Juggling Dynamite

This video segment was done on May 13, about a week before Ben Bernanke’s May 22 comments sparked a sudden and violent sell off in all asset markets but particularly acute in income oriented sectors like high yield bonds and dividend paying stocks. In the past three weeks much of this initial decline has rebounded, prompting some to fall back into the slumber of complacency with present price risks. But just because one may chose to close their eyes once more, does not mean that outsized risks to capital have gone away. Warning shots have been fired, those who decide not to hear them and continue dashing for trash are likely to get their just desserts over the fullness of this extreme market cycle. Just as they did in 2001-03 and 2007-09.

Wall Street traders are calling them ‘the bonds formerly known as high-yield’. FT markets reporter Stephen Foley goes behind the rally in junk bonds and asks why fixed-income investors are taking on more risk for less reward.

Here is a direct link.

While the Chinese economy continues to slowdown, policymakers in Beijing are faced with the dilemma of how to rebalance an economy that till now has relied heavily on investment.Here is a direct link.

“During the last crisis, we had China, and most of the other developing countries also had high growth rates. But now short term, you cannot expect a stimulus from China, so there’s no one to pull the world out of the next slump.” — Peter Loscher, Siemens CEO, April 2013

Also see Roubini’s latest update on the new normal, much subdued emerging market growth rates now that we are in a post-consumer credit bubble world. Excessive debt drove global growth up together, and now deleveraging and an aging population is driving it down: Trouble in Emerging-Markets Paradise.

Oaktree Capital’s Howard Marks on the importance of understanding and accepting that present conditions present a low return environment: “the market is not an accommodating machine,” it cannot just give us what we want or feel we need to earn on our capital. Insisting on higher returns when prices and conditions are as unfavorable as present, is a recipe for losses. Impatience and willful blindness are well-worn paths to capital evaporation. Buy and holders beware. Here is a direct link.