Posts tagged ‘forecasts’

Where are the Economists’ Yachts?

Yachts istock II

“Where Are the Customers’ Yachts?” was a book first published about 75 years ago in 1940 by Fred Schwed, Jr. Before he became an author, Schwed was a professional trader who eventually left Wall Street after losing a significant amount of money during the 1929 stock market crash. The title of Schwed’s book refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, the visitor asked where all the customers’ yachts were? Of course, none of the customers could afford yachts, even though they obediently followed the advice of their bankers and brokers.

The same principle applies to economists. The broad investing public, including many professionals, blindly hang on to every economist’s word. And why not? Often these renowned economists are quite articulate – they use big words, crafty jargon, and wear fancy clothes. Unfortunately in many (most) cases the predictions are way off base. What’s more, if these economists/strategists/analysts/etc. were so clairvoyant, then how come we do not find any of them on the Forbes 400 list or see them captaining massive yachts?

Recently, the Washington Post highlighted the spotty forecasting track record of the Federal Reserve, as it related to past projections of economic growth. As you can see from the chart below, the Board of Governors were consistently too optimistic about future economic growth prospects.

Source: Washington Post

Source: Washington Post

The Federal Reserve has repeatedly proved it is no slouch when it comes to poor forecasting. The example I often point to is the infamous 1996 “irrational exuberance” speech (see also NASDAQ 5,000 Déjà Vu?) given by then Federal Reserve Chairman Alan Greenspan. In the talk, Greenspan warned of escalated asset values and cautioned about a potential decade-long malaise similar to the one experienced by Japan. At the time, the NASDAQ index stood at 1,300, but despite Greenspan screaming about an overvalued market, three years later, the tech-laden index almost quadrupled in value to 5,132.

There are plenty more errant economist forecasts to reference, but despite the economists’ poor batting averages, there is virtually no accountability of the pathetic predictions by the media outlets. Month after month, and year after year, I see the same buffoons on cable TV making the same faulty predictions with zero culpability.

While I have attempted to keep some of the economists/strategists honest (see The Fed Ate My Homework), credit must be given where credit is due. Barry Ritholtz, the lead Editor of The Big Picture, last year wrote a smart piece on the accountability (or lack therof) in the prediction industry.

In the article Ritholtz described some of the shenanigans going on in the loosely regulated prediction industry. Here’s part of what he had to say:

Pundits are highly incentivized to adhere to the following playbook:

  1. make a brash prediction
  2. if wrong, don’t worry…. no one will remember
  3. if right, selectively tout for self-promotion
  4. repeat cycle

Ritholtz also describes another time-tested strategy I love…The 40% Rule:

“The 40% rule is the perfect way to make a splashy headline and cover your butt at the same time. Forecast that there’s a 40% chance that the Dow Jones Industrial Average clears 12,000 by year end: If it does, you’ll look like a sage, and if it doesn’t, well, you didn’t say it’s the most likely outcome.”

 

Whatever your views are of predictions made by high profile economists and pundits, the media archives are littered with faulty forecasts. It is difficult to dispute that the projection game is a very tough business, and if you don’t share the same opinion, please explain to me…where are the all the economists’ yachts?

Click Here for Other Bad Predictions

Investment Questions Border

 

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own a range of positions in certain exchange traded fund positions, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

December 6, 2014 at 11:21 am 3 comments

Strategist Predictions and MacGyver Credo

MacGyver: Resourceful dude with sweet mullet (Source: Photobucket).

“Only a fool is sure of anything, a wise man keeps on guessing.” – MacGyver

We have gotten to the part of the year when strategists gather for the annual dart throwing ritual of 2011 price targets. S&P projections get chucked around with the hopes of sticking – like cooked spaghetti to the wall.  MacGyver appreciates the fine art of guessing, and so do Wall Street strategists.

