Over the long run (which is now), the math of that distortion just doesn’t work out.
The report – released on Friday when everyone was on vacation or getting ready to head out of town, and when no one was supposed to pay attention – was a zinger: US net capital outflows soared to $153.5 billion, the largest ever recorded.
Investors won’t even know what exactly is in the pool.
The good folks with more than $10,000 in the market have spoken.
They’d piled into the new “risk sharing RMBS bonds” issued by Fannie and Freddie. Wall Street provided 80% leverage. Buying frenzy ensued. But it didn’t last long.
The game has been honed to perfection. Everyone is playing along. And it performs miracles. Or it did. Because just now, it inexplicably conked out.
Junk bond investors are running for the hills. But there are no hills.
One of the many oddities of this cycle is that many things that were good in normal times have become bad.
Fisher reports from inside the FOMC: it’s getting more hawkish and will hike interest rates sooner than expected. Markets are in denial. Not going to be pretty.
Investors’ forecasts of rate hikes are well below those by Fed governors. “And it wouldn’t be good” if the gap gets closed “with great rapidity,” frets Fed Governor Lacker.