Guest Post: Reaching For Yield And Clubbing Baby Seals

Tyler Durden's picture

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Piranhanoia's picture

There is a huge disconnect for "investors".  The people they purchase if from are now just like doctors and lawyers.  They only "practice" their craft. They are not liable, there is no guarantee of success, you pay either way, and there are limits to what you can do when they are sponsored by the government.

As investors remember you are dealing with bookies that also attempt to advise. The definition of investor will change in the lexicon before long. I have a few guesses as to the new synonyms.  They aren't complimentary.

Djirk's picture

Any you punx remember rates in the double digits? Could happen again.

Now that is yield bitchez

kevinearick's picture

God’s Law:  The Eye in the Sky

The Internet is a symptom, an outcome of integral thinking. The most frequent mistake kids make, coming out of the derivatives box, is not casting aside all the bred-in false assumptions. Wealth is not a function of some great idea or plan, although they can be useful to get a start. Wealth is a function of exploration at the event horizon, trimming the sail, in anticipation of that which others cannot foretell. It’s like coming out of a life in the cave and training your eyes to filter the sun in a way that reveals its object. Most employ that gift to take moles from cave to cave.

Capitalism, like all isms, defines profit as the stronger party in a contract taking everything possible, while giving as little as possible. Everything after that is misdirection, to enslave children from birth, to the process. God’s law is the opposite. Give everything you can to the kids, and expect nothing in return, to distill an intelligent feedback loop, to the benefit of all, Democracy.

The church, and every other form of government, headed by Caesar, seeks to GRANT control, false power, to the weaker party, usually the female, due to physical limitations, but watch out. The Old Lady’s job is to coddle the children AFTER the old man kicks them between the shoulder blades, off a hill, specifically built for the occasion.

Caesar is extremely reluctant to f*** with the old man directly, because the old man is eventually going to drop the entire enterprise system right over the cliff. That’s History, the limit of what Caesar really knows. What the old man is anticipating is that the kids will have their bridge, the strait, ready to go, which appears to be an X on solid ground, because the inverted pyramid appears to have withstood the test of time. Relativity, time, is what you make of it.

You will notice that there is nothing in the standard marriage contract about government. It is a contract between you, your spouse, and God (glasses), to raise God’s children under the example of accepting social responsibility in return for the privilege of individual freedom, in a feedback loop. All powers not specifically granted to government by the people… Children are aliens, not stupid. Only Caesar seeks to breed stupidity, to the end of control, and the difference in participation is not difficult to distinguish.

Intelligent kids, by nature, are integral critters, and they will creep out to the edge of the cliff every time you turn your back. The old man waits until they get to the edge, thinking they have fooled him, when he gives them a swift kick in the back. When they are children, the cliff is a bank, with relativity, gravity, doing all the work. Eventually, the intelligent kids build a bridge for the occasion, which the old man “can’t” see. Those kids graduate. In Caesar’s world, the old man’s behavior is cruel and unusual behavior, and outlawed accordingly.

You have been given an eye in the sky, above Caesar, in anticipation of this occasion, a demographic crash. How you employ it is up to you. It’s a tool. Caesar will seek to turn it into a cave as quickly as possible, by all means. Encourage children to be independent from birth, in a small business built for the occasion, and everything else will take care of itself.

If you think you can do a better job than the old man, go out in the real world and do it. Don’t make some p**** remark on the Internet while you’re standing on an X built for the occasion. A dead body in a pool for 3 days … There is no lack of work. There is only a relative lack of parents, capable and willing to do the job in the face of Caesar’s tsunami. Architects travel in both directions, simultaneously, at all times, building the looking glass, which may be moved at will.

The coddling phase is over.

Happy Independence Day

ISEEIT's picture

Well said. Although would it not be more eloquent to simply sum it up with:

Atrophy; meet entropy?

We have built our tower of babel. This was not for men to do. We are spiritual beings and will only be safe in spiritual persuits. Godliness is for God. I can no more be a Sun than can a Sun be merely me.


chalcedonite's picture

"We are spiritual beings and will only be safe in spiritual persuits."

We are also physical beings that need air and water....  And there are many unsafe "spiritual persuits".

blindman's picture

i'm sure you are correct and accurate in your statement.
i have recently been considering the mind mining business ubiquitous.
the mechanisms of neuro-imprinted concept structure via symbol recognition
as it occupies attention / time. control of attention and therefore the
physical being and energy of populations. referring here to markets and
current events and the control of the past and future thru control of the
present mind set. so media, education, government , art etc.. (symbols).
now. we have the dissolution of attention, concentration via chaotic infusion
of information. global perspective injections, moshing time and perspectives.
the technology has out run the human spirit. the mind laid waste in the face of
confusion and complexity and moshed time/ perspective/ frames. this is the
beauty of the internet. virtual freedom. the freedom of a parasite. ongoing
but, friends and family, here is something else.
the individual is being rendered incompetent by the utilities emerged
to serve "them". the human spirit subverted to serve the mindless elements
of the system of fraudulence, for "fun and profit". how low can you go for
greater yield.
it would be funny if
it weren't true.
root problems result in
organic and structural collapse.
is good.
( the dynamics of mind control and mining are ubiquitous and interesting
but too depressing and demanding to adequately articulate here. i'd say,
just, that it is like multi level chess and the pieces are narratives, in the media,
and peoples and energies, brought to light in timely fashion to distract attention
from the truth that is mixed in. so it becomes a question of accent, punctuation
and distraction. balance? ) the unknown that is right there in the back of your
mind, on the tip of your tongue, but you can't really recall.
out on a limb here but i would say this is why
"man" plays the banjo.

