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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Metacomet who wrote (84108)	7/24/2007 9:43:02 PM
From: orkrious	Read Replies (2) \| Respond to of 110194

@credit and derivatives land -- trotsky, 18:18:39 07/24/07 Tue the sub-prime credit crisis has now officially ceased to be 'contained'. it has in fact spread everywhere. high yield bond spreads on corporate debt are blowing out at amazing speed. the same goes for commercial mortgage debt. even emerging market debt is looking a tad wobbly (see a chart of EMD). this is putting pressure on the stock market, and even more on its financial sector - which is by far the one with the greatest weight in the S&P 500 index. the BKX has broken below lateral as well as LT trend line support today - the break may be contained if it immediately moves back above 109 , but that's one ugly mother of a chart: stockcharts.com re. high yield spreads, a representative index spread (CDX.NA.HY) has marched from 250 bps at the end of May (!) to 455 bps yesterday - this is the fastest spread widening episode since 2002 at least, and reportedly markets for all sorts of debt are simply dead right now - as in, no bids. chart can be found here markit.com it's the one on top of the list. unless this gets suddenly better (doubtful), it has important ramifications for the bid under stocks. without LBOs and stock buybacks - both of which depend on easy credit - sourcing fresh demand for stocks becomes rather problematic. retail investors shun the US market (having preferred even riskier emerging market equities in this cycle and being short of cash otherwise), and mutual funds sport the lowest cash-to-assets ratio ever (3.4%). so if private equity doesn't buy, buybacks begin to stutter and hedge funds are short (as per the CFTC CoT data on stock indices), who's going to buy? foreigners have just completed a cycle of near record buying, second only to the pre-March 2000 final stretch, so they're already 'all in' as well. unfortunately it looks as thought the liquidity drought temporarily also depresses gold stocks (and that will become more pronounced if the market keeps going down at high speed), but ultimately liquidity troubles tend to cause gold to shine in real terms. iow., gold mining margins may well improve even if the nominal PoG doesn't do much. in the past this has always been a bullish condition for gold stocks (although the best rallies even then tend to coincide with broader stock market rebounds). actually, gold stocks held up relatively well today too. in any event, prepare for more volatility in everything. many of the formerly leading stock market sectors look now vulnerable to varying degrees. # # @Bush -- trotsky, 13:30:31 07/24/07 Tue "Bush was to give his speech to military personnel clad in camouflage." my sympathies go out to this poor captive audience...they must listen to the same old tired song if they want to or not. "President Bush sought Tuesday to strengthen the connection between the terrorist network al-Qaida and the unceasing Iraq war,..." is this lame BS not getting really old by now? Iraq has been a gift for Al Quaeda - a premier recruitment and training opportunity. and it is Bush's fault - if anyone has ever been an incarnation of the Peter principle, this guy sure is it. news.yahoo.com # @crude oil -- trotsky, 11:53:36 07/24/07 Tue speculators are now beginning to liquidate their huge net long position in crude oil futures. hopefully that won't spill over into gold (it shouldn't, but frequently does anyway). judging from the move in XOI today, this liquidation still has some ground to cover. an aside: the individual issues p/c OI ratio in the gold sector (all optionable stocks, 3 front months combined) has soared to 0.66 from the pre-expiration 0.52. this is a multi-year high.