How the Game’s Played

You don’t have to be a brain surgeon to figure out how the Wall Street astrology game works. When in doubt, just say the market will be up +10% next year. Hmmm, why +10%?

1)      Well, first of all, these strategists work for employers who are in the business of hawking financial products and services to the masses, so if you want to generate revenues, you better attempt to line up some believers with some rosy scenarios.

2)      History is on the strategists’ side. Equity markets move up about 70% of the time, so why not make an optimistic bet. Data from Crestmont Research and Roger Ibbotson support the average return over the last 100 years or so has averaged approximately +10% (with a lot of peaks and valleys). Obviously, that hasn’t been the case over the last decade. The PIMCO bond brothers of Bill Gross and Mohamed El-Erian blame the “New Normal” environment despite recently raising their 2011 GDP forecasts to a “Less Sluggish New Normal.” More likely, the decade of the 2000s is more like theOld Normal of boom-busts like we experienced in the 1930s and 1970s.

3)      The other cardinal rule to be followed religiously: Forecasts made by any Wall Street type need to be made in tight packs like a herd. There is comfort in numbers, and why in the world would someone risk embarrassment or career risk. Fat paychecks abound for these strategists and hugging consensus views is OK, as long as a logical story can be patched together in explaining it.

With all this discussion about +10% average stock market returns, guess what type of returns this year’s Barron’s strategist survey is forecasting? You guessed it…+10% – what a shocker! Let’s hope this guess is more accurate than Barron’s +10% strategist return forecast for 2008 (S&P 500 was actually down -38.5% in 2008). Strategists don’t always get it wrong – the sanguine +12% outlook for 2010 is basically spot on with a few days left in the year. The sanguine 2002 outlook of +13%, however, was about -35% too sanguine (S&P plummeted about -23% that year).

Although most strategists feign absolute knowledge and precision, history shows these projections rarely prove accurate. Like predicting weather, guessers may get the long-term climate forecast fairly close, but the short-term estimates are generally pure speculation. In my book, 12 months is very short-term. Famed investor and author Charles Ellis captures the challenge of market forecasts:

“Predicting the stock market roughly is not hard, but predicting it accurately is truly impossible.”

 

I ascribe to the Peter Lynch view that speculating about the direction of the market is futile:

“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”

 

Kass Gets Hall Pass

Even though I may relish in flogging strategists, I provide certain professionals a hall pass under the following conditions:

  • The educated guesser is putting real, hard-earned money behind their assertions.
  • The guesses do not hug a tightly-knit herd.
  • Guesses are made transparent and guessers make themselves accountable for bold statements.
  • Those making guesses freely admit to the fallibility of making non-consensus suppositions.

One man whom embodies these principles is famed hedge fund manager Doug Kass, whom I have written about on several occasions (read more). Not only are Kass’s 2011 predictions provocative, they are also entertaining. His self proclaimed 40% batting average in 2010 may be a little higher than reality, but I will let you be the judge of his 2010 calls on the dollar, gold, Fed actions, Iran, Goldman Sachs, utilities, Warren Buffett, mutual funds, short-selling, New York Yankees, and more (read full 2010 Kass list).

The herd of strategists may continue having trouble making accurate market forecasts in the future, but perhaps resourcefully adding some duct tape and a Swiss Army knife to their repertoire like MacGyver will help improve accuracy. If not, rest assured, the strategists will sleep well making their +10% forecasts while continuing to collect big fat paychecks.

Wade W. Slome, CFA, CFP® 

Plan. Invest. Prosper. 

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 29, 2010 at 1:56 am Leave a comment

Why it’s NOT Different This Time

“Those who don’t know history are destined to repeat it.”

–          Edmund Burke – British Statesman and Philosopher (1729-1797) 

I wasn’t a history major in college, but I’ve learned two things by studying history books: 1) The unchanging psyche of human nature leads history consistently to repeats itself; and 2) There is never a shortage of goofballs willing to make zany predictions.

