Comments on: As Big Brother steps up, time for credit

By: babelfish

babelfish — Fri, 23 Jan 2009 08:59:27 +0000

Does 10% per annum seem such a great return in the current environment? If (when) inflationary shocks occur, which is very likely as the central banks make various attempts to get money moving again, there will be some companies with lower leverage and less variable unit sales which will do very well. If you’ve got a 5 year plan maybe to sit and wait for a few years but then buy equity. They key now is not optimal return, but optimal liquidity. There’s no point have a bond yielding 10% pa if it take 10 days to cash out if the market turns and it’s time to get out of the currency…

By: Youri Carma

Youri Carma — Thu, 22 Jan 2009 11:16:25 +0000

Well the whole world doesn’t know what they are doing but UK is in the most worse shape unfortunately. Joe Stiglitz says not spending money is a problem but as we know spending is also a problem “between the hard and the rock place”. Every country now the banks are (temporally) in the hands of the state.

Money has to pored in but with which argument or economical theory? The do it because everyone else is doing it, that’s my conclusion. It’s the same as Greenspans inflating, inflating low interest rates which exactly (well there are more factors) caused this! There won’t be an alternative approach before the whole system collapses again with the next treasury bubble and dollar fall.

Joe Stiglitz; “in the long run we have to face the depth”

I like to add that the situation in which taxpayers have to rescue the financial business with future generations of taxpayers having to pay the bill is
simply ridiculous! It’s the biggest scam of the 21 century which will unravel itself in the coming months – years. The rightious way to have handled this situation in my opinion is the way they handled the Tulp Mania in 1637 in Holland (the Netherlands)
http://www.answers.com/topic/the-tulip-m ania

I proposed this (but who am I) far back in 2008 to throw away the old book keeping and start all over again. I will assure you that this eventually will happen anyways but on the hard way cause it’s already to late for the soft way with all these reckless bailout spending. A world currency or dollar devaluation is exactly the same so, why didn’t they do it right from the start? Cause they are (and the world also) are out of their “sane lets be real minds”, it’s mass delusional psychology in my humble opinion.

The will try to inflate themselves out of depth!

By: Emo

Emo — Thu, 22 Jan 2009 10:31:27 +0000

It is absurd for governments to nationalise bad debts, to bail out banks and financial institutions. This will just free up irresponsible companies to make the same mistakes over again.

The US government has to nationalise the banks, and failing financial institutions. At least that way they are left with assets which they can privatise, to recoup their investment, when market conditions are favourable.

By: kushal

kushal — Thu, 22 Jan 2009 07:30:39 +0000

my question is: if these bonds are really so interesting and worth buying, why the current investors want to sell them? the fact that there is huge supply in the market in spite of all the positive factors being explained in this note suggest that there is something fishy.

By: brian mcnamee

brian mcnamee — Thu, 22 Jan 2009 07:06:20 +0000

the prices declining is deflation but at the same same time since october the money supply has risen by over 70 percent: the effect of this inflation are not being fealt at present but with the presses running full time there will be a crisis in confidence in the dollar soon…i would not touch bonds they will crash, its the end game starting up commodities like gold will be a safe store of wealth

By: Tom

Tom — Thu, 22 Jan 2009 06:36:30 +0000

Nobody knows whether we’re headed for inflation or deflation, you can make a good argument for either. Chris is right to point out that if the Fed and the fiscal authorities can get any velocity going, those high yields won’t seem so high any longer. On the other hand, if the programs don’t work and deflation sets in, one has to remember where it is coming from. The deflation we have seen so far looks like a result of debt destruction. Should this continue, it would presumably reflect higher corporate default rates and wipe out a lot of the high expected coupon payments. So, I wouldn’t necessarily expect deflation to be a boon for corporate debt either.

By: P de Villiers

P de Villiers — Thu, 22 Jan 2009 00:06:04 +0000

Contrary to Chris’s point, we appear to be entering a deflationary cycle, making these bonds even more attractive. If the hypothetical 5% inflation comes to pass, look elsewhere, but that’s clearly not the case now. An 8% bond becomes a 10% bond when deflation is running at 2%.

By: Chris Bruce

Chris Bruce — Wed, 21 Jan 2009 22:01:08 +0000

This is a seductive argument, and one which has been widely adopted by financial advisers and the like. Like any investment script, who knows how it will play out – but one factor that ought to go alongside the default risk, is medium term inflation. This latter is something many commentators (including John Kemp on this website) regard as inevitable. That being the case, the 7% or 8% corporate bond yield that are softening the capital risk at the moment, may, in a 4%, 5%, or more, inflationary environment look lame. All in all, corporate bonds may be worth a go – but keep reading the newspaper, because you may want to be out long before 5 years are up

By: Don

Don — Wed, 21 Jan 2009 17:18:48 +0000

“Otherwise healthy corporations” that need to float on short-term debt to survive are also known as extremely unhealthy corporations. If readers are sold on the idea of buying up debt when interest rates are very low, it seems they have never taken an introductory college course in finance. My argument is, if we rely on a variation of a pyramid scheme to support the economy, there is no net positive effect. We can unload debts on the shoulders of average investors. The seller gains but the buyer loses. The net impact is neutral. So if that is the general plan, it was devised by really dumb people.

By: Leo Gallagher

Leo Gallagher — Wed, 21 Jan 2009 15:00:59 +0000

Interesting article. Any suggestions on what might be the best funds for long term investors interested in high yield debt?