QE's big success: Renaissance of the junk bond market

There was a good article this morning in the FT, "Corporate bond sales set to beat 2012 after passing $3 trillion." The story inside the story is more specific, however: Junk bond issuance is at record levels and the ability to issue has depressed defaults to only 2.2% of outstanding bonds. It is estimated that issuance will be greater than $500 billion globally, over twice the 2006 level of $208 billion. ($56 billion in 2008)

QE has certainly encouraged some degree of imprudent lending in the public markets but how much is hard to say. Of course, the higher the future inflation rate the lower will be the default rate in these issues, and vice versa.

I have been asking myself why free money in the public markets has not sparked a boom. I suppose the answer is that the contraction of the banking system has offset the looseness in the public markets. This is an advantage for large companies and a disadvantage for small and medium ones, as the latter do not have access to the public markets.

Even those who don't expect to pay aren't buying

Through the end of October, 1.2 million have signed up through the exchanges, both federal and state. Of these, 800,000 are in Medicaid (or CHIPS), the free overage for those with incomes of up to 133% of the poverty level. (Income is your own earned income, not including rent subsidies, food stamps, and other welfare payments.) Understandably, people who don't have to pay are more enthusiastic than those who do, but even the non-payers are lukewarm. Bottom line: this service has been rejected by paying customers, at least so far.

There is something fundamentally wrong with our US health system, both pre- and post-Obamacare. I don't understand why health care costs so much here. I have lived in England, France and Singapore. In England and France the care is good and costs society half what it costs here, as a percent of GDP. In Singapore,where the health care is the best I have experienced, the cost is one-fifth the US costs. It's puzzling.

Here is the story in the New York Times:

http://www.nytimes.com/2013/12/16/opinion/medicaid-outpaces-private-plans.html?smid=pl-share

Welcome respite from global warming

Yesterday the Boston Globe had an article on the snowy owl problem. These arctic birds have come further south and in greater numbers than in any previous December in living memory due to extreme cold in the arctic. They are posing a problem for planes at airports and the NY airports have started shooting them, to the consternation of naturalists. (Trapping solutions are now being tried.)

While the plight of these birds is a cause for concern, it is reassuring that we seem to be having a break in global warming. Antarctica has just recorded the coldest temperatures on record as well as record ice growth. (see below) Likewise, in the arctic ice growth has reversed its declining trend and the extent of sea ice in the north is now at normal historical levels.

Mexico responds to crime wave

Today's FT Mexico City Notebook reports on an interesting private sector solution to Mexico's crime wave: funeral parlors in Ciudad Juarez are now open 24-hours a day.

Happy at school? Not so much, in the USA

You can't expect them to notice everything

The Mexican authorities have just uncovered an illegal activity that seems to have been going on for years. A Mexican crime syndicate called the Knights Templar has managed to slip illegal iron ore mining operations, giant truck convoys, ship loading facilities and large bulk carriers right under the noses of the authorities and to smuggle the ore to the Chinese. The shipments go through Lazaro Cardenas, Mexico's second largest port.

By a fortunate twist of events, the authorities were able to stumble upon this operation. Firm action is contemplated.

http://news.nationalpost.com/2013/11/29/mexican-drug-cartels-diversify-now-make-money-mining-and-selling-ore-to-the-chinese/

Chinese Yuan Replaces Euro as Second Most Used Trade Transaction Currency

Swift reports that the renmimbi has passed the euro as a currency used in world trade. In January 2012, the renmimbi accounted for 1.89% of world trade. It was up to 8.66% in October 2013. The euro was 7.87%. This is a very dynamic rate of change.

I make bold to suggest that the abuse of the dollar by the Fed is producing unwanted consequences, which may possibly snowball.

The Bloomberg article is linked: http://www.bloomberg.com/news/2013-12-03/yuan-passes-euro-to-be-second-most-used-trade-finance-currency.html
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