Monday, April 1, 2013

Bernanke is Succeeding – Watch Out!


The 1st Q was a boomer for junk. The best ever – by a long shot.


U.S. Leveraged lending reached a quarterly record in 1Q13

  • Leveraged institutional lending hit all time $190 billion record in 1Q13
  • CLO issuance topped $26 billion in 1Q
  • U.S. leveraged loan issuance reached a quarterly record in 1Q13, at $286.6 billion, beating 4Q12’s prior $232.82 billion record, according to Thomson Reuters LPC.


The big numbers were the result of a combination of new issues, and refinancing of existing junk. Wall Street created a blizzard of junk paper – and sold it all. The window for all this biz was clearly the Fed. The promises of endless ZIRP  and $85B a month of artificial demand forced yield starved investors to run to the junk pile. In the process, the cost of issuing the junk fell to record lows.



Over the coming months, Bernanke and the other Fed doves will point to the huge run up in junk as “definitive evidence” that their policies are working. Ben has said (dozens of times) that he wants to force money into taking risk. His tool to achieve this goal is the promise of endless cheap money. So Ben is looking at the junk data, and crying “Mission Accomplised!”.




Of course I see it in the opposite light. We’re in a junk bubble. The bag of gas is brought to us by the Fed. The yields on junk have fallen to levels that are going to produce negative returns. Not all of this paper is money good – it never is – that’s why they call it junk.






  1. Probably not answerable,but how long can this go on,and what happens when bubble bursts.

  2. Calvin Harris says:

    After Ben has told us he forced money to take risks, when it all pops he’ll tell us that low interest rates had nothing to do with a bubble and nobody could have foreseen, etc, etc……

    It’s all so very predictable.

    Of course krugman and his tiny brained followers will say that it is all republicans fault when gov’t debt can’t be dealt with, too.

  3. Bruce,
    With the US, along with many countries, are printing. Combined with Cyprus, Gold still cannot rally. What do you think is holding Gold back? Do you still think Gold will trade between 1400 to 1800 this year?

    • yes, I stick with that range.

      A lot of hot money has moved out of gold, and it didn’t go down by much. “Sentiment” is negative, that supports the price. But I don’t see the big upside unless we see evidence of inflation. Inflation is not going to explode in the next 6 months – Next year? Maybe.

      A 28 year old kid has nukes and has declared war. There’s trouble brewing in China (I can smell it). Europe can tip out of control this week. Argentina is stiffing creditors again. Money is being confiscated.

      Yet gold doesn’t go up. For the time being, it is not the “go to” trade. It will again – give it a year.

      • BK–When bonds come under selling pressure. Bernanke is going to have to raise interest rates. At the same time that this happens the US will make all 401K, Ira and pension funds buy a certain percentage of US bonds for security reasons. This will not work because the stampede out of bond will over whelm any infusion of funds from funds. The dollar will be on the verge of collapse, when there will be a simultaneous bank holiday and a currency devaluation with a new currency. Of course, a haircut for bank depositors will happen, too. That’s when inflation for real kicks in, higher interest rates. The paper and physical gold price will separate with physical gold moving into permanent Backwardation.

        There is a difference between inflation and HYPER-INFLATION. One is a monetary phenomena and one is a psychological phenomena. There is no coming back from a hyper-inflation. Even with a new fiat currency. I’m not so sure Brazil was the exception. They didn’t reach the Hyper-inflationary stage.

        That is when you will see a rush into tangibles. Will gold sky-rocket? Who cares, are you going to trade your gold for rapidly deprecating fiat paper?

        I read where the IMF suggested that governments raise the price of gold to $100,000 an ounce to draw all the holders into selling (voluntary confiscation). It would work with many. However, I expect you will be paid with fiat currency followed by a bank holiday and a devaluation (circa 1933). World war may accelerate these event, but, then, all bet are off.

