Credit vs Equity In US And Europe Today Suggests Stress Ahead

Tyler Durden's picture

Presented with little comment but there is a very serious disconnect between European credit markets (deteriorating into the close) and equities and now US is starting to crack with HY markets gapping aggressively wider. The volatility of the last couple of weeks, combined with last week's hedge capitulation, is exaggerating the moves but for sure risk-appetite is disappearing very quickly.

European credit dived quite signficantly into the close while equities limped sideways.

And US credit markets -especially HY have just started to crack wider - gapping notably as equities slide. And both the equity/credit SPY Arb model and broad risk-asset based CONTEXT model are both pointing to further deterioration in US stocks.

Charts: Bloomberg

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mayhem_korner's picture



Market's fading the Bernank pretty definitively, but looks like there's a long ways to go.  Information v. fact spread still pretty wide.

SheepDog-One's picture

And kilos of fresh Bolivian Hopium still stacked in trading floor break rooms.

wisefool's picture

He can be the quartermaster for the Bernak-o-copter. Half snarc, half sincere. Give every single man woman and child $100,000 dollars. People in debt can use it to help pay down debt. Savers will have devalued currency, but the 100,000 can serve as lost interest and opportunity costs for being savers. People that have zero net worth can spend the money on things that they need/want and get the economy going again.

So again, yes, let "Obama pay my mortgage." But also let him give money to people who dont have a mortgage to maybe buy a house too! And for the overly frugal, them have some walk around money and enjoy a little bit of life for a change!

But most importantly, dont pick winners and losers. Oh and just erase the Foriegn held debt. China will come for the USA last and they will probably get tired before they want to take on the 4th largest standing army in the world (registered hunters in Michigan)

TeamDepends's picture

No thanks, we don't need nothin' from that man!!!  What we need are trials by Grand Juries, not fiat-currency backed bailout chicanery.

Doode's picture

I have seen all these charts before stating the doom and gloom is here - then a huge rally. Mostly because credit expansion was overlooked in the orgy of crappy charts while the spending drove the economy up and Europe got a plan to fix itself. I would not put too much trust into charts alone. Especially if Greece votes for the referendum then things will be just fine. So long as GDP is at 2.5% last quarter it means that there will not be a recession for at least another 6-8 months (thanks to revisions and definitions). So not all is bad - relax. Nothing to do with hopium...

mayhem_korner's picture



Two possibilities for the 2.5% GDP print, and they're both bad.  First is that it's not adjusted for inflation properly, which means it's a flat to negative growth print.  Second, the masses are waking up to their eroding fiat, and beginning to spend more liberally because of fear that holding cash will lose value too quickly.  This second potential (see, BTW, Gonzalo Lira's work on this) is more daunting, because it means an increase in money velocity, which is THE catalyst to accelerating inflation.

If you think the market is rallying, go look a bit harder.  Even today's hopium shot of +200 on the Dow intraday was a net LOSS when you look at what REAL MONEY was doing (Au, Ag). 

All is bad, but it is unwinding at a speed that you cannot perceive because you are in real time and this is happening in Inception-Level 3 time. 

Study further, doode.

Doode's picture

There is two problems with your statements:

1. My bet is always with the market - it is more right than any analyst out there (it tends to be moved by people with a LOT of cash who by definition tend to be knowledgeable). It says that the GDP figure is more or less real and given absurdly low interest rates people spent more than before - no real surprise there. Low rates led to an economic resurgence - job numbers confirmed it. There would be massive job losses if GDP was contracting - no evidence of that anywhere.

2. Historically AU and AG are uncorrelated to anything so most of the hoopla around them are driven by supply and demand (which is in turn driven by perceptions about what the money supply really is - right or wrong - it is irrelevant, margins, positions, redemptions, liquidations, etc) and not some pricing formula that would tie it to either cash or anything else (Did the Fed destroy a ton of cash when it went from 1900 to 1600 a few months ago? Not really...)

The economy is doing better than expected for reasons not well understood here - the same happened here with the blame on HFT (mostly total nonsense coming from dinos not willing to move on or learn the new tricks). Folks just need to admit that their economic models are insufficient to explain the reality instead of trying to fit the reality into their broken models - a classical mistake that many amateurs make.


LongSoupLine's picture

wow, you should be a teleprompter writer for CNBS!

