According to the Wall Street Journal, July 28, 2007, Goldman Sachs Group, Inc. is starting a fund to snap up $20,000,000,000 worth of corporate debt. John Danhaki of private equity firm Leornard Green Co. LP says, “…the timing is superb….” TPG Axon and GSO Capital Partners are also “…pouncing on debt…traded down amid a massive supply of debt….” The funds are “…taking advantage of a sudden unwillingness…to buy loans…” according the Journal.
Why “sudden”? What has changed? When the Titanic was grazed by an iceberg, it was simply a close call to the inexperienced, casual observer. Bonds may be a good short term trade for the extremely nimble, but could also turn out to be a very hot potato. A serious credit contraction may be just underway and if so the Fed will be hard pressed to shore up the staggering mountain of debt. Forget interest rates. It’s time to start worrying about return of principle.
The words of reassurance from President Bush are bogus and call to mind similar statements made in 1929 by men in suits. Markets look ahead, not back through a rear view mirror. The choppiness of late indicates uncertainty and emotionalism including especially fear.
Spreads between junk bonds and treasuries are widening, although still narrow by historical standards. So there may a lot more hurt to come.
Bond buyers beware.
Abbreviated version of the Journal article free online at: http://online.wsj.com/public/article/SB118554794313680356.html
Monday, July 30, 2007
Subscribe to:
Posts (Atom)