  4. Bruce,
    With the US, along with many countries, are printing. Combined with Cyprus, Gold still cannot rally. What do you think is holding Gold back? Do you still think Gold will trade between 1400 to 1800 this year?
    Thank you!

    • Janine–What’s holding gold back? Gold leasing, the ETFs on the Comex, weak hands.
      ****NEWS FLASH****Janine, gold is already trading between 1400 and 1800, The answer is YES! My prediction for gold is that it will move up or move down or move sideways.

      • No need to be sarcastic Homer. If you look at my post one more time, I did pose the question to Bruce. If you don’t have anything worthwhile to add/post, don’t.

        • Janine—I am sorry that you took that as sarcasm. I didn’t intend to ridicule or mock you. The intent was more to wake you up and wake the readers up, too.

          First, I’m very thankful to BK for the time and effort , he puts into this site. I know it is a lot of work. He is educating a lot of people. BK, thank you. It is late in the game, but everything helps. When you post on these sites you pose your post to everyone who read it, and everyone has a right to comment on your post, sorry that’s the way it is. It’s is like a community forum. There are people who have insightful and interesting thing to say, and then there are those who don’t. But they are all welcome to express their thoughts. It is up to the reader to separate the wheat from the chaff.

          I have been following what is currently happening in the economic arena for over 50 years. I started with a subscription to the Dine’s Letter in the early 60’s. I am a charter subscriber, which means I get special rates. That’s over 50 yrs. at several hundred dollars a year. You figure it out, that’s a lot of money. The information I received, I paid for. That 50 yrs of education provided me with a compass in which to navigate the roiling sea of economic chaos. I’m not tossed about by what happens in Cypress, or the latest comments on the six o’clock news, or a drop in the gold price. I saw what was coming years ago, Gold dropped today and silver broke the $28 support level. I’m not worried. I understand what is going on. I paid a lot of money and put in a lot of time and effort to gain that understanding. I paid my dues.

          Janine, I assumed by your questions that you are “new to the game”. I assumed that you had bought gold above $1600 and were worried, now that it had gone down in price or that you are planning on buying and trying to buy at the lowest price. I remind you of what Jim Sinclair says. He’ s a buyer of gold every week and he’ s never a seller. It doesn’t matter if it is up or down. Gary North, on his web site, had an interesting article on gold buyers and why they never bought any gold even when it was .$60 an ounce. Worth reading.
          August 15, 1971, does that date stand out in your mind? If not you are sorely under educated. That is when the US had a truly fiat currency. Historically, fiat currencies last 40 to 60 yrs. Do the math. Since 1913, the dollar has lost 97% of it ability to buy things and it is not getting any better, the choice is obvious.

          Janine, I suspect that you must be a type 6 (Enneagrams). I’m reminded of the woman that I fell in love with in the 50’s and have loved ever since. Doris Mary Ann Kappelhoff, Doris Day! She sang, ” Que Sera, Sera, what ever will be, will be. The future’s not ours to see, Que Sera, Sera!

  5. If David Stockman’s book, “The Great Deformation – The Corruption of Capitalism in America” and the recent (4-1-2013) article by Porter Stansberry are not read and reacted to by ALL people (95% are sheeple) the pain that will be felt in the US of A will be unheard of ever in the history of the US and probably the whole world ! There are no free rides! (free cell phones and food stamps for the lame, lazy and crazy) Y’all best wake up and tell all your friends and relatives but be prepared to be not appreciated because it is not very good to be RIGHT about serious matters! KYPD cul jlg

    • Yes, I do plan on reading this book, just a soon as I can steal a copy from the library.
      No! I do plan on it!

      Ignorance is truly bliss, however, it has serious consequences. I’ll read the book.

  6. So if the economy is on a slow recovery, and the junk market is all happy / unworried about default risk — then mission accomplished indeed.

    If Bernanke believes this, he should be normalizing interest rates and terminating all the QE programs. And there would be no need for Obama to be again proposing Great Depression era “Infrastructure” make-work programs to juice the jobs numbers.

