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Convergence Plungefest To Continue?

Tyler Durden's picture




 

As we have repeatedly said, "Credit anticipates and equity confirms". Last year from Feb to June, credit markets (risk-priced not USD-priced remember) were flashing fundamentally orange-cum-red warning signals of the unreality that was engulfing the nominal price of stocks. We know how that ended as stocks crashed and caught up to credit's weakness. Sure enough, as we have been warning for a month or two now, the same pattern of credit deterioration is occurring this year with equities remaining willfully ignorant of the true reality of a non-QE world. At current levels the credit market is pricing the S&P 500 at around 1275 (which would basically remove YTD/LTRO/Twist gains) but as JPM's efforts extend the credit index losses to better reflect the reality of single-name credit, the situation looks set to get worse. In a QE-world, credit markets remain the only trustworthy 'market' indication of the business cycle.

 

2012 Credit vs Equity:

sadly but correctly echoing 2011's credit vs equity performance - as credit remains priced on risk (bps and relative-value) but stocks (in a fiat currency nominal USD basis)...credit remains the only trustworthy market to follow to judge the business cycle...

 

Charts: Bloomberg

 

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Mon, 05/14/2012 - 09:56 | 2423457 Clueless Economist
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ATTENTION -- Will the Plunge Protection Team please report to Chairman Bernancke's office right away!

Mon, 05/14/2012 - 10:17 | 2423547 Diatribe
Diatribe's picture

And today's lunch special is fried green benjamins with a side of freedom fries.

Mon, 05/14/2012 - 10:51 | 2423669 Jake88
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Someone needs attention. Poor baby.

Mon, 05/14/2012 - 10:54 | 2423685 Diatribe
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Yeah my tight white shirt is all wet and I can't get it off...

Mon, 05/14/2012 - 09:59 | 2423467 DoChenRollingBearing
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Way O/T I know, but some of you know that I am now in Korea on bearing business.  Today I visited the most ADVANCED factory I have ever been to (OK, I have NOT visited electronics plants).  So advanced they would not let me take any pictures...

I'm telling ya, bitchez, that I have seen the future, and the USA had BETTER start getting its act together, or we will lose out on manufacturing...  The bearing pant (1,000,000 sq ft) blew me away with how few people are there, yet runs 24 hours / day.

Mon, 05/14/2012 - 10:05 | 2423493 Diatribe
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Tommy Callahan?  Give our best to Sandusky, Ohio.

Mon, 05/14/2012 - 10:08 | 2423513 novanglus
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Had the same eye opening experience when we traveled to China to look at factories after making our product here in the US for over a year.  The big problem we had in the US was inconsistency from production run to production run.  There was always a new surprise.  I don't like surprises.  I want things exactly the same from run to run.  In China, we get that at half the price.  And the customer service aspect is awesome - they act as if they want to keep our business, instead of being indifferent.  As much as I would prefer to build in the US, I have to run a business and unless and until folks here are willing to work as hard and as well, it is a no brainer.

Mon, 05/14/2012 - 10:14 | 2423534 midgetrannyporn
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Your clownbux are a joke, give them to your bestest buddies in china and they will love you long time. lol

Mon, 05/14/2012 - 10:20 | 2423560 Diatribe
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Good for you.  But how will you feel explaining this to your family when kids, nephews, nieces can't find work?

Mon, 05/14/2012 - 11:35 | 2423842 LowProfile
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You explain that the US people voted in pols who promised them free shit for life but then sold them down the river.

Mon, 05/14/2012 - 11:39 | 2423864 AldousHuxley
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what says the currently employeed doesn't need to hear this as well?

tell everyone who has a job that they need to prove productivity measures by being compared against their Chinese counterparts.

Let's start with the CEOs. Chinese CEOs live in polluted neighborhoods and earn much less.

 

When it comes to free market capitalism, it is always about how others are not being competitive and not the speaker.

Mon, 05/14/2012 - 12:26 | 2424063 novanglus
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Shortsighted. First and foremost, I am interested in what is best for my immediate family.  By improving product quality and margins, we can sell more and earn more profit.  That additional money can be spent locally in the US on local goods and services that are not direct manufacturing costs of goods sold and can be invested in new business expansion locally.  Why would I continue to pay double for lower quality goods here, earn less, and have less to invest in new business while propping up bad businesses?  Let go of the dogma and embrace pragmatism. It's not all black and white.  So, the nieces and nephews may not find work doing mechanical or electronics manufacturing as a result.  Instead, they may be doing tissue and biomechanical engineering.  Why is that a bad thing?

