meeny's Blog

Safe Haven when the attack comes, you’re really in trouble. But that’s what happened this year for many investors, some bond portfolios have had huge hits.
It’s bad enough that the stock market has plummeted. Even with a late-day rally Friday, Standard & Poor’s 500-stock index is lower than 45 percent for years after. Stocks have fallen so much in a full year of 1931.
But bonds? They would be of an Eddies Las portfolio well diversified - the safe, necessary and boring part of an investor’s diet, such as spinach. The excitement - and risk - in a portfolio should come from stocks. If the bonds fluctuate at all, they are expected to increase in value when stocks decline, a portfolio of buffering back in a rocky market. That, at least, is the common expectation, said L. Robert Rodriguez, director of First Pacific Advisors and co-manager of FPA New Income mutual fund.
But the global credit crisis has shattered the expectations of many investors in fixed-income and on capital markets. With the forced liquidation of bond holdings still the major institutions, as a result of the failure of Lehman Brothers in September, even the slightest whiff of risk in putting a commitment from investors, leading to large losses. And bonds are certainly not a SideShow: Much of the turmoil in the financial sector and overall economy emanated from the credit markets.

Until now, only the most secure unimpeachably fixed-income securities - mostly those issued by the Treasury or otherwise, supported by the United States government, directly or indirectly - generally held their value. “Investors are confused, and they have a lot of misconceptions,” said Mr. Rodriguez. “We need to get to the basic question, and that is, bonds that you actually own?”

Long-term corporate bonds, for example, declined in value by more than 18 percent on average through October, according to Ibbotson Associates, a subsidiary Morningstar. This is worse than any full-year decline on its records going back to 1926.

A rout in corporate bonds, particularly high-yield or junk bonds, was worse, by some measures, even than the distressed market Great Depression, said William H. Gross, co-chief investment officer of the Pacific Investment Management Company. Junk-bond yields - which move in the opposite direction of prices - soared recently 20 percent above.

“These are the unheard, unseen yields, which have never been in anybody’s life,” said Mr. Gross, who manages Pimco Total Return, the country largest bond fund. “Even during the Depression, corporate bonds did not trade in these particular yield spreads, or premiums over Treasuries of comparable yields, Mr. Gross added.

On the positive side, long-term government funds tracked by Morningstar was up 9.2 percent for the year through Thursday.

But in many parts of the market to back bond mutual funds are sobering, with performances that would be abysmal even for stock funds in a typical years. High-yield bond funds were at 29.6 percent for the year through Thursday, bond market emerging were the funds of 26.5 percent, and bank loan funds were at 24.7 percent. Even intermediate-term bond funds, a middle-of-the-road category often used as a basis for holding portfolio balancing, have been 9 percent down.

This is not a typical years, however. Not by a long shot.

“Never before in 25 years, we have seen conditions like this,” said Mary J. Miller, director of T. Rowe Price fixed-income division. “It’s not just credit risk,” she said. “Some parts of the market are liquidity-impaired - there just are not enough buyers out there.”

Municipal bonds were “significantly punished”, she said, because of a lack of buyers and “acute aversion to risk” that permeated the market. Most municipal bonds are, in fact, creditworthy, she said, but their prices have gone down anyway. Loss of independent firms that functioned as the market factors - such as Bear Stearns, Lehman Brothers, Merrill Lynch and Wachovia - disturbance of the market, she said, and so continued unwinding of leveraged bets, packaged as often complex tools Financial derivatives, adopted by hedge funds.

Mr. Gross of Pimco in sales by the wave of hedge funds to Akin as a “margin call”, the bond holders are forced to sell securities at lower and lower prices.

However, some funds from bonds sold as holding basic buy-and-hold investors have their own took place this year. In the current market, that means not losing much money, and in some cases, may earn only a little. These funds include Pimco Total Return, which was 0.3 percent down through Thursday, from the Vanguard Total Bond Index fund, up 0.9 percent, the T. Rowe Price New Income fund , At 2.3 percent, and FPA New Income up 3.7 percent. All these funds are highly rated by both Morningstar and Lipper.

