As I settle back in from three weeks overseas, it appears that, with a few exceptions, I really did not miss much.
First off, the key credit default swaps, those of large US financials and weak EU sovereigns, have hardly moved, and where they have, it has been with a trend toward the better. US CDSs seem stuck at 22.5bps, not all-time lows, but pretty close. Similarly, broader corporate CDSs are a “whopping” 6bps higher than 30 days ago. Two-year swaps have bounced between 15-19bps and are currently near the highs of that range.
Bond yields are where the action seems to be, and here we need to distinguish between long-dated Treasuries, with charts only a mother could love, and HY corporates, where rates have slowly drifted back to the 620 bps vs. 582 on July 23, the day I started my vacation; nothing great but nothing horrible. If there’s any saving grace for Treasuries it's that their volatility index has not spiked as it did from mid-June to mid-July. That’s important because high volatility in that market begets its own set of problems.
With all of the above indicators suggesting a whole lot of nothing, the tiebreaker goes to our most important tell: corporate bond issuance. If you have followed my tweets, you already know that what is happening in corporate-bond land is so positive it is bordering on the unheard of. Through yesterday, corporations sold $56 billion of new bonds just this month, despite August being a seasonally dead period for corporate issuance.
By further comparison, bond sales this year are running at almost 2x the rate of the pre-crisis halcyon days. As I have written often (see Corporate Bonds, Derivatives, and How They Wag the Equity Markets
and search the archives
if interested, or listen to Brian Reynolds
, the original “real deal” on the subject), it is nearly impossible for equities to suffer sharp and sustained declines in an environment where companies can borrow money for nothing to put an immovable bid under their own stocks. Right or wrong, it sure seems to be a dynamic Carl Icahn has bought into with Apple
(NASDAQ:AAPL), his latest darling.
So, almost a month removed from the action, it appears that it is déjà vu all over again. The indices look tired; the fundamentals, once you cut through the government nonsense (earnings, the economy, etc.) are sluggish to bad; the macros are a mess -- unless one believes that printing money is a monetary tool, rather than an instrument of a bunch of “tools” -- and soon we will be bombarded again with headlines over the debt-limit fight, and assorted other idiocies emanating from the misfits who govern us. Common sense would suggest that most stocks have no business trading at current levels. But common sense is not armed with a seemingly never-ending hose of fresh money feeding corporate buybacks. And until that well dries up, history suggests dips are better bought.
Position in AAPL
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