the Bond Vigilantes are sending a signal....

Corporate Bonds and Treasuries getting hammered.

pos. DIV hints at countermove.

Bipolar disorder

If you want to know why more and more Hedgefunds are throwing in the towel, just have a look at the chart below and look at it through the lense of previously reliable heuristics.

A) "Dr. Copper leads the Equity market"
Observation: still working fine!

B) "The Fixed Income market knows better then the Equity market"

Observation 1 (2yr TSY): Armageddon is coming
Observation 2 (TED SPREAD): Recovery is coming

What's the right interpretation?

We don't know! The only thing we do know is that both the TED as well as the 2yr TSY are highly mananged by the 'politbuero' at the FED which doesn't help us here.....

I would follow Dr. Copper, who has not taken out the recent low like the S&P500 (non confirmation !!) and maybe the 2yr TSY given the bigger context...... but this is just my educated guess that can be completely wrong !!

Visualizing Why The Future Of Europe's Financial System Hangs By A Thread

One graph that shows why the risk in Europe is so dramatically bigger then anywhere else....

Compare UK+Germany+France with the US against the background that leverage is higher (=systematic instability) , the Eurozone crisis and the political chaos......

Visualizing Why The Future Of Europe's Financial System Hangs By A Thread

h/t zerohedge

Mutual Fund, ETF Flows and Margin Debt update

Margin Debt Message:

1. basic signal is bullish (positive ROC, still rising)
2. ROC has reached a level where we either go parabolic (think 1995) or where the animal spirits get tired and that in turn will limit the move
3. a lower (high) ROC reading could signal the turn

MUTUAL FUND FLOWS are negative...
...but shorter term trading vehicles like ETF are positive , which aligns with our MARGIN DEBT message.
The least we can say is that Mr. Market looks tired.

Bank Lending & CP update

Below you will find an update on the lending markets. A picture says more than a 1000 words. Besides all the QE in Europe and in the US the genuine credit market has never recovered. De-leveraging has been the name of the game.

Reflections of TLT

Thanks Jason_70 for you kind remarks. Following your comment on the TLT (20yr Treasury ETF) I had the idea to look at the current market through the lense of the TLT .

Let's start with some timing ideas for the next potential energy field or turning point:

...looks like the next 2 weeks will have some soul searching to do.....

Now let's examine the Chart and where we see at #...

1a) + 1b): The TLT is oversold which could limit the move on the upside

2) We see resistance around 100-101

2) We also see a finished Gartley 222

2) Gartley could also extend to the 61.8% Fib level

3) a solid uptrend

High probability case:

• a turn in the next 1-2 weeks (we need a down week better even with a lower high as confirmation) => up to 1-2 weeks weakness in the Equity markets => 1-2 weeks Dollar weakness & Euro strength......
• potential turn level either the area around 100 or 104
• correction could test the upward sloping trendline where a major support around 90-91 is waiting

Concerns from observing a weird OPEX, Dr. Copper, LIBOR

Increasing Pressure from the Interbank Market (TED= LIBOR - T-BILLs)

Dr. Copper again leading the way

Chart 1: 10day Call/Put ratio

Chart 2: Call/Put ratio

This was a weird OPEX this go around because we had a nice bearish setup as seen in Chart 2 which resolved in a bullish melt up. What is surprising is the fact that the bullish action did NOT change the sentiment picture as we would have expected, meaning if you get creamed with your put positions you liquidate it ( think triggered Stopp Losses) rather then rolling it over (= sticking with your life insurance even if the premium has just gotten more expensive).

We notice the same in Chart 1 that continued to trend down (more life insurance buying) in a bullish move rather then seeing a solid upwards move into the area of the upper envelops (which would show conviction...).

The above is just an observation where something doesn't jive with a healthy market. This also adds to our concerns we see in the interbank market and copper....

TED SPREAD: Still stress in the INTERBANK Market

The Ted Spread still tells us a bearish story and normally you don't want to bet against the signals from the short term libor market !

TED Spread warning Signals started to show up in March...

The fairy tale of GOLDILOCKS

Once upon a time confidence returned to the MUTUAL FUND Retail Investor and he started investing again in a Markets that seemed safe again...

