07.19.03
Quite frankly, I am scratching my head. I sit here and watch a week's worth financial news, delve into innumerable publications all in the hopes of discerning what is really happening and I am not alone in the empty feeling that I am left with. Consider the equity trading of the past week. Up then down, down some more, down a little more again and then a big surge to end the week. Companies report earnings, stocks go up and bonds, well they sell and then...

The yields start to climb as the price goes down and once again they are looking for shaky investors whose eyes are always darting around the room looking for signs of another drop in the floor. Its a wonder they ever left bonds. But hey, the lure of investing in former bubble stock, tech issues and non-profits can be too much.

Bonds are still a nice place to be even for the less conservative investor. Companies are still looking for cash and the bond market doesn't have any real effect on the stock price. I say that with the caveat that these companies aren't borrowing in the bond market to fund underfunded pensions or use the money without some clear concise return on the investment. The effect of this kind of borrowing on the companies share price would show up in the earnings report and earlier in the analyst reports.

But it still isn't as easy to understand what corporate bonds are really worth. This lack of clarity, called transparency, doesn't allow the bond to priced and traded the same way as a stocks are. At the BlueCollarDollar, we strongly suggest that you buy through a bond fund where fund managers can find not only a good dealer but, if they are worth their mettle, the best price as well.

So why is there a problem getting the best deal on corporate bonds? Profit. If bond trading suddenly became transparent as small investors would like, one of the last bastions of insider profit taking would suddenly be exposed. The Security and Exchange Commission stepped in a few years back and gave the bond trader a gentle push in the right direction. Delivered as a report, many to unknown locations, the bond trader must state the price of the trade within 75 minutes of its completion.

These problems are not likely to change soon which is too bad. In the current environment, better transparency can mean better exposure. That increased exposure can only lead to smaller profits but that will easily be offset by bigger and more frequent trades.

[ Close Window ]