Economist Online

Is a crash imminent?

(graph courtesy of Cumstock Partners)

The usual plain-word no-nonsense Jim Rogers:

Victor Sperandeo, George Soros’ former trader, commonly nicknamed as trader Vic, himself a wall street legend, shares his views on many interesting issues today: US economy, bond outlook, inflation, US dollar, gold and silver. A very insightful piece. I highly recommend it.

Ray Dalio, founder & CIO of Bridgewater Associates, runs the world’s largest hedge fund with $89 billion under management, returning more for the fund’s investors last year than Google, Amazon, Yahoo and eBay combined.

In this CNBC interview, Dalio shares his view on the US dollar, world investment outlook, the ongoing great deleveraging and the great divergence between the developed vs. developing world.

Junk bond market had given investors great return in both 2009 and 2010.  With junk yield approaching historical low, one of the greatest short opportunities starts to take shape.

The memory of the great credit bubble burst in 2007 is still fresh .  Back then, junk bond spread (with comparable treasuries) reached its lowest point in history, about 2.6%.  Now the yield spread stands in 4.5% range – looking relatively high and indeed the spread may go even lower – This is exactly the argument from junk bulls.

But a simple analysis clearly defies bulls’ logic, in favor of junk bears.

First, interest rate is at historically low.  It can only go up in the future, regardless whether it’s due to true economic recovery or because high inflation forces interest rate to rise.  When the Fed reverses its monetary policy, bond market will be hit hard.  Junk bond, with its bigger default risk and higher volatility, will be hit hardest.

Second, if the economy instead turns southward, entering a period of protracted low growth, mimicking Japan after its housing bubble burst, then the default risk will rise sharply.  By then, Bernanke co. may print more money, but it won’t matter any more.  Ask yourself: What real effect have QE1 and QE2 really had on the economy, besides popping up asset prices?!

For investors, timing again is important. Watch the Fed’s move and hear their talks- any sign of rate hike will be the trigger.

This short video from Financial Times gives you a nice  historical perspective on the junk bond market.

(click on the graph to play the video).

Bloomberg interview of Marc Faber. He thinks in short term, emerging markets and US stock market are going to have correction, bonds and US dollar are places to be.

For a while, I have lost track of my favorite column at Financial Times, “Short View”.  Now I got it back working again in my RSS reader.  Here is an interesting piece on the growth-return fallacy in investing.

Growth does not equal return. It all depends on your entry point or purchase price. Previously, I have introduced this simple idea in an interview with Jeremy Grantham. In practice, more often than not, you will find people rarely get it.

(click on the graph to play)

Investment strategist at BNP Paribas, ‘entertains’ you with some good ideas:

Bill Gross says new growth thrust has to be put into US economy. The current policy is just to flush money into toilet.

A very nice debate from CNBC’s Kudlow:

Also read my previous post on the argument for the potential of businesses driving this recovery, “Can Corporate America Carry the Spending Torch?“.

Anthony Bolton, the fabled British stockpicker, is staking his reputation on a £460m ($702m) bet that the Chinese economy is shifting away from exports and towards domestic consumption.

Mr Bolton’s bullish stance pits him against big-name investors such as Hugh Hendry, head of Eclectica Asset Management, and Marc Faber, author of The Gloom Boom & Doom Report, who are betting that the Chinese economy will crash.