Friday, April 16, 2021

Friday’s Fed Funnies

 The role of the Fed, so goes the saying, is to take away the punch bowl when the party gets out of control.  

Not Today’s Fed

However, today’s Fed is the exact opposite - it insists that the bowl is there to stay until everyone and everything is smashed, literally.  Because the Fed and the Treasury are forcing everyone from banks, pension, hedge and private equity funds, all the way to froth-in-the mouth individual speculators to accept as much risk as possible in order to achieve small and rapidly diminishing returns.  The yield spread between junk and Treasury bonds just hit an all time low yesterday at just 2.59% - chart below.  

Imagine that: an income-oriented investor is now forced to accept a very significant risk of losing all of his money to default to make a measly 2.59% more than the safest AAA Treasury. Given that the historical average default rate for high yield bonds is 4.5-5.0%, how rational is that?  


Yield Spread Between Junk And Treasury Bonds Hits All Time Low

And that, among many other signs of excess, may soon lead to a rather unpleasant future, as the next cartoon “predicts” 😂 Have a great weekend 



13 comments:

  1. Hi Hell,

    To respond to your comment about climate change..., let me add it to our model. I will take the Chinese perspective (as I am sure everyone is familiar with the western one).

    A good estimate is Shanghai will be underwater by 2050. Disaster for China. One way will be to work with the rest of the world, reduce emissions yada-yada-yada... hurrah...

    What the West does not understand is there is another way.... what if China gets so big that Shanghai is inconsequential.... that works too.... Be the last man standing on the hill....

    By current economic models that is impossible.... it can't be done.... but listen... nearly the entire Chinese leadership (everyone from middle management and up) has built their career on impossible odds where the price of failure is utter ruin. To our guys, 3% odds of survival are good odds.

    It requires some lateral thinking but I think I can see a road for China to win... and if I can, you can bet those in power can too. Remember, you are dealing with guys who have repeatedly put their lives on the line for horrifying odds.

    As Hell puts it... chemical reactor goes boom!!!!

    ReplyDelete
  2. Oh, I believe China is definitely the next “global empire” - after all, it was also the first one, so it has experience in the matter. Given its history, however, it won’t be fun ... by comparison to Pax Americana, anyway, or even Rule Britannia. I’m afraid it will be more like Belgian Africa.... 😱

    ReplyDelete
    Replies
    1. Yup, just ask the Uighurs :( Many people forget that China is a totalitarian State.

      Delete
  3. I dunno whether it will work... but what I can almost guarantee is it will make a mess...

    at least we won't die of boredom. =)

    ReplyDelete
  4. In other news regarding the "everything rally", Dogecoin is through the roof! Now at >37 cents, up from .0085 cents last year... Up >43 times, sheesh!

    ReplyDelete
    Replies
    1. *Up from .0085 this year! Up >43 times since the start of the year Lol

      Delete
    2. It was actually .004 at the end of 2020 and yesterday went over 0.40.... up 100x... it’s nuts out there.

      I can’t believe that the Fed is not concerned... they know they must do something to protect the economy from this MOAB (Mother Of All Bubbles and also very aptly Massive Ordnance Air Burst), but they are stuck like a deer staring at the oncoming truck lights. Very, very foolish...

      Delete
  5. Hi camabron.... now the important question is... are you buying? =)

    ReplyDelete
    Replies
    1. Lol, exactly akoc! Thought about it at around 5 cents, didn't have the guts Lol

      Delete
  6. Off the top of my head... if you are prepared to hold and the premiums as your place are not too high... I would buy some platinum....

    Dun shoot me if it goes wrong. =)

    ReplyDelete
  7. hmmm... was thinking abt camabron's question about what to buy...

    actually, I suspect the answer is to invest in non-financial assets... friends, family, personal skills... no one can take that from you...

    real old fashioned answer eh. =)

    ReplyDelete