Financial guru, Nouriel Roubini foresees rising sovereign debt leading to defaults.

Roubini predicted the U.S. financial collapse at least a year before it happened. Now he is predicting sovereign defaults for European Union (EU) nations.

Continue reading Roubini: Rising Sovereign Debt Will Lead to Defaults

Roubini: Rising Sovereign Debt Will Lead to Defaults originally appeared on BloggingStocks on Sun, 02 May 2010 15:40:00 EST. Please see our terms for use of feeds.

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.

Continue reading Pimco's Kiesel says: "sell your junk."

Pimco's Kiesel says: "sell your junk." originally appeared on BloggingStocks on Fri, 10 Jul 2009 17:40:00 EST. Please see our terms for use of feeds.

There are strange goings on in the markets these days. The latest catch 22 is the rally in junk bonds. Bloomberg reports that "The lowest rated companies that may not be able to afford avoiding bankruptcy and exchanging or buying back debt at the lowest prices on record." That is pushing the prices of junk bonds up in the biggest rally ever. The flip side is that this practice is the higher prices are crowding out some of the neediest companies

Here are some examples:

• The Blackstone Group LP (NYSE: BX) owns Freescale Semiconductor Inc. In March, Blackstone wiped away $1.9 billion of Freescale's debt by offering investors 32 cents on the dollar in loans. Since then the securities have tripled to 54.1 cents on the dollar. Now, the chip maker still has $7.5 billion of debt and would need to do it at much higher prices.

Continue reading What is causing the rally in the junk bond market?

What is causing the rally in the junk bond market? originally appeared on BloggingStocks on Thu, 04 Jun 2009 09:20:00 EST. Please see our terms for use of feeds.

Continue reading Buy a junk bond, get a bailout

Buy a junk bond, get a bailout originally appeared on BloggingStocks on Wed, 15 Apr 2009 13:40:00 EST. Please see our terms for use of feeds.

This post is part of a feature in which he wonder whatever happened to some notorious financial felons. See all 17.

I thought we'd have heard more about Charles Keating over the last few weeks of the 2008 presidential election, but much to my surprise the Obama campaign refrained from mentioning him. Keating was once the chairman of the Lincoln Savings and Loan Association, the infamous bank at the center of the S&L scandal of the 1980s; that scandal featured none other than John McCain, one of the "Keating Five" group of disgraced senators and more recently the Republican Party's nominee for president. But McCain's connection to Keating didn't seem to play a role in the 2008 election, and McCain lost the race for reasons other than being connected to one of the great financial crooks in recent memory.

To be fair, Keating was not a big fan of John McCain. He reportedly called him a "wimp" behind his back, accusing him of lacking the courage to fight the regulators who sought to reign in Keating's bank. McCain, along with John Glenn, were cleared by the Senate Ethics Committee of impropriety in their relationship with Keating, though they were publicly criticized for exercising "poor judgment." McCain later said that trying to help Keating was "the worst mistake of my life," though he didn't seem too upset about riding around the Caribbean on Keating's private jet.

Continue reading Financial Felons: Charles Keating

Financial Felons: Charles Keating originally appeared on BloggingStocks on Sat, 22 Nov 2008 18:10:00 EST. Please see our terms for use of feeds.

This post is part of a feature in which he wonder whatever happened to some notorious financial felons. See all 17.

Mike Milken turned the market for bonds issued by less creditworthy companies into a gold mine for himself and his firm, Drexel Burnham. As I posted, this did not end well. But in the past several years, Milken has worked hard to rehabiliate his reputation -- putting money into prostate cancer research and talking about the economy.

Who is Milken and how did he get here? Mike Milken was an academic star. He used to take the bus back and forth to classes at Wharton and came in to school before dawn with a miner's hat on his head because the bright light helped him read annual reports. Milken and I studied with the same management professor at Wharton.

That professor predicted that Milken would either make a huge amount of money or go to jail. He did both -- eventually agreeing to pay $650 million in fines and plead nolo contendere to six felonies -- three counts of stock parking and three counts of stock manipulation. Milken went to jail from March 1991 until January 1993. But that's ancient history. Where is he now?

Continue reading Financial Felons: Mike Milken

Financial Felons: Mike Milken originally appeared on BloggingStocks on Sat, 22 Nov 2008 09:40:00 EST. Please see our terms for use of feeds.

This post is part of a series on some of the most memorable companies that have disappeared.

Drexel Burnham Lambert (1935 - 1990) spent its last decade accumulating money and power. The key was junk bond impresario Mike Milken, who used to take the bus back and forth to classes at Wharton and came in to school before dawn with a miner's hat on his head whose bright light helped him read annual reports.

