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<1>I also think you're assigning too much risk to equities in general. Is P&G common more risky than a C rated bond?


Interesting question. Unfortunately, nearly impossible to test for unless two conditions were met. (1) A quantifiable definition of "risky". (2) Some bonds that are rated "C".

By my count, as of July 10, there is exactly one, currently-offered issuer whose bonds are rated single-C. But moving up the scale to include double-CC and triple-CCC, more names show up, some of which would be testable, e.g., Ford and AMD, with regard to how their debt and common preformed relative to each other. Conversely, it should be straight-forward to find bonds whose risk characteristics offered a good test against PG (or similar blue chips).

Thus, to claim that a well-rated stock is less risky than a poorly rated bond only becomes meaningful when the rewards of owning one or the other are factored in. E.g., if owning PG produced 10-15%/year, but owning a junk bond produced 100%/year (and I'd achieved those kinds of returns), which was the better, risk-adjusted investment?

Until the test were run, I have no firm idea of the results. But my suspicions are that on a risk-to-risk basis, there would be little difference. Risk is risk, no matter the asset class. But until back-testing is done, both of us are just guessing.

Issue Rating Max YTM
Advanced Micro CCC+ 12%
AMC Entertainment CCC+ 12%
Berry Plastic CCC+ 37%
Colonial Bank CCC+ 21%
Eastman Kodak CCC+ 18%
Ford CCC+ 11%
Graham Packaging CCC+ 10%
Healthsouth CCC+ 12%
Isle of Capri CCC+ 17%
Marquee Holdings CCC+ 12%
Mueller Wtr CCC+ 11%
NPC Intl CCC+ 20%
Readable Theraputics CCC+ 14%
Sabre Holdings CCC+ 12%
Sealy Nattress CCC+ 15%
Servicemaster CCC+ 13%
Toys R Us CCC+ 13%
United Rentals CCC+ 15%
Yankee Acquistions CCC+ 0%

Atlas Pipeline CCC 28%
Borden Chemical CCC 35%
Freescale Semi CCC 14%
Michaels Store CCC 13%
Pinnacle Foods CCC 16%
Tenneco CCC 16%

Ames Trutemper CCC- 47%
Brrokstone CCC- 59%
Radio One CCC- 0%

Acuride CC 38%
Blockbuster CC 115%
Clear Channel CC 96%
Ply Gem CC 69%
Reader's Digest CC 31%
Resaurant CC 191%
US Freightways CC 20%
Yellow Roadways CC 0%

NXP C 0%

The preceding list mostly illustrates how over-bought junk bonds have become. Most of the yields are pitifully low compared to prices earlier in the year when the buying should have been done.
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