That is the ominous, ponzi-like warning from Adam Cohen, Caspian Capital's managing partner as the distressed debt investor has chosen to return some money to investors because the rewards don't justify the high risks anymore.
He is not wrong as it's party time for zombie companies everywhere as "high yield" is now officially "low yield."
As a result of the unprecedented (Fed-sponsored) demand for junk, a majority of new issues, even those rated in the riskiest CCC tier of junk, have been hugely oversubscribed. So much so, in fact, that according to Credit Suisse, this year has witnessed a remarkable rally in lower quality HY paper with the "triple hooks", i.e., the lowest quality CCC bonds up significantly for the year and yields now sitting at record lows at 6.7% for our the broad Credit Suisse index.
While this avalanche of junk is great news for zombie corporations which will be able to obtain cheap access to cash, allowing them to continue their cash burning, deflationary existence for another year or two, it's an ominous sign for the bond investors buying paper at the absolute top of the market because even the smallest hiccup would send yields soaring.
And, while the party can and will go on as long as there are greater fools, one look at the fundamentals...