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Strategies & Market Trends : Bear!
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From: el carlos1/12/2013 2:51:41 PM
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Just wanted to reopen this tread because the topic has been on my mind lately.

Numerous articles continue to speak to the high-yield market being pushed to pre-2007 crisis levels (increasingly lower interest of ~6% and higher debt levels of 5.5x EBITDA of 67% Debt/Cap in LBO deals) in part due to the need to reach for yield in the current low-rate environment. If one were to believe this risk will come to fruition in a secular bear, one logical reallocation would be back into Gov bonds, pushing yields lower.

But what will happen to equities? If conventional logic is such that equities are riskier than fixed income and high yield debt is riskier than risk free Treasuries, wouldn't it then follow that a blow up in high yield debt, would also lead to a sell-off in equities?

I do think the stocks are still disrespected / undervalued in pockets still....but history has shown too many times that stocks can frequently go lower still. Do you think the increasing froth in the high-yield market could be a potential source of risk?

Feedback welcomed.
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