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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (23413)	2/11/2005 8:34:24 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 116555

Large volume of high yield bond new issues is worrying By Mark Hulbert Last Updated: 2/9/2005 12:01:00 AM ANNANDALE, Va. (MarketWatch) -- When someone approaches you with an offer to buy or sell securities, it's crucial to examine his or her motives. Why is he approaching you now, for example? What does he see or know that I don't? This is all standard stuff, of course, right out of Negotiations 101. But a surprising amount of insight into the market's cycle can come from following the answers to these questions to their logical conclusions. When a company is purchasing its shares on the open market, for example, it likely means that its executives are confident that those shares will soon be trading for a higher price. And sure enough, the top performing investment newsletter over the past eight years in the Hulbert Financial Digest's ranking is a service that only picks stocks of companies currently involved in share repurchase programs. The newsletter is The Buyback Letter, edited by David Fried. In contrast, when a company is anxious to issue more shares, it is likely to mean that its executives think its current shares at a minimum are fairly valued, and most likely overvalued. And sure enough, each of the newsletters the HFD has tracked over the years that invested in new issues significantly lagged the market. (Interestingly, none of those new-issue letters is still published.) Owen Lamont, a professor of finance at Yale's School of Management, has developed a comprehensive theory of the market's cycle depending on companies' desire to issue stock. In one study, Lamont focused on the percentage of the entire stock market that was newly issued over the trailing three years. This indicator reached its all time high in 1929, and only slightly behind was the reading in early 2000. In third place was the reading in the early 1970s, just prior to the devastating 1973-74 bear market. See the paper on the study. Few market timing indicators have as good a long-term record as that. I was reminded of Lamont's theory by an article in the February issue of George Putnam's Turnaround Letter. In the article, Putnam explored the relationship between the volume of high-yield bonds that have been recently issued and the pace of subsequent bankruptcy filings. The accompanying graph plots these two data series back to the early 1980s. The "assets in bankruptcy" reflect the assets of all publicly traded companies that have filed for bankruptcy. As Putnam notes, "major bankruptcy waves... tend to build up a few years after periods of significant high yield issuance. In 1989 through 1991 we experienced what we then considered to be a huge wave of bankruptcies following the high yield heyday of Michael Milken and Drexel Burnham in the late 1980s. Of course, the Milken/Drexel era was dwarfed by the high yield issuance in the mid-to-late 1990s, which fuelled the massive wave of bankruptcies in 2001 and 2002." What does this historical relationship bode for the future? Putnam draws attention to the large volume of high yield bonds that were issued last year. And "while history never exactly repeats itself, the graph strongly suggests that we will begin to see a pickup in bankruptcy activity over the next few years." Your reaction to this forecast will depend on your approach to investing. If you are a value investor or contrarian like Putnam, you will welcome the prospect of more bankruptcy filings, since companies in bankruptcy often represent attractive investment opportunities. But if you are an investor in high yield bonds, Putnam's forecast will be most unwelcome, since it suggests that high yield bonds "may have some tougher times ahead." * Hazardous to your wealth: Choosing a newsletter based on last year's returns. * Long-term performance ratings: 16-page supplement covering the past 1-, 5-, 10- and 15-year periods. * Profiles: BI Research, The Investment Reporter, No Load Fund*X and The Prudent Speculator. © 1997-2004 MarketWatch.com, Inc. Return to top of page

To: mishedlo who wrote (23413)	2/11/2005 10:07:25 PM
From: kailuabruddah	Respond to of 116555

That is pretty ridiculous coming from a supposedly well thought of "value" stock picker... Anyone who sings the praises of McCulley loses credibility in my book... In light of Duncan's book mentioned earlier (and Faber's), here are a couple of good books that I have enjoyed: Devil Take The Hindmost by Edward Chancellor - very good chapter on 1980s Japan More Extraordinary Popular Delusions and the Madness of Crowds by Joseph Bulgatz - probably the best coverage of the 1925/6 Florida RE Bubble Tonight's links: fee.org nhi.org nreionline.com nreionline.com