Uh-oh part 2

Looks like the run in high yield stuff may have run into some resistance. Up trend from the Nov lows has been broken.

Kimston

There was a lot of premium taken out of some of the closed end junk bond funds Friday. However, in no way, shape, or form is PHK representative of the junk bond market because of its recent history. First, back in October when due to problems in the ARPS market it became overleverged and had to temporarily suspend its monthly dividends. As a result, it went to a historic discount to its NAV. Next, after getting its leverage back in line and reinstating dividends, it got a big plug in Barron's (by Bill Gross nonetheless) It then went to something like an 80% premuim to its NAV. Even now, after Friday's rout, it is trading at an absurd 64% over its NAV. As a comparison, with but a few exceptions, the majority of closed end junk bond funds are trading at a slight premium to a slight discount to its NAV. If you want to know what is happening in the cash junk bond market you need to look at the open end junk bond funds which always trade at their NAV. Except for a select few, they are but a few cents off their recent highs. What I do is take a composite index of ten junk bond funds - VAGIX, PRHYX, VWEHX, JAHYX, LZHOX, GSHIX, LBHBX, LZHOX, STHYX, and PAXHX. Although I am a bit skeptical, at least at this moment, it shows all is OK in junk bond land. Earlier in January the composite fell between 1% to 1 and 1/2% off its recovery highs but then rebounded and set new recovery highs earlier this past week. What would concern me is if the open end junk funds in aggregate decline 2% to 3% from their highs. The strength in junk bonds may well come to an end sooner than later, especially if corporate defaults spike higher than expected amid an economy that slips ever deeper into the abyss.

Gary...recently sold some more JNK and most of the other HY ETFs in their entirety...hanging on to a shred of PGF but not much left their either. I've moved plenty into FAX and MLPs that emhasize key pipelines. Many are selling for below replacement costs and have no debt maturing for the next few years. It's ETP, EPD, MWE, APL, LINE and CPNO. The play is the increased use of NG over CL because of gov't global warming policies, plentiful NG and non-plentiful CL. I got some great prices on entry and have added to the positions. I want to buy more but will only add to investments (LT positions) on pullbacks in this market. I am still interested in high yield but waiting for a pullback as some are selling for premiums now.

Edited by Cirrus, 16 February 2009 - 12:13 AM.

EW structure wise, the pattern in junk bonds look a lot like wave B.. the sucker rally. I do not say this lightly. I have no position in junk bonds but a wave B in junk bonds, which if this is true, foretells a gigantic dumping of junk bonds like the kind you haven't seen before. And there are a lot of fundamentals that may support it. And it will mark the end of the bear market if it goes to where it would need to go to. Companies will collapse we will have the final cresendo bottom the kind that marks bear market bottoms.. One reason why I think the current rally in junk bonds are wave B is those who are buying it. Data seems to indicate it is individual investors, not institutions, that are driving their prices up. These same individual investors are those that came out of a beating in stocks and decided junk bonds were safer and higher yield. But if you look at underlying structure of how these junk bonds were formulated, you will see similar stupidity as the mortgage market in valuing their risk. I mentioned this many times at the market top.. that those guys selling junk bonds were crooks. Nothing has changed. Those bonds just changed hands to a new tier of morons. The same terms these junk bonds were issued are still there. Its criminal. You should look it up.

I do not say this lightly. I have no position in junk bonds but a wave B in junk bonds, which if this is true, foretells a gigantic dumping of junk bonds like the kind you haven't seen before.

And there are a lot of fundamentals that may support it. And it will mark the end of the bear market if it goes to where it would need to go to. Companies will collapse we will have the final cresendo bottom the kind that marks bear market bottoms..

One reason why I think the current rally in junk bonds are wave B is those who are buying it. Data seems to indicate it is individual investors, not institutions, that are driving their prices up. These same individual investors are those that came out of a beating in stocks and decided junk bonds were safer and higher yield.

Here's a link to an good article implying the high yield market right now is "very, very rich."


http://zerohedge.blo...-efficient.html

I do not say this lightly. I have no position in junk bonds but a wave B in junk bonds, which if this is true, foretells a gigantic dumping of junk bonds like the kind you haven't seen before.

And there are a lot of fundamentals that may support it. And it will mark the end of the bear market if it goes to where it would need to go to. Companies will collapse we will have the final cresendo bottom the kind that marks bear market bottoms..

One reason why I think the current rally in junk bonds are wave B is those who are buying it. Data seems to indicate it is individual investors, not institutions, that are driving their prices up. These same individual investors are those that came out of a beating in stocks and decided junk bonds were safer and higher yield.

Here's a link to an good article implying the high yield market right now is "very, very rich."


http://zerohedge.blo...-efficient.html

As I said before, the same class of rocket scientist morons who somehow fooled the majority into thinking there was no risk in sub-prime mortgages by applying mathematics only they understood.

I do my analysis on the back of a napkin. Its very simple. If the guy who issued the debt cannot afford to service that debt, then the debt is bust. No matter what any fancy jumbling of default rate probabilities are etc etc.

The simple fact is many companies issued debt like candy a few years ago based on assumptions about their business health and ability to roll over debt in the event things went sour. People bought these debts on the assumption the models were correct and leveraged up because they believed the math that risk was low.

You see clear channel going belly up? Issued debt they couldn't service. GM and other automakers.. Lehman brothers.. all these guys. Think they're the only ones? Commercial realestate.. retail.. leveraged buyouts.. all linked together.

Many issued their debt under the condition they could issue more debt just to pay the interest on the debt they just issued. Investors bought it up. Problem is, no one wants to buy their new debt. Sad thing is, US government does this so they think they can too.

I wish I could perpetually get credit cards so that I can make payments on the interest with new credit cards til I die and having spent all that money without paying any of it back.

Welcome to the current state of the debt market.