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TCO
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Richmond, VA
Jan 1970
time: 00:23
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quote:
Originally posted by DanS
I've got a pretty basic question that I'm hoping someone here can answer.
Why does anybody buy corporate bonds, when government bonds offer almost the same total returns as do corporate bonds?
From Ibbotson's Stock, Bonds, Bills, and Inflation Yearbook 2002, page 31, geometric mean of annual total returns 1926 to 2001...
Large Company Stock = 10.7%
Small Company Stock = 12.5%
Long-Term Corporate Bonds = 5.8%
Long-Term Gov't Bonds = 5.3%
Intermediate-Term Gov't Bonds = 5.3%
US Treasury Bills = 3.8%
By my calculation, and referring to page 85, the arithmetic mean of the default premia since 1971 is 0.06%. |
I'm not following your math. The table you cited shows 5.8-5.3 = 0.5% If you have some other table that gives you 0.06% as the delta, why show this table?
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:23
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Different time periods. The default premium was the highest during the depression. '33 being 10.46%. Oddly, the second highest between '26 and '01 is '01 at 6.7%.
But the '90s through '01 has a negative default premium (on average).
Last edited by DanS on 20-12-2002 at 04:10
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TCO
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Richmond, VA
Jan 1970
time: 00:23
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quote:
Originally posted by HershOstropoler
"Well, the population estimates show that the peak of growth for population was in the early 1990's"
I have the census office guesstimates:
Jan 1990: 248.8
Jan 1995: 264.8
Jan 2000: 280.7
That looks pretty even. Also those nrs are recalculated; given that they erred by a couple million for their 2000 estimate, I do not put much faith in their reconstruction of the annual developments.
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"Even" growth over the decade would still contradict your point that population growth was bubble-driven. (And the rate is still higher in the non-bubble time than in the bubble time: 1.25% versus 1.17%).
Last edited by TCO on 23-12-2002 at 21:12
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Colon
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Antwerp, Colon's Chocolate Canard Country
Jan 1970
time: 06:23
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Seems I missed the latest news from SF.  Congrats Sten. 
quote:
Originally posted by Sten Sture
Amazing that Inktomi was "valued" at $33.9 billion. They have had year to date sales of just $121M and lost $131M in the third quarter alone. It is just patently absurd that Inktomi's valuation was $34B, and to blame the Fed for such blatent investor stupidity defies reason.
Lets review again... 
The internet never accounted for much of GDP - fractions of a percent. Most of the stocks that achieved hyper-lofty valuations had very small share floats (less than 10% of total shares) and had significant shares locked-up in restricked accounts. Supply and demand baby. Once the supply came on board the scheme was up. And no amount of Fed intervention would have changed what happened. The only thing that could have been done would have been to have the SEC refuse to allow small float IPOs, disallow lock-up periods for employee holdings, and allow perpetual shorting without delivery. All three of those things are ridiculous under continuing circumstances. Blame who you want, but it wasn't the Fed. The SEC, AIMR, the capital gains tax break, CNBC and retail Wall Street versus dumb investors - eventually the dumb investors get it right. |
1.regarding limited floats, I didn't understand the reasoning of the investors back then and I don't understand the reasoning of the critics now. Shares aren't cars, since you buy them to get a return on investment. If such a float prevents everyone getting a piece then why should they have bid up thereby decreasing the return? For instance, there are plenty of companies of which the shares are mostly owned by a family holding but you don't see this supply vs demand effects there. The real problem is that people bought shares because they 'had' to buy them, any rational calculation about ROI be damned.
2.you still need money to buy shares. You can blame investors for tossing away rational calculations and banks for abusing this madness, but the fed also stimulated if not caused the bubble by providing cheap credit and plenty of cheers about the productivity miracle. The fed could have taken away the construction materials the nutcases used to build their castles in the sky, but it didn't.
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TCO
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Richmond, VA
Jan 1970
time: 00:23
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quote:
Originally posted by Colon
Seems I missed the latest news from SF. Congrats Sten.
1.regarding limited floats, I didn't understand the reasoning of the investors back then and I don't understand the reasoning of the critics now. Shares aren't cars, since you buy them to get a return on investment. If such a float prevents everyone getting a piece then why should they have bid up thereby decreasing the return? For instance, there are plenty of companies of which the shares are mostly owned by a family holding but you don't see this supply vs demand effects there. The real problem is that people bought shares because they 'had' to buy them, any rational calculation about ROI be damned. |
I agree. If anything a small float should reduce value of shares because of illiquidity and because of governance/control concerns (but at first order price should be indifferent).
quote:
2.you still need money to buy shares. You can blame investors for tossing away rational calculations and banks for abusing this madness, but the fed also stimulated if not caused the bubble by providing cheap credit and plenty of cheers about the productivity miracle. The fed could have taken away the construction materials the nutcases used to build their castles in the sky, but it didn't. |
I disagree. A stock can appreciate without any new funds. Could close one day and open another day way higher (say on news of a wonder drug discovered). Yes, actual money was invested in the servers, staffing, telecom cables, etc. of the boom. But that is different from stock price appreciation.
I think the Fed should be indifferent to investor booms. You are not so much criticizing them for funding the boom as for failing to stop it. If I invented a techique to transmute seawater to oil resulting in $1.00/barrel oil, the entire market (save energy stocks) would RIGHTFULLY jump. If a major war starts (or OPEC becomes more effective), it rightfully drops. This happens without any action by the Fed. No action is needed by the Fed. Market can jump or drop on its own. And it will do so, based on changing collective beliefs. During the 1990's there was a belief that the Cold War was over, that the internet would drive incredible productivity imporvements, etc. The market thought this was a seawater transmutation event. It's not the job of the Fed to decide which GP sewaater transmutations are correct or which are wrong. It's the job of the market. Let it make its own guesses.
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