Tags: Baratta | credit | bubble | economy

Blackstone's Baratta: 'We're in Middle of Epic Credit Bubble'

By Dan Weil   |   Monday, 30 Sep 2013 08:29 AM

While Blackstone Group is a major investor in many areas, one of its top officials sees trouble brewing in the credit markets.

"We are in the middle of an epic credit bubble, the likes of which I haven't seen in my career in private equity," Joseph Baratta, the firm's global head of private equity, said at a private equity conference, CNBC reported.

"The cost of a high -yield bond on an absolute coupon basis is as low as it's ever been."

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The Vanguard High-Yield Corporate bond fund yields 5.8 percent.

Meanwhile, Baratta said Blackstone is "bullish" on the U.S. economy, but the "valuations we have to pay relative to the growth prospects are out of whack right now."

The economy grew 2.5 percent in the second quarter. Blackstone sees the economy expanding in a range of 1 to 3 percent going forward.

The firm does see investment opportunities in energy, transportation infrastructure, consumer finance, housing and construction, Baratta noted.

He expects "mean reversion" on interest rates, meaning rates will rise.

Cullen Roche of Pragmatic Capitalism sees logic in Baratta's bubble talk.

"Yes, while everyone focuses on the stock market, the real disequilibrium that has been potentially built up over the years has been in credit markets, where the portfolio rebalancing effect has forced investors out of risk-free U.S. government bonds and into assets that serve a similar purpose in a much riskier credit structure," he wrote on his blog.

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