Bonds downgraded
Stocks are bad. Bonds are no great shakes either. Fitch Ratings notes that nearly one in four U.S. corporate bonds was downgraded last year. Of course, that raises the question of whether some of those bonds may initially have been overrated.
A new Fitch Ratings study finds that downgrades affected $891.9 billion in U.S. corporate bonds in 2008, or 24% of U.S. bond market volume, narrowly topping the previous high of 23.4% recorded in 2002 (on $558.1 billion in downgrades).
‘Downgrades, not surprisingly, accelerated significantly in the second half of the year,’ said Eric Rosenthal, Senior Director of Fitch Credit Market Research. ‘In the fourth quarter alone downgrades totalled $391.5 billion or 10.6% of market volume.’
Overall, downgrades affected 9.3% ($279.5 billion) of investment grade volume in the fourth quarter while upgrades affected 1.5% ($45.3 billion). On the speculative grade front, the effects of negative and positive changes were 16.8% ($112 billion) and 1.2% ($8.2 billion), respectively.
For the full year, downgrades and upgrades affected 21.7% ($667.5 billion) and 4.0% ($121.8 billion) of investment grade bonds, respectively, and 34.2% ($224.4 billion) and 11.4% ($74.4 billion) of speculative grade bonds.
Don Mecoy
Business Writer
Buffett says economy can be saved by the ukulele
Warren Buffett tells you everything you want to know about his favorite instrument, the ukulele. He also answers a couple of serious questions about the economy and capitalism. He first appears at about the 1:00 mark. (via boingboing)
Don Mecoy
Business Writer
Congressman: Fed staved off economic collapse
Here’s a remarkable recollection of a near economic collapse that occurred in mid-September. Speaking is Rep. Paul E. Kanjorski of Pennsylvania, chairman of the Financial Services Subcommittee on Capital Markets.
Kanjorski notes that $550 billion was withdrawn from money market accounts in “an hour or two.” Federal officials reacted quickly, he said. The following section occurs at about the 2:20 mark of this C-SPAN video.
The Treasury opened up its window to help. It pumped $105 billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there. that’s what actually happened. If they had not done that their estimation was that by 2 o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money-market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.
It would have been the end of our economic system and our political system as we know it.
Don Mecoy
Business Writer
Financial literacy report suggests changes
The President’s Advisory Council on Financial Literacy has produced a report (.pdf file) listing the group’s accomplishments and a laundry list of recommendations. I’m all for financial literacy. A lack of basic financial knowledge leaves consumers vulnerable to bad loans, scams and just plain bad spending habits. But I found a few of these recommendations to be eye-openers.
Here’s a sample:
The President should direct the United States Department of the Treasury and the United States Department of Education to take the necessary steps to require college students to take a more comprehensive course in financial literacy (or pass a competency test) than the present entrance and exit counseling requirements, as a condition of receiving Federally funded or Federally guaranteed student loans.
The United States Congress should require financial institutions to provide every adult American with access to an electronic, debit card-accessible depository account protected by the Federal Deposit Insurance Corporation or the National Credit Union Administration.
The United States Congress should provide Federal funding for any non-profit organizations working on community-based financial literacy programs and for state and local governments demonstrating leadership in financial education for their residents.
Don Mecoy
Business Writer
True love’s Christmas gifts more expensive
A 33 percent gain in the cost of swans helped boost the price of the gifts in ”The 12 Days of Christmas” by more than 8 percent, according to the annual calculation by PNC Wealth Management. It was the second-biggest price increase since the company began tracking the index more than two decades ago.
The seven swans a-swimming proved to be a driver of this year’s index, carrying the greatest weight with a whopping 33.3 percent increase due to their scarcity. True Loves will spend $5,600 this year for Swans compared with $4,200 in 2007, accounting for $1,400 of the $1,573 increase. The swans typically have the largest swings in price in the PNC CPI.
Much like the government’s CPI, the PNC CPI also measures a “Core Index”—up just 1.1 percent this year – that excludes the swans. The core Consumer Price Index excludes volatile energy and food costs and is generally lower than the headline figure.
The swans, at $5,600, are the most expensive of the gifts, which this year total $21,080.10. However, if one were to buy all of the gifts in all 12 verses of the song, the true love’s tab would come to $86,608.51.
Don Mecoy
Business Writer
When is a “bank” not a bank?
One of the challenges for Roger Beverage, president of the Oklahoma Bankers Association, is to explain how Oklahoma banks are doing better than their counterparts in other states. One of the things that makes his job more difficult, he says, is that the media has regularly referred to large investment banks like Morgan Stanley and Bear Stearns as “banks.” Those huge — and shaky – institutions don’t have much to do with the local community bank where you keep your checking account and your car loan, Beverage says.
“The difference between what real banks do and what these other people that are called “banks” did is banks ask the question: Can you and will you pay this money back if I lend it to you?” Beverage said.
Don Mecoy
Business Writer
Who saw the meltdown coming? Peter Schiff
Watch as pundit after pundit scoffs at Euro Pacific Capital president Peter Schiff’s accurate predictions in 2006 and 2007 about the economic meltdown and its causes. it’s a remarkable compilation, and a remarkable performance by Schiff, who pretty much hit the nail on the head time after time.
Business Writer
Ominous data
Buried eight paragraphs deep in a feature about the bankruptcy of retailer Mervyn’s in Monday’s Wall Street Journal is this disquieting passage:
Forty private-equity-owned companies have sought bankruptcy-court protection this year, according to data compiled by Thomson Reuters. And of the 86 Standard & Poor’s-rated companies that have defaulted on their debt this year, 53 were involved in private-equity transactions, according to S&P.
S&P expects the default rate to increase sharply over the next year, probably leading to more private-equity-backed companies filing for bankruptcy protection. Creditors, employment lawyers and bankruptcy are expected to step up legal scrutiny of those buyout transactions, which typically involved large amounts of borrowed money.
And the mess continues to unravel…
Don Mecoy
Business News
Bond ratings: locking up a horse-free barn
Now, long after their honest counsel could have been of great value, ratings service Fitch Ratings has begun to mark down values in earnest.
Fitch Ratings-New York-19 November 2008: The credit crisis and softening economy pushed up the par value of U.S. corporate bonds affected by downgrades to $296.7 billion in the third quarter, a level topping the worst quarters of the 2001 / 2002 downturn. Overall, downgrades affected 7.8% of U.S. bond market volume while upgrades affected 1.7%. At the investment grade level, the effects of negative and positive rating changes were 8.5% and 1.7%, respectively, of high grade volume while downgrades and upgrades affected 4.4% and 1.7%, respectively, of speculative grade volume.
The bulk of third-quarter downgrades occurred in the financial sector, which accounted for $258.5 billion, or 87%, of the total downgrades. Industrial downgrades, at $38.2 billion, were split $12.6 billion investment grade / $25.6 billion speculative grade.
Don Mecoy
Business Writer
Forecasting the Dow
We ran a story on Sunday trying to gauge how much more pain stock investors might have to bear. Best guess of our experts: There could be more pain ahead. As part of that package, I interviewed Edmond investment manager Nick Massey. A regularly guest on CNBC and Bloomberg radio, Massey is pretty free with his advice regarding the overall market.
Here’s his take on the question: How low can the Dow go?”
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Don Mecoy
Business Writer
