The Corporate Yield Curve Has Just Inverted

Just days after we first showed that the world's "Most Systemically Important Banks", or G-SIFIs, are tumbling even as US stocks trade just shy of all time highs, prompting Ian Hartnett to issue his first "black swan" alert since 2009...

... Nedbank analysts Neels Heyneke and Mehul Dahya picked up on this topic, and in the latest note write that with the market-weighted cap index of the FSB’s G-SIFI’s starkly decoupling from the S&P 500 and the Nasdaq since the beginning of 2018, and nearly entering a bear market, or down 18%, they warn that "this decoupling will be sustainable. Either the rest of the equities must come under pressure or the financial sector must rally."

Reverting back to their favorite theme of dollar liquidity, or the lack thereof, as the catalyst for virtually all of the world's risk asset woes, Heyneke and Dahya show that whereas the S&P500 has so far ignored the slide in the dollar liquidity, the megabanks have not been so lucky, and that the higher the dollar spike, the greater the threat to the G-SIFIs, until eventually the drop is so substantial, the rest of the market will have no choice but to follow lower.

And while we noted much of this last week, a more interesting observation by the Nedbank analysts is that the corporate sector curve (Baa-rated Corporates less the Prime rate) has now inverted. The implication of this is just as profound as a sovereign yield curve inversion as it means that "the cost of capital for corporates is now higher than the return on capital."

Incidentally, as the chart below shows, every trough in this curve has always corresponded to some market crisis, whether the Asian Crisis, the Tech bubble, the Great Financial Crisis, or the $-liquidity squeeze we are experiencing now.

Their conclusion: "Corporates are highly geared and we are concerned the next phase of a contraction in global $-Liquidity and rising real rate (term premium) will infiltrate the stock markets."

Well, the dollar just hit a fresh 2018 high, and stocks are tumbling, so once again the shape of the yield curve may very well be all we needed to know what happens next.


shortonoil two hoots Tue, 06/19/2018 - 12:00 Permalink

Well, there goes the company jet, and the $1,000 per bottle champagne at the company parties. But don't worry they'll get their return on capital back to positive. They'll fire a bunch of people, and make everyone bring their own toilet paper to the office. The American corporate capitalist is a genius!

In reply to by two hoots

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In reply to by james diamond squid

Adolfsteinbergovitch p4424119 Tue, 06/19/2018 - 23:45 Permalink

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Are you one of these Jewish porn moguls? 

In reply to by p4424119

El Vaquero Colonel Klinks Ghost Tue, 06/19/2018 - 11:33 Permalink

That could be.  But expect one of two things:  A new tech comes online very soon, or we have ~3-7 more years of this shit.  While I've remained skeptical that the Fed has enough dry powder to deal with another crisis, I guarantee that they have some motherfuckers who have been doing nothing but thinking about how to deal with another crisis and I have to acknowledge that they may have some new form of financial voodoo up their sleeves that I haven't thought of.  I wouldn't be surprised if they hold a crisis off for the requisite amount of time either.

In reply to by Colonel Klinks Ghost

Macavity El Vaquero Wed, 06/20/2018 - 14:57 Permalink

Agreed, voodoo is brewing and spice will flow.  Scenarios...

  1. AI, UBI, convincing sheep that ownership is evil, work is repugnant, and leisure is ideal.  Rent payable on everything, even your time you "decide" to spend work-like leisure activities.  Eloi vs Morlocks.
  2. Global "currency union":  currency debasement or crash can't happen when there's only one currency, i.e. no comparator, no competition.  This scenario basically freezes "wealth" where the markets are currently and prevents market crashes.  Everything is awesome.  Of course, that's after TPTB play dominoes with lesser currencies.
  3. Digital cash only, central control of the money supply, removing retail banks and effective fractional reserving, very healthy seignorage, really sweet looking monetary stability hiding egregious wealth transfer.

I wish I were smarter.

In reply to by El Vaquero

Truther Tue, 06/19/2018 - 11:02 Permalink

Would love to see every single manipulator, FED Head, Corporate creep and the zionist cabal get the fucking treatment they all deserve, a whopping baton right up where the sun doesn't shine.

Salmo trutta Truther Tue, 06/19/2018 - 11:07 Permalink

No, the stagflationists deserve far worse.  Bankrupt-u-Bernanke should be lined up against a wall and executed for High Treason.  Why?  Because he was solely responsible for the world-wide GFC.   There is only one lax regulation, regulatory malfeasance, that is an excessive or contractionary rate-of-change in money flows, volume X's velocity...

All so-called "animal spirits" revolve around money flows.  That is why we have higher murder rates (as I predicted back in July 2015).


In reply to by Truther

Salmo trutta Tue, 06/19/2018 - 11:02 Permalink

There are 6 seasonal, endogenous, economic inflection points each year. These seasonal factors are pre-determined by the FRB-NY’s "trading desk" operations, executing the FOMC's monetary policy directives (in the present case just reserve "smoothing" and “draining” operations, the oscillating inflows and outflows, the making and or receiving of interbank and correspondent bank payments by and large using their “free" excess reserve balances).

Each and every year, the seasonal factor's map (economic time series’ cyclical trend), or scientific proof, is demonstrated by the product of money flows, our means-of-payment money X’s its transaction’s velocity of circulation (the scientific method).

Monetary flows (volume X’s velocity) measures money flow’s impact on production, prices, and the economy (as flows are driven by payments: “bank debits”). It is an economic indicator (not necessarily an equity barometer). Rates-of-change Δ, in M*Vt = RoC’s Δ in AD, aggregate monetary purchasing power. Thus M*Vt serves as a “guide post” for N-gDp trajectories.

