James Grant of Grant's Interest Rate Observer penned a compelling essay in The Wall Street Journal this weekend, The Confidence Game. (I tried posting about it on Saturday but had some technical issues, and that's another story.)
A couple of sections of note. First this:
We seek out bargains in Wal-Mart, but run away from them on the New York Stock Exchange. The proliferation of investment bargains brings us no joy. Share-price volatility is testing all-time highs. The debt markets are inconsolable. The triple-A rated mortgage bonds that once yielded only a small increment over the basic wholesale money-market interest rate today fetch 12% and up. And those are the securities that, as Grant's Interest Rate Observer does the numbers, appear to be money-good -- barring another 20% or 25% decline in house prices. Yet if the risk of true apocalypse in real estate is great enough to warrant these towering mortgage yields, there can be no easy explanation of the relatively low yields still attached to the unsecured debentures of some big American retailers. Lowe's Cos., the giant home-improvement chain, would surely feel it if house prices dropped -- again -- through the floor. But an issue of unsecured Lowe's debentures, the 5s of October 2015, are quoted at a price to yield just 5.8%.
And this:
For the first time in a long time, stocks, tradable bank loans and
mortgages are becoming cheap. The bear market is truly a value
restoration project. Wall Street will be going on sale -- if the
government will let it. For the entrepreneur, the silver lining in the
federalization of finance is obvious. Start a bank or broker-dealer to
compete with the institutions that will soon be smothered in Mr.
Paulson's quarter-trillion dollar embrace. There's oxygen, still, in
the free market.
Fairly long piece, you might want to print it out first before reading it in its entirety.
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