Mark Kiesel, at Pimco's Pacific Investment Management Company says it's best to sell your junk bonds now. Why is he saying this? The key factor is that economic growth is not there. Kiesel looks for only 1-2% growth in GDP next year.
All of this talk about "green shoots" simply is not materializing. Kiesel says the "green shoots" are turning to weeds. He further said that credit is not re circulating. Business financing costs range from 10-12%, making it difficult for some businesses to stay afloat.
So far, junk bonds have returned 29.6% this year. That beats most other investments by a country mile. So, again, do not let the "greed" monster take hold of your psyche.
The advice here is to stay in investment grade bonds, rated Baaa or BBB- by Moody's Investment Service and Standard & Poor's. The rate of return on these bonds is about 10-12%.
Kiesel points out that the government can print all the money they want, but that does not change you or your business. People are fearful that their house prices will fall. Only when people see the price decline ending will they decide to spend more freely.
Now for those who have a strong stomach US high default rate bonds may reach a yield of 18% this year.
What percentage of bonds should be in your portfolio? Hint. Use your age as a guide. If you are 50 years old, you should have 50% of your investments in bonds.
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Reader Comments (Page 1 of 1)
7-10-2009 @ 10:18PM
william lindblad said...
PIMCO'S correct, but it is not just bonds doing the default thing and. of course, credit costs are soaring. The somewhat archaic word avarice fits this place to a "tee".
I guess that most are asking the same question of "how the hell did we get into this mess", for it is certainly more than the work of a greedy few. For sure, it started at that level and spread like a wildfire, spurred by cheap money and easy credit. Interesting! Mortgage money is still cheap? Credit is abundant, but the rates are now climbing. The bankers solutions are still the same. Fix your mistakes with more. But this is not how this happened, although the majority would believe it. Perhaps the price of oil and the fluctuations at the pump? Goes up fast - down slow. Not the root cause, but a contributor?
I think there would be a lot of takers in the the "yea" arena.
It is going to take a historian in the far future to say that yes, these are a major part, but not the real root cause. The real cause is our ability to communicate at near instant levels. A hundred years ago the titans of industry met in smoke filled rooms to discuss price fixing, monopolies and all the good ideas of Adam Smith. Today this is unnecessary as all they have to is a little "money see-monkey do" on the part of their competition. Look at credit card rates and tell me that I am wrong. One raised, and everyone else quickly followed, Congressional hearings notwithstanding. The price at the pump is the same way. They now have the ability to follow the market and, by the way, the station owners really do run on a small profit margin. That's why most are now convenience stores. Big oil kept loaded tankers off shore back in the 70's and claimed "a shortage". Now, they shut refineries. The people we send to Congress? I, and many others, sure do have doubts. Integrity. Honesty. Words in the dictionary. Bernie Madoff is but one of many that did not pay much mind.
Only a dyed-in-the-wool optimist believes that this economy is in for a quick turn around. If anything, what PIMCO predicts, bad as it sounds, will unfortunately be an optimistic stand.