Drexel's driving force, Milken, realized the potential of our shared management professor at Wharton. That professor predicted that Milken would either make a huge amount of money or go to jail. He did both. Milken made money by selling junk bonds to takeover artists who threatened companies by buying up their shares and proposing to throw out their managers. In many cases the companies bought out the takeover artist's shares at a premium to make them go away.

Milken was feared by the business establishment, and he had a contempt for the law. So he did himself in -- eventually agreeing to pay $650 million in fines and plead nolo contendere to six felonies -- three counts of stock parking and three counts of stock manipulation. Milken went to jail from March 1991 until January 1993. Drexel hemorrhaged capital; fired 5,000 people; and eventually filed for bankruptcy in 1990.

The lesson? If you can't achieve wealth within the law, you will pay the price.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Let us know in the comments what you remember about Drexel. And be sure to check out other Companies That Have Vanished.

Companies that vanished: Drexel Burnham pays the price originally appeared on BloggingStocks on Sat, 07 Jun 2008 10:10:00 EST. Please see our terms for use of feeds.

DealBook reports that junk bond king Mike Milken is trying to defend securitization. Despite pleading guilty to six felony counts of securities fraud and conspiracy, paying $600 million in fines and spending 22 months behind bars, Milken is still quite highly regarded. But the defense he offers of securitization is pretty thin gruel.

Milken and I both studied under the same professor at Wharton -- making me feel a bit like Forrest Gump. After he taught Milken, the management professor told me that he concluded Milken would either make enormous amounts of money or land in jail. The professor's prediction proved correct -- except that Milken did both.

Milken's defense appears to be that securitization and surgery are alike. DealBook quotes Milken as saying that criticizing securitization - the slicing and dicing of debt that he helped popularize - is "like condemning scalpels because a few unqualified surgeons have injured patients."

Continue reading Milken's weak defense of securitization

Milken's weak defense of securitization originally appeared on BloggingStocks on Tue, 29 Apr 2008 12:02:00 EST. Please see our terms for use of feeds.

With all of the write-offs it has taken in the past and all those it is likely to take in the future, the market rubbed more salt in the wounds of Citigroup (NYSE: C). Apple (NASDAQ: AAPL), maker of the iPod, has passed Citi in market cap.

According to Bloomberg, "Even after a 26 percent decline in its own shares this year, Apple has a market value of $129.3 billion to Citigroup's $121.6 billion."

While the Apple number may be impressive, the Citi figure shows that the bank and its peers are viewed as the equivalent of equity "junk bonds," risked investments for those intrepid enough to go into dark waters.

Who knows, by the end of quarter, if Apple does well in earnings, it may have doubled Citi's market value.

Douglas A. McIntyre is an editor at 247wallst.com.

Apple moves ahead of Citigroup in market cap originally appeared on BloggingStocks on Sun, 13 Apr 2008 11:10:00 EST. Please see our terms for use of feeds.

It seems strange to invest in a security that is called "junk." But it's a huge business that can be quite lucrative. Hey, it made Mike Milken a billionaire. What's more, junk bonds have become a key financing mechanism for growth companies as well as leveraged buyouts.

The market for junk bonds has been particularly strong over the past few years, with a large spread between junk and high-quality securities was. That is, until the "credit crunch" hit Wall Street in August.

Now, Edward Altman - a professor and a finance guru - is predicting some grim news for junk bonds for this year. Basically, he thinks the default rate will spike to 4.64%, according to a piece in the Wall Street Journal [subscription required]. Keep in mind that the default rate was a paltry 0.51% in 2007.

Continue reading Junk bonds may really be junk - for investors

Junk bonds may really be junk - for investors originally appeared on BloggingStocks on Wed, 06 Feb 2008 11:16:00 EST. Please see our terms for use of feeds.

Question for Henry Blodget's many detractors: Are you mad that Michael Milken has become respectable?

Blodget and Milken symbolized the excesses of their internet bubble and 1980s respectively. Both were punished for their misdeeds. Milken, who went to prison, now devotes his time to his philanthropic work and an economic think tank. Blodget received a lifetime ban from the securities industry, a punishment he deserved.

Now pundits including MarketWatch's David Weidner and my colleague Zac Bissonnette say they are outraged that Blodget's writing is published in leading news outlets including the New York Times. What about Milken? Bloomberg News just interviewed him about the housing crisis. Should my former employer have killed the story given Milken's notorious past? Of course not.

