Tuesday, October 21, 2014

There is a very concrete lesson in the HYG chart right now


It's not owned by Joe Sixpack. It's owned by greedy junior hedge-fund clowns who are trying to maintain a debt-equity asset allocation but still outbeta the market, or it's owned by bond fund clowns who are trying to out-beta government bonds.

Selling HYG at $90 last week was stupid, because now that the pressure is off it's bounced back to $93. Which means the clown who sold at $90 was selling at a $3 discount to a reasonable price.

But that $3 discount, for HYG, amounts to 6 months of dividends. So that clown who sold high-yield last week wasn't just trimming a position, he was essentially tearing up 6 months of coupon.

I find bonds unsexy, but I've been taught that the only reason to own them is for coupon. You want to chase capital gains? Buy tech stocks. A rentier charges rent.

So a bond trader or asset allocator puking HYG is spitting in the face of his own profession. He really doesn't know what he's supposed to be doing. He doesn't know why he owns bonds.

So don't tell me that bond traders are smart.

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