Robert Zuccaro is no exception to lesson number two, as evidenced by his 2001 book, Why it’s Different this Time…Dow 30,000 by 2008!   Sticking one’s neck out is never too difficult when you have a multi-decade trend behind your back – I guess Dow “14,000” just didn’t sound sexy enough back then. Unfortunately the herd reacting to these bold, extreme predictions eventually realize (usually post-mortem) that they are quickly approaching a tail-end of a cycle. The cab driver, hair dresser, and mechanic realized the dangers of following the “New Economy” cheerleaders in 1999 when everyone was piling into dot-com stocks (see Bubblicious technology table ).

Dow 1,000 Here We Come!

Source: Yahoo! Finance

Today, the Zuccaros of the world have been washed to the curb, and new “Armageddon” extremists have sprouted up to the surface, like perma-bear Peter Schiff and his call for Dow 2,000  or his $5,000 per ounce gold estimate. More recently, Robert Prechter has one-upped Schiff by forecasting Dow 1,000 with the assistance of the not-so ironclad Elliott Wave Theory philosophy (see Technical Analysis: Astrology or Lob Wedge). If you’re in the Prechter camp, either crawl back into your bunker or start digging that dream cave you always wanted.

Source: Elliott Wave International

“Hey, Look Here at My Crazy Forecast!”

Publicity doesn’t necessarily rain praise on those parroting the consensus view (although the warmth of job security is appreciated), but rather the extreme outliers love to bask in the glow of media attention. The extremists consistently repeat “why it’s  different this time.” What is different is the set of circumstances, but what history shows us over and over again is the emotions of fear and greed feeding the bubbles of excess are exactly the same. Whether you’re talking about the Tulip-Mania of the 1630s, the Nifty Fifty stocks of 1973-1974, the technology Four Horsemen of the mid-1990s, or the Icelandic Banks of 2008, what we learn from the lessons of history is that human nature will never change and fear and greed will continue creating and bursting future bubbles.

People playing the game long enough understand, “It’s NOT different this time.” Not only have we endured repeated wars, recessions, banking crises, currency crises, but we have also survived every exotic animal disease known to man, including Mad Cow, Swine Flu, Bird Flu, West Nile, etc.

Robert Zuccaro and Robert Prechter may get an “A” for their attention grabbing forecasts, but thus far the grade earned on accuracy is closer to an “F.” More specifically, Zuccaro’s prediction never came close to 30,000 by the end of 2008 (only off by about 21,000 points), and guess what, Bob Prechter has a long way to go before reaching his Dow 1,000 target. So here is my proposition: Why don’t we just split the difference between Zuccaro’s 2008 and Prechter’s 2016 forecasts and take the average? If it turns out they are equally bad forecasters, then Dow 15,500 by 2012 should be no problem ([30,000 + 1,000] ÷ 2)!

Regardless of the ultimate outcome of this market (double-dip or sustained recovery), what I do know is there will continue to be wacky outlandish forecasters rationalizing why a trend will go on for infinity and why “this time is different.” In reality these attention mongers will always be around ensuring this time (or next time) will never be different…just the same fear and greed as always.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

September 29, 2010 at 12:09 am 2 comments

Rogers: Fed Following in Path of Dodo

Jimmy Rogers, the bow-tie boss of Rogers Holdings and past co-founder of the successful Quantum Fund with George Soros, is no stranger to making outrageous predictions. His latest prophetic assessment is the Federal Reserve Bank is on the path of the Dodo bird to extinction:

“Don’t worry – the Fed is going to abolish itself. Between Bernanke and Greenspan, they’ve made so many mistakes that within the next few years the Fed will disappear.”