Downtoolong's picture

I’ve always been a bit perplexed by the price behavior of high yield bonds, particularly the high yield bond fund I own shares in. The share price seems to correlate better with equity indices than they do with interest rates and less risky bonds. Interestingly, they have been the highest total yielding asset class I own since they hit their relative bottom in December 2008, by a margin of about 25%, which is precisely why I am in the process of gradually liquidating my position in them now.  

Better me first than you Ben Bernanke.


Caviar Emptor's picture

It's not "Risk on/Risk off" in this economy. 

It's "Ponzi lives!/Ponzi dies!" 

Dollar Bill Hiccup's picture

Yes, but with the subtle turn, "The Ponzi is Dead! Long Live the Ponzi!"

This is not a logic to be taken lightly.

FranSix's picture

Negative interest rates.  Ahem.

jm's picture

I would like informed feedback to test these views.

There is no doubt that liqudity is more of an issue in this space.  This isn't radical or new... fixed income has always been like an OTC market and it doesn't work like equities.  So really "bidless" means something.  If you manage funding and liquidity, the "tails" are where you can make a killing in fixed income.

Greece has to roll the majority of their debt over the next three years, so these flare-ups, disclosures of Hellenic cheating on austerity terms, and countries that are on the stick for this stuff will vote out whole blocks of politicians responsible, all putting  this situation in jeopardy over and over again.  Don't see much good there, but it has done an amazing job at driving yield spreads in other, better European credits like Spain.    

In the muni space, if Meredith Whitney can ride a trick pony into a muni sell-off again, well that is one fool I want to see more of on TV. 

All these CDS indices, with due respect to Citadel, gloss over too many details about the intrinsics to which they are connected.  There are many distinct debt securities that can be delivered into CDS settlement.  So CDS often reflects credit risk in broad brushstrokes and neglects the details of a specific CUSIP. 

CDS can wag the dog a little in subprime because the non-agency market is busted and has yet to really function since 2008.  As a result of the Fed slowing down their unwind, ABX players hit the brkaes on Friday.  I'm guessing it will be a wild summer but there are some phenomenal opportunities here. 

Chinese interbank markets are signalling a hard landing.  A crashing China will kick IG in the balls.  This isn't reflected in spreads at all.

HY is going to be a pain trade.  HY has massive issuance in the pipeline in 2012.  Weakness in fundamentals as the slowing US economy gets discounted.  The end of QE2 will drive its equity character down.  Weakness in IG will drive its bond character down.    

Emerging sovereigns?  This index thinking is too cookie-cutter in my view.  You really have to account for the individual  context of sovereigns.  Everybody loves Latin America and it is easy to see why.  No value in Asia at all.  Emerging europe has had its run up. 

Bank debt in MENA looks pretty cheap.


oogs66's picture

A lot to think about late on a Friday :) but as always some great points and great ideas

TimmyM's picture

jm both you and Peter neglect to talk about the elephant in the room.
Peter ignores the cause of yield reaching as FED policy. His yield reaching dynamic is dominated by moral hazard produced by the arrogant price fixing of overnight money. A free market in overnight money cures the hazard of artificial carry trading and curve intermediation.
Similarly, you look away from the risk premia compression created by ZIRP and QE-x. The market instability you both observe is fostered by excess liquidity. This liquidity introduces unnatural elements into natural pricing phenomenon.

oogs66's picture

yes, the fed has pushed people into reaching for yield and i can't wait to see the excuses when this causes another big round of loss for bond investors.  i'm sure ben will blame it on someone else, but it is his policy that is skewing all investment decsions

jm's picture

Totally right.

I've gotten away from hedging risk exposure, but I do hedge funding risk with eurodollar futures. 

snowball777's picture

Agreed on every count save the usefulness of ABX or MENA investment...I wouldn't touch that crap with a bargepole.

China is doing a black swan dive into an empty dark pool; we're all at the mercy of their rickety internal debt structure.

I think HY and IG may get more love than you think, but only for a dearth of viable alternatives in the bond space.

jm's picture

I respect your view.

Since the market is so busted, there's big risk in subprime.  Good or evil, I'm in.  Not much leverage in the position.

MENA banks look pretty good to me:  rising oil prices/stagflation, sovereigns with petrodollars can/will backstop, cheap valuation barring wholesale revolution.