Worry About Bonds, Not Bubbles

 | May 06, 2014 | 2:58 PM EDT
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There is a lot of bubble talk out there. I totally get it. We see it in so many places. We know that there is real overvaluation in a bunch of places. But the biggest overvaluation is the undervaluation of risk in the bond market.

Yes, the spread between junk and strength is so out of hand that I think it is motivating a lot of the deals we are seeing now. Do you have any worry at all that the Allergan (AGN) deal would get done by Valeant? Of course not, there is so much cheap money.

You wonder where Pfizer's (PFE) going to get the money to buy AstraZeneca (AZN)? Why it's the same place that Verizon (VZ) went to so it could buy the portion of Verizon wireless it doesn't own.

You really worried about B/E Aerospace (BEAV) getting a bid? I am not. Any decent acquirer can get $10 billion from this bond market in a nanosecond.

I am a huge believer that corporate profits are behind much of the run we have seen until recently. Now it's about cheap financing and overvaluations based on earnings.

I believe the former is getting worse. But as for the latter, the focus of what's happening in print, is late. Frankly if doesn't matter whether it's the cloud and Software as a Service (SaaS) and biotech, or the Twitter (TWTR)/Amazon (AMZN)/Tesla (TLSA) cults, or the Plug Power (PLUG) penny stock come to life, or the IPO market because these all peaked months ago.

Now that doesn't mean they can't go down further. But it does mean I am more than a little irked about the idea that the market is just now getting into the bubble because the bubble's being deflated all around us.

I worry about the bond market. I think it is so irresponsible to buy the junk that's being pumped out. I have never reached for yield.

Those who do are fools. Institutional fools. Individual fools. I can't stop anyone from making an idiotic move.

Still, though, that reach is being fueled by the Fed's endless bond buying and the incredibly low rates from even the worst sovereign bonds of Europe except for Greece. The Fed needs to become a seller of bonds. The economy is strong enough. The Treasury needs to sell paper heavily now.

That would finally stamp out the last of the bubbles. But trust me, the first part? I was annihilated in February, and the air's been going out steadily ever since.

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