How to Invest in a High-Debt, Low Yield World

While the word “debt” often carries a negative connotation, “it is important to remember that debt can be used in different ways. In fact, all debt, similar to dietary fat, is not created equal.” This according to an article in last week Barron’s that outlines possible investment approaches in a highly-leveraged yet low-yield global market. A healthy amount of debt creation is “necessary to support economic expansion, but too much can drag on growth and/or cause financial distress,” the article states. In developed markets, the long period of falling interest rates have made it “more sensible and less costly to […]

Corporate Debt and the Fallout from Rising Rates

The potential for and timing of an interest rate hike is the source of endless speculation and presents several layers of potential fallout for highly leveraged companies, according to Validea CEO John Reese. In a recent article for The Globe and Mail, he discusses the various factors at play. A wall of maturities: Rising rates could jolt the bond market. Jeffrey Gundlach of DoubleLine has said that “hundreds of billions” of corporate and high-yield bonds will be coming due around 2019 and, in the face of higher rates, “bond holders and the companies who have depended on low rates could […]

Gross: America the “Cleanest Dirty Shirt” — For Now

In his latest investment outlook, PIMCO bond guru Bill Gross offers a sobering take on the global debt crisis, saying it could take decades for economies and markets to return to normal. But, he says that in a world of subpar investment options, the U.S. is currently the best place to look. “What global investors, fixated on historical cyclical trends as opposed to secular delevering dynamics fail to appreciate is that economies and their financial markets historically have taken several decades as opposed to several years to renormalize once the fatal grip of too much debt wreaks havoc on the […]

The 90% Debt/GDP Threshold: Reality or Myth?

Over the past year-and-a-half, many prominent strategists have cited the research of Carmen Reinhart and Kenneth Rogoff in contending that the U.S. will be in big trouble if its debt-to-GDP ratio climbs past 90%. But Robert Huebscher, the founder of Advisor Perspectives, says they are misreading Reinhart and Rogoff’s research. The problem, Huebscher says, is that those citing the 90% threshold have “ignored Reinhart’s and Rogoff’s own words of caution with respect to the special situation of the US, and they failed to consider the limits inherent in Reinhart and Rogoff’s dataset of countries with high debt levels. I spoke […]

Krugman on Why Politicians Don’t Get Debt

For much of 2011, politicians have been squabbling over how to pare the U.S.’s deficit. But Paul Krugman says they’re misguided in doing so. “This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans,” the Nobel laureate economist writes in his New York Times column. “But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.” Krugman says that deficit hawks […]