Today...
The Yellen effect pic.twitter.com/ogQgxINN2r
— Morris Cabrioli (@insidegame) December 14, 2015
Today's focus was on credit markets - rightly - as the contagion spread to IG markets...
But it started when China devalued the Yuan yet again...for the 6th day in a row - and in growing size - PBOC fixed the Yuan weaker to its weakest since July 2011
"Yeah but it's junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong?"
The global bond bubble has begun bursting.
This process will not be fast by any means.
Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).
For the first time since August 2008, high-yield bond 'VIX' is greater than US equity 'VIX'. The 1-month implied vol of HYG has surged over 21 - its highest since October 2011. The last time credit's volatility surged above stocks like this, VIX quickly accelerated well beyond 40, pricing in the increased business risk. Furthemore, just as we saw in July/August, the cost of protecting equity markets is beginning to accelerate up to the surging cost of protecting credit markets. Both credit levels and risk suggest VIX is going notably higher.
Dow Transports have been weak all year. Down 18.3% year-to-date, Trannies are set to close lower for a 4th straight quarter for the first time since 1994. Today's plunge broke below the August crash lows and pushed the index into bear market territory...
Just something else to ignore of course... keep buying FANGs
Charts: Bloomberg