Today's market gain is all about Nike (NKE), and that's not good, but it is what I had expected earlier today. We have too many unknowns. One of the biggest uncertainties is: what will happen to the junk bond market when one of its biggest buyers, Pimco, is experiencing obvious turmoil?
I looked up the 50 biggest issuers this morning. Other than Sprint (S), I found them all fairly investible. Given the SoftBank (SFTBY) back-up of Sprint, I would have no desire to short it.
Credit is just one issue; the bigger issue is liquidity and how to get out of bonds you don't like. I see people shorting PIMCO closed-end bond funds all over the place. People have to remember that there can be no ''run'' on closed-end bonds. Their net asset value can drop because of the selling or any forced liquidation, but there are plenty of fixed income specialists who can't resist the paper that is being thrown away at the right prices.
In other words, I don't think it is a hot trade. I would rather take the other side when the rubber band is overstretched by the shorts. Pimco saw this coming, and they aren't a bunch of stooges.
We know that money will come out of Pimco. Very few investors were thinking, ''it is time for Bill Gross to go,'' even though some of them recognized lagging performance and bolted. In the end, Gross has a huge following and he will be followed. Funds will have to be raised.
It will roil the market and the equities because of the reverberation of top-calling (I am very sick of that term, but this time it does apply), and the equities can keep rolling over. The numbers are going to get cut. When numbers get cut, people sell. A lot of by-rote things happen in every selloff.
Be concerned, but don't freak out. There are more companies like Nike and Micron (MU), and fewer companies like Dover (DOV) and Terex (TEX), than you think (the latter two names did fabulously but had unfortunately pre-announced).