...therefore he liquidated his LIQUIDITY GOVERNMENT "ULTRA-SAFE"'s at a lightening speed....
....to also invest into corporate risk again hoping that the bottom is in and that all those good corporate names would start investing into capex again and find all the credit they needed in the structured ABS and/ or the short term CP Market...
...or directly in the BANK CREDIT MARKET, now that the Banks lend again to consumers...
...and Corporates.
Let's all pray and hope for the happy end.

Deflation update: Deleveraging continues

There can be no end in sight if we do not see any kind of credit normalization (i'm not even talking about expansion!!). Pls look at the following charts and draw your own conclusions.

Consumer Credit is still in a free fall...

...as is Bank Lending, there no way to give this a positive spin....
....and the shadow banking area (source of ample liquidity in the boom) is still broken...

High Yield Bonds show relative weakness on a quite day...

Credit has been the backbone of the Market. So be alert when you see relative weakness in credit.

Economic Update

STATE STREET CONFIDENCE (measures real institutional asset allocations)

RETAIL MUTUAL FUNDS
MONEY MARKET MUTUAL FUNDS
MARGIN DEBT
ETF FLOWS


CREDIT MARKET

• Retail and Institutional Money gets sucked into Equities again (...can't afford to miss the rally...)
• Margin Debt indicates a huge increase in speculation
• Money Market Funds shows signs of complacency
• Most ETF Inflows are fading
• Fixed Income ETF were a safe haven in 2009
• Commodity speculators like ETF's
• Banking ETF's see already outflows again
• Credit/ Lending is still contracting at a devastating speed

We need more open minds like Brian Pretti......

Rarely you come across material that continiously stimulates your thinking. I'm reading Brian for years and have enjoyed his MACRO/ BIG PICTURE view a great deal.

You find Brian at the enclosed links:

• The monthly MUST read OBSERVATIONS (free)

• MUST Listen AUDIO from Jan 23 (just fwd to the interview with Brian)

• Fanatstic piece on Jan 22: Yesterday Once More where he discusses the dichotomy we see between the fundamentals and the market.......

(also the archive is worth the read)

Credit Contraction continues....

Europe:

US:

U.S. Consumer Credit Shrinks by $17.5 Billion, Biggest Decline on Record Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

Corporate Bonds will be the key tell.....and Santa doesn't seem to like them....

EUROPEAN vs US CREDIT Contraction & Mutual Fund Flows

If you're looking for a loan (commercial or consumer) in the US, you better wear your best suit...

....and given that this Credit contraction is global (look here for China) the same is true in Europe.

If you were wondering who is powering the Santa Rally...... it is NOT the retail guy, because he is busy saving & delevering....

Investment Flows and Bank Credit

US TIC report

Money Market Fund Flows
Mutual Fund Flows
US Bank Lending
Do you see the greenshoots (nobody is using this word anymore ?!) in the Bank Lending report ? CAPEX and Consumers are getting hammered!!

Consumer & Banks

The Consumer Credit data still looks abysmal. This is the deepest fall since WWII. Revolving Credit (read CREDITCARDS) get repaid at lightening speed

Pls also see these MUST SEE Videos from Whitney on the Banks. (hat tip to trader mike!)

Investment Flows/Liquidity & Credit update

STATE STREET CONFIDENCE Index:

This Index shows what one of the largest global custodian is observing in their Asset Portfolios (mainly Institutionals, Pension Funds etc.).

They allocate out of the risk trade.

MUTUAL FUND FLOW:

Retail Investors are taking profits. Temporary solace had been found in BONDS but overall the retail guys seems to behave more risk averse than what most think. What would you do if you are a baby boomer with no Fixed Income Annuity stream...... behave risk averse ?

EQUITY FLOWs raise the question, who is running this market up if NOT the retail and the institutional guys?

MONEY MARKET FUND FLOWS:

No Panic or flight to quality here yet.

FED BANK LENDING REPORT:

The Banks are not lending to Corporates and Consumer.

COMMERCIAL PAPER:

Asset Backed and "good" Corporates are still struggling

The Credit Markets are on balance contracting, whereby the effects are most likely stronger felt the further down you are in NON INVESTMENT GRADE land.