[MrBill]

$this->bbcode_second_pass_quote('', 'O')ne interesting tidbit he posted was that 31% of American consumption has been funded by re-financing homes. With interest rates rising, that source of cash has been cut off. And with high energy prices, the bankruptcy bill, and the change in credit card minimum payments, at the very least, people are going to have to severely cut back on their spending.

[Leanan]

Here's one of the photos.

"A long line of people wait to file for bankruptcy outside the United States Bankruptcy Court in downtown Denver, on Friday, Oct. 14, 2005. People were filing bankruptcy petitions on Friday to beat the start of a new federal law that sets stricter standards for seeking protection from creditors."

[EnemyCombatant]

It makes sense that people filing for bankruptcy would take a chance and wait till the last day.

[Leanan]

Here's the article Jerome a Paris wrote about the brewing financial storm:

http://www.dailykos.com/story/2005/10/16/104733/25

The comments include some interesting info about what it's like to live with hyperinflation. Like, people being paid each hour, and sending family members out to spend it immediately, before it depreciates.

[MrBill]

$this->bbcode_second_pass_quote('Leanan', 'H')ere's the article Jerome a Paris wrote about the brewing financial storm:

http://www.dailykos.com/story/2005/10/16/104733/25

The comments include some interesting info about what it's like to live with hyperinflation. Like, people being paid each hour, and sending family members out to spend it immediately, before it depreciates.

[MrBill]

Markets are not perfect they often misprice assets and misallocate resources. Citigroup is trading right now at a P/E ratio of about 10 vs. the broader S&P index trading at a P/E of 19-20. Now what's up with that? Citigroup has had some corporate governance issues lately, but their earnings are up 15% and they have global reach. No matter where in the world there is growth, Citigroup will be there. They just signed an agreement to allow Chinese nationals to withdraw hard currency from their ATMs anywhere around the world. Why the market is discounting Citigroup I have no idea?

Ditto for GE. Great company. Global reach. A good geographical hedge against problems in America even though they are US companies. Now, Martha Stewart, her company was trading at 160 times earnings. Ludicrous. A higher valuation than Google. So, yes, I expect a few speculators to get burnt in Martha's pick of the day, while those who go into Citigroup or GE should do much better over the long-term. However, if Martha issues stock and people are dumb enough to buy it, then who am I to protect them from themselves? Even in an efficient market if you buy a house you cannot afford you risk losing it. Don't blame it on the market.

[rkerver]

MarketWatch: GM is facing the facts of life, 10/18/2005, Dr. Irwin Kellner
$this->bbcode_second_pass_quote('', '[')color=darkblue]The ability of General Motors to extract massive concessions from its union reflects three indisputable facts of life...health care costs are soaring... Most companies and industries were able to gradually shift at least some of the burden to their employees -- except for the rust belt industries... companies in these industries soon found themselves saddled with huge costs... this forced them to raise selling prices, causing sales to slump ... along with an influx of lower-priced vehicles coming in from abroad... The facts of life are that the world has changed and those industries and companies, such as GM (GM), that don't adapt to it will soon find themselves out of business.[/color]

[BabyPeanut]

http://www.guardian.co.uk/usa/story/0,1 ... 33,00.html
$this->bbcode_second_pass_quote('', 'I')nvestors started pulling their money out following news of a week ago that Refco's chief executive, Phillip Bennett, had been charged with defrauding investors by using a hedge fund to hide $430m of debts.

[bruin]

Europe is seeing records amount of risky debt themselves:

$this->bbcode_second_pass_quote('', 'T')he volume of mezzanine debt issuance has hit a record level in Europe this year, contradicting forecasts that the popularity of the asset class would diminish amid the strong growth of the second-lien loan market.
...
The product has been a popular feature of leveraged buyout financing structures, attracting yield-hungry investors.

[fossil_fuel]

$this->bbcode_second_pass_quote('MrBill', ' ')Why the market is discounting Citigroup I have no idea?

[MrBill]

$this->bbcode_second_pass_quote('fossil_fuel', '')$this->bbcode_second_pass_quote('MrBill', ' ')Why the market is discounting Citigroup I have no idea?

[LadyRuby]

Any suggestions on how secure bond funds (as opposed to stock-based mutual) funds will be in coming years?

[MrBill]

The fixed income universe is simply too broad for one pat answer to that question. There are many types of bond funds. Some invest only in OECD, government debt with investment grade ratings, while others specialize in sub-investment grade corporate credits, emerging market and distressed debt. Some are hedged against US treasuries and others run a higher Alpha risk or even take on leverage to enhance the risk/return.

