Trading Now

Trading Now

Thursday, December 3, 2009

Corporate Stock Buybacks and the Pension Buying of Corporate Bonds: What will they think of next? Bankruptcy that's what!

*Rosie posts an interesting article this morning on, among many other things, how pension funds are getting what I would deem suspicious about the over inflated world stock markets and finding a safer bet in corporate bonds. Personally I think that both are a mistake considering the year of default is likely in 2010 and 2011, but what do I know? Remember, bonds have also had a huge run up over this past year and we all know that pension fund managers have been just as stupid as other asset managers, David Swenson from Yale comes to mind (losses above 25%). The moral of the story is: When all others are buying SOMETHING, whether its stocks, bonds or underwear, you SELL!
go here to read full article

Pensions Eliminating Stocks Add $40 Billion to Corporate Bonds Share Business
J.C. Penney Co., the third-largest U.S. department-store chain, is dumping stocks from its retirement plans and gradually boosting bonds to 100 percent of investments from 20 percent as federal requirements to plug pension gaps take effect.
The Plano, Texas-based retailer promised to “eliminate” uncertainty for shareholders caused by underfunded pensions, and will shift some of the money into investment-grade bonds, increasing fixed-income assets to the highest level in the plan’s history, J.C. Penney spokeswoman Darcie Brossart said.
J.C. Penney has plenty of company. General Motors Co. and Goodrich Corp. have also been buying debt as the U.S. pushes retirement pools to cut riskier assets after losses jeopardized some funds. JPMorgan Chase & Co. says fixed-income holdings will rise 10 percent in the next few years, or about $40 billion of corporate debt. The new money is flowing into investment-grade bonds, which may be overheating after returning 21 percent this year, according to Cabot Money Management.
“We’re seeing more plans leaning toward corporate bonds than has been the case historically,” said Mark Ruloff, the director of asset allocation at Arlington, Virginia-based consulting firm Watson Wyatt Worldwide Inc., which surveyed funds in August on their strategies. “It’s adding a new slate of buyers that weren’t in the market before.”
Pension funds are increasing allocations of investment- grade debt to the highest level since the 1970s, when federal rules created a “bias” toward equities, as the U.S. mandates that plans set targets to fully fund worker obligations, Ruloff said.
Dec. 3 (Bloomberg) --

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