Ten years after the 2008 financial crisis “very little has been really fixed,” and the next bubble is about to burst, says Bill Blain, a strategist at Mint Partners. According to Blain, this time the bond markets will trigger the mayhem.
Global stocks rose in value after the People’s Bank of China poured $47 billion into its financial system. That means “central banks have little to worry about in 2018 – if markets get fractious, just bung a load of money at them,” said Blain.
The 2008 crisis, which was about consumer debt, was triggered by mortgages. We still have consumer debt crisis problems ahead, warns Blain, adding the next financial crisis is likely to be in corporate debt.
“More immediately, the realization a crisis is coming feels very similar to June 2007 when the first mortgage-backed funds in the US started to wobble.” He said it explains why “we’re seeing the highly levered sector of the junk bond markets struggle, and companies correlated to struggling highly levered consumers (such as health and telecoms) also in trouble.”
Stock markets don’t matter, according to the strategist. “The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market,” he said.
“I’m convinced bond markets are the REAL bubble we should be watching, and it’s going to start in high yield…”
According to the strategist, it wasn’t just banks that benefited from ‘too-big-to-fail.' As the crisis unfolded in the wake of Lehman’s default, the global financial authorities pulled out the stops to stop contagion, he explained.
“Banks were unwilling to realize further losses, interest rates plummeted, meaning the highly levered companies issuing the debt backing CLOs (Collateralized Loan Obligations) survived and were better able to repay their existing debt.”