Doode's picture

Just want me to limit the number of tin foiled hats being worn all at once at this establishment - sort of the fringe elements of zerohedge community (oh boy, that is gotta to be some kind of special crowd, LOL)! The place does have some good articles.

CPL's picture

The market is a lousy indicator if humans aren't the ones running it.  Look at bonds before equities always.  Bonds currently are the only reason the market is doing what it's doing.  Only way the government could possibly launder nearly 7 trillion into the banking industry over 3 years.


Just macros scanning for keywords in news articles and bid stuffing on no volume.  Why you would want that btw?


Stuck in a trade?

Doode's picture

If you are arguing that the economy is not super healthy - no need. It clearly has its share of problems, but it is not all gloom and doom as some want it to be. The multifactor model that describes current state of economy is more complex and less linear than many thought before. The economy finds a way to push through - which is what we see right now. If tomorrow Greece decides to set sail from EU I will be the first to sell, but not on the account of current bad economy (which is not bad enough).

The world is fighting hard to preserve the status quo - it seems to be working much better than most give credit to. The economy is not dying either - so a slow growth is far more likely than a recession.

CPL's picture


So your entire portfolio is stuck between 3rd and neutral basically?  Sorry to hear that.  You could always average't say it with a straight face.


For Greece, my expectations that a vote is going to sway an angry mob is low.  More than likely they'll just kill them and force a signature.  And by that, the banana hammocck guberment or the mob of Greeks that have been ready to go apeshit.  I don't think anyone has noticed yet what Turkey is doing right now either.


All that is happening is people are buying time.  Funny thing about time and money they are completely contradictory.  Time is all yours and is taken at your pace.  Money was always owned by someone else and is taken as external forces require.

Chump's picture

Over 400,000 new claims each and every week for God knows how long, but there's no evidence of massive job losses anywhere?  Record number of food stamp usage each every month for how long?  The only person wearing tinfoil is you.  Your one saving grace is that you parrot the mainstream, but that doesn't make you "right" or "reality-based."

Oh, but thanks for warning us to not focus only on charts, because all I see is stochastic analysis at every turn here on ZH.  And really, why even bother with calculus when you can just copy-paste gubbermint numbers like GDP, UE, and CPI?  /sarc

Balmyone's picture

This market has to go up - the Fed is bound by its satanic chairman to print ourway out of sure deflation into hyperinflation.  Just wait till the printing presses go into overdrive when Greece defaults and China's real estate market is going down faster than the Titanic.

Oh joy.

Better buy the only true monetary store of value that has stood the test of time since recorded history - PHYSICAL GOLD AND SILVER.


GeneMarchbanks's picture

'and equities and now US is starting to crack with HY markets gapping aggressively wider.

And US credit markets -especially HY have just started to crack wider - gapping notably as equities slide.'

Yep. Get that deer ready TD...

SheepDog-One's picture

Im still wondering WTF they were up for today in the first place.

HelluvaEngineer's picture

These days: no outright panic = zero volume = meltup

GeneMarchbanks's picture

There is no causality. None. PPT, it was just time. Call it a relief rally whatever the fuck that is.

srsly-wtf's picture

Short term oversold....Knife catchers and weak shorts lining up to get slaughtered like the sheep they are.  The new trend is down and it is steep!

CPL's picture

To be oversold there would actually have to be volume.


This market has none, hasn't had any since 2008.  Stop using terms that have no baring on the current state of affairs.


NYC, Chicago...all of them in fact could fire every last human trader and the market would do exactly what it's doing now.  These aren't people at the wheel generating the nearly zero volume, it's HFT's.

srsly-wtf's picture

The market never just keeps gapping down....It pauses, consolidates, shakes out weak hands...etc.  HFT's or human...doesn't matter.

CPL's picture

Better to forget about it and move along, start a business, get schooled, do something else.


That market that you are attempting to decipher has no value.  Here check this out.

Between the lack of anything useful coming out of Pacific Ethanol and the 7 to 1 reverse split, this company seriously has fuck all.  Yet because it's a Russell indexed stock it increases in value.


Or this winner.

EPS is in the -170.00 dollar range.  You buy this owe money.

There are 1400 of these turds still listed. BUT they are indexed on the Russell.  That's what drives the market.  It's not Apple or IBM.  It's 1400 junk stocks being used to pump the value of everything else.


Seriously make a list of shit hole stocks that no human being could possibly have an interest in buying and just watch them short stop the entire market while everything else is falling.

