A cheery article in the FT in anticipation of a year that will be anything but. Here are some good quotes:
"
The most interesting now lie in the corporate bond market. As Mark Kiesel of the bond fund manager Pimco points out, high quality credit spreads are trading at their widest levels for 75 years, while investors this month have been able to put their money into a diversified basket of investment grade corporate bonds yielding 8 per cent compared with an earnings yield on the S&P 500 of 6 per cent or less.
All across the developed world, corporate bond yields appear to be discounting defaults on a scale that defies common sense.
Equities likewise look cheap in big markets in terms of the Q ratio, which measures share prices relative to the replacement cost of net assets, and price earnings multiples. Yet the market will probably have to cope with some spectacular bankruptcies in 2009 and in a more muted capitalist environment the earnings prospect in the developed world looks unexciting.
So while the market will find a floor, any bounce may be tame. The way to make big money in equities will be to identify those companies that will defy the market’s expectation that they will fail."
Also:
"The tank traps next year could be in the government bond markets. With no borrowing taking place in the private sector, governments are being crowded in. Hence low yields on fixed interest debt. When credit markets return to health, this will be very dangerous territory.
If you still feel gloomy, remember that it could be worse. In December 1974 the dividend yield on the FT All-Share index reached 12.7 per cent. Things may be bad, but I don’t think we are going back there."
I don't understand what 'tank traps' are in a financial sense. Nor do I fully understand the meaning/implication of crowding-in. And why that leads to low yields on fixed interest debt (is he talking about treasuries?) and why this will be 'dangerous.'
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