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10-04-2012, 02:12 PM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Run Awayyy!!!
The junk bond market has just completely jumped the shark. New issue: CCC-rated bonds that are pay-in-kind (means the issuer can at its option pay coupons with more crappy bonds instead of cash) and with the proceeds paid out to shareholders. Investors really are idiots.
TEXT-S&P assigns Petco Holdings 'B' rating | Reuters
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"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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10-04-2012, 02:14 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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I thought the Greek government had a patent on these kinds of things.
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10-04-2012, 02:16 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,985
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I hope Vanguard high yield fund won't hold these. However everyone should realize the risks. It's not called junk for nothing.
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Took SS at 62 and hope I live long enough to regret the decision.
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10-04-2012, 02:34 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,899
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Quote:
Originally Posted by foxfirev5
I hope Vanguard high yield fund won't hold these. However everyone should realize the risks. It's not called junk for nothing.
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Yes, I'm curious what this means to the Fidelity and Vanguard 'junk' funds.
-ERD50
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10-04-2012, 02:40 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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I just looked up to see that Petco is a private company now. So, the bond proceeds go straight to the private owners as dividends, and not even to invest in the company. Nice!
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"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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10-04-2012, 02:47 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,671
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I had a sales guy in Brazil who wanted to wanted approval to sell a job to an iron ore company that proposed to pay us in iron ore pellets. I told him that if he was willing to take his salary and commission in iron ore, I might think about it. He never called me back.
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10-04-2012, 02:49 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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http://us.ishares.com/product_info/f...erview/HYG.htm
I hold HYG, which appears to hold mostly B-something or the other grade...
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Have Funds, Will Retire
...not doing anything of true substance...
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10-04-2012, 03:17 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,154
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Who is buying this stuff??!?!
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Retired since summer 1999.
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10-04-2012, 03:23 PM
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#10
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Full time employment: Posting here.
Join Date: Aug 2012
Location: Upstate
Posts: 699
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Quote:
Originally Posted by ERD50
Yes, I'm curious what this means to the Fidelity and Vanguard 'junk' funds.
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Aren't the prospectuses (I looked it up to be sure it isn't prospecti) clear on that?
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10-04-2012, 04:07 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by audreyh1
Who is buying this stuff??!?!
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I don't know of any billionaires who live in a group home, so I assume it is junk bond funds that are stuffed to the gills with cash from yield-chasing investors.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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10-04-2012, 04:26 PM
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#12
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Administrator
Join Date: Apr 2006
Posts: 23,041
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History repeats itself. First as tragedy, second as farce.
-- Karl Marx
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Living an analog life in the Digital Age.
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10-04-2012, 08:00 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,899
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re: Fidelity and Vanguard junk funds...
Quote:
Originally Posted by Tyro
Aren't the prospectuses (I looked it up to be sure it isn't prospecti) clear on that?
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Specific to this petco bond offering, yes. I was assuming (maybe incorrectly) that brewer was making a more general point about the junk market.
-ERD50
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10-04-2012, 08:06 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by ERD50
Specific to this petco bond offering, yes. I was assuming (maybe incorrectly) that brewer was making a more general point about the junk market.
-ERD50
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Actually, I was making a wider point. When we start seeing this kind of crap being issued, it means that terms and conditions on less egregious forms of jusnk have gotten very loose. If you continue to see this kind of garbage being issued, you know what is coming (junk market implosion). It is also a clear sign to start exiting junk funds. I can see changes in terms and conditions in individual bonds. You really cannot see it in funds. Caveat emptor, big time, from this point forward on junk. It will blow up, it is just a matter of time now.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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10-04-2012, 08:20 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Junk or not, I think it is peculiar that a private company would sell bonds for its private owners to pocket as dividends.
I am not knowledgeable to tell if this is common practice, but is it not like people spending money that they take out of their home as a 2nd mortgage? Isn't that what the private owners of this company do, by pledging their company as collateral for the bonds? What if they walk away, like home owners did?
Do investors get to see the book and cash flow of this company? I guess they do, but I don't. The bond is for $550M. Is this company worth $550M? By the way, they paid $1.8B to take it private in 2006.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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10-04-2012, 08:25 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,899
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Quote:
Originally Posted by brewer12345
... Caveat emptor, big time, from this point forward on junk. It will blow up, it is just a matter of time now.
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I have no specific knowledge, but that does make sense to me. Junk is still paying a good yield (>6%) - where can you get that? Bonds and CDs are very low, stocks have had a big run up, getting people to think about re-balancing.
So that can lead to a bubble of people piling into junk. And bubbles burst.
I guess a good indication might be how much money is flowing into the big junk funds? IIRC, Vanguard closed their junk fund to new investors a few years back?
-ERD50
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10-04-2012, 08:55 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by NW-Bound
Junk or not, I think it is peculiar that a private company would sell bonds for its private owners to pocket as dividends.
I am not knowledgeable to tell if this is common practice, but is it not like people spending money that they take out of their home as a 2nd mortgage? Isn't that what the private owners of this company do, by pledging their company as collateral for the bonds? What if they walk away, like home owners did?
Do investors get to see the book and cash flow of this company? I guess they do, but I don't. The bond is for $550M. Is this company worth $550M? By the way, they paid $1.8B to take it private in 2006.
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You are getting the idea.
When this company was taken private, the bulk of the purchase price was almost certainly raised via borrowing money.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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10-04-2012, 08:56 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by ERD50
I guess a good indication might be how much money is flowing into the big junk funds? IIRC, Vanguard closed their junk fund to new investors a few years back?
-ERD50
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Funds flows have been significant into junk. Junk is a relatively small part of the bond market, so it does not take that much new money to make things frothy.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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10-05-2012, 04:13 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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Possible bond investments
US government bonds short term negative real interest rate
US government bond long term. interest and inflation rate risk, very slim but not 0 credit risk.
US TIPs short negative real rate, tiny positive long term rate.
US Corporate Investment grade short term 0 after tax yield, 2% long term real yield.
US High Yield run away
US Muni negative real rates short term interest/inflation rate long term.
I know very little about global bonds are there any opportunities overseas?
Cause for anything other long Muni and Long corporate bonds I think investing in US bonds is a heads, I lose a little (status quo) or tails a I lose a lot inflation.
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10-05-2012, 09:15 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,266
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Quote:
Originally Posted by brewer12345
The junk bond market has just completely jumped the shark. New issue: CCC-rated bonds that are pay-in-kind (means the issuer can at its option pay coupons with more crappy bonds instead of cash) and with the proceeds paid out to shareholders. Investors really are idiots.
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This is a joke, right?
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Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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