Bonds. Corporate Bonds

What can we say about corporate debt when companies start issuing 100 year bonds? I am all for conservative, value based investing but if I am intent on seeing a ROI of some sort during my lifetime why would I even care about this sort of news?

Like so many other asset classes in recent times, corporate bonds seem to be entering some sort of weird bubble phase that makes no sense on paper, in theory or in practice…yet the sheep keep on flocking.


Companies deemed good for the money are raising trillions selling bonds to investors who can't seem to get enough of them. It looks like a great deal for both parties — until you consider the details.

Some bonds are throwing off interest so puny that investors are already losing money to inflation. Others pay higher rates but won't return your money for more years than you're likely to live. Johnson & Johnson just sold $4.4 billion worth of debt with fixed rates as low as 0.7 percent, 2.5 percentage points less than inflation. The prospect of near-free money was so irresistible to Google Inc., it decided to sell $3 billion worth, even though it already had more than 10 times as much cash at its disposal. And Norfolk Southern Corp. convinced investors to lend it $400 million for 100 years.

Stocks were the primary target of the Federal Reserve Chairman Ben Bernanke's attempt to push people out of Treasuries into riskier assets. But corporate IOUs that earn top grades from rating agencies have been on a tear, too — returning 31 percent in two years. That has allowed Corporate America to put trillions of dollars in their coffers and has sent billions of dollars to Wall Street banks who help them arrange the deals.

With current corporate bond yields (for the record, currently @ 3.73…only the second time in 20 years they have dipped ludicrously cumbersome for non-institutional investors.

With more and more financial products that make little sense hitting the scene I have to wonder aloud…

How long before synthetic Treasuries or a currency marketplace which trades currencies vs. precious metals? Just when ya thought things were starting to get back to normal…

 

The problem is, how will you ever see equity return to normal? Companies have to be insane to issue stock in a corp bond market like this. The only people dumb enough to do a PO are companies that need to grab the headlines i.e. groupon.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

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