This was possible modest performance, because these funds do not hold much, if at all, in risky areas of the market, said Jeff Tjornehoj, senior research analyst for Lipper. “The funds that did a good take on risk markets have been punished now,” he said.

There are many ways to minimize risk. The Vanguard Total Bond Index fund is managed passively, mirrors and what was until recently known as the Lehman Aggregate Bond index - and is now called Barclay aggregate Bond index, as a result of Barclay’s absorption of Lehman’s bond analysts and indexes. Treasuries in the index gained in value of corporate bonds while he fell, and the results were “about what might be expected from a holding base,” said Fran Kinniry, which leads group of investment strategy at Vanguard.

FPA New Income has taken a different approach, holding large amounts of cash and Treasuries, and keeping the average duration - in essence, the time before a security matures - approximately one year. Reduce the duration of cuts down on the risk of amending yields and inflation.

Pimco has taken a different route, buying Treasuries and investment in fixed-income securities of Fannie Mae and Freddie Mac, the mortgage giants that have been bailed by the federal government. “We did ourselves in essence, partners” in government, Mr. Gross said.

Mr. Gross is taking a similar approach, he said, with investments in shares of the bank’s preferred holding Treasury, which is injected capital. With a shortage of liquidity, and an epidemic of risk aversion, he said, makes sense “to buy something where you can partner with Uncle Sam instead of being left out in the cold.”

With prices falling and the consumer price index fell in October by the largest amount on record, there are signs of disinflation, maybe even the possibility of a cycle of declining prices, known as deflation. Bond strategists caution, however, that the current inflation outlook was murky test of the Federal Reserve and central banks and governments around the world to pump money into the financial system in an effort to strengthen the global economy .

For Mr. Rodriguez, this is a major concern and also a reason to minimize all its bets. “It might be deflation that face first, and then inflation down the road,” he said. “This is a very difficult time.”

Mr. Gross said that for months to come, he expects the bond market to be fighting to assess the risks of inflation and deflation. “It is a legitimate debate,” he said, “and we do not have a clear right to see which one wins.”

Built on Wall Street gains Tuesday as recent volatility low and an improvement in the credit markets, helped give stocks stronger their meeting on election day 24 years.
Standard & Poor’s 500-stock index closed above 1000 for the first time since Oct. 13, gaining 4.08 percent and the Nasdaq composite index had its sixth consecutive day of birth.
At the close, the Dow Jones industrial average was up 3.28 percent, or 305.45 points at 9625.28. The broad S. & P. index gained 39.45 points to 1005.75 and the Nasdaq rose 3.12 percent, or 53.79 points at 1780.12.
Crude oil set at $ 70.53 a barrel, up $ 6.62 in New York trading on speculation that the largest exporter of oil, Saudi Arabia, has cut supplies to some buyers.
Historically, Wall Street enjoyed a bounce in the fourth quarter, after a presidential election as investors breathe a sigh of relief that the long cycle of elections, with its accompanying uncertainty, has ended. Some analysts said investors seem to be trying to get a jump on the expected meeting of buying on election day.
“We do not know if it’s the end of the bear market yet, but it seems as if the bear took a nap,” she said Saturday Stovall, chief investment strategist at Standard & Poor’s equity research. “So investors are thinking, to enjoy a bit of relief, so the market Lows endless and the pre-election rhetoric.”

Other analysts have said that they believed in elections only a peripheral effect on the market, as there were no major surprises. More importantly for the rally, they said, was a continuous round of reductions in interest rates globally coordinated, a thaw in credit markets and increasing resilience of the market daily to drumbeat of bad economic news. The extreme volatility in the last week of CALMED, although trading volume remained light.

The Chicago Board Options Exchange’s volatility index dipped below 50 for the first time since Oct. 14. The Dow Jones industrial average rallied to 18 percent, to close on October 27, including 10.9 percent gain on Oct. 28.

