Wrong! Dispatches from the Front
The Bond Market Is Angry
By James J. Cramer
12/19/00 9:15 AM ET
URL: thestreet.com
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If you want to look at why telco infrastructure stocks keep going down, you should look at the bond page, not the stock page. We have a whole new generation of investors who came of age when bonds were irrelevant because stocks were king. But the world's telco infrastructure is built with bond money, not stock money, and the bond market is angry. It doesn't want to give the telco networks any more money and it is afraid that the ones that borrowed money aren't going to return it.
You may think this is irrational. For example, I am quite confident that Global Crossing (GLBX:Nasdaq)and 360 Networks (TSIX:Nasdaq) and Level 3(LVLT:Nasdaq), to name three big borrowers, are going to be able to pay their coupons (what they owe on the bonds). I am quite confident that only a handful more of these firms will outright default if the Fed starts easing soon.
But some have already defaulted. Meanwhile, for some reason that I can't quite grasp, but I think is about to change, the high-yield bond funds that purchase this stuff are all under liquidation and getting dumped. I think that's a big mistake. In fact, in my closing chapter of working with Cramer Berkowitz I am telling my partners here that the only real value in this market right now, the coiled spring that will lead to huge returns, is in that high-yield bond market. I intend to park some of my money in one of these funds when I depart as I think that the risks are way overdone and the wholesale dumping of all high-yield paper will stop once the Fed starts easing.
I am analyzing which funds make the most sense right now and will share that insight with you when I reach it. Make no mistake about it, though, the decline in the bond market is what is making these companies spend less, not the demand itself. Demand remains robust for more and faster lines. The money to pay for those lines is scarce though. And that matters more than the demand. Until you see more funds flowing into high-yield bonds, I don't think you will see the resumption in spending that we need to get for these stocks to reignite.
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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com.
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