The resurgence in junk bonds is a stern warning to take shelter in certified gold. Posted by James Randolph on April 11, 2011
Certified gold investments will provide the wealth to rebuild the markets.
April 11, 2011 – The resurgence in junk bonds is a stern warning to take shelter in certified gold.
As it always goes following a financial crisis, Wall Street vultures come out of the woodwork to pick over the remains of overleveraged companies teetering on the brink of bankruptcy. They buy up the companies’ debt at steep discounts then sit back and wait for the inevitable, at which time their paper gets turned into equity. They either sell off the assets or take over the company, realizing considerable profit.
While many find the practice of preying on the weak distasteful, it’s just life. In that way only the robust survive, making for a healthy economy. But Bernanke’s liquidity manufacturing machine has turned that all around.
With interest rates held near zero fund managers are getting ever harder pressed to find anything that will give them the returns their investors insist on. With little else available, they are turning in droves to junk bonds, making it possible for failing companies to stay afloat a while longer by refinancing their obligations.
Naturally that doesn’t sit well with the managers of distressed debt funds, who had been drooling over what they saw as years of carcasses to feed on in the aftermath of the crisis. While I have no sympathy at all for the vultures, the trend is very disturbing. It amounts to nothing less than a continuing program of bailouts for companies that should be allowed to fail.
As we all know, it’s only the short-term quick fix that is of concern to the government. The bailouts keep companies going a bit longer, making it appear like the economy is picking up. With the debt level fast approaching the tipping point, it is insane to channel all of Bernanke’s imaginary money into ever riskier assets, but the Fed is desperate to keep the illusion of recovery alive.
We have been there before and we know where this is leading us. The market cannot be put to rights with a correction – it must be torn down and rebuilt from the ground up with the fundamentals restored to their rightful place. It will happen, and investments in certified gold will provide wealth to get it done.
Senior Staff Writer – Certified Gold Exchange