“Investors are starting to look before some of these numbers in 2009 are beginning to see some recovery,” said Ryan Larson, head equity trader at Voyageur Asset Management. “Some of the volatility coming out of the market.”

Markets showed little reaction as the government reported that new orders for manufactured goods in September decreased $ 11.2 billion, or 2.5 percent, to 432 billion $, a higher-than-expected decline . That came after a 4.3 percent decline in August.

It was the second negative manufacturing report, in two days. On Monday, the Institute for Supply Management index of manufacturing activity in the United States fell from 38.9 in October from 43.5 in September, the worst reading since September 1982. The market also seemed to take in stride news that the costs of day trading in a narrow range eventually ends before the date fixed.

The meeting that took place on Wall Street has been widely. All sectors of industry in the S. & P. index rose, led by energy stocks. Among the 30 blue-chip, stocks that make up the Dow, General Electric, Verizon Communications and Caterpillar were among the strongest performers.

Stock Exchange opened for trading on election day in 1984. This year, the Dow rose 1.2 percent, a gain not topped since, as Ronald Reagan was re-elected.

Shares of MasterCard, the world’s second largest company credit card after Visa, jumped 18 percent, to 170.24 dollars, after the company said it had revenue of more than encouraged greater profit.

However, the company warned that the economic slowdown would affect profit in the near term.

Building on a trend of the past few days has eased the credit markets further Tuesday, with interbank lending rates and corporate decline significantly. The London interbank offered rate, or Libor, a benchmark that banks charges each other, fell from 0375 percent.

Treasury 10-year bill rose 1 17/32 to 102 7 / 32. Yield, which moves in the opposite direction from price, was 3.72 percent, down from 3.91 percent late Monday.

Stock markets were also higher in Europe and Asia. The Dow Jones Euro Stoxx 50 index, a barometer of the euro zone blue chips, rose 5.56 percent, while the FTSE 100 index in London jumped 4.42 percent. The Paris CAC 40 gained 4.62 percent and the DAX in Frankfurt was 5 percent.

In Tokyo, the NIKKEI 225 stock index rose by 2.8 percent Wednesday morning, buoyed by a softer yen and the rally in U.S. markets.

In Sydney, the S. & P. / ASX 200 index was 1.9 percent higher than Wednesday morning. Australian central bank surprised markets Tuesday, with a higher than expected interest rate cut. Bank cut its main interest rate target by three quarters of a percentage point to 5.25 percent, more than half a point, which was widely expected.

Following are the results of Tuesday’s Treasury auction of 238-day cash management bills and four-week bills

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Fall in the stock market and currency fell to global concerns, but the yen exchange rate have a high-rise too much anxiety. Yen was up 10 percent against the U.S. dollar last week. Last month, it has been a staggering 34 percent against the euro.
One reason is that Japanese investors increased the quality of the flight. Another reason, many economists believe that the end is suddenly one of the world’s largest money easy to plan, the so-called yen carry trade.
Hammer appreciation of the yen helped the Tokyo stock market Monday siege. The stock price hit a 26-year low, and a decrease of 50 percentage points. A strong yen to make Japanese products more expensive during the recession in Europe and North America, to the detriment of profits, the Japanese exporters.
7 finance ministers from the world’s richest countries issued a joint statement, as the Tokyo stock market down, saying they are “concerned about the recent volatility in the exchange rate against the Japanese yen and its possible negative impact on economic and financial stability.” However, Yen Still strong, suggesting investors doubt the government will intervene to stop the yen’s rise.
Christine Lagarde, French Minister of Finance, confirmed in an interview with Bloomberg News.

The yen’s appreciation is owed part of its status as a safe haven - in turbulent times, investors put money into the currency as Japan is the world’s largest economy after the United States, its banking system, limited exposure to sub-crisis Even if it is faced with an economic recession.

However, foreign exchange analyst said that most of the recent yen rise is due to a sudden end to the yen carry trade.

