A friend of mine and former fund manager has recently launched a blog, called LarryLarry, where he intends to write musings on the markets and finance, amongst other things. I greatly respect his thought process and I intend to republish some of his work going forward. This will serve as a great compliment to Liberty Blitzkrieg considering I no longer focus my attention on financial markets. So without further ado…
Read The Fine Print To Find The Bubble
by LarryLarry
Here are some snippets from the prospectus for the “Investment Grade Bond Fund” at one of the largest mutual fund complexes and buyers of credit in the country:
The Fund may invest up to 20% of its net assets (plus any borrowings for investment purposes) in any combination of non-investment grade instruments (commonly known as “high yield” or “junk” bonds)…… The Fund may invest in securities rated C and above or determined by the management team to be of comparable quality.
Who would have ever thought a vehicle marketed as investment grade could have up to 20% of its assets in junk? Probably not many people that own these funds.
There is a bubble in higher-risk credit. It is being missed by many because the wrong qualifications for what makes a bubble are being used. When there is debate about bubbles, it almost always centers on the price of an asset category. There is often no mention of the volume of assets in that category trading at that price.
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