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Attention, Yield Hogs and Hounds.

E*Trade is offering Morgan's zeros, priced to yield in excess of 6.7%, which is a warning sign, but also an invitation to look more deeply and to determine if their current troubles are the tip of the iceberg or an opportunity.

Specifically, the 0's of 4/14/27 yield ~7.8%; the 0's of 4.24/27 between 6.7-8.0%, depending on the lot; and the 0's of 5/15/27 ~7.4%.

Zero's have awkward tax treatment, so holding them in a tax-sheltered vehicle is a convenience.

Disclaimer: I own some, but, for heaven's sake, do your own due diligence. This is a junk bond, despite its carrying A2/A+ ratings. But it might make a good situation for going long the bonds and short the stock, or, even better, hedging the bonds by selling the SSF (single stock future) on JPM. To repeat, this is nothing for amateurs to jump into, merely an interesting investment situtation which invites research and offers an opportunity to practice evaluating risk/reward ratios.

Investing is just like tennis, golf, or the piano. It takes practice if you want play well. Charlie

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Silva has won in Brazil. He has said he won't default, and I don't know if J. Pierpont is as heavy into Brazilian debt as Rockumfella bank, but definitely something to look at. I would assume Silva would still use the threat of default (now that he's won the election) to force debt renegotiation (I know, I would).
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Ugh, Loki. You're braver than I am.

Speculating on Brazilian debt would scare me, but taking a position on their stocks -- via EWZ or the CEF's-- might be another story, because it would be easier to create an escape route, althought the market had already discounted the election even before the ballots were counted and the "easy" money is gone.

Charlie
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Charlie,

I wouldn't dare buy or sell on such speculation. But, I do think anyone interested in the J.P. Morgan (or other big bank) bonds, should look closely at how much Brazilian, Argentian, and other World Bank, etc. debt they hold. I may be wrong, but the failure of the banks to renogotiate high interest loans to these countries is likely to backfire. I'm not sure what exactly Argentina has to lose if it defaults—no new foreign capital? It's kind of like telling someone who has been seduced by easy credit into huge debta at usurous rates on credit cards that declaring bankruptcy will hurt his or her credit rating.
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No, Loki, you're not wrong at all to be worried and reluctant to act. It's a murky, scary situation that's difficult to hedge.

However, were a would-be investor to do the fundamental research you are so shrewdly suggesting --i.e., finding out exactly what the exposures of the banks' are and who is likely to bail them out (this time around)-- then the speculative element might become attenuated to the level of manageable risk, and things in that category can be called invstments, (because all undertakings have risk, the question only being its size and likelihood compared to alternatives).

Charlie
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Silva has won in Brazil. He has said he won't default, and I don't know if J. Pierpont is as heavy into Brazilian debt as Rockumfella bank, but definitely something to look at. I would assume Silva would still use the threat of default (now that he's won the election) to force debt renegotiation (I know, I would).

He has the given the people of Brazil some very high expectations. Where will he obtain the money to finance the programs to fulfill his promises? The threat of default or defaulting will make this task even more difficult. It seems these cycles of loaning money and governments wasting it continue without anyone becoming wiser.

Silva may have won the battle but the war is far from over.

Regards,
fingfool
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Charlie,

I'm going to enjoy watching to politics of asking the tax payer to bail out investment banks that have defrauded investors out of hundreds of billions.

It will also be interesting to watch whether countries, heavily indentured to the World Bank and IMF, throw corruption in the U.S. back in our face. Crony Capitalism is alive and well and living in the White House.
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It will also be interesting to watch whether countries, heavily indentured to the World Bank and IMF, throw corruption in the U.S. back in our face. Crony Capitalism is alive and well and living in the White House.

Bailouts of private companies by governments are not a part of capitalism. Other countries may use whatever rationale is available for delaying or not paying their debts but it will only hurt their future borrowing efforts. Not sure of your definition of Crony Capitalism, but I suspect it didn't just take up occupancy in the White House in the last few years.

Regards,
fingfool
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You really do have an incredibly idealized view of capitalism.

Bail-outs, and less direct aid from governments, have been an integral part of capitalism for a long time, including in the U.S. The glory days of Versailles were made possible by bailing out the Company of 100, whose investment in New France had failed, partly because the court had not given promised military aid. The British empire, and the Dutch spice trade (not to mention the U.S. with oil and Banana Republics), were subsidized by militaries and bureaucracies. Much of our technical innovation over the last 60 years is a direct result of government spending on the bomb, the space program, and military research. Every government contract that keeps a company up and running (often with no real immediate need for what that company makes) is a bail-out of sorts.

The failure to deal with international debt is one reason why the U.S. gets so little political support around the world. Companies can file for ch. 11, if they are unable to re-structure debt without court protection. There is now a lot of talk about a need for that with international debt. In many countries, debt that was supposed to produce growth, allowing the debt to be paid off, has become more and more burdensome, stifling growth, just as happens with companies with overly heavy debt loads. With companies, in the end you get a choice between ch. 11 and ch. 7; countries like Argentina, and maybe, eventually, Brazil, get stuck with choosing something like ch.7, if they can't renegotiate debt in a way that allows it to be paid off on less burdensome terms. Ch. 7 is very ugly, but sometimes it is the only option left.

