Last week, during the peak of the commodity short squeeze, we pointed out how this default cycle is shaping up to be vastly different from previous one: recovery rates for both secured and unsecured debts are at record low levels.
Just two days ago, everything was awesome - oil was up, stocks were up, financials were 'winning' - and then question started about why credit risk hadn't rallied like stocks.
But today we get our slap back to reality as Citi CFO unleashes the following: CITIGROUP SEES INVESTMENT BANKING REVENUE DOWN 25%, FIXED INCOME, EQUITY TRADING REV DOWN 15% YOY. The stock is rapidly giving up its "everything's fine" gains as Citi "hopes" for more rate hikes... but does not expect them.
Amid a strong 30 year auction overnight, long-dated Japanese Government Bond yields utterly collapsed. 30Y yields dropped 21bps - the biggest absolute drop in over 3 years and biggest percentage drop ever - to a record low 47bps. Since Kuroda unleashed NIRP, the entire JGB has been crushed and last night's rush for long duration debt (well at least there is some yield there?) has flattened the curve to record lows. For context, Japan's 30Y yield is now below US 2Y yield...
Nothing to see here...
Submitted by David Stockman via Contra Corner blog,
The casino is incorrigible. After a monumental short squeeze that has lifted the averages right into the jaws of danger, Goldman Sachs has the temerity to print the following:
“Our model suggests SPX calls are more attractive than at any time over the past 20 years”.
Any time a Fed president, governor or chairman trots out the trite cliche that the Fed is "apolitical" we can't help but laugh for one simple reason: not only is the Fed not apolitical, but is very closely ideologically tied with whichever party promotes deficit spending which by definition is inflationary: more deficits mean more debt, means more opportunity for the Fed to show off its "inflation" creating skills; and in a Keynesian world, a stable 2% inflation is the lubricant that drives and stabilizes the financial system - the Fed's true mandate.