Credit Plunge Signals 'All Is Not Well'

Tyler Durden's picture


European (like US) stocks remain in a narrow range just above the cliff of the unbelievably good NFP print of 2/3. US and European credit markets have lost significant ground since then and it seems equity investors just want to ignore this 'uglier' reality for now. The BE500 (Bloomberg's broad European equity index) is unchanged from immediately after the NFP 'jump', investment grade credit is +10bps from its post-NFP tights, crossover (or high yield) credit is around 50bps wider, Subordinated financial credit is +50bps off its post-NFP wides at 382bps, and senior financial credit is an incredible 36bps wider at 225bps (by far the largest on a beta adjusted basis). The divergence is very large, increasing, and a week old now and perhaps most importantly as we look forward to LTRO Part Deux, LTRO-ridden banks have underperformed dramatically (40bps wider since 2/7 as opposed to non-LTRO banks which are only 10bps wider) - how's that for a Stigma? Some 'banks' have suggested the underperformance of credit is due to 'technicals' from profit-taking in the CDS market - perhaps they should reflect on why there is profit-taking as opposed to relying on recency bias to maintain their bullish and self-interest positioning as the clear message across all of the credit asset class is - all is not well.


European financial credit is at over a two-week wide here and across the board credit markets have underperformed since the NFP print - perhaps they saw through the headline numbers?

European financial stocks ignored credit last week and then caught up, we now see the divergence growing dramatically. If nothing else, its an arbitrage opportunity but the drift in spreads is much more than technicals here and we suspect is a realization of the growing impact on the capital structure of banks of the ECB sucking up all the collateral supporting it (while capital is not exactly being raised hand over fist).

The most glaring divide remains the 'stigma-trade' where we have seen LTRO banks underperform dramatically (wider by 40bps) over non-LTRO banks (wider by only 10bps) and this is perhaps the key for why banks overall are underperforming.

Either way, it should be drastically clear to any and all (that choose to look and not ignore relaity in the interest of a fiat-currency-numeraire-based stock market 'hoping' for more printing) that all is not well in the Euro-zone. It is also not just Europe (as we have discussed for a week now) as high-yield credit in the US is also sending warning signals.

Charts: Bloomberg

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Tue, 02/14/2012 - 10:13 | 2157107 Cognitive Dissonance
Cognitive Dissonance's picture

This is all sooooooo 2008.

I hear echoes........echoes.......echoes..........

Tue, 02/14/2012 - 10:20 | 2157137 Theta_Burn
Theta_Burn's picture

We're in those, semi funky, all is stable, election year matter WHAT

Tue, 02/14/2012 - 10:54 | 2157265 SheepDog-One
SheepDog-One's picture

I really dont think they care much about 'election year' suspension of disbelief at all myself...Obama has passed the bills and executive orders to just take over as martial law president...makes no difference to him or the banksters at all its all set up now.

Tue, 02/14/2012 - 11:37 | 2157398 valley chick
valley chick's picture

well spoken SheepDog-One.  Agreed.

Tue, 02/14/2012 - 10:23 | 2157150 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Stock market crash bitchez!!!

Tue, 02/14/2012 - 11:34 | 2157393 JPM Hater001
JPM Hater001's picture

Vix is up 5% today...Does this mean I should be shorting heaven and earth or just another false flag?

Is it time to quit my job and cash out my 401 into silver?

Tue, 02/14/2012 - 10:27 | 2157170 francis_sawyer
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I've got to concentrate... I've got to CONCENTRATE!... Hello? Hello?

Tue, 02/14/2012 - 11:32 | 2157383 JPM Hater001
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Not so much, though still an echo, I hear a really bad rhyme.

Tue, 02/14/2012 - 10:17 | 2157118 CClarity
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Trillions and trillions of derivatives teetering on top of upside down pyramid points of actual assets . . . written, traded, and owned by the "TBTF" banks, 1,000 fewer hedge funds, and yes, the sovereigns.   That is not a healthy economic picture.  KaBoom as it crashes down into a devolving economic model where growth can't be goosed despite all the monetary ease.

Tue, 02/14/2012 - 10:19 | 2157126 disabledvet
disabledvet's picture

there is a limit to how much can be "sucked up." the goal remains the same: return to profitability. interestingly there seems to be a divergence between the US and European approaches...since in the US "they want lending to return" and thus "create growth." This OBVSIOUSLY (just look at Greece) is not the approach taken by Europe. In other words "ok, profits return...but then if you succeed who are you lending to?" The answer of course is "not Europe." So's your answer:

Tue, 02/14/2012 - 10:27 | 2157167 LawsofPhysics
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"return to profitability"

This is easy for paper-pushers who are close to the "free" fiat, but for those of us who actually deliver a real product, marigins are a bitch when simplty turning the lights on to see who is on the factory floor costs you more and more money each day.

