Die Capitalist Dog!!

There are days when I think that somebody at the New York Times is my regular reader, since a few days later there is either an article or ed piece repeating (with quotes from folks I don't have access to) the thesis of one of these posts.

A few days ago, came this story on the declining value of investing in investing software. There was going to be a post here, crowing, but I never got around to it.

So, what happens? Today comes yet another story about returns. All those Koch Brothers are being compelled to actually invest in the USofA. Unlike stocks, bond proceeds go *to* the corporation whose name is on the paper. This is a good thing. When Greenspan cratered the Fed rates, I wonder whether he followed the intellectual breadcrumbs? By removing "risk free" Treasuries from consideration, in that the Kochs want lots more moola for the grace to lend money they can't otherwise spend, the Kochs of this world turned to "risk free" housing. That didn't work out so well, so now they're buying corporate bonds.

If one believes the Right Wingnut propaganda (that is, the Right Wingnuts believe their own story), this shift from fiduciary instruments to real investment is a Good Thing. Sort of.

Here's a few snips from the latter piece:

"It's amazing: You're now seeing 4 to 5 percent yields for weaker companies," said Adam B. Cohen, founder of Covenant Review, a credit research firm. "These are the type of yields that you used to see for blue chips like Exxon and Pepsi."

Surprise? No flation and low interest rates, no surprise. One might even argue that the nominal interest rate isn't artificially low, given the absence of flation. 5% is a good return for doing nuthin.

The percentage of high-yield issuers that have defaulted on their debt in the last year stands at about 2.8 percent, according to Standard & Poor's, well below the historical norm of 4.5 percent.

Yet, these bonds are going out as "junk"?? Sounds like the ratings' agencies are gaming the game, yet again. Who'd a thunk it?

Still, a growing chorus of market players is starting to sound alarm bells. A recent report by Bank of America warned investors against diving headlong into junk bonds at these record-low yields. Not only is there little hope for additional price appreciation, but the companies issuing this debt are vulnerable to a cyclical swing in the economy and slowing business conditions.

The fly in the ointment? Lousy time to buy bonds for capital gains purposes. Back in the mid-1970s, house mortgages were well into double digit rates. House prices, in concert, were lower. Those that bought then reaped the Big Kill later when the price of housing went up and rates came back down. Double whammy. Bond traders beware.