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URL:  http://boards.fool.com/black-if-a-person-were-interested-in-gaining-30381708.aspx

Subject:  Re: j c penny bonds dropped a little Date:  11/14/2012  8:10 PM
Author:  trader2012 Number:  34492 of 35392

Black,

If a person were interested in gaining exposure to Penny’s debt --and I’m not saying that anyone should or shouldn’t be--, then maturities other than the 7.95’s of ’17 you’re tracking are either 'safer' (from the point of view of offering a lower entry-price) or 'more efficient' (from the point of view of after-tax, after-inflation returns).

As for “congresspeople”, don’t complain about them “just talking”. "Not legislating” until after the end of this year is the best possible outcome, because their prior legislating (that restores higher tax-rates and cuts spending) wouldn’t be undone. Yes, they could get busy and “legislate” this year, thereby kicking the deficit/debt problem further down the road. But that’s not anything anyone should wish for unless they are truly intent on ultimately depressing/destroying the US/global economy.

The US needs to take the economic pain now while it’s still tolerable. A recession now is far better than a genuine depression later. For the Federal Gov't to borrow $0.40 cents for every $1.00 dollar it spends is unsustainable, and it needs to stop yesterday, no matter who gets hurt, which is going to be nearly everyone. But most would be able to recover. Not soon, not quickly, not easily. But there is ample precedent that such a thing would happen. OTOH, a global depression in our increasingly inter-dependent world would be the financial equivalent of nuclear war, and "victories" would be Pyrrhic at best. I don't want to risk that happening, and it is less likely to happen if Congress continues to fiddle-faddle in front of cameras instead of withdrawing behind closed doors and "making deals". Going over the "fiscal cliff" from a failure to "legislate" is part of the solution, not a problem to be avoided.

Charlie
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Below is Penney’s Yield-curve where 'YTM' and 'CY' are as E*Trade calculates them, and ‘Adj_YTM’ is based on a 5% inflation-rate and current cap-gains and ordinary-income rates for a median filer.

Cpn Due CY YTM Adj_YTM
6.875 10/15/15 6.9 6.8 -0.04%
7.650 08/15/16 7.7 7.9 0.84%
7.950 04/01/17 8.1 8.4 1.23%
5.750 02/15/18 6.5 8.4 1.45%
5.650 06/01/20 6.6 8.3 1.35%
7.125 11/15/23 8.3 9.2 1.90% <<== most efficient in terms of after-tax, after-inflation returns
6.375 10/15/36 8.4 8.8 1.32% <<== safest in terms of entry-price
7.400 04/01/37 8.9 9.1 1.38%
7.625 03/01/97 9.5 9.5 -0.55%


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