Worry About Bonds, Not Bubbles

 | May 06, 2014 | 2:58 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

agn

,

pfe

,

azn

,

vz

,

beav

,

twtr

,

amzn

,

tsla

,

plug

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.

Columnist Conversations

GS has cleared the important hurdle on the way up which increases the odds for an eventual rally towards the 1...
A good quarterly report has sent shares of Calamos Asset Management (CLMS) sharply higher. CLMS was up about ...
Electronics distributor Ingram Micro (IM) reported better than 16% growth in its Q3 sending the stock up about...
Market posting decent day considering Ebola getting headlines again. Believe investors have learned not to pa...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.