 

Given the shock and awe that transpired from the Lehman Brothers collapse, I can only wonder how investors might react to this scenario….hmmm. If this doozy of an outlandish call catches you off guard, please don’t be surprised – Rogers is not shy about sharing additional ones (Read other IC article on Rogers). For example, just six months ago Rogers said the Dow Jones could collapse to 5,000 (currently around 10,472) or skyrocket to 30,000, but “of course it would be in worthless money.” Oddly, the printing presses that Rogers keeps talking about have actually produced deflation (-0.2%) in the most recently reported numbers, not the same 79,600,000,000% inflation from Zimbabwe (Cato Institute), he expects.

I suppose Rogers will either point to a data conspiracy, or use the “just you wait” rebuttal. I eagerly await, with bated breath, the ultimate outcome.

Is U.S. Fed Alone?

If the U.S. Federal Reserve system is indeed about to disappear after over nine decades of operations, does that mean Rogers advocates shutting all of the other 166 global reserve banks listed  by the Bank for International Settlement? Should the 3 ½ century old Swedish Riksbank (origin in 1668) and the Bank of England (1694) central banks also be terminated? Or does the U.S. Federal Reserve Bank have a monopoly on incompetence and/or corruption?

Sidoxia’s Report Card on Fed

I must admit, I believe we would likely be in a much better situation than we are today if the Federal Reserve board let Adam Smith’s “invisible hand” self adjust short-term interest rates. Rather, we drank from the spiked punch bowls filled with low interest rates for extended periods of time. The Federal Reserve gets too much attention/credit for the impact of its decisions. There is a much larger pool of global investors that are buying/selling Treasury securities daily, across a wide range of maturities along the yield curve. I think these market participants have a much larger impact on prices paid for new capital, relative to the central bank’s decision of cutting or raising the Federal funds rate a ¼ point.

Although I believe the Fed gets too much attention for its monetary policies, I think Bernanke and the Fed get too little credit for the global Armageddon they helped avoid.  I agree with Warren Buffett that Bernanke acted “very promptly, very decisively, very big” in helping us avert a second depression while we were on the “brink of going into the abyss.”

Beyond the monetary policy of fractional rate setting, the Fed also has essential other functions:

  • Supervise and regulate banking institutions.
  • Maintain stability of the financial system and control systemic risk of financial markets.
  • Act as a liaison with depository institutions, the U.S. government, and foreign institutions.
  • Play a major role in operating the country’s payments system.

I will go out on a limb and say these functions play an important role, and the Fed has a good chance of being around for the 2012 London Olympic Games (despite Jimmy Rogers’ prediction).

Sidoxia’s Report Card on Rogers

As I have pointed out in the past, I do not necessarily disagree (directionally) with the main points of his arguments:

  • Is inflation a risk? Yes.
  • Will printing excessive money lower the value of our dollar? Yes.
  • Is auditing the Federal Reserve Bank a bad idea? No.

My beef with Rogers is merely in the magnitude, bravado, and overconfidence with which he makes these outrageous forecasts. Furthermore, the U.S. actions do not happen in a vacuum. Although everything is not cheery at home, many other international rivals are in worse shape than we are.

From a media ratings and entertainment standpoint, Rogers does not disappoint. His amusing and outlandish predictions will keep the public coming back for more. Since according to Rogers, Bernanke will have no job at the Fed in a few years, I look forward to their joint appearance on CNBC. Perhaps they could discuss collaboration on a new book – Extinction: Lessons Learned from the Fed and Dodo Bird.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (VFH) at the time of publishing, but had no direct ownership in BRKA/B. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 14, 2009 at 2:00 am 1 comment

Meredith Whitney’s Cloudy Crystal Ball

Meredith Whitney, prominent banking analyst at her self-named advisory group, should have worn a bib to protect her from the adoring drool supplied by Maria Bartiromo in a recent CNBC interview. Ms. Whitney has quickly become a banking rock star during this “Great Recession” period.  She was right at a critical juncture, and as a result she was thrust into the limelight. Much like Abby Joseph Cohen, the perma-bull Goldman Sachs strategist who gained notoriety in the late 1990s, Whitney (the perma-banking bear) will continue having difficulty living up to the lofty expectations demanded of her.

