Tuesday, March 22, 2011

Dow 20,000?

Question: What created the Nasdaq Bubble?
Answer: Unfettered, cheap and conscience free capital + creative accounting.  

Question: What created the Housing Bubble?
Answer: Unfettered, cheap and conscience free capital + creative accounting. 

Question: What's creating the next bubble?

Answer: Unfettered, cheap and conscience free capital + creative accounting.


When I think about the Big Picture and forming guesstimates of the future - I like to look at the proportions of the contributing forces. The chart below provides an excellent example contrasting the two most recent recessions and reflations and their effects to the low-grade corporate credit markets.  






"HYV - The fund invests in the fixed income securities of the United States. It invests in bonds of companies operating across diversified sectors. The fund invests in high yield bonds that are rated in the lower rating categories of the established rating services (Ba or lower by Moody's Investors Service, Inc., or BB or lower by Standard & Poor's Corporation)."
Sure I'm taking the liberty of extrapolating past performance to shape my future expectations. But what has really changed here - except for weakening the accounting standards and increasing the velocity of stimulus by the Fed?  The Fed has really just moved the Credit Bubble from real estate speculation over to the corporate ledger side of business.

Is that a healthier bubble? Probably. Will that put a strong bid under the market going forward over the next few years? Probably. But they are still altering the time continuum and who's to say if they got the memo to wear the bullet proof vests when the Libyans come calling...