The Truth About Stocks, as Told by Bonds

I wanted to share something that may at least help set the score as you plan or adjust your strategy. Or, as I like to say about 80 times per practice coaching a six-year-old flag football team, “Hang on a minute.” This chart should offer the same head scratching.

                                   
Click to enlarge

Too often we all let plans get in the way of realizing what's actually happening, my blood-stained trading diary is Exhibit A.

At the very least, for those that don't have Bloomberg, I wanted to share a recently used chart, which shows that the spread between bonds versus stocks around the world has never been wider since this bond index was born 24 years ago.

Speaking of giving credit, I give a lot to Michael Johnson, the chief strategist at M.S. Howells (a firm I know thanks to Minyanville -- Toddo had a pretty good idea about a true community) along with Brian McClive, who's flagged many deals that you couldn't have imagined even a few months ago.

They picked up on the historic credit rally early -- when it mattered -- and have made their clients a lot of money as a result, even those who don't trade credit because of what it was indicating about stocks.

By focusing on the relentless demand in corporate credit markets, their points have been even more dramatic than this chart.

So I got to thinking, and as we like to do in our house, that led to drawing and scribbling, and I came up with this:


Click to enlarge

Chew on this extraordinary chart , which tracks a Citigroup (C) corporate bond issued before the credit crisis (green line) with the common stock (red line).

Imagine buying this bond at the worst time in history, from one of the lead conductors of the crisis that was about to unfold. You watched that bond trade down to 77 cents on the dollar and that’s if you could get a bid at all.

If things are now worse, as some would argue, those bondholders have a chance to get out at a pretty good price. Recently they could sell it for more than they paid originally.

"Hang on a minute” and think about that.