{"id":105495,"date":"2015-08-18T14:55:32","date_gmt":"2015-08-18T14:55:32","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=105495"},"modified":"2015-08-18T14:56:02","modified_gmt":"2015-08-18T14:56:02","slug":"105495","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=105495","title":{"rendered":"The Next Financial Disaster Starts Here"},"content":{"rendered":"<h3><a href=\"http:\/\/juniorminingnews.com\/wp-content\/uploads\/2014\/10\/caseyresearch.jpeg\"><img decoding=\"async\" loading=\"lazy\" class=\"alignleft wp-image-5824 size-full\" src=\"http:\/\/juniorminingnews.com\/wp-content\/uploads\/2014\/10\/caseyresearch.jpeg\" alt=\"caseyresearch\" width=\"120\" height=\"120\" data-id=\"5824\" \/><\/a><a href=\"http:\/\/www.caseyresearch.com\/go\/unp43-2\/CSW\"><br \/>\n<\/a><a href=\"http:\/\/www.caseyresearch.com\/go\/unp43-2\/CSW\">The Next Financial Disaster Starts Here<\/a><\/h3>\n<h3><span style=\"font-size: small;\">By Dan Steinhart<\/span><\/h3>\n<p>Individual investors take note\u2026<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=1279&amp;code=CSW&amp;editorial=the-next-financial-disaster-starts-here-1\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Some of the world\u2019s best money managers are betting on the biggest financial disaster since 2008.<\/p>\n<p>You won\u2019t hear about this from the mainstream media. Networks like NBC or CBS don\u2019t have a clue\u2026 just like they didn\u2019t have a clue the US housing market would collapse in 2007.<\/p>\n<p>Carl Icahn, a super successful investor who\u2019s the 31<sup>st<\/sup> richest person in the world, said this investment is in a bubble. He said that it\u2019s \u201cextremely overheated\u201d\u2026 and that \u201cthere\u2019s going to be a great run to the exits.\u201d<\/p>\n<p>And this investment isn\u2019t some complex derivative that only Wall Street and hedge funds can buy. Millions of investors hold it in their brokerage accounts.<\/p>\n<p>The dangerous investment is junk bonds.<\/p>\n<p>Junk bonds are usually issued by companies with shaky finances. They pay high interest rates to compensate investors for their high risk.<\/p>\n<p>Low interest rates have pushed investors into these risky bonds. Junk bonds are one of few places where investors have been able to get a decent income stream.<\/p>\n<p>In 2008, the Federal Reserve cut interest rates to near zero to fight the financial crisis. It has held rates near zero ever since. Right now, a 10-year US government bond pays just 2.3%. That\u2019s half its historical average, and near its all-time low.<\/p>\n<p>Investors looking for income have turned to junk bonds. This chart shows the growth in junk bonds since 2002. As you can see, junk bonds didn\u2019t grow much from 2002 to 2008. But when the Fed cut rates to zero in 2008, junk bond issuance took off:<\/p>\n<p align=\"center\"><img decoding=\"async\" style=\"max-width: 100%; width: 550px;\" src=\"http:\/\/d1w116sruyx1mf.cloudfront.net\/ee-assets\/channels\/article_default\/JunkBondMarketSwellstoRecordHigh.png\" alt=\"\" \/><\/p>\n<p>JPMorgan reports that the number of junk bond issues soared <strong>483%<\/strong> between 2008 and 2014.<\/p>\n<p>You might be thinking that you don\u2019t own junk bonds\u2026 so why should you care?<\/p>\n<p>It\u2019s true that many investors don\u2019t own junk bonds directly. But many do own them through junk bond ETFs.<\/p>\n<p>The\u00a0<em>Financial Times<\/em>\u00a0recently explained why junk bond ETFs are dangerous:<\/p>\n<p style=\"margin-left: .5in;\">\u2026 junk bond ETFs give the illusion of liquidity. Not all that long ago, bankers and asset managers promised to turn subprime mortgages into gold-plated, triple-A rated bonds.<\/p>\n<p style=\"margin-left: .5in;\">Today, the apparently miraculous transformation is of deeply illiquid credit instruments, such as\u00a0junk bonds\u00a0and leveraged loans, into hyper-liquid exchange traded funds.<\/p>\n<p>Junk bonds are not \u201cliquid.\u201d That means there aren\u2019t many investors buying and selling them every day. The Wall Street Journal reported that each of the top 10 bonds in the largest junk bond ETF <strong>traded just 13 times a day on average<\/strong>.<\/p>\n<p>That\u2019s not a typo. Investors only buy and sell these junk bonds 13 times per day on average. For comparison, investors buy and sell <strong>47 million<\/strong> shares of Apple (AAPL) on average every day.<\/p>\n<p>Junk bond ETFs are extra dangerous because they\u00a0make junk bonds <em>appear\u00a0<\/em>liquid. HYG, the largest junk bond ETF, trades more than 6.8 million shares per today on average. That\u2019s more than McDonald\u2019s stock.<\/p>\n<p>But as Howard Marks, hedge fund manager and one of the most respected investors in the world recently explained:<\/p>\n<p style=\"margin-left: .5in;\">No investment vehicle should promise greater liquidity than is afforded by its underlying assets. If one were to do so, what would be the source of the increase in liquidity? Because there is no such source, the incremental liquidity is usually illusory, fleeting, and unreliable, and it works (like a Ponzi scheme) until markets freeze up and the promise of liquidity is tested in tough times.<\/p>\n<p>Because junk bond ETFs\u00a0create the illusion of liquidity, most investors don\u2019t see the danger. They think they can sell their junk bonds ETFs just as easily as they could sell shares of Apple.