Seeking Alpha
  • Michael A. Gayed, CFA
    Junk debt (JNK) continues to perform strongly in a sign financial stress is easing. Good stuff.
    1/27/12
    Reply (27)
    • Conventional Wisdumb: or overvalued based upon yield chasing behavior - same bad judgment preceded the yield compression in 2007 - unintended consequence of ZIRP
      1/27/12
    • Conventional Wisdumb: Gundlach says on a risk-adjusted basis HY is way overvalued right now.
      1/27/12
    • Tack: If you're optimistic about economic prospects, here's an even better pick now, as selling below usual premium: http://bit.ly/y6WNoO
      1/27/12
    • Michael A. Gayed, CFA: @Conventional Wisdumb - they can be overvalued and decline at a slower pace than Treasuries. Still bullish.
      1/27/12
    • Tas 2010: Can you give me your thoughts on the OIH vs SPY? I'm looking for a breakout of the oil services space against the market.
      1/27/12
    • Michael A. Gayed, CFA: I'm not overly hot on Energy as much as I am on agriculture on a catchup to reflation generally. But I've been wrong before :)
      1/27/12
    • Conventional Wisdumb: Michael, why hold either? I would be very nervous with treasuries. Better off with equities than a junk offering based upon valuations
      1/27/12
    • Conventional Wisdumb: better risk adjusted values available in the bond space. High quality corps should still do well this year.
      1/27/12
    • Tack: CW: The problem with any "high quality" bonds, selling at very low yields, even if better than Treasuries, is bond "convexivity."
      1/27/12
    • Michael A. Gayed, CFA: @Conventional Wisdumb - didn't suggest to hold either. Simply making observation about risk sentiment.
      1/27/12
    • Conventional Wisdumb: Michael, OK I get your point - risk on.
      1/27/12
    • Conventional Wisdumb: Tack, that is a problem with any bond which is why duration matters and credit quality. Junk acts more like equity as you know so
      1/27/12
    • Conventional Wisdumb: comparisons are tougher to make when evaluating the alternatives. If you have a bond allocation it makes sense to go shorter duration,
      1/27/12
    • Conventional Wisdumb: higher quality and take your risks on the equity side of your investment allocation. Again ZIRP is making it very difficult
      1/27/12
    • Conventional Wisdumb: to build a bond portfolio with enough yield that doesn't make you take undo risks. All around a tough time to allocate
      1/27/12
    • Tack: CW: Convexivity is why one avoids ANY bonds at ultra-low rates because if rates reverse, the prices of such bonds will decline faster.
      1/27/12
    • Tack: CW: That junk acts like equity is an advantage because if rates rise, it will be because of a stronger economy.
      1/27/12
    • Conventional Wisdumb: duration is about as close as you can get to measuring convexity so keep durations low and interest rate risk is lower as well.
      1/27/12
    • Conventional Wisdumb: Junk bonds are more sensitive to economic factors so risk is not just interest rate risk. The chance of larger drawdowns is higher even
      1/27/12
    • Conventional Wisdumb: with simlar duration.
      1/27/12
    • Tack: CW: But high-grade bonds with short durations aren't even worth the time now. Better off in cash, literally.
      1/27/12
    • Conventional Wisdumb: as per Gundlach, junk was getting attractive in August last year when valutations on JNK and HY fell but it didn't last long
      1/27/12
    • Conventional Wisdumb: Tack, ironically enough I just finished reading this you might find it interesting http://bit.ly/zFk33i
      1/27/12
    • Tack: CW: Thanks. I have one inviolate rule: I don't hold any bondsor preferreds selling above par that are past callable dates.
      1/27/12
    • Conventional Wisdumb: look at MUB year over year. that was a nice buy when that twit Whitney made that call, what an idiot or maybe they were playing both sides
      1/27/12
    • Tack: CW: I bought a half dozen muni CEF's on Whitney-induced panic. So sweet it was.
      1/27/12
    • Brendan O'Boyle: Yeah I sold one of those (PML) not 2 weeks ago just to watch it go parabolic this week. Whatever, bought at 10 sold at 12 plus 7%.
      1/28/12