When the real estate bubble was still floating, there was so much money around that a lot found its way into the real estate sub-prime sector. The same thing is now occurring in the bond sector.
NYT reports:
Regulators and bank executives have cautioned that an accumulation of hard-to-trade, risky bonds by a small group of fund companies could turn a bond market hiccup into a broader rout, in light of how illiquid many of these securities have become.
Junk Bond Investors
Pimco is one of the largest managers of high-yield, or junk, bonds. But recent jitters in financial markets have raised concern about these types of investments, which can be risky and difficult to trade.
Asset manager’s stake of thecompany’s high-yield debtAsset managerDebt issuer1.PimcoAlly Financial37.3%2.PimcoSLM29.93.PimcoA.I.G.26.44.Franklin TempletonFirst Data Corp25.55.Franklin TempletonTenet Healthcare23.46.Franklin TempletonCaesars18.37.PimcoCIT Group18.08.Franklin TempletonCharter13.59.Franklin TempletonSprint12.610.Franklin TempletonChesapeake Energy11.811.Franklin TempletonReynolds Group11.612.Franklin TempletonCommunity Health Systems11.213.PimcoHCA11.114.JPMorgan ChaseDish Network10.115.PimcoMGM9.7
In my view, this is no time to be anywhere in the bond market, but you have to be particularly insane to be holding subprime ("junk") bonds.
There was a bubble in a 87, then a crash. The Fed then printed money, and the bubble grew again.
ReplyDeleteThere was a bubble at the end of the 20th century, then a crash. The Fed then printed money and the bubble grew again
There was a bubble in 2008, then a crash. The Fed came in and printed money and the bubble grew again.
There is a bubble in 2014, and there might soon be a crash.
Why cant the Fed do what is has always done, print money and grow the bubble again?
Now, economics shows there are no free lunches. And yet, major wall street firms make money on the way up and if and when the bubble bursts, they get bailed out by the fed directly with cash or 0% rates or their assets rise again when a new bubble is blown again. It would appear that is a free lunch, no?
In short, in what situation will the Fed ever be prevented from blowing another bubble? We all know boom bust, boom - wash repeat. Whats going to change that?
After this next bust, why would it be unthinkable that the S&P doesn't go to 3,000 or that the average house in the Bay Area would cost 1 million dollars? The boom seems to always return.
First by inflation then by deflation. That's how the bankers come to own everything. It's why most early Americans were against fiat money and central banking. The pattern won't stop until these two systems are ended.
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