Picturing The Turn In The Credit Cycle

Tyler Durden's picture


Despite record low coupon issuance and a net negative issuance that is enabling technical flow to dominate any sense of releveraging risk in favor of the 'safety' of corporate bonds, the credit cycle is deteriorating rather rapidly in both the US and Europe. As these charts of the upgrade/downgrade cycle from Barclays show, things are as bad as they have been since the crisis began in terms of ratings changes among investment grade and high-yield credit. Combine that with the historically dismal seasonals for credit in the next three months and we urge caution.


The US Upgrade/Downgrade cycle is dropping rapidly...


and seasonally things are about to get tricky...

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Tue, 07/31/2012 - 15:20 | 2666018 knukles
knukles's picture

From a secular perspective, all a natural product of the deleveraging cycle.
(Just ask any bond mamager not prisioner to group think.)

Tue, 07/31/2012 - 15:26 | 2666056 Lohn Jocke
Lohn Jocke's picture

If someone doesn't believe in cycles, they should ask their wife...

Tue, 07/31/2012 - 15:32 | 2666086 financial apoca...
financial apocalyptic contagion's picture

she'd be too busy making me a sandwich

Tue, 07/31/2012 - 15:20 | 2666020 vinu02
vinu02's picture

Inspite of recession, or depression stock market is sitting near 5 year high. Fed is there. http://www.freefdwatchlist.com

Tue, 07/31/2012 - 15:31 | 2666083 The Monkey
The Monkey's picture

Looming LSAP makes any forecast potentially bogus. LSAP is positive for financials and junk. Potentially negative for treasuries.

Tue, 07/31/2012 - 15:24 | 2666047 monopoly
monopoly's picture

Anyone else feel the perfect storm is brewing and soon to be leashed upon us?

Tue, 07/31/2012 - 15:26 | 2666050 fonzannoon
fonzannoon's picture

unfortunately no

Tue, 07/31/2012 - 15:32 | 2666087 Jason T
Jason T's picture

..I strain my ears, and all my senses, for some betrayal of that impending storm. Oh, that it may not be premature! That it may not be premature!"

Tue, 07/31/2012 - 15:39 | 2666127 Agent P
Agent P's picture

God I hope so...I live in the Midwest, and we could sure use the rain.

Tue, 07/31/2012 - 17:27 | 2666495 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

milo is
heading out. we
have had rain last two night. only pivot corn is doing o.k. volunteer outside water range is dead..

Tue, 07/31/2012 - 17:27 | 2666497 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

milo is
heading out. we
have had rain last two night. only pivot corn is doing o.k. volunteer outside water range is dead..

Tue, 07/31/2012 - 21:21 | 2667134 OldE_Ant
OldE_Ant's picture

Last time I checked I found out Ben can print as much rain as we want anytime.  So come on Ben we dare you - PRINT RAIN!

There it's fixed.

End of Line

Tue, 07/31/2012 - 15:44 | 2666149 Jake88
Jake88's picture

Believe me Draghi and Uncle Ben have got our backs. No worries.

Tue, 07/31/2012 - 15:27 | 2666058 Byte Me
Byte Me's picture

..And we believe credit ratings are genuine and useful in determining fair value why exactly ??

Preserving wealth is such a bitch......

Tue, 07/31/2012 - 15:29 | 2666071 yogibear
yogibear's picture

Fraud is a VERY profitable game. Nobody is going to jail these days for blatant financial fraud.

If your a financial institution, clean out your client's deposits and reserves, send them to offshore accounts and bankrupt the institution.

The Federal Reserve as well as the treasury is more than willing to paper over it,

Tue, 07/31/2012 - 15:29 | 2666073 madcows
madcows's picture

So, which is least dangerous, Corporate bonds, Federal bonds, Municipal Bonds or the stock market?  People have to put their money somewhere.

Tue, 07/31/2012 - 15:32 | 2666089 fonzannoon
fonzannoon's picture

How about Art, Wine, precious metals etc.

Why is is that real shit never makes the list? I am not saying they are guaranteed to be the best option. I just wonder why they are not an option.

Tue, 07/31/2012 - 15:40 | 2666132 The Monkey
The Monkey's picture

The fact that you are asking the question speaks volumes about this market. It is a bubble with an unknown top.

Safest bet - long term treasuries or cash.

Tue, 07/31/2012 - 15:51 | 2666166 Dr. Engali
Dr. Engali's picture

Long tee treasuries ? I hope that was sarcasm. I tic up in interest rates will kill a long term treasury, and if Ben keeps a lid on rates then inflation will kill them. Cash and precious metals is the best bet.

