{"id":27895,"date":"2017-11-12T20:26:31","date_gmt":"2017-11-13T01:26:31","guid":{"rendered":"http:\/\/olduvai.ca\/?p=27895"},"modified":"2017-11-12T20:26:31","modified_gmt":"2017-11-13T01:26:31","slug":"mind-the-junk-this-aint-your-grandfathers-capitalism","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=27895","title":{"rendered":"Mind the Junk—-This Ain’t Your Grandfather’s Capitalism"},"content":{"rendered":"

Mind the Junk—-This Ain’t Your Grandfather’s Capitalism<\/a><\/h3>\n
\n

The financial system is loaded with anomalies, deformations and mispricings—-outcomes which would never occur on an honest free market. For example, the junk bond yield at just 2%<\/strong><\/em>\u00a0in Europe is now\u00a0below that of\u00a0the “risk-free” US treasury bond owing\u00a0solely to the depredations of the ECB.<\/p>\n

Indeed, madman Draghi has purchased $2.6 trillion<\/strong> <\/em>of securities since launching QE in March 2015, and during the interim has\u00a0actually bought more government debt than was issued by all\u00a0the socialist governments of the EU-19 combined!<\/p>\n

\"EuroOutrunning Europe’s deficit-addicted welfare states is quite a feat in itself,\u00a0but that wasn’t the half of it.\u00a0The ECB’s printing press became so\u00a0parched for\u00a0government debt\u00a0to buy that it has ended up\u00a0owning more than $120 billion<\/strong> <\/em>of corporate bonds. In some recent cases, the ECB has actually taking down 20%<\/strong><\/em> or more of new corporate issues—an action that surely leaves the fastidious\u00a0founders of its Bundesbank prodecessor turning in their graves.<\/p>\n

In turn,\u00a0the ECB’s\u00a0Big Fat Thumb on the investment grade scale stampeded\u00a0fund managers into the junk market in quest of yield, especially for BB rated paper which makes up 75% of the European high yield market. So doing, these\u00a0return hungry managers have\u00a0crushed the\u00a0the yield on the Merrill Lynch junk bond index, driving it down from 6.4% in<\/strong> <\/em>early 2106 to an incredible 2.002%<\/strong><\/em>\u00a0last week.<\/p>\n

That is to say, leveraged speculators in European junk have made 100% plus returns<\/strong> <\/em>over the last 20 months on dodgy paper that should be yielding double or triple its current rate.<\/p>\n

In fact, the current lunatic euro-trash\u00a0yield is completely off the historical charts. Euro-junk rarely yielded under 5%<\/strong><\/em> in the past, and\u00a0had spiked to upwards of 10%<\/strong><\/em> at the time of\u00a0Draghi’s “whatever it takes” ukase, which, in turn, was modest compared to the 25%<\/strong> blow-0ff high during the depths of the financial crisis.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Mind the Junk—-This Ain’t Your Grandfather’s Capitalism The financial system is loaded with anomalies, deformations and mispricings—-outcomes which would never occur on an honest free market. For example, the junk bond yield at just 2%\u00a0in Europe is now\u00a0below that of\u00a0the “risk-free” US treasury bond owing\u00a0solely to the depredations of the ECB. Indeed, madman Draghi has […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[111,2120,233,281,282,1297,661,662,2721],"class_list":["post-27895","post","type-post","status-publish","format-standard","hentry","category-economics","tag-capitalism","tag-david-stockman","tag-ecb","tag-europe","tag-european-central-bank","tag-junk-bonds","tag-qe","tag-quantitative-easing","tag-us-treasuries"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=27895"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27895\/revisions"}],"predecessor-version":[{"id":27896,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27895\/revisions\/27896"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=27895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=27895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=27895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}