According to Grand union markets broker, in the last few years, the point of view that the United States bond market in its current state is more like a financial bubble ready to explode has become widespread. Indeed, the US market is now overflowing with a huge volume of junk bonds, and defaults are constantly growing in quantity. And this applies not only to the United States market. China, for example, in 2019 experienced a four-fold increase in the number of defaults compared to the 2018th. Such processes are taking place all over the planet now, and this is the most obvious signal that a “bubble” is growing in the global bond market.
What could be the main reason for this? Perhaps, the fact we live in an era of cheaper money and low rates. Zombie enterprises that can exist solely on borrowed funds are constantly increasing in number, and at the sight of this, investors agree to ever greater risks. In parallel, it is worth remembering that the stock market is not very different in this regard - there are no less “bubbles” there, and this tendency begins to look very bad. Opinions of experts, such as the Grand Union markets review, on this issue diverge almost dramatically - someone says that the markets will collapse soon, someone that the problem really does not exist and you should not expect a crisis.
Money is lighter than air
In 2019, the P/E indicator (capitalization / net profit) for the companies of the S&P 500 index was 23.01 with a median of 14.78; this, and research by Grand union markets forex tells us that the US stock market is very “overheated”. In the West, experts are saying more and more frequently that there are already too many companies that are being evaluated not by the usual standards (profit and revenue), but by what investors expect from them.
A good example is the comparison of the value of Tesla Motors ($ 62 billion) and Ford Motor ($ 36 billion). Just think about it — in the minds of investors a start-up that has given out at least some decent profit only recently, stands higher than a car manufacturer, which ranks third in the market share in the States and has a long history. Some experts, including Grand union markets scam-analysts, believe that many assets, in accordance to the laws of the economy should not exist at all, for example, Uber. If you compare it with Lyft (Internet taxi service), Lyft has $ 3.76 billion of assets, and Uber has $ 23.98 billion. At the same time, both companies have negative P/E, and are still valued by the market at $ 46.07 billion (Uber) and $ 12.87 billion (Lyft).
The situation is similar in the bond market. The report of Grand union markets broker review for the first half of 2019 looks rather creepy. The increasing debt burden of corporations, the growing volumes of high-risk and low-liquid securities in the portfolio of institutional investors and the increased dependence on loans in countries with developing economies are indicated in it as the main weaknesses.
UST10 and UST30 have reached historic lows in terms of their profitability - 1.8 and 2.3%, respectively. As of August 2019, these figures were even lower, about one and a half and two percent. Some government securities in Europe are generally traded at negative returns, that is, the investor must pay extra for the ownership of such securities. Not so long ago, a record was set for the number of securities with negative yield - they were issued for $ 17 trillion, and this is the best indicator that the debt market, to put it mildly, is not in the best condition.
Financial Zombie Apocalypse
According to a study by grandunionmarkets.com reviews, in 2018 there were 12 issues in the AAA rating, while in 2007 (the year before the crisis) there were nine, and the BBB rating shows 522 issues versus 311. Extremely cheap bonds are issued not only by small companies - such giants as Fox, Verizon, McDonald's and United Technologies were issuing them too. When Netflix streaming service issued junk bonds worth more than two billion dollars, investors also instantly bought them, despite the fact that Netflix is actively preparing for war with Disney and Apple. The number of zombie enterprises, according to Grand union markets broker, is estimated at 12 percent in Europe and about sixteen in the United States. This amount is steadily increasing.
Among the companies that recently went bankrupt, Grand union markets review notes the famous Barneys New York clothing store chain, which went bankrupt in March 2019. The same kind of "zombie", albeit acting and not planning to declare bankruptcy, is currently General Electric.
In the European arena, Deutche Bank is the leader in this regard, it wasn’t in the green since 2012 in terms of net profit. Chesapeake Energy Corporation, one of the leaders in the US oil shale industry, also seems to have “zombified” with eleven billion dollars in debt and negative net cash flow with tons of debt. Precedents also regularly appear with “zombie” startups, who planned to develop rapidly, but rolled into stagnation for various reasons. Some argue that such startups can include the WeWork coworking network.
Grand union markets forex also writes that there are quite a few companies that formally do not fall within the definition of “zombies,” but at the same time they are overflooded with debts and survive solely due to the constant issue of new bonds; One such company is the mail giant UPS, whose debts are growing faster than revenue and profits.
