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Troubled Investing

After hearing that Caterpillar had to pay a lot to raise capital in a bond sale last week — paying 3.25% over the rate for U.S. Treasuries — I suspected there might be an opportunity in corporate bonds. The banks are illiquid, but I'm not, so maybe I can make some money here.

There are probably few things more dangerous than a novice bond investor wish cash in his pocket. Fortunately I won't have to learn this lesson the hard way. I started looking at bonds and discovered that the high yields among "investment-grade" bonds are all in the financial sector. And oh my, are they high! When I see bank bonds with double-digit yields rated as A1/A+, I know I'm looking at craziness. Nothing looked attractive at all. (And a company like Caterpillar isn't attractive either; it just got me interested in the idea.)

With savings account and CD rates so low, and with a bailout plan on the way that will devalue the dollar, I'm looking for someplace to go. My glimmer of hope in bonds got crushed, and both stocks and precious metals (except for gold) have behaved poorly this year. Something ought to be cheap right now. I'm just not sure what that is.

Maybe I should give up and buy expensive toys while my money is still worth something.

Comments: 4

1: Anonymous
2008-09-29 18:21:21 UTC

ammo and rickshaws.

2: Anonymous
2008-09-30 21:58:21 UTC

canroys are attractive now, if you don't mind the tax paperwork to apply the canadian witholding tax to your U.S. return. Dividends are good thru probably 2013 with tax pools, after that most will probably convert to a corporate structure.

... unless of course you think a japan-1990s/us-1930s style deflation will happen, in which case stuff your extra cash under your mattress.

interesting times.

3: jbquinn
2008-10-01 01:27:26 UTC

I have been thinking along the same lines. Gold has been my conclusion. Not ETFs levered to gold, not gold mining companies, but real actual gold bullion in my hand. Not getting mugged walking out of the coin shop or treated like a drug-dealing-terrorist-money-launderer by the shopkeeper is another problem entirely.

What gold has done in the past year may have very little to do with what it is about to do. It seems a pretty safe bet that the dollar is going to be devalued one way or another. Buying gold (or any important commodity, probably) would be the compensatory version of stuffing money under a mattress.

4: Chris
2008-10-07 18:23:52 UTC

Chump change for a super investor like you but I thought this was an impressive offer online banking paying 3.75% on balances over 10,000 plus you get a $20.00-$60.00 sign up bonus if you are a Gold or Executive costco member.

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