The ongoing liquidation of the $800m Third Avenue junk bond fund highlights current chaos in the financial world. The fund has lost 27% this year and is telling “investors” they can’t withdraw money until the fund liquidates, which probably means there will be little left to distribute. Anyone who puts money into this high yield garbage should know they could lose most of it. And this time they may. However Wall Street is so addicted to yield and risk it generally ignores quaint concepts like financial solvency.
Since everything is interlinked, a predictable debacle like this causes sympathetic detonation through other junk funds and the financial world at large. Lots of Wall Street parasites invest in funds like this using borrowed money and may be leveraged. Thus, they may get margin calls, which will cause more pain. Any relation of this to a functioning financial market that addresses the needs of Main Street as well as Wall Street is of course completely accidental and coincidental.
But wait, there’s more! It’s just a ball of crashing confusion, greed, and panic in financial markets worldwide now. I’m sure they’ll all be whining for bailouts soon because no one could have predicted that massive greed combined with ignoring risk could lead to disaster. More funds will be liquidating soon too.
We laid out a list of junk bond-focused mutual funds which based on their atrocious YTD performance, have the highest risk of being the next to follow Third Avenue in gating and/or liquidating, noting that Catalyst, or Nuveen or Franklin are most at risk.
The Dow is down over 600 points in the last week or so, bond yields are collapsing, the US Dollar is tumbling, crude is crashing, and junk bonds are in free-fall.
Turkey lira, stocks, bonds pummeled
Corporate insiders are dumping their stocks. This is extremely bearish as it means insiders think their stock has significant downside risk
Venezuela oil crashes to 2004 lows. Their economy now is essentially not functioning and things are getting worse.
Mexico peso hits record low.
South Africa rand demolished.