Milken did his time and paid his fines. He's a brilliant man who still has plenty of interesting things to say. Same goes for Blodget. To be clear, investors shouldn't forgive or forget them for what they did. As far as I know Blodget has stayed out of legal trouble since he was banned from the securities industry. In 1998, Milken agreed to pay a $47 million fine to settle an SEC complaint that he violated his lifetime ban.

Continue reading Media World: If Michael Milken can be redeemed, so can Henry Blodget

Media World: If Michael Milken can be redeemed, so can Henry Blodget originally appeared on BloggingStocks on Sat, 06 Oct 2007 13:40:00 EST. Please see our terms for use of feeds.

A key driver for buyouts has been the seemingly endless liquidity from the junk bond market. And with default rates at rock-bottom, why not do a deal?

Well, there are some signs that junk bond liquidity may be tightening up a bit. One of Dobson Communications' (NASDAQ: DCEL) divisions, American Cellular, had to withdraw its $425 million junk bond offering. This is according to a report from Reuters.

Why? Apparently the pricing is not so good because of the recent volatility in the financial markets.

This does not mean that American Cellular will not be able to raise money. Instead, it will now go straight to the loan market.

It's too early to tell if this is a blip or trend. But for the most part, junk bond investors are showing that they are starting to worry about risk.

And that should certainly worry private equity players who need cheap cash.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Junk bonds getting junkier? originally appeared on BloggingStocks on Wed, 07 Mar 2007 14:16:00 EST. Please see our terms for use of feeds.

Generally, equity investors tend to be optimistic while bond investors are the opposite. Why? Well, bond investors want to make sure they preserve their capital and, as a result, are particularly sensitive to emerging problems.

According to a recent piece on Bloomberg.com, there is a divergence between the two markets with respect to the big investment banks: Goldman (NYSE: GS), Merrill (NYSE: MER) and Morgan Stanley (NYSE: MS).

If you look at their credit default swaps, which provide protection against payment problems with bonds, the trading is near junk bond levels. As the Bloomberg report says, " Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk."

Why the doom and gloom? It's hard to say.

But one theory is the implosion of the subprime market. The big investment banks have made lots of money from this segment. Moreover, the recent problems in global financial markets certainly don't help. After all, a big source of growth for the big investment banks has been in emerging markets.

This is not to say that the big investment banks will come undone. However, after a big run-up in their stock prices, we may see more bearishness.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Goldman, Merrill, and Morgan: In the junk zone? originally appeared on BloggingStocks on Fri, 02 Mar 2007 10:45:00 EST. Please see our terms for use of feeds.

Wilbur L. Ross has spent his career managing complex bankruptcies and restructurings. And he's pretty good at it -- he is now a billionaire. In fact, he's so good that Goldman Sachs recently partnered with him to start a fund to capitalize on prospective financial implosions.

Well, according to a report from Reuters, Ross thinks that 2007 will be a tough year, especially for companies that have loaded-up on debt for buyouts. He sees many more bankruptcies and as a result expects to see a 7% default rate on junk bonds. That would be an increase of 700%.

He also mentioned that the holders of junk bond debt have changed. There are now many hedge funds that have played in this market. If a leveraged company has problems, will a hedge fund really be interested in working with management? Or will the hedge fund use tough tactics to salvage the investment?

Another concern of Ross: he believes that in buyout deals, the multiples are simply too high.

In other words, if things go wrong, things are likely to unwind quickly. Of course, for Ross, this will mean more good times ahead.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

Deal master sees higher risk, more defaults in 2007 originally appeared on BloggingStocks on Thu, 30 Nov 2006 11:34:00 EST. Please see our terms for use of feeds.

Well, it looks like there is little trouble raising the capital. Today, HCA was able to issue $5.7 billion in high-yield bonds.

Actually, keep in mind that "high-yield" has another name - ie, "junk bonds." These are bonds that have a relatively higher risk of default. In particular, the bonds have terms of 8 to 10 years. And, what do investors get? The yields range from 9.125% to 9.25%.

That's certainly better than what investors can get from the Treasury market.

Yet, there is definitely some risk. If HCA has trouble, so will the bonds. But, hey, that's for another day.

Something else: with the ease of the HCA financing shows there is lots of liquidity for buyout bonds. Actually, the next mega deal to get financing is Freescale, which will involve $9.4 billion in bonds.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Financial Statemet. He also has a blog at www.taulli.com.

Investors Eat-Up HCA Buyout Bonds originally appeared on BloggingStocks on Thu, 09 Nov 2006 16:11:00 EST. Please see our terms for use of feeds.