Despite the accolades, Whitney’s crystal ball has gotten cloudy in 2009. I suppose accuracy is not very important, judging by her bottom-half 2007 ranking (year of her major Citigroup call) in recommendation performance and 48%-ile ranking in the first half of 2008. Analysts, much like reporters, can avoid looking dumb by reporting the news du jour and by following the herd. Whitney has followed this formula with her continuous bearishness on the financial sector, excluding a brief but late upgrade of Goldman Sachs in July. Not only was her analysis tardy (Goldman’s stock tripled from the 2009 bottom), but her call has also underperformed the S&P 500 index since the upgrade.

Incoherent Inconsistencies

Like a bobbing and weaving wrestler (her husband John Layfield is a retired staged professional wrestler from the WWE), Whitney tries to concoct a completely mind-boggling narrative to explain her forecasts this year in the CNBC interview with Maria Bartiromo:

11/18/09 (XLF Price $14.60): “For the year, I have been at least ‘cover your shorts, go long.’ I haven’t been this bearish in a year.” (See Maria Bartiromo Interview)  

Hmm, really? Are you kidding me? Wait a second…is this the same “go long” Meredith Whitney that expressed the following?

3/17/09: (XLF: 8.55 then, 14.60 now +71% ex-dividends): “These big banks are sitting on loans that were underwritten with bad math, and the stocks are going to go down…these stocks are uninvestable.”

(Fast forward to minute 8:20 for quote above)

2/4/09 (XLF: 8.97 then, 14.60 now +63% ex-dividends): “Investors should not even consider owning banks on an equity basis” (Click here and fast forward to minute 8:10 for quote).

The schizophrenic accounting of her postures are all the more confusing given her stance that the sector was “fairly valued” in October, according to the CNBC Bartiromo interview.

Don’t get me wrong, she made an incredible bearish call on Citigroup in the fall of 2007 and was expecting blood in the streets until a massive rebound in 2009 surprised her. Investors need to be wary of prognosticators that get thrust into the limelight (see Peter Schiff article) for a single prediction. The law of large numbers virtually guarantees a new breed of extreme forecasters will be rotated into the spotlight any time there is a major shift in the market direction. I choose to follow the footsteps of Warren Buffett and stay away from the game of market timing and market forecasts. I believe James Grant from the Interest Rate Observer states it best:

“The very best investors don’t even try to forecast the future. Rather, they seize such opportunities as the present affords them.”

 

Meredith Whitney may be a bright banking analyst and perhaps she’ll ultimately be proven right regarding the downward banking stock price trajectories, but like all bold forecasters she must live by the crystal ball, and die by the crystal ball.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and its clients own certain exchange traded funds (including VFH), but currently have no direct positions in C, GS, or XLF. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

November 23, 2009 at 2:00 am 13 comments

Clashing Views with Dr. Roubini

Sword-Fight

The say keep your friends close, and your enemies even closer. Nouriel Roubini, professor of economics and international business at the NYU Stern School of Business, is not an enemy, but I think his fluctuating views (see previous story) and Armageddon expectations are off base. Perma-bears like Roubini and Peter Schiff (view article) have gloated and danced in the media limelight due to their early but eventually right calls. Over the last seven months or so, their forecasts on the U.S. economy and markets have been off the mark. With that said, even those with competing views at times can find common ground. For Nouriel and I, we currently share similar beliefs on gold (see my article on gold).

Here’s what Professor Roubini has to say:

I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.
The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.”

