<p>It is a 3 minute video. Very well done. It should load itself in several seconds.</p>
<p><a href=“http://www.cnbc.com/id/15840232?video=637208904&play=1[/url]”>http://www.cnbc.com/id/15840232?video=637208904&play=1</a></p>
<p>It strikes me that it is likely not a great time to be in the stock market.</p>
<p>lol…</p>
<p>Sorry, I have no audio on my ancient computer. Does this video talk about the safety of fixed growth investments (bonds)? I’ve been wondering a lot about this. Can someone on here summarize for me?</p>
<p>Thanks!</p>
<p>This is a video showing how subprime mortgage debt affects bond insurance companies, which affects investment companies, which affects municipal governments, which affects taxes and government services, which affects ability of taxpayers to pay their mortgages.</p>
<p>So does this make investing in bonds unsafe right now?</p>
<p>What kind of bonds? There are many kinds of bonds.</p>
<p>I’m thinking of the Michigan 529 fixed growth fund which is all bonds managed by TIAA-Cref - about half corporate/muni and half inflation linked. Growth has averaged over 7 percent since inception some years back. Better growth than the conservative age band fund. So I’m eyeing it but worried about what I’ve been seeing regarding the safety of bonds.</p>
<p>I’m a little worried too.</p>
<p>The inflation bonds, if they are the government bonds, don’t have much risk.</p>
<p>Very few muni bonds have failed historically.</p>
<p>Corporate bonds have risk.</p>
<p>With interest rates so low, bonds aren’t that appealing to me. </p>
<p>This is a very tough time to invest.</p>
<p>I did just buy a few thousand dollars of California munis. (California tax-free bonds. 20 years, yield around 4.55%). Doesn’t thrill me at all.</p>
<p>^ It’s a jungle out there, no question.</p>
<p>I’m buying old cars. At least you can drive them to the DQ and show them off. Average 6% annual appreciation since 1990.;-)</p>
<p>barrons, a double win. :)</p>
<p>Barrons I saw on tv today that commercial real estate values dropped 2.5% in the third quarter and 5% in the fourth. Do you think those figures are accurate?</p>
<p>Not in Seattle, yet. Activity has slowed but office and apartment rents are still going up. We are often a year or two behind in downturns. Our brokers just sold some good investment grade industrial parks and the cap rate was right around 6% which is unchanged. I think retail space may get soft first as their sales are more influenced by the (bad) news nationally. But lenders are getting far more cautious and not pushing values as much. That will slow things down eventually. In my area most buyers were large pension funds, REITs and people like Blackstone. The last two will be slowing down buying a lot so this year might be slower in sales but not a measurable drop in values, yet. Condos are weakening rapidly and “deconversions” (going back to rentals) is happening in all the areas. Most of our commercial rents are still pretty competitive for the west coast and not at crazy levels. I did see a leasing brochure for space in a new center to be anchored by Whole Foods. They are asking $60/sf for small spaces of 2000 sf or so. That will not work. No small retailer can afford that here outside the CBD. I’m betting it never gets built or they come down by 33% at least.</p>
<p>Barrons, thanks. I never thought 6% cap rates would make sense, but with a fed funds rate at 3% and going lower…</p>
<p>Yup, used to be 10% plus or minus a point. 8% was for class A regional malls and such. But that was when the interest rates were around that level or higher. Things changed when the modeling programs came out to do lease by lease analysis and different inflation rates on rents than expenses, etc. You could make anything look reasonable. That’s when I learned some of the Ibanker tricks such as assuming all new tenants will pay full market plus percentage rents by year 3 of the lease. In reality only about 25% of stores ever paid any % rent. But it looked good.</p>
<p>I haven’t watched the CNBC story (and can’t on this computer).</p>
<p>The deal with bond insurers is that lots of bonds that are held by funds (including ALL mortgage-backed bonds, as well as many munis, especially agency deals, but very few straight corporate bond issues) have triple-A ratings based in part on their bond insurance, not (any longer) on the inherent quality of the deal. If the bond insurers’ ratings are in doubt, all of those issues will have to be rated based on current deal quality, which will mean that most of them will have ratings declines, and many of them will be below investment grade. So the value of the bonds will be impacted (although expectations about whether that will happen are probably reflected in the bond prices today). Depending on particular funds’ investment criteria, either result – and almost certainly the latter – will require the fund to sell them, creating a fire-sale kind of market, and locking in significant capital losses for the funds’ investors. Also, with the current government-suppressed interest rates, it will be hard to reinvest proceeds of any sale in high-rated instruments at attractive rates.</p>
<p>So, yes, I would worry a little about what’s in your bond fund, if it’s not all Treasuries. You have to look at the particular holdings, though, and the published investment criteria.</p>
<p>All this stuff ought to be reflected in fund prices already, though, at least to some significant extent. That’s what markets are for. You shouldn’t really have to comb through your fund’s last portfolio disclosure (which will have changed anyway) to figure out if it was buying insured securities, and what kind of quality they have today. Someone else should have done that already, and the results should have shown up in prices. That’s true even in open-end funds, since they price at daily mark-to-market rates on the underlying portfolio.</p>
<p>JHS, what you wrote in your first two paragraphs is true. </p>
<p>“All this stuff ought to be reflected in fund prices already, though, at least to some significant extent. That’s what markets are for. You shouldn’t really have to comb through your fund’s last portfolio disclosure (which will have changed anyway) to figure out if it was buying insured securities, and what kind of quality they have today. Someone else should have done that already, and the results should have shown up in prices. That’s true even in open-end funds, since they price at daily mark-to-market rates on the underlying portfolio.”</p>
<p>Nobody knows what some of these bonds are worth. Some of these bonds don’t have a market. So it is hard to tell if the bond fund has marked the bonds to their proper value. Nobody knows what these values are. The markets are having a very hard time.</p>
<p>Looking at what a bond fund is trading for today, without knowing what is in it and how it is valued, makes it very difficult to be comfortable.</p>
<p>I have a money market fund that must be invested in some short term mortgage paper. The fund drops in price very slowly on a daily or weekly basis. Everytime, I think, maybe the value of the fund will stop going down, it surprises me by going down more.</p>
<p>This is a weird moment in terms of investing. Sometimes I think it’s a buyers market in both real estate and stocks but I’m just not that brave. Hard to figure out what’s reallys safe for college money that will be needed shortly.</p>
<p>If you need the money shortly, you should put the money in insured cds.</p>
<p>^ Dstark, very good advice but if we withdraw it right now from the 529 before tuition is actually due won’t we incur a penalty? I should give them a call and find out. Yes, good old CDs would make me sleep better at night. Thanks.</p>