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Kroger bond sale after Amazon bubble

| Online | 2 February, 2018

Hollis Johnson

The market is up 2% 

since I called the top a month ago

.

Financial newsletters are now stuffed with bubble porn—their favorite subject is complaining about how overpriced everything is. As a financial writer, it’s tough to stay fresh when that’s all there is to talk about.

Let’s continue, nonetheless.

How long can this continue?

Let me tell you a quick anecdote.

Remember a few weeks ago when Amazon said it was going to buy Whole Foods? Of course you do. From a strategic standpoint, Amazon getting into physical grocery stores is a huge deal. It even started a discussion on antitrust law in Congress.

All the supermarket stocks got caned the day it was announced, because Amazon getting into the grocery business is bad for everyone. Kroger got hit hard.

Interestingly, Kroger tapped the bond market not too long after that with a $1 billion deal, of 5s, 10s, and 30s, across maturities. People were willing to buy Kroger paper just a week or two after finding out that Amazon was going to put them out of business!

Amazing.

The bonds, priced at 180 bp over 30-yr Treasuries, then rallied

. They now trade at 175 over.

Keep in mind that Kroger is a low-investment grade credit to begin with, and now people believe that Amazon is going to put it out of http://www.ergo-rowi.at/BvN2012Forum/index.php?page=User&userID=103485 business.

Here is a stock chart of KR for reference:

Mauldin Economics

If you are buying Kroger 30-year paper, you have to be pretty sure that Kroger is going to be around in 30 years. Will they? Probably, in some incarnation. But are you getting compensated for the risk at 4.65%?

This isn’t the dumbest bond out there. It’s actually not even close to the dumbest bond out there. But it’s a pretty good example of bond investor ebullience.

I don’t spend a lot of time shopping for individual bonds, but when I do, I cannot bring myself to get excited about marginal credits in low single-digit yields. I’ve seen quite a few cycles in credit, and this feels like all the other tops. Except even toppier.

Meanwhile, markets go up

We could sit here and complain about credit, the short vol trade, etc., but you get nowhere.

Meanwhile, the NDX is up nine days straight, the SP 500 at 2900, my “top” call left in the dust.

Sitting around and watching this every day is just agonizing. But every day things get a little sillier, and dreams get a little bigger. So far, 

Pitbull has weighed in on bitcoin and Canadian housing

, and both are circling the drain.

Please, someone get him on Fast Money

 and ask him what he thinks of stocks.

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