Wednesday, September 30, 2015

Investment Grade Credit Spreads .....ANOTHER PESKY FACT!


Investment Grade Credit Spreads

During the past few years by far the most important of all factors driving the market was the low-cost financing of float-reduction (buying back shares via releveraging)...

Investment Grade credit spreads are at 2-year wides, spiking higher in recent days, raising the cost of financing those record-breaking non-economic buybacks for even the most pugnacious CFO. As is clear below, with a lag (i.e. we borrow and then we spend) the cost of financing and the relative performance of firms buying back their shares is extremely highly correlated and while correlation is not causation, we suspect in this case - from simple Corporate Finance theory - it is winking rather clearly. THE CHART CLEARLY INDICATES THAT YOU DON'T EVER GET SOMETHING FOR NOTHING, DESPITE ALL THE EMPTY PROMISES TO THE CONTRARY, THERE IS NO FREE LUNCH! THERE IS NO RECOVERY EITHER AND MOST ASSETS ARE CURRENTLY WAY OVER PRICED! IT IS AND HAS BEEN A FED INDUCED MIRAGE, PERIOD!


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