The 4 Most Disconcerting Charts For European Equity Holders

Tyler Durden's picture


Things are getting a little 'strange' in Europe. European equity markets (and voatility) have disconnected from the reality of European corporate, financial, and sovereign credit. As the massive bifurcation in sovereign yields continues - with Spain near record-highs and Swiss/German at record-lows - equities are still significantly higher post the EU-Summit (and vol massively so) as credit of any kind is dramatically wider. Specifically, 1) Europe's broad equity index is massively outperforming credit post EU Summit; 2) Europe's broad equity index Vol is majorly disconnected from XOver credit; and, 3) Europe's broad equity index is in-line with GDP-weighted sovereign risk BUT dramatically dislocated from Italian and Spanish risk (that is reflective of the core of the stress). Just as we have seen in the US, the method of choice for 'pumping hope' into equity market valuations is through the levered selling of volatility - it seems some-one/-thing with very deep pockets is getting awfully brave as Europe's VIX drops to near pre-crisis levels (and its steepest in months as short-term complacency surges).

1) Europe's broad equity index is massively outperforming credit post EU Summit;


2) Europe's broad equity index volatility is majorly disconnected from XOver credit;


3) Europe's broad equity index is in-line with GDP-weighted sovereign risk BUT dramatically dislocated from the ITA/SPA risk that in general means problems


4) Selling short-dated vol seems to be the preferred method in the US and Europe as volatility curves steepen up once again to near record steeps...

It seems complacency is once again at epic levels in equity markets but not so much in credit as the reality of haircuts, subordination, and recession appear more realistically priced in - or are equities priced for a massive EUR devaluation that enables surging nominal growth next year?


Charts: Bloomberg

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Mon, 07/16/2012 - 12:23 | 2620530 RobotTrader
RobotTrader's picture

Bonds are going totally apeshit.

Another glorious day for U.S. "Paper", while hard assets keep getting mauled.

Mon, 07/16/2012 - 12:53 | 2620671 The Monkey
The Monkey's picture

30 year treasury. Gary Gilling and Lacy Hunt knocking it out of the park again. This trade was against all odds back in April 2011.

Mon, 07/16/2012 - 16:19 | 2621498 smiler03
smiler03's picture

Robo, I think the chart you link to shows an increase of less than 4% YTD?

Please excuse if I'm wrong but if I'm right then you and I have a very different definiton of "apeshit". Ooops, I only looked at the first chart.

Mon, 07/16/2012 - 20:00 | 2622289 Dirtt
Dirtt's picture

The silver lining is for those looking to refinance. After this breakout in bonds who will be left to refinance. Anyone on the fence waiting for this topside blowoff will lock in for good.

What a conundrum for housing: qualified buyers scant, rates nowhere to go but up, shadow inventories waiting for the light of day. Excellent work Ben & Timmy.

Mon, 07/16/2012 - 12:26 | 2620542 Gene Parmesan
Gene Parmesan's picture

It's easy to be brave when you know you have taxpayers standing by to bail you out of your screwups.

Mon, 07/16/2012 - 12:29 | 2620550 Fort
Fort's picture

"Things are getting a little 'strange' in Europe." Must be the understatement of the year.

Mon, 07/16/2012 - 13:52 | 2620929 geewhiz190
geewhiz190's picture

US equities are pretty strange as well.  the spread between the industrials and the consumer staples has to be at or near an historic differential

Mon, 07/16/2012 - 12:38 | 2620590 YesWeKahn
YesWeKahn's picture

Maybe, the central banks are shorting VIX.

Mon, 07/16/2012 - 12:42 | 2620611 Everybodys All ...
Everybodys All American's picture

I'd be willing to bet everythig I own on that .

Mon, 07/16/2012 - 12:51 | 2620655 ZeroPower
ZeroPower's picture

VIX expires this wednesday before the morning bell and there were some deep sellers of calls a few weeks back for July. At the current levels, between 16 and 17 for the spot, looks like the S&P will likely hover around its 1342/1350 level to keep VIX and its synthetics depressed, at least until the expiry. 

Of course, the European VIX looks like a totally different ball game, even though there are some similar market dynamics in play.

Mon, 07/16/2012 - 13:18 | 2620798 NEOSERF
NEOSERF's picture

You simply can't trade the VIX anymore...with everything short of "Germany leaves the Euro on Monday" or WWIII being backstopped in the minds of traders, there has never been a period of such apathy for bad news begetting some more Fed QE...stocks have never traded more in synch with eachother waiting for the next headline.  Stay out of VIX until something of the order of the above comes across the ticker...even then you may only get 2 days out of it before the Fed steps in...

Mon, 07/16/2012 - 13:37 | 2620867 Burnsy
Burnsy's picture

Shilling and Hunt are not bailed out when they're wrong Gene. Fund managers in general go bust when they're wrong. Unless you're a big bank of course.

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