This Tweet by John Hussman caught my eye.
"When I look at CCC’s rallying so hard -- even if the default rates are at the low end of historical average -- your chances of making money over the long run aren’t great. You’d be lucky to break even."
CCC rated junk is one step above "in default with little prospect for recovery".
Fear of Default?
I see no evidence of fear of default. The idea is laughable.
Bond Market Details
Fear of inflation? Really?
- The Guardian, May 15: The fear that haunts markets – is inflation coming back?
- CNBC, May 10: Americans fear highest inflation in nearly a decade
- CNBC, May 13: Prices skyrocket amid inflation fears.
- Forbes, May 19: Cryptocurrency Weakness, Inflation Fears, Slowing Momentum Gang Up On Wall Street
- New York Times, March 21: Inflation Fear Lurks
- Wall Street Journal, May 5: Everything Screams Inflation
S&P 500 Volatility Index
Expectations vs Fear
On May 10, the New York Fed reported Inflation Expectations Increase in the Short-Term, Remain Stable in the Medium-Term
The Federal Reserve Bank of New York's Center for Microeconomic Data released the April 2021 Survey of Consumer Expectations, which shows that median inflation expectations increased at the short-term horizon but remained unchanged at the medium-term horizon.
Median year-ahead inflation expectations increased to 3.4% in April from 3.2% in March, while remaining unchanged at 3.1% at the three-year horizon. The one-year ahead measure is now at its highest level since September 2013.
Consumers think higher inflation is coming.
But where is the fear?
It does not show up in bond yields or the VIX. The stories are all made up.
I do believe fear is on the horizon. But it is not fear of inflation. Rather it is fear of paying too much for junk bonds, too much for stocks, and too much for cryptos, most of latter will be worthless.
Writers, no doubt, will blame it on fear of inflation.
That's the excuse of the day instead of blaming the Fed with help from Congress for another huge set of bubbles.
Fed Sponsored Speculation
The real interest rate is -4.09%. Adjusted for housing prices, the real interest rate is even more negative.
Fear of bubbles ought to be the fear.
It's coming! And when it arrives, fear of inflation will be dead last on the fear list.