<\/p>\n<p>They\u2019re wrong. If too many people sell junk bonds at once, it could overwhelm the market and cause prices to crash.<\/p>\n<p>Now, none of this has been a problem yet because junk bonds have been in a bull market. According to Bank of America, junk bonds have gained 149% since 2009.<\/p>\n<p>But as Howard Marks added, \u201dNothing is learned in the investment world in good times.\u201d \u2026 \u201cMost of these vehicles haven\u2019t\u00a0been tested in tough times.\u201d<\/p>\n<p>All bull markets eventually end. When this one ends, junk bonds could cause huge losses to investors who don\u2019t know about these risks. Junk bonds could easily drop 15% or more in one month.<\/p>\n<p>And here\u2019s the craziest part\u2026<\/p>\n<p>Some of the world\u2019s smartest and most successful investors are are betting on this exact outcome. <em>They\u2019re betting that the junk bond market will crash.<\/em><\/p>\n<p>They\u2019re calling it \u201cThe Next Big Short.\u201d<\/p>\n<p>You probably heard about the few hedge fund managers who made a killing when US housing collapsed in 2007. Dallas-based hedge fund manager Kyle Bass made $500 million by betting against housing. John Paulson made $4.9 billion by betting against mortgages.<\/p>\n<p>Today, one of the largest private equity firms in the world is raising money to bet against junk bonds&#8230; just like Bass and Paulson bet against housing in 2007.<\/p>\n<p>The Wall Street Journal reports:<\/p>\n<p style=\"margin-left: .5in;\">Apollo [one of the world\u2019s largest private equity firms] has been raising money from wealthy investors for a hedge fund that snaps up insurance-like contracts called credit-default swaps that benefit if the junk bonds fall. In marketing materials reviewed by\u00a0<em>The Wall Street Journal<\/em>, Apollo predicted:\u00a0<em>\u201c<\/em>ETFs and similar vehicles increase ease of access to the high yield [junk] market, leading to the potential for a quick \u2018hot money\u2019 exit.\u201d<\/p>\n<p>Other hedge funds like Reef Road Capital and Howard Marks\u2019 Oaktree Capital are also raising money to bet on a junk bond crash.<\/p>\n<p>As you can see from the chart of HYG\u2019s (the largest junk bond ETF) price, junk bonds are down since June:<\/p>\n<p align=\"center\"><img decoding=\"async\" style=\"max-width: 100%; width: 550px;\" src=\"http:\/\/d1w116sruyx1mf.cloudfront.net\/ee-assets\/channels\/article_default\/WorldsBiggestJunkBondETFFallingSinceJune.png\" alt=\"\" \/><\/p>\n<p>There\u2019s no way to know if this is the beginning of the end of the junk bond bull market. But if it is, huge losses could come very soon.<\/p>\n<p>If you\u2019ve made money investing in junk bonds, it\u2019s time to cash in. Don\u2019t bet against some of the best investors in the world who expect junk bonds to crash. <strong>We recommend selling junk bonds now<\/strong>.<\/p>\n<p>P.S. Because this risk and others have made our financial system a house of cards, we\u2019ve published a groundbreaking step-by-step manual on how to survive, and even prosper, during the next financial crisis. In this book, <em>New York Times<\/em> best-selling author Doug Casey and his team describe the three ESSENTIAL steps every American should take right now to protect themselves and their family.<\/p>\n<p>These steps are easy and straightforward to implement. You can do all of these from home, with very little effort. Normally, this book retails for $99. But I believe this book is so important, especially right now, that I\u2019ve arranged a way for US residents to get a free copy. <a href=\"http:\/\/www.caseyresearch.com\/go\/unps5-2\/CSW\" target=\"_blank\">Click here to secure your copy.<\/a><\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.caseyresearch.com\/go\/unpv6-2\/CSW\" rel=\"permalink\">The Next Financial Disaster Starts Here<\/a> was originally published at <a href=\"http:\/\/www.caseyresearch.com\/go\/unpy7-2\/CSW\">caseyresearch.com<\/a>.<\/div>\n<p><a href=\"http:\/\/commonstockwarrants.com\/\" target=\"_blank\"><img decoding=\"async\" loading=\"lazy\" class=\"aligncenter size-full wp-image-52343\" src=\"http:\/\/commonstockwarrants.com\/wp-content\/uploads\/2013\/12\/picasion.com_da9b3f8c7d75d63cb5036c424523515f.gif\" alt=\"picasion.com_da9b3f8c7d75d63cb5036c424523515f\" width=\"300\" height=\"250\" \/><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Next Financial Disaster Starts Here By Dan Steinhart Individual investors take note\u2026 Some of the world\u2019s best money managers are betting on the biggest financial disaster since 2008. You won\u2019t hear about this from the mainstream media. Networks like NBC or CBS don\u2019t have a clue\u2026 just like they didn\u2019t have a clue the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":5824,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[4],"tags":[149,138,137,48,115],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/105495"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=105495"}],"version-history":[{"count":2,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/105495\/revisions"}],"predecessor-version":[{"id":105497,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/105495\/revisions\/105497"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/media\/5824"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=105495"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=105495"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=105495"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}