Wednesday, October 13, 2010

Fed Causing Another Boom

I'm back from a great vacation in Paris, and will now be posting regularly as I get caught up. Here's the first item that caught my attention, it's another little piece of evidence for why I think there will be some forthcoming opportunities for short-sellers like me.
The market for high-yield securities, as junk bonds are more politely known in the business, is booming as never before. And Mr. Casey, one of today’s junk-bond kings, is in the midst of a run unlike anything Mr. Milken saw from his X-shaped trading desk in Beverly Hills.

Like many blue-chip corporations, companies with less-than-sterling credit are rushing to sell bonds and take advantage of low interest rates. In the first nine months of this year, a record-breaking $275 billion of junk bonds have been issued worldwide, up from $163 billion during the period last year, according to the financial data provider Dealogic, a research company.

“Other than 1988 at Drexel, this is the best time I’ve ever seen, and it’s getting better,” said Mr. Casey, who worked at Drexel Burnham Lambert with Mr. Milken and now runs the junk-bond business at JPMorgan Chase. “In high-yield, it’s undeniable that these are the best years that anyone has seen in their career.”
Of course this is only possible because the Fed is pumping money into the system at a crazy rate, depressing yields and making otherwise marginal firms look like viable investments. We all know how that ends, though the trick of course is in the timing.

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