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European Financial Credit Sending Worrying Signals
We warned on Friday that the strength in equities was divergent from any of the higher beta risk-on trades and today has seen this divergence grow even larger as European credit markets are selling off considerably even as stocks maintain some semblance of extending-and-pretending. Subordinated financial credit has now retraced over 62% of the rally from 11/25 to 12/7 and XOver (the European high yield credit index) has retraced 50% of that rally. The broad European equity index tracked by Bloomberg has lost significantly less, seemingly ignorant of the stress (EUR-USD basis swap widest in two weeks) as we see even Main (the European investment grade credit index) now starting to drop notably. If, as we have experience cycle after cycle, credit anticipates and equity confirms, then it seems to make sense (especially given the concerted weakness in metals which suggests some kind of margined selling or cash-need desperation) to at worst hedge long equity beta.
The dark-blue line is the BE500, broad European equity index and light blue is the subordinated financial credit spread index. Note the significantly more aggressive derisking of the last 2 days in credit indices relative to stocks (black is XOver - the high yield bond market and red is senior financial credit). Friday saw Main (investment grade credit) hold up - which we noted made sense as up-in-quality rotation made sense (non-financial) - but the index itself contains notable financial exposure and so is being dragged down also now. Beta-adjusted, equities are dramatically divergent from credit's weakness and given the cost of carry on those higher beta credit indices, it appears conviction of a negative perspective is growing. Much as we saw in the US, we suspect Senior-Sub decompression and Main-XOver decompression trades were being laid out and now the broader market is catching up to the risks.
Chart: Bloomberg
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OECD
risk off bitchez!!
gold longs getting torched
"Risk off Bitchez"
"Gold longs getting torched"
If that is not an oxymoron I don't know what is.
Margined rats are fleeing the sinking ship.
Not when you realize that gold is a leveraged market like everything else.
@fonzanoon thats the world we live in with this paper market
agreed all around. I'm just sayin it looks funny. I even agree with Kito that gold is doing what it should be doing in a non printing/deflationary environment (temporary or not). Equities as he said were the only asset class that did not get the memo. Maybe they finally did.
if physical assets have been rehypothecated, you liquidate to raise cash before the other guy does, and not be the dumb fuck holding the bag, once multiple claims are made, and lawsuits make your position illiquid.
sell to survive. hold and be dumb money.
crude weakness over 97.50 is worth watchign as the dollar pushes over 80 -
http://hedge.ly/smJSOQ
I wonder what crude price will be overnite when Iran blackades the Hormuz?
Through the roof, when that happens. Or to put it far more poetically, BANG, ZOOM! To the MOON, ALICE! To the MOON!
http://www.youtube.com/watch?v=z6CBDZRk91E&feature=related
Eventually, maybe dog. But it looks to go lower from here, with all the Iran crap priced in.
Jmo
Short ho from 3.1080 so I am biased.
"What? Me worry?"
http://lib1point5.files.wordpress.com/2011/11/what-me-worry-715605.jpg
The rules! They're changing fast...
Credit and fixed income are truth tellers. Equities are optimistic magical thinkers. Story telling with equities. Fixed income is what it is (unless stories are being made up at summits . . . ) IMHO
dow down a paltry 80 points. too funny. this market just cant quit.............
Too many 401ks. Too many fund managers. Too many addicted to gambling. Too many Algos. Too many believers not enough realists with facts on Europe.
Silver at $31/oz, exchange your fiat toilet paper for physical silver right now.
Santa Claus rally...
Translation attempt: post 25 Nov equities and credit indices went up about the same amount, but over the last few days credit has fallen more sharply, & credit tends to lead equities... (?)
Assuming that's (basically) right, what does this mean: "Beta-adjusted, equities are dramatically divergent from credit's weakness and given the cost of carry on those higher beta credit indices, it appears conviction of a negative perspective is growing."
Bullish indeed!
CASH is KING!!! In DEFLATION, CASH is hoarded and desperately unspent and raised by selling existing assets SUCH AS.....GOLD!!! SILVER!!!
Margin calls to hedge funds and banks will force sale of paper and physical gold and silver assets as well as holdings in oil and broad class of commodities...all to raise cash to meet margin calls.
This death spiral, when coupled to a credit crisis where repo markets freeze as well as counter party risk fear escalates and causes broad bank runs.......this is the beginning of a true death spiral.
Guess what? Bernanke, ECB and all central bankers will be powerless....
DEFLATION Means:
Euities DOWN = GOLD and Silver DOWN
Equities UP = Gold and Silver UP
Syn Not in scale but absolutely in direction!!!
Maybe there's another margin hike on the way
So instead of printing, the government is not going to pay social security or medicare or for the military? I'll take that bet. Medicare's adjustment was put off again by a Republican House.
Shanghai Index indicating carry trade unwind, and a prelude to the end?
rats leaving the ships.
Let's wait until the rehypothecated M3 gets pulled back in and see how equities do.
Take physical delivery of everything.
Get a car loan and buy a car or three.
the reason i bought a little gold friday afternoon was to make sure i would buy near the recent high (based on my timing luck) and force it down, thus making it cheaper for me to keep buying said gold in the months ahead. the lower it goes, the more i will buy, forcing it to go still lower.
you can thank me later.
Small crash before santa claus rally? or infinite lateral before the big mess of doubt?
depends on FED, ECB, and all brillant politicians we have all over the world...thinking thinking thinking....
there is no free market so these worrying signals are fairytales..we are in much deeper shit, actually we are past the point where we have shit 2 meters above our head.
Will backsides survive long enough to see an upside? The way it's going, no one can hold their breath that long. I can't emphasize it enough. Water, food and shelter are the priorities that matter. Go long on breadlines, soup kitchens, homeless shelters and food pantries. Take physical delivery on everything.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/