"We Track the Financial Collapse For You, so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Safeguard your financial future. Get our crucial, daily updates.

"We Track the Financial Collapse For You,
so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

This Is How Fast It Happens

For a while there, companies deemed to be highly risky were nonetheless able to borrow money for less than 6%. And borrow they did. Frackers, ultra-high-leverage retail chains and various other close-to-the-edge entities slurped up trillions from yield-starved investors who had forgotten about the other side of the risk/return equation.

That this hasn’t worked out so well is not much of a surprise. But the speed with which it has gone bad is still breathtaking. The following chart from Bloomberg illustrates just how fast an illogical market can be brought back to reality:

Junk bond yields Dec 15

Now a growing number of reach-for-yield investors are finding that not only are they down on their bets but they can’t get at their capital. Also from today’s Bloomberg:

Third Avenue Redemption Freeze Sends Chill Through Credit Market

(Bloomberg) – Investors who piled into the riskiest corners of the credit markets during seven years of rock-bottom interest rates are getting a reminder of how hard it can be to cash out.

With outflows from U.S. high-yield bond funds running at the fastest pace in more than a year, Martin Whitman’s Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund on Dec. 9. The firm’s assessment that meeting redemptions would be impossible without resorting to fire sales has put a spotlight on the dangers for junk-bond investors as the Federal Reserve prepares to lift interest rates as soon as next week.

“It’s definitely a dark cloud over the market,” said Anthony Valeri, a strategist at LPL Financial, a Boston-based financial-advisory firm. Investor withdrawals “are driving the high yield market now more than anything. Institutions — hedge funds and mutual funds — are being forced to get out and unfortunately that’s pressuring the entire market.”

Growing tumult in credit markets comes eight years after BNP Paribas SA helped spark a global financial crisis by freezing withdrawals from three investment funds because it couldn’t “fairly” value their mortgage holdings.

Debt-laden commodity producers have been some of the hardest hit parts of the junk-bond market this year as prices for everything from oil to steel tumbled on signs of oversupply and weak demand from China. The slump is burning investors who relied on lower-rated bonds to boost returns as the Fed kept its benchmark interest rate near zero since 2008.

Many funds have also taken on greater liquidity risk in their hunt for higher yields. The Third Avenue Focused Credit Fund in many instances had purchased 10 percent or more of smaller bond offerings. Such large positions in infrequently-traded debt can make it difficult to exit. That’s particularly been the case in recent months as the aversion to commodities-industry borrowers spread to almost any debt that smacked of risk.

The fund, which had $3.5 billion in assets as recently as July 2014, suffered almost $1 billion in redemptions this year through November. Instead of meeting future withdrawals requests with cash, Third Avenue will redeem the fund’s shares for interests in a trust that will hold the focused credit fund’s assets — primarily high yield bonds and corporate bank loans — and liquidate them over time.

“We’re looking at some real carnage in the junk-bond market,” Gundlach, whose $51.3 billion DoubleLine Total Return Bond Fund has outperformed 99 percent of peers over the past five years, said during a webcast Tuesday. “This is a little bit disconcerting that we’re talking about raising interest rates with the credit markets in corporate credit absolutely tanking.”

Next up, dividend stocks?
In addition to junk bonds, the hunt for yield has led retirees, pension funds and other formerly conservative investors to pile into high-dividend stocks like energy producers and pipeline operators, on the assumption that not only would those companies provide cash in the near-term but they would increase their payouts over time.

Or not.

Kinder Morgan’s drastic dividend cut may be followed by others

(Bloomberg) – Kinder Morgan Inc.’s decision to slash its dividend may have been the right one for the pipeline operator, but investors should brace for the possibility that other energy infrastructure companies follow in its footsteps.

Kinder Morgan late Tuesday said it will cut its quarterly dividend by 75%, to 12.5 cents from 51 cents, starting in the fourth quarter, a move it had signaled last week. “(Kinder Morgan’s) aggressive dividend cuts will open the door to an entire sector to do the same,” analysts at Tudor Pickering Holt said in a note Wednesday.

