What Junk Bonds Convey About Investors’ Mindset
“Governments feel rich and are spending like drunken sailors”
by Bob Stokes
Updated: October 21, 2021
Extremely elevated financial optimism is being expressed in multiple ways.
In some ways, the behavior of investors is unprecedented -- which is saying a lot given the financial extremes of past bull markets.
Consider the junk bond market here in 2021. The September Elliott Wave Theorist showed this chart and said:
As we continue to demonstrate, stocks, property, cryptocurrencies and digital art are not the only overvalued markets. Bonds are no less crazily priced. The chart reveals that fully 85% of all junk bonds yield less than the annualized percentage change in the Consumer Price Index. How is that for blind optimism?
Yes, stocks remain near record-high territory after a more than 12-year uptrend, bitcoin is near record-high territory and the rate of price increases in the housing market has been unprecedented (again, saying a lot given the extremes of the prior housing boom).
Even so, an Oct. 18 Fortune article says:
In the next 15 months--through the end of 2022--Goldman Sachs is forecasting U.S. home prices will soar another 16%.
And, who would have ever imagined a few short years ago that digital images would sell for millions?
Yet, here’s the latest headline (Oct. 19):
How a 12-year-old coder says he made $600,000 by selling Weird Whales NFTs
Of course, "NFT" stands for non-fungible token -- a unique digital asset. The current craze in that space is around digital artwork.
The October Elliott Wave Theorist mentions several more expressions of a positive social mood. Here are just a portion of them:
Governments feel rich and are spending like drunken sailors; central bankers are confident and unworried, and they have been characterized as heroes; the world economy is producing more tax revenue than ever, despite government efforts to kill productivity; and there are no wars anywhere on the entire planet.
The October Theorist concludes with a hint of what to expect over the next three years.
The Elliott Wave Theorist is part of our flagship investor package, which you can access by following the link below.
EWI’s Analysts Set Price Targets for Major U.S. Financial Markets
EWI's analysts set price targets for stocks, bonds, gold, silver, the U.S. dollar and more... in accord with the Elliott wave model.
Price targets are a far more effective strategy for investors and traders, versus making impulsive decisions "in the moment."
Realize that most investors feel highly optimistic at major tops, and deeply pessimistic at major bottoms. In other words, investors' emotions have historically betrayed them at key turns.
Learn the price targets our Elliott wave experts have set for key U.S. financial markets -- and why -- by following the link below.
Mainly just seven stocks have been holding up the U.S. stock market. As EWI recently noted: "There has never been such a high weighting in the S&P in such a few number of companies." Elliott wave analysis can help you anticipate major shifts in crowd behavior.
Many investors believe that the stock market reacts rationally to news like corporate earnings, oil "shocks," economic data, Fed announcements and so forth. But does the evidence support the notion of such exogenous causality? There are several examples of stock market "myths" and here's just one of them.
The cryptocurrency stage has a clear standout: Solana. On November 16, the world's #6 crypto soared to 18-month highs, outperforming all cryptos in Oct. and Nov. SOL's surge was right in line with its bullish Elliott wave pattern -- NOT a ChatGPT prediction.