Most of this decade, Japanese and foreigners have to borrow money in Japan, interest rates are very low, so the money is cheap. They invested in higher income assets around the world, from housing loans in Seoul and Budapest stock market in Mumbai.

This is to Japan, its 15 trillion U.S. dollars in personal savings to establish the country’s long-term trade surplus, to provide a low-cost capital for the rest of the world.

No one knows how this large-scale outflow of yen.

Most of the yen carry trade took place after the public scrutiny in the form of currency options or other types of derivatives. Analysts agree that the majority of its size in the billions of dollars, and some have estimated that up to 50 trillion. As the yen carry trade growth, foreign exchange analysts warned that it is a bubble of cheap credit, which will burst one day.

Now that day has come, said foreign exchange analyst and economist. Investors have been lifted as part of its yen loans, the panic to flee risk assets - such as the Budapest Housing loans and Mumbai stock - to safer havens like the yen and the dollar, which is an increase of the euro and sterling.

Prospects of a global recession also in many countries of the Central Bank to lower interest rates, reducing the appeal of borrowing in Japan: South Korea cut interest rates three-quarters point, Monday’s biggest one-day move in the past.

As a result, a huge reversal of the currency in circulation, to Japan and its currency. “This is the end of the yen carry trade, yen and the bubble,” the division Sasaki, chief foreign exchange strategist in Tokyo at JPMorgan Chase Bank office. “The yen back home.”

As a result of this capital inflow into Japan, currency analysts expect the yen to continue to rise. Sasaki said his company’s forecast of 87 yen 1 U.S. dollars, but it may be as high as 80 billion yen.

Sasaki said the size of the yen in recent weeks suggested that at least trillion yen, or tens of billions of dollars have been returned to Japan. He said the last time he tried to calculate the size of the yen carry trade as a whole was three years ago, when he estimated that a total of 40 trillion yen, or 425 billion U.S. dollars. He said it could easily grow much larger than in recent years.

All the money from Japan increased by over-abundant cheap capital, and many economists now blame for the current financial crisis. Some of the largest player trade in the United States and Europe, hedge funds and banks. However, Japan also contributed to the outflow of yen individuals pouring their savings into overseas investments, such as emerging markets fund in order to seek higher returns.

Japan has always been conservative and even housewives to enter foreign currency transactions online has become a global foreign exchange markets, collectively referred to as Watanabes wife.

Recently, an indicator of the return of the funds, Japan has been a substantial increase in the personal honor of mutual funds, overseas investment. A survey in Japan, the largest of the 40 individual funds show that the withdrawal of more than 3.5 billion U.S. dollars since the Sept. 12, Sasaki, Mr. Morgan said.

By the end of the yen carry trade could have serious consequences, economists say.

In Japan, the yen has aggravated the dark prospects of the country’s export-oriented economy and hurt companies like Toyota and Sony. The yen’s decline crucial to the prospects for overseas markets like the United States, has led the Nikkei 225 index fell about 50 percent so far this year.

Globally, the demise of the carry trade could contribute to an overall increase in borrowing costs, particularly for developing countries and little-known companies in developed countries to cut off a major source of low-cost capital, economists say .

“Lifting of the yen carry trade is just a way to consider more excessive credit system, said:” John Richards, in charge of Asian Studies at the Royal Bank of Scotland in Tokyo offices. “The higher borrowing costs will rise out of proportion to the risk of investment.”

One of the main reasons by the end of the yen carry trade has been a narrowing interest rate gap between Japan and other developed countries. For many years, Japan’s low interest rates - the benchmark overnight lending rate is 0.5 percent - attractive enough to attract investors to borrow money to invest in countries where it has a high rate of return, despite the foreign exchange rate risks .

Now, these investors to sell off the loan interest rate differential between Japan and other parts of the world’s shrinking, so that the profit decline in yen loans. When its board of directors later this week with the Federal Reserve widely expected to be its overnight call rate again, from the current 1.5 percent. This is the way down from 5.25 percent excellent question, first hit the financial markets in July 2007.