Tue, 07/31/2012 - 16:01 | 2666210 The Monkey
The Monkey's picture

We'll see about that.

Tue, 07/31/2012 - 16:10 | 2666251 fonzannoon
fonzannoon's picture

Well either treasuries of gold is in a massive bubble. Place your bets. I know where I am betting. Alessio Rastani was an idiot.

Tue, 07/31/2012 - 16:01 | 2666207 PiratePawpaw
PiratePawpaw's picture

Small caliber ammunition is up 400% over 5yrs.

Brand name firearms about 200% over the same period.

Gold and silver are up 300-320%

All good investments, and all are more valuable than paper if things go south. (which I'm pretty sure they will)

Bonds, bonds, bonds, and stocks are all good for wiping oneself though.

Tue, 07/31/2012 - 15:32 | 2666090 buzzsaw99
buzzsaw99's picture

:mumbles something about gm:

Tue, 07/31/2012 - 15:40 | 2666134 HaroldWang
HaroldWang's picture

and seasonally things are about to get tricky...

With this in mind, wouldn't the Fed front run this and announce QE or some other program tomorrow?

Tue, 07/31/2012 - 15:57 | 2666190 The Monkey
The Monkey's picture

Here are the options:

1) LSAP is delivered pre-empively as, ahem, "risk management".
2) LSAP is not delivered tomorrow, but it is clear monetary policy will be involked on any deterioration. Words are stronger than before. ZIRP is extended.

Neither of these scenarios are positive for a net short position. So, unless you want to lose money, step to the side.

The indices are headed higher. You will need to get granular to the issue in order to find downside, and even then the action will be counterintuitive.

Institutions totally have it locked down. Retail is long gone.

Tue, 07/31/2012 - 21:36 | 2667168 OldE_Ant
OldE_Ant's picture

lol.  Extended ZIRP EZIRP oops became NIRP.  Granular.   No the simple upshot is this market will rattle up because it can, then plummet down until the PPT team kicks in.  Money printing is about to become a zero sum game, and all the inflation we are waiting for may just NOT happen because no matter how much money one prints, nor the rates it loans it out there simply isn't cash to service the current debts much less anymore debts.

To my mind that sets the stage for deflation/deleveraging de-everything.  The only fly in the ointment is if the spice stops flowing (i.e. oil) which could lead to a real inflation spike, and I don't put this past the FED to manipulate to achieve some real inflation and pardon the pun 'light a real fire under stocks'.

Don't get me wrong I still am stacking and preparing for potential hyperinflation, as well as service outages, empty stores, etc. (I see good correlation of prices of PM's to the amount of debt) but there is a point where no-one has cash to make prices on things go higher and I think we are there NOW.   Also it isn't no-one has cash - but there is NO CASH FLOW anymore.  Most peoples wages are locked or on the decrease (at least in the US, probably true in europe as well), govt budgets are completely crimped, revenues suck because the economy sucks, too much debt all around.   People for too many reasons ARE doing more with LESS.

Retail long gone, yeah to the dollar store for some Raman noodles for dinner, oh yeah honey don't forget to toss the mouse we caught into the pot for some protein.

One last interesting comment.  I've been noticing a LOT more teller machines with 'new' sequential bills.  The last chunk of cash I got from the bank was the oldest most beat up money I've ever seen.  Talk about a night and day contrast.  Making me think more and more people are putting cash under the mattress because the banks don't pay interest anymore and they don't want people going to the bank (i.e. crappy money), but they DO want them going to tellers (because the new sequential bills are more easily trackable from start).  I checked one of my new 20's in the microwave - not even the slightest bit of snap/crackle or pop.

End of Line

Tue, 07/31/2012 - 15:41 | 2666137 Meesohaawnee
Meesohaawnee's picture

algos programmed today  IF SP < 1380 ramp algos else 1385 endif

Tue, 07/31/2012 - 15:51 | 2666167 Disenchanted
Disenchanted's picture



Here I was thinking it was "Nothing but blue skies from now on"


Deutsche Bank to cut 1,900 jobs as profits drop


Note that it will be the peon's jobs that are cut...not those in penthouse suites.

Tue, 07/31/2012 - 21:44 | 2667180 FieldingMellish
FieldingMellish's picture

Spectacular bonuses for doing God's work must be maintained at all costs. I'm sure those in the soup kitchens understand.

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