’s guiding hand is almost certainly in large part attributable to the fact that in a world where you are literally guaranteed to lose money if you invest in safe haven assets such as negative-yielding German bunds, corporations can and will take advantage of the situation by issuing debt and using the proceeds to buy back stock, thus underwriting the rally in US equities. Here’s what we said after stocks turned in their best month in three years in February:
It also explains why, in the absence of the Fed, stocks continue to rise as if QE was still taking place: simply said, bondholders - starved for any yield in an increasingly NIRP world - have taken the place of the Federal Reserve, and are willing to throw any money at companies who promise even the tiniest of returns over Treasuries, oblivious if all the proceeds will be used immediately to buyback stock, thus pushing equity prices even higher, but benefiting not only shareholders but management teams who equity-linked compensation has likewise never been higher.
If you need further proof that this is precisely what is going on in US markets, consider the following from Citi:
Companies are rapidly re-leveraging…
...and the proceeds sure aren’t being invested in future productivity, but rather in buy backs and dividends…
...and Citi says all that debt issued by struggling oil producers may prove dangerous given that “default risk in the energy space has jumped [and considering] the energy sector now accounts for 18% of the market”...
...and ratings agencies are behind the curve…
...and finally, there’s quite a bit more junk out there than there was last year…
To be sure, this theater of financial engineering - because stocks are not going up on any resemblance of fundamental reasons but simply due to expanding balance sheet leverage - will continue only until it can no longer continue.
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leverage leverage everywhere, but not an oz. of equity anywhere (net that is)
....dont foget the retail 'investor' leverage on margin....oh and the securities based lending, $500B and growing.....this is something, or another thing, munchin yellen will undoubtedly 'not see'.
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will continue only until it can no longer continue
The bankers are paying the military and the police to attack the United States of America. They attacked Los Angeles the last week by blocking off sections of the city and restricting access to the people's families and homes by the people that lived there.
It is war. It is against the American people and it is being waged by the NWO against America now bitchez. Markets won't mean anything soon.
Arrest Lloyd Blankfein and Jamie Dimon.
Fed is holding onto a rising balloon. If they had let go in 2008 they might have broken their legs. They are trying to normalize rates and are waiting for equity market to crack to see how slowly/quickly the can raise rates and hoping for a fiscal band aid.
The balloon is at least 75 stories high today. What breaks if they let go now?
5 Easy charts...7 in the header.
Didn't read
I think I can do better, Tyler: "The Market explained in terms of the 7* Deadly Sins"
* wrath, greed, sloth, pride, lust, envy, and gluttony.