We think the time is right for high-yield bonds. We hold profitable positions in these securities in personal and client accounts. The yields offer an attractive alternative to most of the common shares, and have less chance of default or dilution. Naturally, we are very attentive to comments on prospects for these securities.
Our attention focused on this item from Zero Hedge:
...everyone is ignoring that 20% of these names will be bankrupt by year end, unless Obama and TTT nationalize everything, in which case look for the first 5 year plenary session some time in December, complete with parades by the 91st and 341 Missile Wings showing off their Minuteman III arsenals (reduced to single warhead delivery to comply with START I)
Unlike most readers, we click through to the source, which reads as follows:
“Champagne might be a little premature,” Gregory Peters, head of credit strategy at Morgan Stanley in New York, said yesterday in a Bloomberg Television interview. “You’re still facing the biggest distressed default cycle that we’ve ever seen.”
Moody’s is forecasting the default rate among high-yield companies globally to soar to 14.8 percent by year-end from 8.3 percent in April as companies that financed a record amount of high-yield, high-risk debt leading up to the credit crisis struggle to refinance.
A key skill for investors is to verify the accuracy of sources and their evidence. We highlighted this problem, and noted the difficulty when readers uncritically accept the summaries provided by popular sources. The summary from this author is not accurate when one looks at the source material.
The other key point in this case is the intermingling of a political viewpoint with investment advice. There is plenty to analyze about the Obama Administration. We work on this daily at our sister site, ElectionStocks.com, where we link policy proposals and decisions to stocks. Our approach is strictly analytical. We note successes and failures, and did the same for various candidates and the Bush Administration. Our approach is not partisan -- strictly oriented to investment success.
Those who start with the conclusion -- an attack on government policy -- and then look for evidence, may be in for a long four years of bad investment decisions.
Disclosure: Long PGF