Mon, 05/14/2012 - 10:37 | 2423626 gatorengineer
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Well, heres the thing, half the price with the baltic dry at an all time low.  Lots of pressure on china to let the Yuan appreciate, and looming trade war (e.g. tariff increases)....

I assume the customer service aspect is the cheap chinese hookers......

 

Mon, 05/14/2012 - 10:59 | 2423691 sof_hannibal
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America, get it's act together? We are already the best at reality TV shows and American Idol... who needs real jobs? just give me some more financial derivatives to finance this hedge fund and this student loan for my poly sci degree and this Mission Impossible V movie; or Avengers; and another I-phone or google gogles (who cares where it's made)...who needs scummy facotries that actual produce items... surely not the mighty USA (the financial arsenal of facisim-democracy-socialism for bankers)...brought to you by AIG

Mon, 05/14/2012 - 09:45 | 2423403 fonzannoon
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So the only question now is when does the bernak come down from the mountains and gleefully explain how the recent inflationary trend was in fact temporary and now that it is abating he can go ahead with LSAP?

Mon, 05/14/2012 - 09:47 | 2423413 HD
HD's picture

In 3...2...1... Go for QE.

Mon, 05/14/2012 - 11:10 | 2423721 sof_hannibal
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make it rain... Benny B...
Got a handful of stacks Q,E3,4,5,6,7,8,9
better grab an umbrella
becaz he makes it rain for the banks...

Bernke, you cluess ass kissing J Dimon's, academic-over confident loser; getting played left and right by these greedy as crooks...man, I hope-- he at least is getting a cut... remember when they did that pathtetic expose on him- he owns a 700k condo with a mortgage; but he’s probably sewing gold into the seams of his pants...

Mon, 05/14/2012 - 09:47 | 2423407 DavidJ
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Will there be a major decline in stock markets, economic atcivity etc. or is this the time to buy the dip?  

Mon, 05/14/2012 - 09:47 | 2423415 mayhem_korner
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You know the nearer your destination the more your slip slidin' away...

Mon, 05/14/2012 - 09:50 | 2423427 UncleBubba
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I love this chart, seems to be working every single time :)  Is there an easy way to plot it using free internet tools (for those of us who don't have access to bloomberg/factset).

 

Thanks in advance.

Mon, 05/14/2012 - 09:50 | 2423428 Cognitive Dissonance
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I just love roller coasters. Particularly the old ratty wooden ones.

Mon, 05/14/2012 - 09:55 | 2423444 carbonmutant
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I believe this is one of the newer models where you hang from the car...

Mon, 05/14/2012 - 10:13 | 2423529 Cognitive Dissonance
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By your neck? :)

Mon, 05/14/2012 - 09:57 | 2423447 HarryM
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What makes the old Coney Island wood coaster so exciting is not that it is fast, it's the fact the thing could actualy derail or break - that's real, rational fear baby , not just the adrenaline rush talking

Mon, 05/14/2012 - 10:20 | 2423562 Hulk
Hulk's picture

The one we are on has a termite problem...

Mon, 05/14/2012 - 10:40 | 2423628 Cognitive Dissonance
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I suspect Carpenter Bees. I love the little piles of sawdust under the major support columns.

Positively exhilarating.

http://en.wikipedia.org/wiki/Carpenter_bee

Mon, 05/14/2012 - 11:15 | 2423745 Mesquite
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Ahh...Financial wisdom I can understand...Heh heh heh 

Mon, 05/14/2012 - 11:44 | 2423888 Nobody For President
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The little rascal carpenter bees working my porch make .38 caliber holes - interesting, eh?

Mon, 05/14/2012 - 09:55 | 2423440 CClarity
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Treasuries and Bund signaling a BIG problem somewhere, and it isn't Greece.  There will be a specific name.  May not be a black swan, but fixed income is telling us something and it's still in play.  Pay attention

Mon, 05/14/2012 - 10:00 | 2423474 kralizec
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To QE or not to QE, that is the only question!  And not is not an option!

/

Mon, 05/14/2012 - 10:00 | 2423475 Diatribe
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When do gold/silver bottom this year?

Mon, 05/14/2012 - 10:01 | 2423480 kralizec
kralizec's picture

I'm sorry, I can't stop watching your juggs bounce...

