One of the most catastrophic things central banks have done in the post financial crisis period is destroy financial markets. Investors are no longer investors, they’re merely helpless rats running around the lunatic central planning maze desperately attempting to survive by front running the latest round of central bank purchases.
While actual macroeconomic and corporate fundamentals do still exert influence on financial asset prices from time to time, the far bigger driver of performance over the past several years is central bank policy.
– From April’s post: The ECB’s Insane Monetary Policy is Creating a Rush Into Derivatives
If the following headline from a Bloomberg article published today doesn’t give you the chills, you aren’t paying attention.
Here are a few excerpts from the article:
Central banks have pushed bond yields to record lows, which has nudged investors into riskier securities in search of higher rates. Meanwhile, central bank stimulus has caused credit markets to rally, thus attracting inflows to the sector, meaning investors have more money to put to work amid ever-diminishing yields.
That’s the takeaway from a Bank of America Merrill Lynch’s survey of 50 investors in European credit. Their biggest fear is that central banks are creating bubbles.
Even so, the pressure to deliver returns even with rock-bottom yields is encouraging risk taking, either by buying subordinated paper which ranks lower down the payment hierarchy, switching to U.S. dollar-denominated assets, or longer-dated debt.
Investors in investment-grade notes are now overweight bonds with maturities of 10 years or more for the first time ever in Bank of America’s survey.
When the bond bubble bursts, it’s going to be a financial extinction level event.
For related articles, see:
The ECB’s Insane Monetary Policy is Creating a Rush Into Derivatives
Japan’s Bond Market is One Gigantic Joke – “No One Judges Corporate Credit Risks Seriously Anymore”
Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street
In Liberty,
Michael Krieger
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Private Equity ‘s Latest Con: Using Fund-Level Borrowing to Juice Reported Returns While Increasing Investor, and Even Systemic, Risk
Posted on August 11, 2016 by Yves Smith
For the last couple of years, we’ve been monitoring a troubling development in private equity, the use of “subscription line financing”. This innocuous-sounding term is for a credit line, offered by a bank, to allow general partners to borrow at the level of the investment fund. This is in addition to the considerable borrowing that already occurs in private equity, at the portfolio company level, where 70% of the purchase price typically comes from lenders.
This practice, which even major players like Bain Capital decry as dangerous, appears to have gone mainstream.
http://www.nakedcapitalism.com/2016/08/private-equity-s-latest-con-using-fund-level-borrowing-to-juice-reported-returns-while-increasing-investor-and-even-systemic-risk.html