We are constantly told that this time is different and we are on a sustainable magic carpet ride to growth, that stocks are merely 'stabilizing' to allow earnings to catch up with valuations, and that buying-the-dip is the obvious trade. However, as the three charts below indicate - its no different this time at all. As Barclays notes, VIX and credit markets are leaking exactly as they did in 2010 and 2011 in preemptive anticipation of the end of Twist (and LTRO) leaving stocks vulnerable to the real shocks of a real macro event risk world; equity performance remains too good to warrant a central bank response (as we just saw in the FOMC minutes) and TIPS breakevens are far above previous intervention levels; and while bank funding fears, growth slowdown concerns, and sovereign downgrade worries are supposedly lesser than in previous sell-off periods, we suggest they are absolutely rising in anxiety and that is the catalyst for the next leg down before the inevitable QE/LTRO occurs.
With central banks clearly stepping away and letting economies and markets fend for themselves, performance is much more vulnerable to negative developments...
[5]
And the hope that they will step in soon is unwise - as we remain significantly above previous Bernanke put strike moves and TIPS breakevens are considerably above previous intervention levels...
[6]
and key fundamental reasons for a sell-off do have some differences BUT those differences are even starting to look less and like differences and more and more like re-erupting again...
[7]
Source: Barclays