Mon, 05/14/2012 - 10:20 | 2423522 Diatribe
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My eyes are up here, Quasimoto...

Mon, 05/14/2012 - 10:26 | 2423586 Jake88
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outstanding

Mon, 05/14/2012 - 10:11 | 2423519 Zero Govt
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Govt management of the economy is going really well over here in Europe... how's it going in America?

Mon, 05/14/2012 - 10:40 | 2423632 Stuck on Zero
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Really well. Snort.

Mon, 05/14/2012 - 10:26 | 2423592 BeerGoggles
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How can you rebase to 1 like this to get comparison charts?

Is there another way using free online tools?

Mon, 05/14/2012 - 10:28 | 2423596 Jake88
Jake88's picture

clownbux moving up.

Mon, 05/14/2012 - 10:42 | 2423635 gatorengineer
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If we make it to noon without a major upward movement, this PM will be interesting....

Mon, 05/14/2012 - 11:15 | 2423735 ghostzapper
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so now that the charts are suggesting a little bounce to 1365-1370 and then a fairly decent sized plunge . . . . . . . . . doesn't that mean it is time for another bailout announcement???  Charts were implying a plunge in November and sure enough the swap lines and then LTRO.  this shit is so predictable.  but, what happens when the junkie does NOT perk up beyond a couple days after the sympathetic dealer drops off a bag of coke and heroin to the junkie lying beneath the bridge like a lathetic piece of shit???  when the junkie does not respond game over yikes look out below.

Mon, 05/14/2012 - 11:19 | 2423754 ghostzapper
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these criminals have been defending EURUSD 1.30 for a long, long, long time I must say I am a bit surprised they let it dip down towards 1.28.  maybe atlas can't hold up the entire world????  but, but, but beckie quick said everything was fine go buy another iPad for your spoiled brat kid. 

Mon, 05/14/2012 - 11:19 | 2423761 ghostzapper
ghostzapper's picture

equities still drunk on QE kool-aid.  if QE is coming why is USD holding firm and why are gold, silver, and oil in a clear cut downtrend?

Mon, 05/14/2012 - 11:24 | 2423779 ghostzapper
ghostzapper's picture

spider roughly around 1,000 will tell me acceptance of a non-QE near term future.  spider around 600 in 2013 will tell me a move towards something that resembles reality. 

Mon, 05/14/2012 - 12:24 | 2424055 NakedSwanTrading
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The corporate bond market (especially in the US, but also emerging market debt) is on the precipice of a crash unseen since the 1970's, to initiate this summer or fall through 2015+ -- except, this time around, a much faster development. 
The cracks in the corporate bond market are already present beneath the surface, and will become outwardly visible to the street as we progress through June and starting no later than this fall -- This is signaling a major equity market crash, starting this year through next May and beyond, as 21 fed dealers have pulled the plug on this space, leaving the majority of the risk exposure in the the pocket books of retail investors, who thought spreading the risk -- from equities to fixed income & higher yield -- after lessons learned in the last crisis would create a longer term risk buffer. The number of equities that telegraph these ominous signatures are increasing daily. Stay tuned! 
The problem with human nature is that we are lured in the short run to apply strategies in ever greater scales, after a few nearby experiences of positive success and immediate economic gratification; we fail to account for the longer term realities of a crowded trade, even one that is in a typical safe-haven play like high grade corporate bonds. High yield debt instruments and high dividend equities in the US will get crushed, as well as in Europe; but the highest grade bonds may be impacted the most, especially given that this is where the largest concentrated bets have been placed since big corporations and consumer conglomerates have been benefiting from rising earnings -- driven by global growth and international expansion of flagship domestic companies. 
Now that the biggest countries in the economic growth story are slowing, combined with unfavorable currency conversion in the midst of foreign currency instability, profits from international operations will likely fall off a cliff, and turn our panglossian picture of elevated earnings into a peak earnings nightmare, which we are getting ever closer to live out as an economic reality. 
The slower growth in the US will create an adverse feedback loop ("Reflexivity", as George Soros calls it), impacting European, Asian, as well as Aussie and Canadian commodity producing economies; thereby further amplifying the instability of international currency and equity markets. 
This will make it much more difficult for purchasing managers world wide to gauge supply and demand pressures, and therefore create higher uncertainty in managing current and forward business expectations and production capacity needs. This will also drastically elevate the complexity of international monetary policy amidst the backdrop of an increasingly G0 political and economic governance regime. Twitter Feed: NakedSwanTrader
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