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Who Is Smarter: Credit Or Equity Investors?
Nobody saw the collapse in energy prices, and nobody certainly saw the collapse in equity and bond prices over the past 6 months. Or did they? Was there any difference in how equity vs debt investors approached what in retrospect was visible to anyone not deluding themselves with goalseeked narratives.
To answer an age-old question, namely who is smarter - credit or equity investors, and specifically, whether credit investors know something that equity investors do not, Citi examined whether credit or equity is leading the price action in the energy sector.
It found that the credit and equity markets are responding to energy headlines at the same pace, in other words under the New Paranormal, both equity and credit investors have become equally dumb.
Citigroup decided to examine the difference in stock, bond, and implied vol performance for a basket of about 140 HG and HY energy issuers.
Citi's bottom line: "it is very difficult to make the broad statement that credit is anticipating or doing something that other markets aren’t."
Then again, none of this should come as a surprise: we have often remarked how under central planning, in which the Fed is everyone's Chief Risk Officer (a development which has crushed the alpha-generation abilities of the hedge fund community) there is no longer an explicit need to discount the future in order to achieve if not price then risk discovery, since there is no risk. After all, any time there is a 9.99% correction in the S&P 500, some Fed president comes out and starts talking about QE X+1, resulting in an immediate rupture of buying in the S&P500. And if and when the selling starts, everyone is selling for dear life at the same time... and then the markets break.
Which is why one can't blame either equity or debt investors for having become, thanks to Bernanke and Yellen, dumber than a bag a hammers. If anyone is desperate for someone to blame, then the academics in charge of the Marriner Eccles building are your best bet.
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No one wants to lose, but no one wants to miss out. Nothing original here.
It is about whores......
crazy old coot lindsey williams was front-running the declining price years ago
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Credit, always. Unless you believe Citi's theory that all the old generation is gone, and its all 30-somethings.
It doesn't matter about who is smart or dumb. What matters is how many are afraid to lose, and how many are afraid of missing out on gains. Some people call it fear and greed, but the bottom line is it all hinges on insecurity.
Whats interesting is they call it investing in securities.
Following the energy "credit" market is following "high yield" which is an equity substitute.
Energy debt (IG or HY) are not the bell weathers for the "market"
Treasuries are the bell with spreads calculated there over.
Credit Always Has and Always WIll Be the Leader.
Difference Between Realists (Debt) and Perpetual Optimist Kool-Aide Drinkers
In my experience, the bond market is generally smarter, but we haven't had a bond market in years, so there is no longer any useful value implied in spreads or rates. Central banks broke the meters on purpose. The problem with that strategy is that having meters is important so that things don't get out of control.
Starting to feel more and more like the end is getting within spitting distance now. For the markets to keep pushing higher with rates at zero/negative and PEs stretched as earnings slow is a recipe for a crash.
"WE SHALL NOW ATTACK YOUR GOALSEEKING WITH AN EVEN MORE INSANE VERSION OF OURS!"
EQUITIES AND DEBT RISE TOEGETHER IN BULL MARKETS...AND WHEN THEY START DRAGGING THE DOLLAR HIGHER WITH IT'S EVERYONE ELSE WHO HAS THE PROBLEM.
DO YOUR GOD DAMN FUCKING HOMEWORK YOU FUCKING ASSHATS.
buy BUY buy!! everything is awesome BUY BUY!!! GO BULLS!!! BUY... (unicorn vomit)
Again this theme
What does credit know what equity doesn't?
How was it....rinse, repeat