Diversification in fixed income holdings is as important as diversification in the equity book.....other than US Treasury obligations, I own no single "name" in excess of 5% of my total fixed income exposure - for that very reason. Not necessarily my idea, but it works for me and I encourage others to do the same......with the number of mutual fund and ETF options available, it's a good discipline and easy to implement.
I remember it well Sid.....I was a young financial analyst in a local Columbus bank - who is no longer with us. It was the advent of the Volcker era and the Fed's mission to attack inflation gifted to the country by the disasterous policies of the Carter admin by squeezing the money supply to levels that forced rates up in dramatic fashion - do you recall the "Saturday Night Massacre"?
Mrs JO'Co, he is a wise man indeed! You are very fortunate to have him....listen to him. He is providing good advice.....as I have said before, if you don't need the cash in near term, I can't imagine a worse thing to do than to sell stocks in this market.
Jiffy, we're just about there......there are many things that would suggest that this could be the bottom.
Oil dipped below 80$, good news for most everybody. Don't know if it's good news for me though. My office is smack dab in the middle of what is called the energy corridor in Houston, a bustling area with new construction everywhere. Technip is right across the freeway from me and they are building a whole new building and right next to them is one of those Comfort Suites type of building going up, I wonder how low oil can go before the oil business (which is much more than Exxon) starts to hurt. Terry
Who would have thought that would ever be an issue? They were doing OK at $60. I'm sure the oill refiners will survive......although they may cry otherwise.
Right now they are 9.75 cents on the dollar! :shock: They are in essence an insurance policy purchased by those seeking to protect themselves from default on a debt they "perhaps" hold and sold by those who seek to reap the benefit of the "default premium" and guarantee the debt. The seller of the CDS is obligated to pay only in the event of a negative credit event or default. These little beasties are at the core of the current credit crisis.....the size of the CDS market ballooned to in excess of $50 trillion dollars - or more than the entire amount of credit market debt owed in the entirety of the United States - including the Federal government! Consider what that is saying...... people were writing and buying these little animals in sequential transactions many times removed from and in multiples of the referenced debt. Those that bought the swap now have no clue who is guaranteeing the obligation which has givn rise to the counter-party risk and the uncertainty has decimated the credit market. These little buggers were used by the invesment banks to enhance the credit or guarantee the many tranches of sub-investment grade debt so as to garner a AAA rating from the rating agencies. Now that nobody knows who has what, or who owes who and what the state of their credit worthiness may be, we have a credit debacle which at the core came from people not paying their mortgage, the implications on the mortgage back security market and now the CDS market.....the primary reason AIG was bailed out was that they were a major player in the CDS market. The the auction for the Lehman Brothers CDS book began today to the tune of several hundred billion $ and the bids were averaging 9.75 cents on the dollar.....I believe this to be a water shed event in that it removes another major element of uncertainty from the capital markets. Markets hate uncertainty and although the auction results are ugly, the demon I know I fear less than the demon I don't..... Many point to the lack of effective regulation in the CDS market as one of the great failings of our regulatory infrastructure that contributed to the current ditch we find ourselves....
Reading your very clear explanation, leaves me wondering what sort of Wall Stree Wizzard would you have to have been to be able to follow this sort of thing and actually understand your risk. With proper data could Big Blue have maybe tracked them?
Bingo.....we have a winner! You could not with any degree of accuracy due to the degrees of separation between the original referenced debt and the layers of guarantors, imho. The risk could not be adequately quantified and therefore could not be adequately managed and without adequate risk management systems in this day and age of a global, inter-connected financial system, we have a global train wreck.
Interesting opportunities are out there... According the WSJ That some 10% (is this true???) of US stocks are trading at a value less than their total cash holdings per share. So in other words, you could basically buy up all the stocks, liquidate the cash holdings, pocket the difference, and then own the company for free.
TOK, Sorry TOK, I don't know anything about them.....but common sense tells me that anything with a 15% income return/yield needs very careful scrutiny. Things don't trade at 15% without material risk.....and if there was not material risk, they would not be trading with 15% yields.....
Yeah seems like a vehicle for people who know that sector and can evaluate what's going on in it fairly.