The BEST non-obvious hypothesis a friend shared:
-the people testifying in front of Congress in last financial crisis: mortgage lenders + banks + credit agencies
-the NEXT group? Maybe Blackrock, PIMCO + (ratings firms ~ Morningstar). Esp BOND mutual funds
2/ How? Low rates pushed people out on risk curve—for reitrees that meant switching to seemingly safe HIGH YIELD bond funds
IF underlying issue defaults, NAV drop, shares can drop 20%+ with permanent principal loss.
COULD that happen? It did...
3/ The 3 months ending 10/31/98 worst-performing HY fund Dreyfus High Yield dropped 26.9%. Fidelity + Northeast dropped 13%.
Everyone talks of trade, tariffs, Softbank, Uber, equities, election—
where is the buzz about the masses in junk bond mutual funds?
Therein lies RISK
You can follow @wolfejosh.
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