While Q3 earnings season has been better than expected, and the 5-consecutive quarter earnings recession is set to end, the bigger picture reveals something troubling: a secular corporate decline as revenue growth continues to be absent, and sales decline quarter after quarter. This is what shown in the following Citi chart, which also points out that while revenue declines normally trigger a sell-off, this can be avoided if companies return capital to shareholders by increasing payouts, which is precisely what they have been doing. 

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As we reported recently, traditionally increased payouts are financed with credit, and this time - as Barclays showed recently - the amount of new credit going to fund payouts has been higher than ever. 

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And yet, one look at the following chart shows why, at least according to Citi's Matt King, alarm bells should be going off: net leverage has never been higher. In fact, this is the first time we have ever seen a Citi chart which has a frowning fact on it.

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Which brings us to Citi's punchline: the bank admits that while the leverage clock is working, even at this very late hour, the market just doesn't seem to care, and asks "why are neither credit nor equity investors bothered by poor fundamentals?" 

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What explains this unprecedented indifference to fundamentals? The answer is a well-known one: everyone has to scramble for yield, as both foreigners, and in fact "just about everyone", are being crowded into credit... 

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.... which in turn is encouraging corporate releveraging to new all time highs: it is the new debt that is driving valuations, as well as outright indexes, but almost entirely in the US, where every company is doing it (elsewhere not so much). The conclusion: the releveraging is propping up equities... 

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... a releveraging that is only possible thanks to your friendly, neighborhood central bankers. 

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Citi's conclusion: while central banks are desperate to pass the baton over to governments, who in turn can flood the system with fiscal stimulus (i.e., more debt), they are terrified for one reason: "without them markets fall back." 

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And that's why we are stuck: central banks can't go anywhere, which means markets can only go - artificially - higher, because once they start falling, either central banks throw even more liquidity at stocks(already at record highs), or the market goes to hell.