“I’d never invest in a ‘junk bond,’ but you could certainly interest me in a ‘high-yield opportunity.'”
Sandy Leeds, author of Leeds on Finance is writing again and I’m here to beg you, please give him a read. You will laugh or you may cry, but I promise your eyes will be wide open about what is going on in this crazy economic boiling pot in which we’re living.
Leeds started blogging last year, then took a break when teaching finance at the McCombs School, balancing family life, and cranking out his wickedly sharp and insightful columns became a bit too much to handle.
Now, just in time for the holidays he has dumped his wife and three kids and is back to writing again. No, that’s terrible, he didn’t do that. I’m actually not sure why he decided to return to blogging, but it is our gain. Please enjoy Leeds on Finance for your weekly nugget of “So that’s what is going on.”
From this week’s post:
It’s always amazing to watch sentiment change. Go back in time to December 2008, shortly after Lehman went away and ask yourself whether you would have ever expected the stock market to rally 60% after bottoming on March 9th. Few among us would have predicted such a big move (which is probably why it happened), but we’re used to the idea of this rally, since we see it in the news every day. Of course, we wonder whether this rally is a reflection of liquidity, economic recovery, irrational optimism or simply a recovery from an oversold market.
What’s more amazing is to look at the bond market. I’ve always tended to think of the bond market as “smarter money” that is less susceptible to extremes. But it’s hard to view the credit markets as more rational / less volatile when you look at how they have behaved in the past year. Think about these facts:
1. junk bonds have rallied over 50% this year — a huge increase for securities that represent promises made by the weakest companies to repay money in a still-weak economy. (Again, what a difference a year makes. Last year, junk bonds underperformed Treasuries by 41%.)
2. investors have put more than $20 billion into high yield funds this year — money has rushed back into risky assets. As I like to say in class…this my friends is the power of marketing…I’d never invest in a “junk bond,” but you could certainly interest me in a “high-yield opportunity.”