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Subject:  Bond Investors Aren’t Date:  5/9/2013  2:22 PM
Author:  globalist2013 Number:  34910 of 35623

Warning: This post is a rant. Don’t read it if you “can’t handle the truth”. LOL.

Ben --and you know whom I mean by ‘Ben’-- works with three intellectual categories: ‘Defensive’, ‘Enterprising’, ‘Speculative’. Doing some typological magic produces the following 5x5 array.
Typically Typically
Bonds Stocks

Purely Mostly Mostly Purely
Ord-Inc Ord-Inc Equal Mix Cap-Gains Cap-Gains

Defensive AAA & Better
Enterprising BBB-BB
Speculative CC & Worse

The color coding is gratuitous, but fun. So let’s keep it.

In other thread, a question was asked about the attractiveness of Greek bonds and their current 9%-10% yield. For sound reasons, I said “Pass”. But let’s review that decision. Assuming those bonds were available at the retails level --and they aren’t--, how should a would-be buyer be looking at them? In other words, forget about what someone else’s opinion might be. Could you, on your own, determine the attractiveness of those bonds? Probably not. So let’s try to build a framework within which any bond could be rated. Let’s do so by grabbing a triple AAA issue -- which the totally naïve would assume is a ‘Defensive’ investment -- and show that it isn’t by Ben’s own criteria.

Xto Energy’s 6.75’s of ’37 are rated Aaa/AAA. So there’s no question it’s considered to be ‘top-tier’ debt by the rating agencies. It’s priced at 151.754 to yield 4.4% to maturity. So there’s also no question that is top-tier by its market-implied rating. But I can predict, with nearly 100% certainty, that bond will default, and the workout will be $0.42 on the dollar. That doesn’t sound very ‘defensive’, does it? In fact, that bond must be considered ‘speculative’, for thi