Tags: Irwin | financial | markets | bubble

NYT's Irwin: Whole Range of Financial Markets May Be in a Bubble

By    |   Tuesday, 08 July 2014 11:05 AM

A slew of financial assets around the world may have entered bubble territory, says New York Times columnist Neil Irwin.

"Welcome to the Everything Boom — and, quite possibly, the Everything Bubble," he writes. "Around the world, nearly every asset class is expensive by historical standards."

Among the examples Irwin cites are:

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  • Spanish bonds. Despite the fact that the country sports one of the weakest economies in the eurozone, its 10-year government bonds yield 2.68 percent. That's not much above the 2.58 percent offered by 10-year U.S. Treasurys.
  • The office building at One Wall Street in New York City sold for $585 million in May, only three months after one industry report estimated it would go for $466 million.
  • In April, the French cable TV company Numericable executed the largest junk bond issue in history, with an interest rate of only 4.9 percent.

"We're in a world where there are very few unambiguously cheap assets," Russ Koesterich, chief investment strategist at BlackRock, tells Irwin. "If you ask me to give you the one big bargain out there, I'm not sure there is one."

"The Everything Boom brings obvious economic risks," Irwin warns. "In the most pleasant outcome, global economic growth would pick up, causing today's expensive assets to begin looking more reasonably priced. But other outcomes are also possible, including busts in one or more markets that could create a new wave of economic ripples in a world economy still not fully recovered from the last crisis."

Experts agree that historically low interest rates caused by central bank easing across the globe, particularly in the United States, have led investors to take on more risk.

Another market looking bubblicious is that for bank loans, as banks are loosening their loan standards, says Bill Gross, chief investment officer at Pimco.

"There are bubbly aspects in the terms and conditions of bank loans," he tells CNBC.

Financial institutions are issuing covenant-lite loans at a record pace. Covenants are financial restrictions placed on companies that borrow to give lenders assurance that they will receive their money back. Covenant-lite loans carry fewer of these restrictions.

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A slew of financial assets around the world may have entered bubble territory, says New York Times columnist Neil Irwin.
Irwin, financial, markets, bubble
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2014-05-08
Tuesday, 08 July 2014 11:05 AM
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