Since then, the yen has risen 24 percent against the dollar, investors have to repay the loans in Japanese yen. In fact, some foreign exchange analysts said the lifting of the yen carry trade may have reached a climax.

Koji Fukaya, senior foreign exchange strategy at Deutsche Bank’s Tokyo office, said he expected the yen’s rise will continue until November, to stabilize the value of the dollar at about 90 yen.

“The lifting of the clean-up and will last several weeks,” he said. “Most of the yen carry trade have been released.”

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Morgan Stanley last Friday racing to ensure that its financial lifeline from the Bank of Japan’s confidence in large-scale, the embattled Wall Street investment banks to continue to weaken.

Investors have begun to doubt whether the Bank of Japan, Mitsubishi UFJ Financial Group, through its 9,000,000,000 U.S. dollars of investment, or, if to do so, whether or not there will be sufficient to protect Morgan Stanley. Both sides insisted that the agreement will close Tuesday.

However, some investors have begun to float the other options for Morgan Stanley, have been proud of the branch bank Morgan empire. Mitsubishi may buy some of the recommendations of the entire company. It was also stated that Morgan Stanley may seek to merge the bank in the United States. Some said that the federal government to buy into the besieged company.

Increasingly concerned about the fate of Morgan Stanley is easy to see the stock market last Friday. The bank fell 22 percent, or 2.77 U.S. dollars to 9.68 points, less than half the value of early this week. The decline left the stock down nearly 82 percentage points.

At present, Mitsubishi is considering to increase the line of credit agreement, Morgan Stanley can be used, if not hit, according to Morgan Stanley’s share of the unauthorized implementation of the detailed records.

Mitsubishi executives in Washington this weekend’s meeting of the International Monetary Fund. Morgan Stanley has been in close contact with the bank a week. In particular, Morgan Stanley warned that the Bank of Japan, its share price may be under attack Thursday after the temporary ban on short selling, a strategy used to bet on the company’s stock price.

Analysts said it was difficult to ascertain why Morgan Stanley’s share price dropped drastically.

“I think you have a very real top investment bank in the Morgan Stanley franchise,” the company’s哈特杰弗里Sandler O’Neill analyst. “As an analyst, we can do fundamental analysis of companies, but as an analyst, it is very difficult to achieve the basic analysis of the market sentiment.”

Morgan Stanley into a bank holding company for a week after the collapse of Lehman Brothers last month. This business model it easier for Morgan Stanley to borrow the Federal Reserve.

Morgan Stanley had a preliminary discussion with Citigroup may be a combination of transit to reach an agreement, Mitsubishi.

Citigroup and JP Morgan declined to comment last Friday and asked them to consider the possibility of the merger, Morgan Stanley.

Mitsubishi’s big ambitions of expansion in the United States. It recently bought the remaining shares of UnionBanCal, the Bank of California, for a premium price. Mitsubishi already has most of UnionBanCal since 1996.

Nearly three weeks ago, the Mitsubishi hit its deal with Morgan Stanley in 25.25 U.S. dollars per share, and insurance premiums, growth, has resulted in some doubt Mitsubishi will seek to renegotiate. Mitsubishi 9,000,000,000 U.S. dollars of investment, 30 billion dollars in common stock, this is only part of a direct impact on Morgan Stanley’s stock price sank.

Mitsubishi and Morgan Stanley plans to set up a strategic committee to chart the future cooperation after the end of the transaction. In particular there may be a logical combination of its Japan business, Morgan Stanley said the implementation.

This is not the acquisition of Morgan Stanley Mitsubishi access to more than 1,000,000,000,000 U.S. dollars of the balance sheet, but this is a topic of the bank plans to deal with, the executive said.

Mitsubishi spokesman did not respond to requests to comment last Friday.

A Morgan Stanley spokeswoman said, without making any changes to the transaction, the bank has not negotiations.