Happy Holidays!

We wish all our readers happy holidays and a prosperous and healthy new year. As we announced last week, the blog will go on a one week hiatus over the holidays until year end – unless something especially noteworthy happens that requires immediate comment (asteroid strike, Greek presidential election going awry, etc.).

A Few Charts

In recent days we have come across a few charts that have struck us as interesting, but that weren't really relevant to any of the posts of the past week. We are including them here, in no particular order:

1. Federal Funds rate expectations over the years:

A friend pointed out to us that the market has expected the Fed to raise rates every single year since 2009 – as the year went on, these expectations were obviously altered toward expecting no rate hike. This is the “new normal”, so to speak – ZIRP forever and ever. Will 2015 be different? The chances never seemed better, but we'll believe it when we see it:

Expectations of a Fed funds rate hike have been high at the beginning of every year since 2009, only to be revised to nada again 

2. The public's view on marihuana legalization has changed radically. EWI's “The Socionomist” publication recently showed a long term chart of a Gallup poll on the public's opinion regarding marihuana prohibition starting in the late 1960s – there has been a startling evolution:

In 1969, the heyday of the flower-power movement, 84% of Americans were in favor of retaining marihuana prohibition, and only 12% were in favor of ending it (the remainder are “don't knows”). Today the ratio is at a startling 58:39 in favor of finally ending prohibition 

3. Leveraged loans

Below is a chart that recently appeared at Bloomberg that shows the astonishing growth in leveraged loans outstanding. We have discussed leveraged loans in “A Dangerous Boom in Unsound Corporate Debt”, noting that they are as a rule actually safer than junk bonds, because they are secured by assets of borrowers and lenders tend to know a lot more about borrowers' financial condition. Nevertheless, since they fund mainly LBOs and M&A activity, and borrowers often tend to have a limited track record, the huge growth in this type of financing is certainly noteworthy and worrisome – especially as the credit quality of borrowers must necessarily decline the more such loans are extended.