Since the onset of the GFC in 2008, central banks have attempted to forestall economic and financial consequences of the collapse by money printing and a zero interest rate policy.
This central bank intervention has led to the inflation of a bond bubble. All asset prices, including commodities, equities and real estate, have risen since 2009, but not with as much gusto as debt. All debt, no matter the quality of the issuer, has experienced a roaring bull market.
Almost $4tr in new debt was issued in 2012 by world corporations. Overwhelming, the cash raised is used to replace higher-priced, older issues or buy back the company’s stock. The new money is not being used to invest in growth, so ultimately these central bank policies have been failures. Unless that is, you own a lot of stocks that are increasing in value as shares are removed from the market or bonds that are adding premium as interest rates drop.
2013 will bring no respite for issuers. ZIRP will continue creating the demand for yield, and money printing will supply the cash to fill this demand. We have quite a money merry-go-round spinning here and the carnival isn’t over yet.