Ruffcut's picture

Vix up the last couple weeks? MOre like last few months. Market makers are in need of cash so get vig from options. The hedge funds spend more insurance and are suffering from that little leverage thing they do.

That vix chart is a crazy looking mofo. vix is uncertainty. uncertainty is fear. The market munchers set their black boxes on the fear factor scalping setting, then off to titty bar. We little people try to trade on the fear factor that is indicated and pay thru the nose in premiums and implied volitility, soon to wishing we would of sat on our hands visiting our fave porn site.

carbonmutant's picture

Greeks are setting fire to the rain...

catacl1sm's picture

EU and Greece are going to war now. Greece calls for referendum. EU says, "Fine, no tranche for you until AFTER referendum. Pay your bills now bitchez!"

Muddy1's picture

Wasn't it Merkel who recently played the "war" card, by bringing it up in a speech?

catacl1sm's picture

I dunno... but it'll be interesting to see what Greece's response will be. Can the EU just give Greece a giant FU, a la forced default, and use the ESFS to backstop their own banks and  sovereigns?

War is good for economies, right?

He_Who Carried The Sun's picture

Exactly. Why handing more money to people who may vote NO to more reforms and austerity and instead chose to jump the window...?! Game over!

Cluelesscitizen's picture

and EU banks with Greek debt? CDS cascade

DoChenRollingBearing's picture

@ catacl1sm,

The Bearing hears you, I have a real CREDITOR mentality.  Pay your bills bitchez!  Selling bearings in Peru sure does alter your point of view...  Have to be careful giving credit.  Europe is learning this.  Will we?

catacl1sm's picture

We wont. Our entire way of life and, in fact, GDP relies on credit. We have nothing else.

SheepDog-One's picture

'Deteriorating' hell thats more like a straight line unison plunge...I wonder what European banks just folded that we havent heard about just yet.

Deadpool's picture

does it make anyone else pause and think "hmmmm" that the Obama re-election campaign advertises on ZH? what up with that?? Ron Paul and I understand...Does the ad department have to turn over records to collect?  just sayin'...

catacl1sm's picture

Ads are based on the reading of your cookies and browsing history.

mayhem_korner's picture



I suspect that the Tyler(s) would refrain from answering directly such a question, but as someone familiar with the intersection of advertising and law, it's a really bad idea to even try to be selective about your advertisers.  Starts to run into discrimination issues, etc. 

Moreover, it's as a sign of expansion into a larger & wider audience that you're seeing a broad spectrum of advertising here. 

My two cents.

Yen Cross's picture

 The Europeans can grow their way out of the debacle, they are in.   Fannie & Freddie are great consultants<

carbonmutant's picture

Papandreou's attempts to Blackmail Europe is about to blow up in his face...

wisefool's picture

I disagree. As has been posted by others here,  Merkozi and crew were simply playing the role of hair dressers, seamstresses, fashion designers, cateres etc, for China to to spend money courting the PIIGS with their money, and pay off the "professionals" at the same time.

G-Pap snuck away from the make up chair and asked china if he was pretty enough without all the lipstick, and Mao said of course you are! And if they try to collect on all the "services" they thought I needed, well ... then ... I will collect on the services they need from me.

catacl1sm's picture

Not hashing this plan out with his cabinet may have been a bad idea. Surely one of them would have seen this coming.

Cult_of_Reason's picture


Greece will default over the weekend.

catacl1sm's picture

Weekend rumors are my favorite.

legal eagle's picture

You get an errow up for obeying yesterday's memo regarding "getting rediculous" "getting comical" and so forth, kudos to you. 

Yen Cross's picture

 If Papa?, what ever the hell his name is, was smart?!  He would team up with Richard Branson, ( Virgin Infinity)... and buy a fleet of  [Mini Submarines] , and scour the Mediterranean for artifacts!


  I'm sure a few Chinamen would pay top dollar for them!

jdelano's picture

vix getting a woody.  must be a fucking in the works...

bill1102inf's picture

OF COURSE Greece will default over the weekend.  The people REFUSE to pay taxes, the entire country is as corrupted as is possible.  If defaulting the country were put to a vote in the US, what would you vote?  99% would vote to default the whole mf thing.  If a country defaults, EVERYONE defaults.  Could you imagine. US Default.  Like anyone would make a payment on any credit instrument??? Nope.  

Sequitur's picture

Equity markets = stupid. Credit markets = where the bodies are buried.