This definitely adds some perspective on current market conditions.
Flat as your returns.
It is no secret that we at ACC believe there are deep systemic problems in the economy. All the current cronyism, economic obfuscation, over spending, over taxation, government intrusion, and most importantly Keynesian central bank meddling does not bode well for the future. (Though we can and must correct our ways in an historic way.)
Will 2015 be looked upon as the year the “recovery” began to completely stall? Will 2016 be worse than a stall?
Many think that junk bonds now are similar in some respects to the subprime housing debt bulge of a few years ago. (Junk by definition is subprime.) It is possible that the distressed bond market which is seeing challenges currently indicates serious challenges to come in the short term for the economy in general.
Junk bonds are highly exposed to economic trouble (they are distressed debt) and the market is large.
Think of them as a bluff on the economic sea which feels the effects of an approaching storm first in a similar way to how no doc mortgages were the first to be buffeted in 2006/2007.
You might not think you have too much to worry about if junk bonds go kablooey. You’d be wrong.
And remember, this is facilitated fundamentally by our all-wise Federal Reserve. I love those guys.
It’s funny how words and names flash up out of the darkness and suddenly become important. Friday’s was Third Avenue, a mutual fund company whose junk bond fund just blew up. The fear is that there are other bond mines out there. Cashin says that it reminds him of the early part of the financial crisis in 2007.
Here’s an alternative solution to the “radical” one the Obama administration is proposing for Puerto Rico. It is significantly more sane. Not too keen on the “public/private partnerships” though. That’s just code for sanctioned cronyism.
That’s not Uncle Sam’s money he’s giving away. He actually doesn’t have any money. That’s YOUR money.
Watch this. Many states with large union presences, with exorbitant pension obligations for state employees, don’t really see a way out of their situation without cutting pension payouts. No one will say it officially but the promises made many of these people by politicians (who were funded by state employee unions by the way) won’t be honored because they were BS from the very beginning.
It happens. It hasn’t for a while. But it happens.
Still, pretty crazy if you think about it.
It has been getting a bit warm around here. I thought it was just that the air conditioner was getting a little long in the tooth.
Another good one from David Stockman – and now he has a beard! What’s up with all the Wall Street guys wearing beards these days?
Now I know I am getting older. There is quite a lot to be said for having an advisor who at least knows what rising interest rates feel like.
Think of 2008 as a primer. A very difficult and disruptive primer. Nothing’s “fixed.” Markets never really cleared.
Additionally, as is explained below, the now 0% interest rates are almost locked there as the cost of serving US debt by the US government would explode upward with increased (and very likely closer to real market level) rates. That’s a sticky place to be to say the least.
But people will continue blissfully along, until they can’t.
Here’s a good dose of gloom for you. The author is not saying it will happen, but he is arguing that Dow 5000 is not completely crazy. Frankly I’d be for it. If we could carve out all of the central bank fluff created post-2008 and returned to a real live market such a crash would be worth it. (It might not be so great for all those baby boomers who have ridden the Fed induced rally right before retirement however.)
I wouldn’t say that a crash on this scale or a re-institution of real,
German bonds have seen massive inflows during the Greek crisis. Every time Greece got hot more money flowed into Deutschland in a “flight to safety.” This lowered rates. Germany then had cheaper money to play with.
We are beginning to see the Great Experiment, the post 2008 Crash experiment, disintegrate. A crack here. A crack there. A hairline fracture. A fissure. The underpinnings of printed money have always been unsound, but now the edifice appears to be unstable. Will a hard Greek gale bring the thing down, or will winds from somewhere else finally do this fiat superstructure in?
Guess we’ll find out soon enough.