 

My thoughts on oil are less bearish, but nonetheless more cautious given the massive price bounce to around $80 per barrel. Could I see prices coming down to $50 like Roubini feels is appropriate? Certainly. With the $100+ per barrel swing we saw last year, I cannot discount completely the possibility of that scenario. However, unlike gold, oil has a much stronger utility value, and based on the slow adoption of more expensive alternative energies, this commodity will be in strong demand for many years to come. The pace of global economic recovery, especially in countries like China, India, and Brazil provide an underlying demand for the petroleum product. In order to understand the underlying bid for this economic lubricant, all one has to do is look at the appetite of emerging economies like China when it comes to this black gold (see my article on China).

And where does Roubini think markets go from here?

“If the recovery of the economy is going to be anemic, sub-par, below-trend and U-shaped, there is going to be a correction. And therefore my view is to stay away from risky assets. Stay in liquid assets. I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes.”

 

Perhaps Roubini’s “double dip” fears will eventually come true – and he leaves himself plenty of room with vague loose language – however, I follow the philosophy of Peter Lynch: ‘‘If you spend more than 14 minutes a year worrying about the market, you’ve wasted 12 minutes.” Great companies don’t disappear in challenging markets – they become cheaper – and new innovative companies emerge to replace the old guard.

As much as I would like to be right all the time, that’s not the case. In order to learn from past mistakes and continually improve my process, it’s important to get the views of others…even from those with clashing perspectives.

Read IndexUniverse.com Interview  with Nouriel Roubini Here

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management and client accounts do not have direct long or short positions in gold positions, however accounts do have long exposure to certain energy stocks and ETFs. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

October 29, 2009 at 2:00 am 6 comments

Misery Loves Company – Ruler Waffling

Ruler

Besides using a ruler for measuring small distances and rapping disobedient knuckles, the wooden instrument can also be used for extrapolating trends. This ruler is a very convenient tool when rigorous analysis is a second choice.

Misery loves company, so the often maligned pool of inaccurate Wall Street equity analysts are happy to share the limelight with their trend leaning junk bond analyst cousins. As default rate expectations have bounced around like a jack rabbit post the Lehman Brothers bankruptcy, these bond forecasters have been caught flat-footed.

Reuters highlighted the backpedaling of Standard & Poor’s recent forecast changes:

“S&P said it now expects defaults to decline to 6.9 percent a year from now from a September rate of 10.8 percent. On Oct 2, it had said it expected defaults to escalate to 13.9 percent by August 2010.”

 

For a lazy analyst, extrapolation is a good fall-back strategy. Sticking your neck out by looking out further into the future or grasping the concept of reversion to the mean can be difficult and politically risky from a job retention perspective. It’s much easier to constantly hug current trends because it then becomes virtually impossible to be wrong.

Just as the rating agencies contributed to the subprime and auction rate securities (ARS) debacles by rubber stamping their AAA approvals last year through the financial crisis, so too have we witnessed the failure of bond analysts to properly analyze junk bond default rates.

Hopefully the narrowing of credit spreads is a leading indicator for economic improvement, but regardless the number and amount of high yield deals hitting the market is flowing heavily. The Wall Street Journal recently reported billions of junk bond deals being priced this week and next, including the $500 million Crown Castle International’s 10-year deal; $200 million Mohegan Tribal Gaming’s eight-year bonds; $325 million in Headwaters Inc.’s five-year notes; and over $2.4 billion of bonds from four other borrowers, including Boise Paper Holdings, Reynolds Group, Murray Energy Corp. and Universal City Development.

As larger companies are freely tapping the capital markets for capital, it’s becoming more and more evident that small businesses are having tougher and tougher times accessing credit, thanks in large part to banks hunkering down and reducing lending. Reference the flattening commercial bank credit curve chart provided by the Federal Reserve System:

Commercial Credit 

As we watch the credit flow drama unfold in these uncertain economic times, don’t panic if you wondering what will happen next. Just reach into the desk drawer and pull out the favorite tool of Wall Street equity and junk bond analysts…the righteous ruler.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management and its client accounts do have direct positions in HYG shares at the time this article was originally posted. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

October 22, 2009 at 2:00 am Leave a comment

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