2012: The year of the junk bond
Ben Bernanke is starting to get his way. 聽Matt Wirz for The Wall Street Journal that companies with junk credit ratings are bellying up to the debt trough like no other time in history. 聽The first quarter of 2012 will go down as the most active for junk bond issuance since 1980 when Thomson Reuters began keeping track, with 130 companies floating $75 billion in debt offerings.
Investors can鈥檛 get enough of that high-yield stuff, with banks and Treasuries paying just north of zero. 聽聽鈥淭he rally in junk bonds extends an advance that began in early 2009 and can be traced largely to the Federal Reserve鈥檚 policy of keeping benchmark interest rates near zero,鈥� writes Wirz.
鈥淚t鈥檚 the only place I can find any yield whatsoever with a reasonable risk,鈥� Lee Hevner, individual investor and first time junk bond buyer, told Wirz. 聽High-yield corporate borrowers paid an average rate of 7.98% on bonds they have sold this year, according to Thomson Reuters, the lowest since the junk-bond market was created in the 1980s.
The Fed鈥檚 rate stomping even has Wall Street looking at rental homes. 聽Warren Buffett, mastermind of Berkshire Hathaway, Inc. told a CNBC audience he would buy 鈥渁 couple hundred thousand鈥� single-family homes if he could given the high yields on rentals.
The Wall Street Journal鈥檚 Nick Timiraos, Robbie Whelan and Matt Phillips
Fannie Mae is looking to bulk sale 2,500 divided into eight regional pools. 聽The total current market value is $320 million. 聽If the sale goes well, Fannie and Freddie have plenty of inventory to sell. 聽Fannie Mae has 120,000 foreclosed properties. However, the buyers are lining up.
鈥淎 pretty robust cottage industry has developed and is absorbing this at an incredibly fast pace,鈥� Richard Smith, chief executive of Realogy Corp., tells the WSJ.
Bernanke鈥檚 Fed has kept the rate it controls at just above zero for going on four years now. 聽And he has promised continued low, low interest rates until 2014. 聽Jim Grants told the New York branch of the Federal Reserve that holding rates stable is de-stabilizing. 聽While speculators know what to do with cheap money, the uninformed pay the price.
With 11 million underwater homes, the housing market has not come close to clearing the housing boom malinvestment. 聽Companies forced to pay high interest rates are being signaled by the market, not to take on more debt, but instead to de-lever. 聽All cheap refinancing does is mask poor management or a poor-quality product.聽 The Fed鈥檚 pushing of investors to higher risk allows enterprises that should be liquidated to continue wasting capital.
The Fed鈥檚 policy is squashing these market signals. 聽聽We now have malinvestment in malinvestments, making the eventual crash a catastrophic one.
Meanwhile, the average Joe is looking for some divine intervention in the form of winning the聽 Mega Millions lottery with a jackpot of at least $640 million and possibly much more the way people are lining up for tickets.聽 In Katy Texas convenience store manager Salim Turk said lottery ticket sales have been off the charts this week. The store sold more than $1,000 in tickets by 11 a.m. Friday. Sales on Thursday exceeded $3,500 and reached about $2,800聽Wednesday. The typical jackpot only draws about $1,000 in sales a day, he聽said.
More than 1,000 people lined up and to buy Mega Millions tickets at the Primm Valley Lotto Store on the California-Nevada border just south of Las Vegas.
It is unknown how many Mega Millions tickets Ben Bernanke has purchased.
