BofA Credit Analyst Loses It: "Central Banks Created A Fantasy Land"
By Tyler Durden
For those who have been forced to trade the market, or provide trading recommendations, the past few months have not been kind: we have seen several instances in recent weeks where a trader lost it, where a strategist – one as prominent as SocGen’s Albert Edwards – blew up and admitted “I’m Not Really Sure How Much More Of This I Can Take“, and even a central banker went off the rails saying he and his peers are “magic people.”
Today it is the turn of one of the more prominent (and bearish) sellside high yield analysts, BofA’s Michael Contopoulos, to join the bandwagon of those driven to near insanity by the Fed, something he himself admits in a note titled “cycle not acting its age as central banks create fantasy-land.”
The HY analyst says that while his bearish stance has gotten less pronounced in the last week as “Q1 earnings data was better than it had been in 6 quarters,” he adds that his “bearish stance most definitely still remains both on valuations and our disposition about the trajectory of corporate and economic data. Long term we continue to find it very difficult to see a path for high yield corporates to grow into their balance sheets.”
That’s the fundamentals and they scream sell. On the other hand, Contopoulos adds that fundamentals do not matter when faced with activist central banks who are intent on inflating the biggest debt bubble ever, one which even Goldman warned over the weekend would lead to as much as $2.4 trillion in MTM losses if rates rise by just 100 bps: “at the same time, we fully recognize and appreciate that low global yields and the need to stay invested creates a positive technical that is difficult to fight against.”
However, it is return to the fundamentals, this precipitated his reaction: “But fight we do. Days like last Friday admittedly challenge our conviction, though. Oil down nearly 1%, and a payroll report that suggests our fears of a tightening labor market coupled with poor productivity, slowly rising wages and lackluster corporate earnings will lead to job losses later this year or early next year seem more than justified; and yet yields on our US HY index fell 3bps.”
What is provoking the most confusion?
What Perhaps the market has for now decided to overlook the following alarming statistic- during the heat of the early year selloff there were 21 important indicators. Of those 21 indicators, 16 of them are the same or worse today (Table 1). Interestingly, 3 of the indicators that are better today are related to the manufacturing sector (Factory Orders, Durable Goods and ISM Manufacturing). Personal Spending is also modestly improved (though Personal Consumption is worse) and New Home Sales is modestly improved (Existing Home Sales is much worse). With manufacturing still struggling, despite slightly better data, and a weaker consumer, we would argue that the macro landscape is as bad or worse than when investors were forecasting imminent …read more
Source: BofA Credit Analyst Loses It: "Central Banks Created A Fantasy Land"
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