Thanks, Darrin. That was an informative article. There is a lot of nervousness not only in the stock markets, but also the bond markets. This, of course, is due to subprime mortgages and various derivatives tied to the credit crunch. This is why, I believe, there is so much money sitting on the sidelines, which is neither in stocks nor bonds. The bond markets have suffered some losses this year, especially junk and munis (unusual). So, this panel discussion was timely.
"Although the road ahead could be bumpy, both Mewbourne and Fuss think the slammed financial sector has opened up opportunities to buy solid quality bonds at extremely attractive prices."
I think a lot of us who post here have been wondering if now is a good time to start scooping up some bargains in this beaten-down sector. Some corporate bonds are yielding north of 10%, as their stock prices simultaneously plummet. There haven't been many buyers yet even at these yields.
"As a result, the group is collectively cautious about non-investment-grade corporate bonds."
I think a lot of bond investors are nervous right now, and the 'flight to quality' has been pretty obvious. Most bond investors have been sticking with treasuries and have shunned corporates -- especially non-investment-grade. Not only that, but inflation is also a concern...which leads to TIPS.
"As we've written
elsewhere, TIPS have enjoyed a splendid rally over the past year, and as a result, the low yields they currently offer just don't look compelling to this crew next to other options."
TIPS are another popular topic of discussion, and I tend to agree they seem overpriced at the moment. It does appear that some of the higher quality corporates are starting to look attractive as a hedge against inflation.
"And although he agrees with the PIMCO team that changing economic dynamics worldwide make it increasingly important to scour the globe for opportunities, he admits that he's concerned about the quality of information available to bond investors looking to stake claims in companies based in developing markets. As investors gain a better grasp of the risks of these fledgling firms, he argues that it's important to stay broadly diversified."
Staying broadly diversified in bonds is good advice, and I agree that developing market bonds are difficult. This is where some active management might help, if one decides to go down that rabbit hole.
So, is the worst of the credit crunch behind us? I'll use that old phrase, that I am 'cautiously optimistic.'
Dan