N-gDp is determined by the volume of goods & services coming on the market relative to the actual, transactions, flow of money. RoC's in R-gDp serves as a close proxy to RoC's in total physical transactions, T, that finance both goods and services. Then RoC's in P, represents the price level, or various RoC's in a group of prices and indices.

Monetary flows’ propagation, are a mathematically robust sequence of numbers (sigma Σ), neither neutral nor opaque, which pre-determine macro-economic momentum (the → “arrow of time” or "directionally sensitive time-frequency de-compositions").

For short-term money flows, the proxy for real-output, R-gDp, it's the rate of accumulation, a posteriori, that adds incrementally and immediately to its running total.

Its economic impact is defined by its rate-of-change, Δ "change in". The RoC, is the pace at which a variable changes, Δ, over that specific lag's established periodicity.

And Alfred Marshall's cash-balances approach (viz., a schedule of the amounts of money that will be offered at given levels of "P"), viz., where at times "K" is the reciprocal of Vt, or “K” has the dimension of a “storage period” and "bridges the gaps of transition periods" in Yale Professor Irving Fisher’s model.

As Nobel Laureate Dr. Ken Arrow says: “all analysis is a model”.


Son of Captain Nemo Tue, 06/19/2018 - 11:04 Permalink

Champagne corks ready to "pop" in 4... 3... 2... 1...

For posterity Tyler(s) you really need to keep this one at the top for the next 2 days given the "milestone"!...

I'm so proud to be an American goyim owned by a Central Banker "Jew"!!!

To Hell In A H… Tue, 06/19/2018 - 11:04 Permalink

Negative interest rates will adjust for this reality and shyster-cunts like Paul Krugman will lead the endorsement of such policies and the MSM will give him Open-Editorial's, until his mad opinions is viewed as acceptable.

Salmo trutta Tue, 06/19/2018 - 11:09 Permalink

Interest is the price of loan funds (Adam Smith's "Invisible Hand").  The price of money is the reciprocal of American Yale Professor Irving Fisher's "price-level", the Fed's bailiwick.

Salmo trutta Tue, 06/19/2018 - 11:12 Permalink

"WHEN America sneezes, the rest of the world catches the cold. The famous phrase originated back in  1929 in the aftermath of the Wall Street crash."


What happens today, is that depending upon the degree to which the Federal Reserve Bank contracts monetary policy, volume X's velocity, the exchange rate of the $, either stops dropping, stalls, or rises (exclusive of the unregulated, prudential reserve, E-$ system of FBOs exerts any influence).


But since the Ph.Ds. on the Fed's technical staff don't know the difference between money and liquid assets, the U.S. (and the rest of the world for that matter), are all lost, left without a rudder or an anchor. 


This guidance is identical to what happened between January 2013 and December 2015 where monetary flows, the proxy for inflation, for the same interval, fell by 80 percent.  From January to June this year, money flows have fallen by 30 percent.

Salmo trutta Tue, 06/19/2018 - 11:24 Permalink

Americans know that they are getting screwed, they just don't know how.  I can tell them precisely.  Peonage is the direct result of the efforts of the American Banksters Association.  Why? Because they impound and ensconce monetary savings.  How so?  All commercial bank held savings are un-used and un-spent, lost to both consumption and investment.  The DFIs, unlike the NBFIs, pay for their new earning assets, with new money, not existing deposits.

The turn in 1981 was predicted in 1961.

The perplexing paradox is that the prosperity of the commercial banks, the DFIs, is lock, stock, and barrel contingent upon the prosperity of the non-banks, NBFIs. That is it is contingent upon putting savings back to work, the frictionless re-circulation of income not spent, the propagation of economic perpetual-motion.

It is dependent upon gradually driving the DFIs out of savings business altogether.

If this action is not undertaken, the U.S. will enter a prolonged economic Depression.

Percentage of time/savings deposits to transaction type deposits:
1939 ,,,,, 0.42
1949 ,,,,, 0.43
1959 ,,,,, 1.30
1969 ,,,,, 2.31
1979 ,,,,, 3.83
1989 ,,,,, 3.84
1999 ,,,,, 5.21
2009 ,,,,, 8.92
2018 ,,,,, 4.87 (declining mid-2016 with the increase in Vt)

• Historical FDIC's insurance coverage deposit account limits:
• 1934 – $2,500
• 1935 – $5,000
• 1950 – $10,000
• 1966 – $15,000
• 1969 – $20,000
• 1974 – $40,000
• 1980 – $100,000
• 2008 - $250,000
• 2011 - unlimited
• 2013 – $250,000 (caused the taper tantrum)

Yes, we are living in the Twilight Zone

Son of Captain Nemo Money_for_Nothing Tue, 06/19/2018 - 12:18 Permalink

Just more proof M_f what debasing your currency will do to your economy and everyone else's that you threaten with it!...


And enjoy that fine box of Cuban cigars that cost $10.00 in 1964 that is now $500.00 in 2018 because of it's eroded purchasing power from too much printing... And the "markup" as an extra special cost to you for the economic sanction(s) to a government it has been isolating for the past 56 years!!!


In reply to by Money_for_Nothing

Salmo trutta Tue, 06/19/2018 - 11:40 Permalink

How the can is kicked down the road is even more criminal.  The "ELEPHANT TRACKS" are blatantly "white washed" and surreptitiously "covered up".  Wait until you find out!  There will by lynching’s like this world has never seen.

abgary1 Tue, 06/19/2018 - 14:23 Permalink

What did we expect after 9 years of the central banks targeting asset valuations?

This is way over due.

We need to get back to market price discovery.

End the central banks and neo-classical economic theory.