Here is a response to TK's post The Bond Market Is Telling Us Something. Yes, it is Tim; it is telling us that the figurative crack addicts of the investing public are going for the gusto (and yield) in the most dangerous junk out there (as represented by the HYG and JNK funds) at the expense of more 'sound' corporate debt (LQD) and Uncle Sam's full faith and credit (TLT, IEF, etc.)
Here is a ratio of HYG to LQD. This is a picture of speculation run amok. This is the kind of speculation that one day blows itself out big time, when the play is over. And I believe it is nearing its end. How do you think this is going to end, hmmmm Beuller?
Tim is right, the bond market is a leading indicator. We might look at yields on US Treasuries in very bullish baby and 'big bro' inverted H&S patterns targeting near 7%. We may look at more sound corporate debt taking a back seat to the junk that is now patronized by greedy 'income' seekers who feel their debt 'investments' are backstopped by the US government and the Fed, who seem to be trying to create a bubble in unsound thinking, in risk taking.
This is a blow off in unsound thinking and it is happening even as somewhat smarter money exits treasuries and LQD, as TK noted. Bears should be taking note of these ending dynamics.
