Just a year ago the Dow plunged 777 points in one day. Who would have thought that a year later the risk culture would be back?
The past week or so has seen any number of items demonstrating that confidence and risk-taking are back on Wall Street. One can argue whether this is justified or not, but it is definitely out there.
Indeed there are many prominent commentators who decry the divergence between what is happening on Main Street and Wall Street. (Thiel, Rosenberg, Zero Hedge to name a few.) The main line of argument being that this rally in financial assets is simply a byproduct of massive monetary (and fiscal) stimulus. Once those artificial props are removed the markets will once again decline.
Whether we have emerged from the current crisis or have simply pushed it off a couple of years, is the ultimate question. With no delay here are some items (in no particular order) from the past week’s daily linkfests that highlight the return of the risk culture:
High Yield Bonds
CCC-rated bonds have outperformed. (Agnes Crane)
Corporate bonds have gone from cheap to rich. (EconomPic Data)
The appetite for high yields bonds has become “ridiculous.” (The Money Game)
Demand for leveraged loans is back. (Felix Salmon)
Beleaguered California has found robust demand for its bonds. (Money & Co.)
Emerging Market Equities
Investors are flocking to this sector. (The Reformed Broker)
Emerging Market Bonds
Emerging market bond spreads have been halved YTD. (EconomPic Data)
Hedge fund launches are accelerating. (Forbes)
Hedge funds are seeing inflows. (FINalternatives)
“Last week was the busiest for companies completing IPOs in the U.S. since December 2007.” (WSJ)
Keep an eye on the IPO market for the return of speculative froth. (Marketwatch)
High profile M&A indicates some confidence going forward. (WashingtonPost)
CEOs are using the current environment to grow their businesses. (DealBook)
Interest in SPACs is accelerating. (WSJ)
Heavily shorted stocks
“The recent surge in share prices has been led by companies with the highest proportion of their shares sold short.” (WSJ)
We will leave it up to you to figure out the upshot of all this activity…