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Quest for Junk

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December 07, 2009 – Comments (1)

Gold, Oil, Junk Bonds, S&P 500: all are at price levels that overrun their headlights. What the heck is going on here?

1) Carry Trade
This theory says that cheap $$$ at 0% interest are being borrowed and used to buy assets like a crazed shopper with a new credit card, domestic and international.

2) Printing Money Like Mad
The Fed is flooding the financial markets with dollars galore. All this liquidity is raising all boats.

3) Quest for Junk
This is my favorite. Since fixed securities are yielding virtually zero %, investors are grasping at straws for increased annual returns.

All very well and good, but what next? What is likely to happen next (i.e. raising rates mildly), and how will these investments react?

1 Comments – Post Your Own

#1) On December 07, 2009 at 11:54 PM, angusthermopylae (40.11) wrote:

Gee...sounds like a "bubble".

In which case, I believe that the market will continue to ignore the tremors and little bad news until we get another Lehman-like dose of reality...then everyone will go crazy trying to sell their crap....which would be a great time to start digging through the rubble to find the real solid investments.

(Or, alternatively, there will be mini-collapses--drawn out periods where the money starts leaving the junk markets and starts flowing eventually to the solid companies.  On a grand scale, the market will be moving "sideways"--but I think it would hide the fact that a lot of money is shifting around.)

Just my $0.02...

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