Corporate Bond Yields: the Best Indicator?

I was watching CNBC today, and one manager made perfect sense. He said stocks were low based on valuation, but he was in cash. He indicated he was going to wait until the market stabilized before investing in stocks, because right now, the market was behaving irrationally, and he did not want to risk timing a recovery too early. He also said that when yields on safer (GE, etc.) corporate bonds narrowed, that might be the time to buy stocks. He was long cash and corporate bonds. If you want to follow his advice, you may want to consider buying iShares S&P U.S. Preferred Stock Index (PFF), a preferred shares ETF, and/or T. Rowe Price's Corporate Income Fund. I own PFF, and may buy some of the T. Rowe Corporate Income fund.

The Government's Pension Plan

The AP's Erica Werner on why government employees aren't like average Americans:

http://finance.yahoo.com/focus-retirement/article/106022/Meltdown-Retirement-Blow-Is-Softer-for-Lawmakers

She has some interesting points about why government's interests may not be aligned with the people's interests.

Frigor Chocolate and the Economy

So many people have made sensible comments about the bottom being far off, I feel anxious. Their arguments, unfortunately, make sense:

1. The recession is just beginning to hit Europe.

2. The unemployment rate will rise, as companies lay off employees (e.g. Yahoo).

3. The ARMs (adjustable rate mortgages) are going to be re-set at higher interest rates, causing more foreclosures, and placing more downward pressure on housing prices.

4. The dollar will weaken, as the Chinese and Japanese begin to put more of their money in Euros to diversify their holdings.

When anxious, I suggest eating chocolate. Here is a link to the best chocolate I know of, called Frigor:

http://www.cailler.ch/en/sor/fri/default.asp

At least Warren Buffett is buying U.S. shares, so the optimists have good company.

Death Penalty Economically Unviable?

Gerry Uelman writes that the benefits of the death penalty don't outweigh its costs (Fall 2008, Santa Clara Law, pps. 10-11):

Because the death penalty is being sought, the prosecution and defense must actually prepare for two trials, one to determine guilt, the other to determine the sentence...those elements added approximately $500,000 to the cost of a homicide trial.

The bottom line: a conservative estimate of the current cost of our death penalty law in California is $137.7 million per year...to total $232.7 million [after implementing commission's recommendations].

I used to be pro-death penalty until I saw how the system works. I am still pro-death penalty in principle, but from an economic perspective, most studies show it's better to have life without parole. The other benefit of life without parole over the death penalty? Humility. The ones that were wrongfully convicted may get a chance to prove their innocence through DNA or some other new method.

Stocks Update

I just did the math, and from December 7, 2007 to today, October 24, 2008, I've lost around 24% in my retirement funds.

Remember, if your accounts decrease by 10%, you need to make more than 10% to break even. Thus, my portfolio has to go up 32% so I can get back to where I was in December 2007. Sigh.

Update on October 27, 2008: another blogger is in the same boat:

http://escapebrooklyn.blogspot.com/2008/10/sounds-good-in-theory.html

Capitulation, Japanese-Style

Apparently, Japan's market has now gone down to 1982 levels. Oh, it gets even worse--DJIA futures are down 352+ points last time I looked. [It got worse--see chart above.]

http://www.bloomberg.com/apps/news?pid=20601101&sid=aRTtcZqFRnII

Sigh. I wish I could go to sleep and wake up in May 2009, when I think the Dow will be back up to 10,000. In any case, I call capitulation. I called it too early before, but I call it now. October 24, 2008. Capitulation.

Update on October 24, 2008: no 1,000 point drop today, but it's still a bad day--DJIA still down 200+ points.

Atwood on Debt

Atwood hits the nail on the head in her 10/21/08 NY Times Op-Ed:

Atwood Op Ed

But at some point we stopped seeing debt as a simple personal relationship. The human factor became diminished. Maybe it had something to do with the sheer volume of transactions that computers have enabled. But what we seem to have forgotten is that the debtor is only one twin in a joined-at-the-hip pair, the other twin being the creditor. The whole edifice rests on a few fundamental principles that are inherent in us.

In my "OCM" post, I made the same point:

OCM Post

It wasn’t just leverage that caused this financial collapse—it was the attenuated way in which various people could make money. For example, a mortgage broker could loan hundreds of thousands of dollars over the phone to an applicant or after meeting him for half an hour and filling out some forms. After this initial contact, the broker had no interest whatsoever in the applicant/debtor. The broker received a fee from the bank for giving it the loan, and the bank sold the loan it generated to other investors as part of a larger package. The story is old now, but deserves to be told, because too many people miss its crucial point: attenuation leads to irresponsibility.