April 28. Corporate borrowing for dividends/buybacks long in the tooth?
–Surprisingly quiet on Friday, with yields generally dropping a couple of bps. May treasury option expiration was uneventful with tens pinning the 124 strike and bonds 135.
–This week brings GDP, FOMC and the employment report. Expectations are for a continuation of the tapering schedule, and the market is already looking beyond what is expected to be soft, weather related, GDP.
–(FT) Apple prepares for $17bn jumbo bond sale. Proceeds will be used in part to fund the even bigger jumbo stock buyback. David Stockman has an interesting post cited on ZH saying the leveraged recap binge is a replay of 2005/07…”Ironically, the recent surge in corporate lending by banks is being cited by Wall Street’s perma-bulls as evidence that the long-awaited “escape velocity” is about to materialize. But most of the up-tick in corporate loans has been for leveraged lending—an exact repeat of 2005-2007. And that, alas, means that the bubble cycle is in its final innings—not that economic nirvana is about to break loose.” http://davidstockmanscontracorner.com/this-is-crazy-current-leveraged-recap-binge-clone-of-2007-mania/
–Also an interesting post from BofA…”Since 1988 the month of May has consistently seen a rise in Treasury volatility. It is traditionally the second strongest month of the year. With the MOVE index showing signs of basing, this May is likely to remain true to seasonal norms.” I have attached a long term chart of the 2nd month VIX contract which has been “basing” for a year and a half between 14 and 20. Hoping to see a return to SOME volatility this year, in both stocks and bonds… The last time the second month VIX contract exceeded 30 was in Aug/Sept 2011, associated with an 18% pullback in SPX as circled. The next time VIX approached 30 was in May 2012, with just a 10% pull back in VIX. In the past TWO YEARS there has not been a 10% fall in SPX…
–Unrelated but a longer term worrisome trend…7.5 percent of schoolchildren take prescription psych meds. Wow, that’s a big number. www.upi.com/Health_News