As to Crony Capitalism, no, Shrub is hardly the first. But he is its poster child: born to privilege, history of incompetence and profligacy, whose wealth and career were based primarily on his usefulness for his family connections and insider trading. This is hardly a role model for the U.S. to hold up to other countries when it wants to complain about their Crony Capitalism. Of course, when our leading brokerages defraud their own small clients to help themselves and their big clients, and when our largest banks, including those holding substantial amounts of foreign debt, collaborate with giant corporations in cooking their books, it is hard to imagine how the U.S. can continue to tell other countries how to follow our supposed vision of capitalist economics without being laughed at.
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"Crony Capitalism is alive and well and living in the White House.
"
Indeed it is, and has been for many years, The clinton's sold sleeping privledges in the Lincoln bedroom, and I just learned last night that the current head of the INS is a former Paine Webber exec...thx to him our boarders are swiss cheese. Thank you Paine Webber.

mark
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"However, were a would-be investor to do the fundamental research you are so shrewdly suggesting --i.e., finding out exactly what the exposures of the banks' are and who is likely to bail them out (this time around)-- then the speculative element might become attenuated to the level of manageable risk, and things in that category can be called invstments, (because all undertakings have risk, the question only being its size and likelihood compared to alternatives). "
Charlie: I would not dare to invest in Bonds of Brazil or Argentina. I have found it tough enough to analyze a company but when it comes to predicting political events, which is the major element in wether or not there will be a default. I don't believe This sounds like a investment for someone who is really pluged in to the U.S State Dep't which probably is the place to find the individuals most qualefied to make an estimate as to the probability of default.
Rule 1-If I can't evaluate the probability of default or I don't understand the financials I PASS.
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As to Crony Capitalism, no, Shrub is hardly the first. But he is its poster child: born to privilege, history of incompetence and profligacy, whose wealth and career were based primarily on his usefulness for his family connections and insider trading.
Loki; Unfortunately there is much truth in your'e tirade.
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Loki,

I suspect that you won't have much of a show to watch, for the bailout decisions will be made behind the curtains of power, with the tax-paying audience neither knowing or caring enough to stop them, or for being all too willing, once again, to pass the costs forward to future generations in exchange for present subsidies.

Bread and circuses quiet the populace, Loki. So it will be the nickels and dimes of bread and circuses that are thrown to the tax payers while the substantive wealth of health, education, environment, peace, freedom, and opportunity is siphoned --with their ever ignorant consent-- from their pockets and their future.

Cynical? No. That's just how the game works. Unfortunately, even in this country, you're harrassed if you don't play along with them, and jailed/ marginalized/disappeared if you pose a genuine threat to their profits, power, or plans.

The banks will get their money as they always have.

Charlie
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Greyfox,

Unfortunately, the politics that are most important in determining a Brazilian default are ours, not theirs.

But you are absolutely right. Step #1 in considering any investment is identifying and quantifying the downside and declining to go further if calculation is problematic.

Being an investor is like being a princess: you've got to kiss a lot of frogs, or at least get close enough to have the choice, which is all research does. It puts you into a position where you can made an informed choice. That's might be the chief and only value of looking closely at Morgan's bonds, and my advocacy of looking --but not necessary investing-- is consistent with a criticism I'll make of this board: It's heavy on lecture/theory, and light on experimentation/lab work.

Bond investing is something you learn by doing.

Charlie
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You really do have an incredibly idealized view of capitalism.

My ideal is free market capitalism and you give examples of state capitalism, i.e. capitalism with significant government intervention.

Bail-outs, and less direct aid from governments, have been an integral part of capitalism for a long time, including in the U.S. The glory days of Versailles were made possible by bailing out the Company of 100, whose investment in New France had failed, partly because the court had not given promised military aid.

I would contend that although we can connect a few good outcomes with government intervention, overall these actions misdirect resources and suffer from the inefficiencies of government.

The failure to deal with international debt is one reason why the U.S. gets so little political support around the world.

Our government subsidizing foreign governments has the same problems as subsidizing domestic entities. Default by these countries is always a potential action but one that even a Marxist like Silva knows will cause him major future problems.

As to Crony Capitalism, no, Shrub is hardly the first. But he is its poster child: born to privilege, history of incompetence and profligacy, whose wealth and career were based primarily on his usefulness for his family connections and insider trading. This is hardly a role model for the U.S. to hold up to other countries when it wants to complain about their Crony Capitalism.

Are you talking about the Bush or Kennedy family? The Molly Ivins or Rush Limbaugh approach to political discussion, while entertaining doesn't get much beyond the surface of these issues.

Of course, when our leading brokerages defraud their own small clients to help themselves and their big clients, and when our largest banks, including those holding substantial amounts of foreign debt, collaborate with giant corporations in cooking their books, it is hard to imagine how the U.S. can continue to tell other countries how to follow our supposed vision of capitalist economics without being laughed at.

We have laws or can legislate new laws that can handle fraudulent business practices. Such laws and their enforcement are an essential part of free market capitalism. What initiatives have been taken to do the same for our political representatives and our government budgeting and accounting. Why are we so quick to tolerate practices in government that we abhor in private institutions? Low expectations?

Regards,
fingfool


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