Other “midstream” energy companies — those in the business of transporting and storing oil and gas products — with project backlogs will be considering “a similar ‘cut near-term distribution and self-fund’ strategy,” even though that does not mean the model of distributing all cash flow and relying on new capital to fund growth would change permanently, the analysts said.

Shares closed Tuesday at their lowest since the company’s initial public offering in 2011. The stock rose on Wednesday, but that rise barely made a dent on losses of 28% so far this month, and a decline of nearly 60% for the year.

Just as “This time it’s different” are the four most dangerous words in finance, “What’s going to blow up next?” are the six scariest. When once-burned investors and speculators decide they won’t be burned again, markets go risk-off almost instantaneously. Babies get thrown out with the bathwater and it’s 2008 all over again.

13 thoughts on "This Is How Fast It Happens"

  1. I want to kill someone and their’s noone to kill. I’m on my last bit of change due to the
    fear that this site prescribes too. How everyone and everything told me how smart i was to buy my silver at 37.00 and gold at 1800. And how smart all the people i want to kill made out like bandits. My almost 20% commission and filled their pockets and today my silver worth 1/3 of what i have waited 6 damn years just to have enough money to survive after people like this very publication instilled the fear of hell into my falling dollar mind.
    How dare you even have the gaul to speculate on a crashing dollar to bring back what
    has been my financial downfall Do i believe a thing that you and the late Richard russell said was the buying chance of a lifetime? No way in hell. I lost almost all i have and now
    i have to pay for the dream you believe but bares not a spec of reality from the pain i endure every day. Spare me the nonsense and let me know when your dream metals get back to even half of what you swore by your grandmothers name.. to hell with you and your easy to print words. The fed made f ing fools of all of you and money was made by apmex and pawn shops. Users , manipulators and liars. ALL OF YOU!!

    1. You’re angry at the wrong people. Your own government lied and stole from you (and me, and others like us) who were simply trying to protect ourselves. I doubt anyone here (bloggers and commenters alike) could have imagined the extent of which our own government would protect and encourage the banksters, the financial sociopaths, instead of protecting its own citizens from them. We paid (taxes) to the government to protect the 99% from the bullies, not for the government to become THE bully. And the real problem is, it’s getting worse, not better.

    2. You don’t buy life insurance then hope to die. You buy it and hold it hope to never use it. I hope to never have to use my sliver and then give it to my grand kids some day.

  2. Yellon will raise rates one quarter and then more QE. the economy barely exists. both the fed and Obama have destroyed it on purpose I might add………

    1. That’s pretty much how I see it. They could even raise them another 25 basis points after that, not that it makes much difference.

      The federal reserve, during post WW2 recessions, typically lowers rates about 300 basis points to attempt to create a soft landing. This time, the expansion is about over and they haven’t even started the rate rise cycle. We are truly in uncharted waters.

      This is just a wild guess, but I think they want a stronger dollar to keep the rest of the world from imploding. The dollar is still the world’s reserve currency, so they can create more of them at will, at least until the whole house of cards collapses. In the mean time, the USA will be the world’s consumer of last resort.

    1. Yes. From my understanding that’s what happened in 1980 with Volcker who gets credit for being so brave when he was really chasing rates. I could have sworn I heard Turk talking about that but I’m not 100%.

      edit: Good observation.

    2. Yes. In fact it happens all the time. However, this time may be different in that the markets are already so distorted and driven by central bank policies that market interest rates are going up precisely because of the fear/expectation that the Fed will raise them. So, investors are selling out of interest-rate sensitive assets like bonds and dividend stocks ahead of the Fed’s action. You could also say this is an example of the “pricing in” of higher rates.

      I think the Fed will raise rates this month, but under the circumstances I would love to see another capitulation on their part that causes another blood bath as positions are reversed by sycophant investors.

Leave a Reply

Your email address will not be published. Required fields are marked *


Zero Fees Gold IRA

Contact Us

Send Us Your Video Links

Send us a message.
We value your feedback,
questions and advice.



Cut through the clutter and mainstream media noise. Get free, concise dispatches on vital news, videos and opinions. Delivered to Your email inbox daily. You’ll never miss a critical story, guaranteed.

This field is for validation purposes and should be left unchanged.