    Bernanke insists both ZIRP and QE are still necessary — so obviously he doesn’t believe the economy is healthy at all. Politicians say a lot of things, but their actions speak much louder than their words.

    Read my lips: Bernanke’s actions say the economy is on the verge of total collapse, like early 2009.

    (Note: I am not saying I agree with either of Bernanke’s split personalities, just pointing out that the man disagrees with himself)

  7. truthseeker88 says:

    The obstacle (downfall?) to capitalism seems to be that a small percent get to the top and then forsake the system that allowed them to get there by taking over and trying to control it by maneuvering the country (and world) into a collective style government. Our constitution should help to prevent that but if the masses don’t protect that then the outcome is a foregone conclusion.
    It appears to me that the bankers are getting their ducks in a row for a big crash here. Arming to the teeth a National Security Force (read that military on our soil under their control) to deal with civil unrest or attempted revolution. When they declare martial law the final push for the complete dismantling of our constitution will be here. Sounds extreme but I’ll let the current facts and history lessons speak for themselves

  8. Obama bin Biden says:

    Bernanke has just announced a rate hike of 25 basis points on overnight borrowing. Overseas equity markets are falling on the news.

    April Fools!

  9. Bernanke raise Rates?

    Bernanke is not a total idiot.

    If he raised rates he would wipe out the banks and the bond market. Which is what happened when the Fed raised rates from 1% in 2004 to 5.25% in 2007. When they were finished in Dec 2007, we had an inverted yield curve: Federal funds rate was 5.25% while yields on 10 year treasuries were around 4%. (The same thing happened in 1994 – 1999.)

    The Fed is stuck. By manipulating the interest rate curve the Fed has creates artificial demand for loans. “U.S. leveraged loan issuance reached a quarterly record in 1Q13, at $286.6 billion.” If the Fed raised rates by a single percentage point, the losses on these bonds would be big because the rates are so low.

    If anything Bernanke wants to go negative.

    The real risk here is Ben himself.

    If Bernanke tries to normalize rates before he leaves office, it will be the time to go long guns and butter, and short banks and bonds.

  10. So the slime continues to ooze out of EU “leadership”. Today it was “revealed” that the (now ex) French minister responsible for going after tax cheats was …. himself a tax cheat. EUR 600,000 in a numbered Swiss bank account.

    Since TurboTax does not make a French version, Monsieur Cahuzak was unable to use the Geithner defense. There were no gloves involved, so he couldn’t use the OJ Simpson defense. And the Seinfeld inspired Wookie defense can’t be used in France because Star Wars is believed threatens French culture (probably Seinfeld too). Net result: the Chief Inspector Clousseau of tax evasion is a IMF sized headache for Socialist president Hollande. That is all Perier and baggets under the bridge now.

    But it won’t exactly help the credibility of the EU bureaucracy that two EU anchor states, both Italy and France, are run by tax cheats.

    Gerard Depardieu gets villified for “only” paying 75% of his income in taxes, while the bureaucrats themselves are busy laundering money and hiding it in numbered offshore accounts. Sound like the sort of organization you want to trust with your money?

  11. Just a quick note to thank you again, Bruce, for daily insights and crossposting to ZH.

    I linked to an article I wrote for SinkingAlpha ‘The Myth of U.S. Energy Independence’ that argues deficit spending and QE (both US and overseas) are going to slosh into more demand for oil and spike prices.

    • SeekingAlpha went the way of Yahoo stock message boards … its all left wing politics and bubble-vision cheerleaders. No one reads that garbage anymore

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  14. Obama bin Biden says:

    Why does Bernanke have to force things along? Why isn’t there enough risk taking occurring on it’s own? Is it because there isn’t enough reward out there worth capturing?

    In a healthy economy, reward will be in equillibrium with risk. Dr. Bernanke cannot make this patient healthy.

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