Since about the start of 2014 I have maintained that when a bear market of 2014/15-2017 kicks in, a number of things will happen. Junk bonds will blow sky high, 10-Year Note will test 1.4% (double bottom) and the stock market will drift lower. Driving both bulls and bears up the wall in the process.
Joshua Birnbaum, the Ex-Goldman trader who correctly shorted subprime mortgages during the financial crisis tends to agree.
Joshua Birnbaum, the ex-Goldman Sachs Group Inc. trader who made bets against subprime mortgages during the financial crisis, now has more than $2 billion in wagers against high-yield bonds at his Tilden Park Capital Management LP hedge-fund firm, according to investor documents.
I believe he is absolutely right in his assessment. The situation is not that dissimilar from 2007-2009 period. Except, instead of “subprime” bubble we are currently going though a stock market overvaluation and junk debt bubble. There is just way too much risk in our financial system to warrant today’s valuation levels. Once the tide goes out, you will see junk yields surge. Counterparty risk associated with Greece or Russia (discussed earlier) might get this party going.
