Sunday, August 07, 2011

Who do you trust?

Yesterday, I happened to be listening to a financial program and, like all things finance, they were addressing the S&P downgrade of US treasury's.

What I didn't know, before Friday's downgrade, there were 13 companies who had corporate bond yields lower than comparable US treasuries. (I'm still looking for some sight that might have that information).

What does that mean? It means that the market place had already decided that US treasuries were already perceived by the money guys as more risky than some of those loathsome corporations.

So the Obamunists can bitch and moan about the downgrade being political. But as I always say. I'm not the smartest guy in the room so I watch what the smart guys are doing and they're not buying up US treasuries and they had already downgraded US debt prior to Friday.


Anonymous said...

I only found 4: Exxon Mobile, Microsoft, Johnson & Johnson, and ADP

gordon gekko said...

I appreciate the link but the article still addresses the rating.

The point of my post is that the markets assesses risk irregardless of rating and there were already 13 corporate bonds yielding less return than US treasuries.

Presumably, less yield means less risk. The bond market doesn't need S&P, Fitch's or Moody's to tell them where the risk is.

Anonymous said...

People who invest their own money look at the company/country performance. People who invest other people's money tend more to use the ratings agencies and mostly as a CYA. "Sorry your bond defaulted, it was rated very highly." You notice that Spain has a surprisingly high credit rating, but you also might notice that it's governments and IMF type institutions buying them with other people's money. A large portion of US bonds have to be purchased with printed money, for the same reason. Not one damn dollar of corporate bond is purchased with printed money. Those are owned much more by people with skin in the game.

Anonymous said...

As with any security you have to look at the asset behind it. With bonds you look at the company, or government behind it. With, say Ford there are assets, factories, products. Now the bond might be risky due to uncertainty. People get that.

But what is the asset behind US Treasury notes? Every dollar goes to what? Bridges, infrastructure? No, they go immediately to keeping the lights on in Federal buildings for that day, paying food stamps to able bodied adults who's skills don't warrant minimum wage, so they can subsist to see another day of the same and give birth to 5 babies who grow up just like mom.

In short, US bonds are no long backed up by Hoover dams and water treatment plants. They are backed up by the collateral of...well...when you redeem your bond you hope that the secratary of the Treasury can still press a button on a computer screen and fill your back account with the redemtion fee (which is truly how money is printed nowadays). That's not a confidence inspiring piece of collateral. That's why the rating took a hit.

Anonymous said...

Scottrade lists these 15 year non-financial corporate bonds as lower return/safer investments than the US government:

A Morgan Stanley
BBB- Alcoa
BBB+ Cummins Inc
AA- Lilly Eli & Co
AA Walmart
A- GTE California Inc
BBB+ CVS Caremark