Per CapitalContext:
Our recent work on the growing disconnect between credit and equity markets in recent weeks was picked up by our good friends Gary Kaminsky and Rick Santelli at CNBC today. Furthermore, the topic of the LTRO stigma that we have discussed for over a week is becoming increasingly a concern – especially to those LTRO-encumbered banks. While the disconnect in Europe has been increasing for over a week, we have now seen US banks and broad credit markets also deteriorating quite rapidly – as we pointed out here today. As Gary points out, when we have had troubles in the markets before, it has tended to start in the credit markets and migrated to equities as the more liquidity-sensitive and capital structure focused professionals derisk ahead of the more momentum and retail crowd overshooting in equities…While our TAA framework hovers very close to fair between credit and equities we remain cognizant of its signal and wary as credit starts to point to trouble ahead in stocks.
