It’s Official: Party Now, Apocalypse Later | Wolf Street.
The signs are everywhere, after years of central-bank collusion to douse the world with free money: historically low yields even on the riskiest cov-lite junk bonds; corporate profit margins at the upper extreme of the range; record valuations of stocks and other assets…. Heck, even startups: median Series A valuations – the first major VC money after seed money – have gone berserk and are now higher in inflation-adjusted terms than the median Series B valuations were 10 years ago!
And all this in a historically crummy global economy.
Valuations are going to revert to the mean. They always do. And when they do, they’ll overshoot in the process. The business cycle still exists. The great unwind will happen in an environment when nearly everything is overvalued. But those who have dared to stamp a near-term date on that event have gotten hammered by reality. Now, prudent wiggle room is getting built into the scenarios.
Junk bonds are enjoying the most extraordinary bubble ever, as investors – particularly bond funds – are desperate to get some yield in a world where central banks have moved heaven and earth to expunge yield. They’re stretching and reaching for it, and that has created demand that has driven down the very yield they’re so desperately reaching for. Their justification: junk-bond default rates hover near historic lows of about 2%.
…click on the above link to read the rest of the article…
