So what’s the dumb money doing right now?
My eyes started to bleed when they fell upon the following Bloomberg piece:
Sales of bonds backed by everything from timeshare rentals to shipping containers to entertainment royalties are poised to rise this year as investors seek to boost returns with interest rates at about record lows.
So-called esoteric asset-backed securities issuance may soar 12.9 percent to $35 billion, compared with debt linked to more traditional collateral such as auto and credit-card loans, which will grow 8.75 percent to $87 billion, according to a forecast from Credit Suisse Group AG.
Barclays Capital, Citigroup Inc. and Wells Fargo & Co. are directing investors toward the debt[…].
“The ability to pick up incremental yield while not taking additional risk makes esoteric ABS attractive,” [Cory] Wishengrad, [Barclays Capital] co- head of securitized products origination, said in a telephone interview.
Again: “The ability to pick up incremental yield while not taking additional risk makes esoteric ABS attractive.”
You know how Baruch Spinoza said that “Nature abhors a vacuum”? Well, markets abhor those who have money but are ignorant of history. I’m not saying that there’s no merit to these deals; I simply don’t have enough information on a specific deal to say one way or the other. But I’m pretty sure that there’s no investment fairy flying from asset manager to asset manager sprinkling higher yields on the undeserving. No matter what the ratings agencies tell you.
All I want to know is: who’s buying this stuff in size? I might like the other side of that one.