( ^ from the Preview) His parallel of corporate debt being the new mortgage debt is absolutely fascinating. 'Huge if true'. There have been discussions on here before about similar hypotheses, but I feel like this summarizes a bunch of those ideas together. So if I understand it correctly, regular stocks and bonds are no longer yielding enough to keep all our yield-based financial products afloat (e.g. pensions), which has pushed investors into riskier and riskier territory, as that final graph shows and as startup culture (and even crypto?) confirms. If the only things that have a return on investments are Greater Fool Theory-esque things that have little to no real value, it is increasingly likely that we're talking about a row of dominoes easily toppled by one and that I also think there is an interaction effect between corporate debts/spurious VCs, student loan debt/spurious degrees and the erosion of the middle class that is entirely sidelined here. But I don't know enough about any one of those to connect those dots.This time, I believe the collapse will go deeper and happen faster because Dodd-Frank has decimated market makers’ ability to cushion it. Likewise, the Fed will be reluctant to bail out ridiculously priced bonds like WeWork and its many covenant-lite, unsecured brethren
We’re seeing classic end-of-cycle behavior: throw caution to the wind and plunge capital into the market’s riskiest corners. This artificially-induced buying is propping up companies that would otherwise succumb to the fundamental forces arrayed against them.
[...] investors have essentially gone insane.
Had brunch with some friends yesterday. She does benefits for Carnival/Princess Cruises, used to do them for Schwab. He did benefits for Weyerhauser and then Associated Grocers. I was discussing the rise of questionable debt. "So most of these plans were designed to work at a 6% return," I said. "7 to 12%, depending on how optimistic the fund was," she said. "And most of them have been lucky to make 3% since 2000," I said. "3.6% if they were all in cash in 2008. Otherwise 1.7%," she said. "And the Chicago Fed telegaphed last month that we'll be lucky to make 3% for the next ten years," I said. "Well, that I hadn't heard," he said. So. These are the people who, while not directly responsible for the investments, are directly responsible for using the money that comes from those investments. And their figures were more dire than mine. It's one thing if you're trying to make money because you're greedy. It's another thing if you're trying to make money because you fuck over tens of thousands of current and former employees if you can't. Never mind avarice; the bond market is driven largely by obligations and financial structures that collapse if yields aren't made. And funds have no choice when an investment goes south: if the fund has within its bylaws the requirement that all investment instruments must be Moody's AA or above, as soon as one of them drops to B they have to sell it. They are compelled by law to sell it. No one is compelled by law to buy it. So they sell it at a steep loss and now they have to invest in something else. And it must be Moody's AA or above. And they were likely not the only fund in that instrument so they're not the only ones dumping garbage and trying to buy sterling. Repeat times every local, municipal, national, corporate, private and educational equity firm. Mauldin is pretty good about completely ignoring that which does not have his attention at the moment.I also think there is an interaction effect between corporate debts/spurious VCs, student loan debt/spurious degrees and the erosion of the middle class that is entirely sidelined here.