In the bond market, we actually have the Tale of Two Markets. We have the sovereign bond market, which is being held up by historic QE, and the high yield junk bond market, which is crashing. We are seeing record prices for traditional government bonds, which is in many ways completely disconnected from the real economy. With the Chinese selling record amounts of Treasuries, we know that the Fed is purchasing record amounts of government bonds to support the market, which is why these markets have stayed artificially stable.
What is significant about the private bond markets that are not being supported by massive amounts of stimulus is that these prices are plummeting, hence the high yield, aka junk bond markets. The last time we saw prices fall in this market the way we are seeing now, we had the financial crisis of 2008. This is a much more true indication of what the actual economy is experiencing, aside from government intervention.
Just like we saw the subprime mortgages fall apart first, then followed by all other mortgages, we are seeing the same pattern happen in the junk bond arena that will be followed by the rest of the bond market.
Andy Hoffman, of MilesFranklin.com, articulates the extremes that we are seeing in the global economy and talks about the “end game.” Andy is one of the most researched analysts in the investment space, and he articulates what we are seeing in the economy at the moment with such expertise that everyone needs to hear this interview.
This is a must-listen-to interview!