Personally, I find it very unsettling that any company can pursue policies that reward shareholders while penalizing its debt holders by for example issuing more debt to pay for leverage buy-outs, share buy backs or dividends. That ain't right, Ma'am. I would have been one pissed off bond holder had I held AT&T when they decided to split up into four separate Baby Bells. Just some of the risks bond holders potentially face.

Of course, if you hold senior secured debt you may stand at the front of the line if there is a bankruptcy, but personally I do not like to invest in companies that are likely to go bankrupt. Sovereign bonds by nature of their ability to raise revenues via general taxation are quite secure from default, but you may still run other risks like currency devaluation and/or see domestic inflation eat into your returns.

Emerging market bonds have performed very well over the past several years (EMBI +13.8% in 2005), but that was due to a) falling global inflation, b) lower US interest rates, c) high commodity prices, and d) better macromanagement (but I would not place too much weight on that last point, it is easier to be prudent in a benign environment). However, I doubt going forward for how long can we rely on these same factors to continue, for example, US interest rates are still moving higher and higher energy & commodity prices may push up inflation as well.

So, I cannot tell you equity will outperform fixed income or vice versa, but whichever bond fund you choose, just make sure you know what instruments the fund manager is going to invest in and make sure you agree with the logic of their approach. As a hedge against inflation, bond funds are not generally very good (except if they buy inflation indexed bonds or other such exotic instruments like IRSs). As a hedge against market turbulence investment grade bonds usually are not too bad (flight to quality and all that jazz).

Hmm, isn't this where someone tells me, forget bonds or equities, the only hedge for the future is gold? ; - )

[TommyJefferson]

$this->bbcode_second_pass_quote('MrBill', 'A')s a hedge against inflation, bond funds are not generally very good (except if they buy inflation indexed bonds or other such exotic instruments like IRSs).

[cube]

There are 4 broad types of investmets that I know of:
1) stocks
2) bonds
3) real estate
4) commodities

Without question stocks have been the "golden child"...in other words the one most talked about. However just because something has gathered the largest audience...that doesn't necessarily mean it's followers have done well. I think it's safe to say for the past 100 years, the stock market has bankrupted more people then any other form of investment.

I have this theory that in general there can be a bull market in only one form of investment at a time. For example if stocks are hot then there's a good chance that commodities aren't and vice versa. I think commodities is where the action is right now, not bonds. However that's not really saying much. Surely there has to be some good bonds out there...

I tend to look at investment from a TOP down approach. First I ask myself which of the 4 categories is doing well? Then I go about trying to pick individual investments from the selected category. If a category is not doing well then I will skip it altogether. For example if the stock market is not doing well then I won't buy any stocks. Even in a bear market there certainly will be some stocks doing well but I won't even bother trying to pick them....anyways that's just my style.

The other approach is BOTTOM up. These people will pick individual investments even if it's group is not doing well. Warren Buffet falls into this category. He can pick stocks that will do well in the long run even though the stock market in general is not doing well.

Getting back to bonds....which ones will do well? To be honest, I'm not even qualified to give any suggestions. However at least I have introduced the concept of top down vs. bottom up strategy. If that's a new idea to you then guess you learned soemthing and thus reading my rambling thoughts wasn't a complete loss.

[shakespear1]

You may want to concider something called a "structured products". My investment adviser mentioned these to me but I first did a bit of research to find out how they work so as to profit the most. I did this by reading on this website about them

Protected Stocks

$this->bbcode_second_pass_code('', 'There’s a “secret” investment that provides stock market gains while minimizing or eliminating losses. We call them “Protected Stocks”.
Even if the stock market crashes 75%, you’ll still be paid a guaranteed amount. And if the stock market increases, your investment will also increase. Wall Street calls them "index linked notes" or "structured products". We call them "Win-Win Investments')

I am not recommending them but I think they are worth looking at as they afford you a chance of a gain with moderate risk. The trick with them though appears to be at what price you buy them. Doesn't that sound familiar !!

[pup55]

“Protected Stocks"

A guy tried to get me into a fund like this a couple of years ago. The "catch" was that there was an up-front load of about 4% or something, and the historical returns were rather pedestrian. So, you are paying some percent off to the broker for commission, plus accepting a low rate of return for "security".

As to the question of bonds in general, they used to say that the federal long and short term bond funds were a good place to park money, because in theory they were "risk free", that is, the government would never default on them. Once again you pay for this security with a lower rate of return.

There probably should be some revision to this theory, in light of recent events.

[LadyRuby]

I don't know, I don't trust anything. We don't have much (in retirement funds) but I decided to move some to money market funds instead. I think that may be the best we can do without pulling them out entirely from retirement accounts.

[Seadragon]

I'd say having a well diversified portfolio is better than being in all cash, most of the time...