tag:blogger.com,1999:blog-6616959642391988608.post4422340119676639592..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: Credit default swap spreads are narrowingScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-6616959642391988608.post-58499790593122242532009-05-07T11:21:00.000-07:002009-05-07T11:21:00.000-07:00Muni bonds were one area of the bond market I neve...Muni bonds were one area of the bond market I never spent much time with, and I don't pretend to have any expertise in munis. I can only offer the observation that high yield munis might be attractive for the same reason all high-yield debt is attractive these days: easy money and rising inflation are a wonderful tonic for heavily indebted entities. Cash is easier to come by, nominal spending is Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-80893554531779622582009-05-07T10:38:00.000-07:002009-05-07T10:38:00.000-07:00Hi Scott, not sure if you notice a comment on an o...Hi Scott, not sure if you notice a comment on an old post, but here goes.<br /><br />The argument for high yield debt is that they are currently priced for record breaking defaults, which (in your view) is becoming less likely every day. <br /><br />How does that apply to high yield municipals? I wonder if they might have an additional advantage of greater likelihood of government support ("Randy Rhttps://www.blogger.com/profile/12552423724893790184noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-71055902358275289442009-05-02T11:15:00.000-07:002009-05-02T11:15:00.000-07:00That is exactly the right question to be asking. T...That is exactly the right question to be asking. The answer depends on your assessment of the likelihood of these risks occurring, combined with your assessment of the amount of risk that has been discounted in current market prices. In my opinion, equities are still priced for a very gloomy economy and more bad news. The rise in equity prices of late is reflects more a declining risk of a Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-6001964760427788162009-05-02T10:30:00.000-07:002009-05-02T10:30:00.000-07:00The government is dealing with major troubles in u...The government is dealing with major troubles in unemployment, housing, autos, and state budget deficits. Scott, I respect your observation that signs of bottoming and potential inflation from monetary looseness may be emerging. My concern is that the economy is not ready for a black swan even a small one. Flu, terrorism, Pakistan trouble all could tip this economy. Given the economic ronraschhttps://www.blogger.com/profile/14708698068353771219noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-27256978329700400022009-05-02T10:20:00.000-07:002009-05-02T10:20:00.000-07:00Tom, what you are saying may well end up being rig...Tom, what you are saying may well end up being right--inflationary monetary policy may bring us a world of troubles in the future. But in the meantime it makes the existing stock of high-yield bonds quite attractive, since it will very likely result in default rates that are much lower than the market currently expects.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-43606465940125602942009-05-02T07:31:00.000-07:002009-05-02T07:31:00.000-07:00Scott,
I think we are all falling, once again, fo...Scott,<br /><br />I think we are all falling, once again, for the siren song of inflation (i.e. money growth). Doug Noland has some excellent comments this week. He points out that: "the more immediate (and always seductive) consequences of loosened financial conditions tend to be reduced risk premiums, higher asset prices, and a boost to economic 'output'."<br /><br />He makes the case that Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.com