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What Does High Yield Credit Know That Stocks Don't?
While stocks, gold, and the dollar are generally in sync, Treasuries appear modestly more bearish now (for stocks) but it is the high-yield bond ETFs that is making a few people nervous as they plunge on heavy volume (and well below their intrinsic value). Obviously no-one really knows what i going on at JPM, but fort some more color we note that IG9 10Y is trading wider once again offered at 169bps - so one wonders if the liquidity in HYG is allowing some unwinds (or more hedges to be laid out). Certainly stocks remain ignorant of it for now - though month-end may be impacting both.
SPY (green) versus HYG (red) with HYG's intrinsic value (dark red)...
and on both our ETF-based (SPY Arbitrage model - based on SPY's relationship to HYG-VXX-TLT) and cross-asset-class (CONTEXT model), stocks look a little rich once again...
Chart: Bloomberg
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the credit markets ALWAYS know first ... this discrepency will resolve itself - likely in a very ugly way
"What Does High Yield Credit Know That Stocks Don't?"
Math, perhaps?
High yield credit has a long way to go before it's a value. A long, long ways.
What the bond market knows is that the equity markets have been medicated by the Fed to send a wealth effect that cannot be sustained without additional inorganic support . . . thus, if the IV treatment isn't maintained, with increasing frequency +/or higher dosages the patient begins to slip stupifyingly fast. 666 being signalled.
Also, equity holders get wiped out before bond holders, corporate profits are down despite what talking heads tell you on MSM, and perhaps most important, bonds have better reality memory - the great recession was considered recovering before it really got bad. And it's the length more than the depth of the downturn that is ruinous. Again, expect s&P 666 again, without a race back up. Confidence and trust will be all but wiped out this round.
Tyler----
Start a hedge fund and arb these opportunites. I'll invest if you are transparent with your trades.
But what about Bernanke math?
$100B new debt issued = 5 Russel 2000 points
= 1 Medal of Freedom
https://en.wikipedia.org/wiki/File:Greenspan,_Alan_%28Whitehouse%29.jpg
no joke-i always believd that too, but in 08-09 i was buying decent names like HD and TWX paper 4 months after the low in march at 70-80 cents on the dollar. i couldn't believe how long it took for the credit markets to catch up. never saw that before.
Treasury rates began rising months ahead of the capitulation in stocks. You need to look at the change in spreads between treasuries and high yield over time. Spreads were narrowing during the time frame you reference.
There is a credit market, there is no equity market. Retail left, and all thats left are a few Bots playing ping pong. This market MAY actually be crash proof.....
I totally agree bdc63. Schizophrenic markets are almost always a prelude to a plunge.
Today some thing's went up, but look at the last half hour of trading and ask, did anyone really want to hang around in expectations of a stellar monthly jobs report tomorrow morning? Nope. Tomorrow morning we're likely to do a bus plunge.
Market tone and action suggests a bear market interspersed with short covering rallies right now. So long as one doesn't overleverage or use too much margin it's an easy ride. The Fed is pretty much out of bullets but there certainly is the risk of a hard short squeeze.
SP500 to 1200 then bounce to 1270 or so is my best guess at this point.
They're just front-running the insider info they got today, that pertains to tomorrow. Standard procedure.
that hyg move is unreal!
Stocks = "Awesome"
The Washington Generals are due for a win over the Globetrotters. This will be the time stocks are right and credit is wrong, I can feel it!
" The ref is blind! The guy's using a ladder for cryin' out loud!" ~ Krusty the Klown
"but fort some more color"
French keyboard and writer ???
its george bush's fault..lol
Cue Donkey Kong....
The music started in my head the instant I read that.
http://www.hark.com/clips/zzgnzjxhyh-intro-music-to-donkey-kong
Uhm...money is flowing up the capital structure because the whole system is ready to blow, but we can't let the sheeple know that so equities are given a false support.
re :an earlier post- seen on the new arrivals desk in a bookstore-"How to make money in Junk Bonds"-right next to the discount table selection "Flip This Condo"
Credit market players tend to be more conservative, and fearful investors. The record low yields are the evidence of this. Equity investors are more optimistic, and maybe a bit more greedy. I remember in the TNT bubble years 1996 through 2000, the CNBC crowd claiming 6% bond returns were "dead money". Money managers playing with OPM can afford to take chances, which not only includes gambling on momo stocks, but also going long bonds at record low rates, exposing their clients to great interest rate risk. So even Grandma, who has been earning zilch on her portfolio, may be wiped out financially if the economy were to recover, as interest rates double, treble, or even quadruple from here.
rates go up, now that we've loaded up on debt in every sector, consumer, business, corp, state and Federal.. game over. Martin Armstrong puts end to this in the period starting late 2015 out to 2020.
Double, triple, quadruple? What...to 1%? Some recovery.
aaand its gone. WTF was that all about?
I guess the algos finally let go of the market at 1300. Next time through probably won't be pretty, next level of support being programmed in currently...
"US Equity Markets love not to know. Nothing makes US equities happier than not knowing the answer to your question. 'Hey man, how will all these countries pay for their debt?' 'Shoot, I don't know that shit! I'm just keeping it real, just keeping it real.' Yeah, you're keeping it real, real dumb. US equities hate knowledge."....
HYG was at 82 the end of last year, big whoop.
somebody leaked tomorrow's NFP report?
either bennies gonna hit the easy button for a T or its a headfake.
funny how everybody gets their 15 minutes of fame . Today it the spanish finance minister moving the market with his every utterance
If you listen to the CNBC crowd they make it seem like US stocks are the safe haven for global investors. Doesn't that make US stocks the "new gold"!
Also, what will a strengthening dollar to the earnings of exporters when they report Q2 and Q3 results? Just saying.
As much as CNBS is usually full of shit that idea is gaining a little strength. If you think of equities as a liquid place to park your money and you believe that you can exit quickly when the SHTF, then US equities are relatively better. Not as long term investments but as vehicles for taking advantage of shorter term price increases. It's the assumption that a quick exit is possible that I think needs to be seriously questioned.
Nice dump into the close. Some real commitment.
Airlines doing well now that Oil is crashing out
jblu nothing short of impressive today
Yet another PPT attempt at manipulation. ZH draws attention to the falling HYG at 3:12 and full ramp mode begins immediately thereafter as if to cover up the evidence. It didn't work though as whoever was selling it just took advantage of the temporary better price and and faded it very nicely. Wish I had those cajones.
Thanks to ZH, the PPT only has to monitor a single blog!
There are many "things" HY could know. The failure of Spain itself. French bank nationalizations. The Fed taking apart JP Morgan. "we'll just have to wait" as they say.
credit analysts look to actual cash flow, equity analysts look to a "story". 98% of the time credit sniffs out bullshit long before equity.
there's a camp of equity folks that think the world is simply "set ups" and chops
they don't give a damn what credit is telling them
let's see what happens
My algobot can kick your algobot's ass!
Q: What Does High Yield Credit Know That Stocks Don't?
A: How to go down the up staircase?
Great reports Tyler; you have your finger on it. I think you know, because if I know, you should know & your charts confirm it. Good catch on the IG-9 BTW. Stay focused on '10.' The other half of the equation was broadcast today. We all await the data...
As I observe the world arund me while I drive through Virginia I am taken back by the obvious slow-down of commerce. Seems the only place where things are like they were in the 2008's is DC and NYC.