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| • EXCH RATES |
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Baht/$ 35.50/54 (Bid/Ask)
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GOLD |
13,300
+ 50
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NET Worth
ANDREW WOOD
Quantum mechanics is the study of mechanical systems whose dimensions are close to or below the atomic scale. What cannot be divided can at least be measured. Solace is something providing a measure of comfort in times of sorrow or adversity.
One force demonstrably affecting the lives of many today is that of the current recession. While banks are beating a path to government bailouts, depressed investors are busy snapping up the last offerings of fixed-rate bonds and gilts or buying into bullion reserves in an effort to mitigate investment losses. Escapists can always seek solace from the comfort of a cinema seat. The world of James Bond may be fictional, but the financial world of bonds in all their various hues and denominations is measurably real, though ostensibly not quite so exciting.
Bond aside, other notable "B factors" in the global economy include Bankruptcies, Bank savings, Bubble economies, Bears, Bulls, Baby Boomers, Building societies, Burgeoning unemployment.
Currently many of you are looking for some haven to ensure the safety of your hard-earned cash and bonds may be partly the answer - a very small return is indeed better than a negative return. However, you should always look carefully, before leaping carelessly into the world of bonds. There are many types and a number have had negative growth in the past few years. Well-rated bonds should prove okay but beware of those with less than top marks.
History demonstrates that bond holders invariably get higher degrees of protection than ordinary equity investors over longer terms. It can also be compellingly demonstrated that years of bust are actually years of boom in disguise.
Scripophilist - collectors of historical stocks and bonds - investors and traders well know that in bear years they will likely be making good growth profits. Many seek solace in similar collectibles to offset their losses. How about a portfolio of worthless bonds from the world's biggest crashes and crooks of recent memory?
Naturally, there are bonds, gilts, treasury bills, civil war loans, and gold deposit certificates providing diversity for potential gain. You might therefore fancy a punt on Alamo Home Builders. These are a snip at $140 per bond. Inside traders no doubt might like to acquire some 1899 Alcatraz Gold Bonds which are a bit off-colour like other precious metals at eased rates of $150. Banks and building societies are up there with the finest. Zero coupons (circa 1989) from Fannie Mae and Freddie Mac are popularly traded at a modest $100, while technology lovers can easily dial up WorldCom debentures at roughly $140. Those with discerning tastes might consider offsetting previous multi-digit losses by investing into high-class issues such as Barings (not 1995 of course), Bear Stearns of 1987 vintage, or Hoboken Ferry Co bonds signed by the Lehman Brothers during their formative years of 1922.
The truth prevailing today is that investing carries risk, but it need not always result in loss. Investors stampeding headlong toward equity exit doors in their rush to buy bonds and gilts should be mindful that nothing much has changed since the collapse of 1929 and the ensuing depression.
Nathan Rothschild maintained 200 years ago that the only time to buy shares is when the streets are running with blood. Warren Buffett expounds the view that one must be greedy when investors are generally fearful. These are emotional factors. Buying or selling when high emotion or fear factors are present rarely benefits the investor. Basically, investors should never be swayed by emotion. Just as much as bird flu does not simultaneously infest all chickens globally, neither do deflationary bear years lead to wholesale dividend income collapse. In reality, bears have rarely lingered for longer than two years since records began in 1929.
Before rushing into corporate bonds or gilts, however, seek independent advice rather than listening to your emotions. If there is any quantum of solace to be found in bonds, common-sense principles will apply.
Being issued by governments, gilts and treasury bills are obviously safer. They are also deceptively enticing. No matter, they are still bonds even if the debt is with the government as opposed to the private sector.
In uncertain times, bonds are clearly worth considering as a safety hedge. Regardless of their dullness, there is a certain comfort in dividend income rolling in on a quarterly basis while the base capital remains as safe as you can judge these days.
Talk to your independent financial adviser about how to structure bonds into your portfolio as part of your safety net.
Questions to the author can be directed to Barclay Spencer International on 0-2653-1971 or e-mail to info@barclayspencer.com
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