The flux of energy is still decreasing overall (less supply) yet demand is still very real.  Any suprise those power bills keep going up?  Bloody pods.

Tue, 02/14/2012 - 10:19 | 2157127 kralizec
kralizec's picture

Lemme guess...more bailouts?

Tue, 02/14/2012 - 10:23 | 2157145 mayhem_korner
mayhem_korner's picture



"Bailout" is French for debasement... fact it means that in every language.

Tue, 02/14/2012 - 10:21 | 2157134 Sweet Chicken
Sweet Chicken's picture

We are so fucked.

Tue, 02/14/2012 - 11:38 | 2157400 JPM Hater001
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If be we you mean Sheeple...

I wrote a song about it wanna hear it here it goes - Calhoun Tubbs

Tue, 02/14/2012 - 10:23 | 2157146 LawsofPhysics
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Don't worry, the BRICs are coming to the rescue.  They just need to get their military forces organized first, everyone calm down.

Tue, 02/14/2012 - 10:23 | 2157147 Donlast
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How much longer can this farce go on?  Surely fatigue must set in when one just wants to shut it off, go fishing, load down some music, a film....Sit in one 's oil stocks, coal, gold, and a stack of ultra short Treasury and just play Rip Van Winkle. 

Tue, 02/14/2012 - 11:41 | 2157414 JPM Hater001
JPM Hater001's picture

To paraphrase Ben Bernake - I got billions of more tools...with a washington on some and 1's and 0's for the rest. 

In other words this farce is probably not ending any time soon.

Tue, 02/14/2012 - 10:27 | 2157168 DarkStarDog
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Dont worry abour it. Our markets are never going down. New age capitalism rewards no matter what the real numbers are. I'm luv'n it.

Tue, 02/14/2012 - 10:55 | 2157269 Ahwooga
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And all of your paper gains are inflation-driven. Enjoy the moment, you've made nothing in real terms and you're gonna lose a shitload more than you've "made" when this sucker finally rolls over. There are never enough lifeboats aboard the vessel that can't sink. Remember that and position accordingly.

Tue, 02/14/2012 - 10:30 | 2157179 Donlast
Donlast's picture

Just been to RCP where Rubio is declaiming that Obama's budget is just a camapign document.  My God, riveting stuff. I bet that stirs the jelly.  With firebrand crackerjack politicians like that the Repubicans can't fail to win. 

Tue, 02/14/2012 - 10:30 | 2157182 slewie the pi-rat
slewie the pi-rat's picture

when banksters develop stigmata

they bleed out the ass

it's a spiritual thing

the rosicrucians call it the rothschild rose

Tue, 02/14/2012 - 10:35 | 2157197 trebled99
trebled99's picture

Yes I agree rip there arms off and beat them around the heads and shoulders.

Tue, 02/14/2012 - 10:36 | 2157201 fonzannoon
fonzannoon's picture

Auctions went well this morning. Yields dropped. More LTRO coming.

Tue, 02/14/2012 - 10:50 | 2157252 espirit
espirit's picture

I used all my credit to buy Phyzz.  Can I default on that debt now?

Tue, 02/14/2012 - 10:58 | 2157284 spankthebernank
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Great!! And, yes you may.

Tue, 02/14/2012 - 10:52 | 2157260 SheepDog-One
SheepDog-One's picture

Stocks remain in a narrow range? Well we certainly cant have that...cant Bernank print up a couple Trill to throw at stocks for today?

Tue, 02/14/2012 - 11:41 | 2157415 Isherwood
Isherwood's picture

Martial law is priced in

Tue, 02/14/2012 - 11:51 | 2157455 Sizzurp
Sizzurp's picture

Damn, better put some spray on that

Tue, 02/14/2012 - 12:11 | 2157566 SillySalesmanQu...
SillySalesmanQuestion's picture

Ignore at your own peril.....Lehman, Lehman, Lehman....

Tue, 02/14/2012 - 12:25 | 2157627 web bot
web bot's picture

I wish that I was brilliant to understand the nuances of what you are talking about... but I'm not. I just speak dummy.

However I have enough of an IQ to know that something BIG is coming... and I'm ready.

Thanks ZH.

Tue, 02/14/2012 - 13:29 | 2157973 BaggerDon
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Who cares about credit markets, vixes, or anyting...appl coming out with new phone, have u not heard??

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