All this provides a rather sad picture: bonds usually play the role of a balance for the stocks held by investors, since the local market has high volatility and, accordingly, is more prone to the appearance of “bubbles”, but they are clearly not able to perform this function anymore, as Grand union markets scam analysts believe.
The best attempt to fix the system
The mathematician Harry Markowitz is the creator of the so-called classical portfolio theory (also referred to in the Grand Union markets broker review as the Markowitz portfolio theory). Its main provisions were formulated in 1951 in the process of preparing a dissertation for a doctoral degree. It finally took shape by 1952, when Markowitz's article “Portfolio Choice” was published in the Journal of Finance.
It stated that investors should take into account not only the expected return, but also the possible risks, and that there is a direct link between them. Risk, as Markowitz wrote, should be observed and measured, a mathematical formula was created specifically for this, and securities should be evaluated not only by individual characteristics, but also by what impact they will have on the portfolio.
The main point of portfolio theory is the idea that a portfolio should have the lowest possible risk with the highest acceptable profit at such risk. Despite all its advantages, the theory did not bring Markowitz immediate fame, since in the fifties the development of the stock market was, to put it mildly, not the most active. The big players in the financial market began to show much more interest in it after the crisis of 1987, as suggested in grandunionmarkets.com reviews, when risk suddenly became an important concept for investors. After this, portfolio theory began to rise, and its creator deservedly received the Nobel Prize.
In short, the main feature of a portfolio compiled by this theory is diversification by asset classes, in the sense that a portfolio should not consist solely of stocks or solely of bonds, or stocks strongly correlated with each other. For example, if an investor purchases shares exclusively in the metallurgy market, then any crisis in the industry will immediately affect the share price. Grand union markets broker also argue that the portfolio requires periodic rebalancing in accordance with how the market is doing.
The “sixty to forty” rule (portfolio composition, 60% of shares and 40% of securities) is still the most popular among investors. It has almost become synonymous with the correct balancing of the portfolio, having strengthened the opinion of investors as the most effective over several decades. Grand union markets review suggests that this is quite logical - if the price of stocks falls, bonds soften the blow, because they do not suffer so much from these jumps, respectively, in a bear market, negative portfolio returns can be leveled by bonds.
But it seems that in our time such a traditional approach to the distribution between classes of assets is losing efficiency due to bubbles. This point of view, as Grand Union markets forex experts found out, is supported by companies like Morgan Stanley (which believe that the portfolio compiled by Markowitz principles in the following ten years will show a return of about 3 percent, despite the fact that over the past two decades it averaged to 6%) and Bank of America Securities, which claims that there is no longer any inverse correlation between stock and bond returns.
Some analysts believe that the quantitative easing approach and the systematic reduction of rates have become the reason that the traditional portfolio building system has ceased to be effective.
At the same time, they argue that stocks are still overestimated. Grand union markets even expressed suspicions that it is due to a scam. It all looks like now is the moment when you need to “go into money,” but it is extremely difficult to predict how much this can drag on and how much revenue will be lost. The solution, according to Grand union markets broker review, may be to search for promising securities whose value is not inflated by market hype, assets that the market underestimates. The reference point in this case may be the average P/E of the S&P 500 index (23), and on this basis you can search for enterprises with a lower cost, and preferably with higher dividends.
At the moment the United States stock market is full of industries that investors do not really like, for example, the traditional communications industry, or the oil industry. Experts also believe that if we take a more global look at the problem, then some states (even if you take their additional risks into account), look very underestimated. First of all, of course, they talk about China, where the average company has a cost of about three times lower than the cost of a similar American company.
Of course, there are opposing points of view. Some analysts (including grandunionmarkets.com reviews) say that the two types of bonds that existed on the market have not disappeared, there are still junk bonds and investment bonds. It can be derived from this fact, that the garbage bubble that has formed does not have any effect on portfolio balancing if bonds with high reliability are present in it. Moreover, even the principle of building a sixty-to-forty portfolio is criticized, and it is noted that it would be better to tie the portfolio structure to the investor’s risk profile.
All of them, at the same time, agree with the importance of the principle of diversification of investments. This rule remains effective still and is unlikely to lose its importance in the near future.