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Bank Bonds Bucking The Bullish Stock Trend
As the financials ETF, XLF, jumps from down 1.25% to up over 0.75% today, we note that credit markets for the major US banks are anything but exuberant. In the short-term, US bank credit remains significantly weaker, having broken its trend on February 9th, than the broad ETF or individual bank stocks would suggest. We have seen European credit spreads for banks come back off their worst levels - and at the same time, bank stock prices revert downwards to meet that depressed credit perspective. In the US, stocks remain euphoric and credit has not staged any comeback yet inferring a 5-6% drop in XLF (or rally in credit of course). Perhaps the USD-denominated nature of stocks is 'mispriced' relative to the risk-denominated nature of credit spreads as liquidity floats all risk assets on hope of LTRO2 et al.
The upper pane shows US bank stocks (XLF ETF) and an index of the six largest and most liquid US bank CDS (inverted). The higher the credit spread, the more risk, (lower in the inverted chart) and we are nearing the worst levels in six weeks while stock prices are near their highs.
The lower pane shows European credit has retraced and so have stocks from their best levels - but stocks remain 'expensive' relative to credit still (though if we split these into LTRO and non-LTRO banks the difference is greater).
And looking at each of the individual members of the US credit index - it is clear that there is little to no compression in risk in the last week or two as stocks have pushed higher. JPM and WFC appear to have performed the best in credit recently but still the moves are well off recent tights. Its also worth noting that some specific stocks such as BAC and MS are tracking their 200DMA down gradually but unable to break below it for now.
Of course the safest trade is to sell credit protection and sell XLF (or the individual stocks/vol) looking for convergence, but with such large events pending and the over-extension more broadly of equity markets over credit in the last month (post NFP), the odds favor an XLF retracement to credit in the short-run.
Charts: Bloomberg
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#BTFL (the 'L' is for Levitation, the 'O' is for the...)
Um ... what? Or in other words, "Um ... WTF?!?"
I gotta say, I'm going to have to disagree unless you're Ben!
Let the shit hit the fan :
http://the99spring.com/letter.html
The choice is in our hands. This spring, we will act on that choice and rise up in the tradition of our forefathers and foremothers. We will not be complicit with the suffering in our families for another year. We will prepare ourselves for sustained non-violent direct action.
NDAA goes live in a week or so. Shall be interesting.
The credit markets are plain and simply oversaturated. This is the biggest bubble in history.
http://jimrickards.blogspot.com/
Its all gonna Hindenburgh soon enough.....OH the HUMANITYYYYYYY!
Looks like credit markets are waiting to catchup. Look at the italian bond yields fall today.
www.marketblip.com
So, betting on SKF could pay off.
and then what?
Before the PSI vote is in.
I will be SHOCKED if they trigger those contracts.
It's a non-story...
[full article: http://ftalphaville.ft.com/blog/2012/02/27/899511/isda-greece-credit-eve...]
...so they can ignore the issue altogether.
The bigger they are.......
The harder to let them fall?
-Hank Paulson
Anyone else think Morgan is the next Lehman? That stock is in bad shape:
http://chart.ly/evbpsdb
Hi, What if any effect do you think the LTRO2 announcement will have on EURUSD?
House of Lords video accusing USA of massive fraud in league with the banks.
http://www.youtube.com/watch?v=eL5hqvTWkYg&feature=player_embedded#!
My long term forecast is that bank debt, and corporate, will cross under, in yeild, Treasury debt and then the banks and corporaations can in essence become the source of money. Money will be privatied/corporatized. It's a delicate game getting there but getting there we are.
Sooner or later the banks will pull the plug on more government borrowing and will dictate the budget down to the last dot of the "i". In which case government will devolve in a self reinforcing spiral down and bank/corporate debt, and equtiy, will be the new standard of value.
In 10 or 30 years if you are around you will be kicking yourself for not going all in with the giant banks and corporations. If history does not go in the general direction I am proposing then it won't make any difference what you invest in for there will be a general breakdown.