“One man’s trash is another man’s treasure”.
- Idiom originated in Hector Urquhart’s 1860 Popular Tales of the West Highlands

And this year’s award for such ambivalence in the financial markets goes to… junk bonds. In this note we will delve into the origins of the market, an overview of the asset class, causes behind current market struggles and our strategies going forward.

风无常顺,兵无常胜 fēng wú cháng shùn, bīng wú cháng sheng
- Chinese Proverb.  English translation:  A boat can’t always sail with the wind.  

No argument.  We lost the wind in May and suffered a sharp stock market correction in the third quarter.  China, a major source of headwinds, will be the focus of today’s note including:

  • A background on China.
  • The economic evolution of China.
  • Uncertainty arising from China.

We will conclude by commenting on the future direction for those winds and our navigational plans.  

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world”
- Archimedes; Ancient Greek Mathematician and Inventor; 287 BC - 212 BC.

The Greeks invented leverage more than 2,200 years ago.  Sure, it might have started with “physical” leverage, but it didn’t take long to apply the magic to money.  “Give me enough bank debt and I shall move the world” -- and move it they have.

“Your love keeps lifting me higher
Than I’ve ever been lifted before
So keep it up
Quench my desire
And I’ll be at your side, forever more.” 

- Jackie Wilson; 1967

Some 48 years after reaching number one on the R & B charts in 1967, Wilson’s hit song has made a revival. Oh, you might not hear it on the radio, but the stock market sings it every day to Janet Yellen at the Fed. “Quench my desire” – for endless easy money, “and I’ll be at your side” – well behaved.

Let’s examine these two characters and their relationship.