Bubble Bursting Order
When will the stock market bubble burst?
I don’t know, nor does anyone else. But I suspect the junk bond market is likely to go first.
Bloomberg reports U.S. Junk Bond Yields Hit Record Low as Vaccine Hope Fuels Rally
The average yield for the Bloomberg Barclays U.S. corporate high yield index plummeted to 4.56%, sinking below the previous record of 4.83% set in June 2014. The 45 basis point decline from Friday’s close was the steepest fall since April 9, when the Federal Reserve expanded its corporate bond purchases to include some junk debt.
Investors are still pouring money back into retail funds that buy junk-rated debt with an estimated inflow of $3.23 billion by Friday’s close, JPMorgan Chase & Co. analysts wrote in a note, citing Refinitiv Lipper. The cash influx was led by HYG, the biggest high yield exchange-traded fund, with net incoming cash of almost $1.9 billion. JNK, the second biggest ETF, raked in $511 million.
Observation
Russell 2000 +5.5%. NDX -0.4%. Weird short-squeezy day through upper bands at record valuations. Vaccine news is hopeful, but long-term cash flows haven’t suddenly jumped beyond where they were pre-SARS-CoV-2. This is easily the worst passive investment menu in U.S. history. pic.twitter.com/keP7ZpKBZE
— John P. Hussman, Ph.D. (@hussmanjp) November 9, 2020
Vaccine news is hopeful, but long-term cash flows haven’t suddenly jumped beyond where they were pre-SARS-CoV-2. This is easily the worst passive investment menu in U.S. history.
Reminder
To all those celebrating, just a reminder that confidence and mask use are inversely correlated.
Until the vaccine arrives, please fight those festive feelings.
Wear your mask.
— Peter Atwater (@Peter_Atwater) November 9, 2020
Mish
I have a little of my mad money invested in junk bonds for the last few years. Despite the bubble and the relatively high yields I have not made much.
wonder why corporate and not cmbs or clo’s? a very convincing case coul be made for cmbs and clo’s may be a more convincing one
Last time I took a nibble of SJB, three days later Powell announced a junk buying program.
Without Another Massive Federal Stimulus, State and Local Governments Will Face Brutal Austerity link to jacobinmag.com
‘four more years of austerity’ Really ? The amount of money thrown down the drain since 2001 is astronomical, beyond human comprehension; It started with Bush, Obama doubled the national debt and Trump exacerbated a already dire situation, beyond proportion ! What more can you expect ?
Austerity is another word for deflation. It won’t happen. The Fed will start dropping money directly to citizens before it happens.
Someone believes you can spend your way to prosperity.
D614G mutation now the dominant variant in the global COVID-19 pandemic
someone posted this but the spam filter ate it. I was out all Tuesday and just caught it.
Out all day and dead tired.
Hiked the narrows today in Zion.
Nothing like hiking in ice water (literally – for those who understand the narrows hike) Had a wet suit on.
7:00 AM to 6:00PM
Posts were scheduled
Nice! That is a great hike (wade). I don’t even live in the US and I’ve done that.
I hope you enjoyed it! 🙂
Zion almost makes be believe in a god. Hope you did Angel’s Landing too.
That graph on junk interest rates is a real SHOCKER.
Maybe…if we non socialist (but constantly called “socialist” worky folk Americans are really REALLY REALLY lucky…
Russia and Socialist Venezuela will “liberate” us American worky folks by invading Imperial Rome…err…I meant Washington…and the Socialist Libertarian Soviet Republic of the United Soviet Socialist of the Libertarian Socialist Federal Reserve Subsidies for the ULTRA ULTRA ULTRA…SUPER DUPER SUPER ULTRA ULTRA RICH friends of Jeronimo Powell.
The Fed will eat all the – – – – , don’t worry.
German stock market rode the Weimar wave up, too.
Devastatingly on-point metaphor, DD. I applaud your insight.
Everything financial is a derivative of cash flow.
Cash flow isn’t coming back soon in a whole slew of businesses and sectors.
This is why so much money is flooding into tax free instruments.
I really have to wonder how the economy is actually doing when I cant buy anything that I want because nothing is in stock.
I mean I could buy them, but I’m not willing to pay a scalper.
Its very odd right now.
Complete irrational exuberance.
There’s no such thing as risk, according to interest rates… until there is.
So…..will the Fed save shitty corporate paper? I’d guess the answer to that is “yes!”.
The Powell Put. Bet against the FED at your own peril.
I hope not — actual yields that reflect some risk would be nice…
They should be made to sell off any shares in their possession 1st.
The Fed…That’s also the only answer I can come up with is they’ll buy it all at what 0-2% interest and the buyers now will get paid biggly. That will end Price discovery if it wasn’t dead already.. sad–
Ackman agrees
Was not Mr. Ackman a large loser in the Herbalife debacle and the Valeant disaster? Did not Pershing Square lose many of its hedge fund investors. He has been wrong before, but if he makes a lot of bets some pay off. Where is the proof? Just another useless hedge fund daddy. If they all disappeared tomorrow, the economy would be unaffected.
You can’t tell here in SoCal…. freeway is jammed as ever. People are wearing masks, but they are definitely out and about, and cramming themselves into outdoor restaurant spaces.
Bah, that was meant to be a reply to Realist.
What’s the latest on plastic straw hysteria out there?
Plastic straws are sooooo 2018
I don’t see it until the fed tightens or treasury yields rise
Yup, credit spreads came in bigly yesterday. Risk on in a big way. Wouldn’t be surprised to see melt up talk play out. For anyone interested, I built a credit spread tool here at http://www.creditspreadalert.com. only cause the crazy stuff hasn’t happened yet
That’s an interesting tool thanks. Are you aware of any funds or ETFs that could be used as a credit spread hedge.
Yes, “pay-whatever” trend followers have compressed junk spread to nosebleed levels that have no allowance for inevitably rising default rates. I.e. oil shs spike and flail, but at the end of the day they are a long way from most shale producers’ requisite financing cost needs.
Oil is/will be dead.