What Junk Bonds Convey About Investors’ Mindset

October 25, 2021

“Governments feel rich and are spending like drunken sailors” 

By Elliott Wave International

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:

NegativeRealYield

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:


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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.

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This article was syndicated by Elliott Wave International and was originally published under the headline What Junk Bonds Convey About Investors’ Mindset. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.