TROUBLE IN HIGH YIELD LAND

If your paradise was once the garden of high yield bonds, there's trouble in paradise.

Though those responsible naturally won't want to claim it, much of that trouble can be placed at the Fed's ZIRP doorstep. And if one can believe billionaire investor Carl Icahn it's just the first act. Here is a list of things the noted investment octogenarian says went wrong.

• Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso’s Women of Algiers (Version O) for proof of this.
• Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. 
• Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there’s something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn’t exactly been quiet about his opinion with regard to Apple’s buyback program (he does add that healthy companies with lots of cash should repurchases shares). 
• Fake earnings: Companies are being deceptive about their bottom lines.
• Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates. 
• Corporate taxes are too high: Inversions are costing the US jobs.

There is something labeled the spillover effect. Bill Gross, another serious investor, alluded to it recently when he twitted: "Who will get n if you can't get out? " That's more than just an oblique reference to the Third Avenue fund where they reportedly locked up funds for one year.

Where not baseball card collectors but just today it was reported a 1952 Mickey Mantle card went for $525,000. Sure it was a rare rookie card. As Icahn says, the Fed has become the "bubble lower extraordinaire."

And how many today really know who Mickey Mantle was?

http://www.zerohedge.com/news/2015-12-11/carl-icahn-warns-meltdown-high-yield-just-beginning