Many people today hear about how they should be investing in bonds for safety in these volatile markets.  The problem for many people is bond investing is a bit more confusing to the average investor than stock and mutual fund investing.  We found an article that does a great job explaining the ins and outs of bond investing and have published it below. 

Stocks and bonds. Doubtlessly, you've heard of them, and if you have been reading my articles, you know what they are. If you have not been, you should! But here is a quick update: stocks represent a portion of ownership in a company, and a bond represents money that a company "borrowed" and has to pay back on set dates. You might have heard that bonds are "safer" to invest in than stocks, but is this true? How are bonds traded, and what are the differences between a stock market and a bond market? Hopefully, this article can put these questions to rest.

Unlike the stock market, bonds markets do not usually have a centralized trading system. Instead, bonds will be traded in decentralized, dealer based over the counter markets. When an investor buys or sells a bond, the counter party to the trade is almost always a bank acting as a dealer. Another difference between bond markets and stock markets is that sometimes investors don't pay broker's fees to dealers with whom they buy or sell bonds. Instead, the dealers get their money by collecting the spread, which is the difference between the price at which the dealer buys a bond from one investor and the price at which he sells the same bond to another investor.

In terms of volatility, bonds are usually somewhat safer than stocks, especially short and medium dated bonds, but the value of stocks can definitely change. Bonds are liquid - it's fairly simple to sell a bond investment, and the safety of a fixed interest payment that you will receive twice a year is attractive. Bondholders additionally enjoy certain legal protections: in the United States if a company goes bankrupt, its bondholders will be paid before stockholders because they are creditors.

On the other hand, bonds also come with their risks. Fixed rate bonds are subject to interest rate risk, which means that their market prices will shrink in value when the interest rates rise. Bonds also can be subject to other risk factors such as call and prepayment risk, reinvestment risk, event risk, liquidity risk, credit risk, inflation risk, yield curve risk, volatility risk and sovereign risk. A bond that undergoes a price change can additionally affect mutual funds that hold these bonds immediately. If the value of the bonds in a trading portfolio has plummeted over the day, the value of the portfolio will also have fallen.

Finally, even though the money will go to them first before shareholders, in the case of bankruptcy there is a hierarchy of creditors that must be paid that bondholders are not on top of, so there is no guarantee of how much money will go to repay the bondholders. Bondholders have been known to lose some or all of their money when this happens.


Mallory Megan works for Rapid Recovery Solution and writes articles on nationwide collection agencies.

As if your blood has not been boiled enough in the last year or two we bring you this video below for your viewing pleasure.  It has been about a week now since the Goldman scandal was broken and we continue to be subject to the endless debates on tout TV as the whether or not the golden boys did anything wrong.

In other news today this months housing numbers just came out and evidently all is good in the world of housing and finances.  The market continues its unstopable melt up and for some odd reason the pundits think all is well all over the world.  We are here to remind you about the flock of black swans flying around all over the place out in the real world.  This video below shows one of the largest coming tidal waves. Our view is that it seems no one is really prepared to deal with this mounting problem.  Enjoy it here!

Wow and I thought I had a bit of a negative slant on where we were headed economically as a nation.  I catch some flak from friends who tend to see things a bit more optimistically than I do.  However, after a tough day in the markets today and with the DOW falling below 10K for the first time in a while, I felt it was time to take stock again of where we may be  headed next. 

After almost feeling a bit better about our prospects, I run across this article posted at The Business Insider.  The problem is it is very hard to disagree with anything the author is talking about.  Here is a link to the original article.  Have a read and make your own judgements. 

Seems like many in the main stream media are finally coming to the reality that walking away from your mortgage may be the best thing for you to do depending on your situation. 

For months now we have heard the bullshit line from the administration and concerned economists that walking away is somehow "immoral" or "wrong".  A mortgage is nothing more than a contract.  By walking away you are not getting off scott free.  You are losing your home.  Just as if you stop paying on your car, the repo man is going to come and get it.  You lose your car and your credit.  Same principal on your home but on a much larger scale.  Face it folks, if you are upside down on your mortgage by $100,000 it may take you 15 years to recover from that.  Maybe longer. 

It is realistic to think that it may be in your best interest to walk away, give the keys back to the bank, take the hit on your credit and start over. 

If it is OK for Morgan Stanley to do it (with a default on five commercial buildings in San Francisco) and it is OK for Tishman Speyer and BlackRock to do it (walking away from the $5 billion project at Peter Cooper Village), how is it any more wrong for individual home owners to do it?

The fact of the matter is if it is OK for commercial banks and investors to walk away and chalk it up to "making a business decision" it should be OK for an individual to do the same. 

I know the argument.  Walking away hurts others in your neighborhood as foreclosures and bank owned properties tend to depress real estate values for the other homes in the area.  Well, the same is true for commercial real estate. 

As always, consult an attorney for your own specific situation to figure out what is best for you. 

Among all of the happy talk in the media, all the green shoots and the ever rising stock market, it is nice to see Deutsche Bank come out with such a happy forecast.  Gee, only about half of the mortgages in the U.S. will be upside down by 2011.  That is about double what the current rate is for you sports fans keeping score at home.  Really, check it out.  We couldn't make this up.

I guess that means since bad news is good news these days that we can expect the stock market to surge by a couple of hundred points tomorrow.  I mean how could it not?  With unemployment going well over 10% and the housing market continuing to spiral down the toilet it has the makings of a giant rallly.  Mix in a little cash for clunkers (morons) an $8000 tax credit for first time home buyers (that's sustainable) a pinch of Goldman Sachs program trading pixie dust and I really think I am going all in first thing in the morning!

And I think you know what we mean when we say "tool".  Old Dennie boy was up to his antics again last night.  He was calling out all of the bloggers who dissed his "recession is over" call as mean spirited, bitter, recluses basically because they disagreed with his idiotic call.  He issued a challenge I guess to a few of these writers to come on his show and "debate" him on his call. 

Evidently only one person took him up on his offer, a gentleman named "Mike" who preferred to remain anonymous for various reasons.  Old Dennie then proceeded to excoriate the guy for wanting to remain anonymous and then gave him all of about 20 seconds to make his case before cutting him off and trashing him some more.  It would have been funny if it weren't so sad.  Which brings us to the point of this missive.  Kneale is nothing more than a cheerleading lackey for his Wall Street buddies who does not have the average guys best interest at heart.  Anyone who disagrees with him is a "coward" in his own words.  A monkey can stand up there and cherry pick data points that could potentially point to an impending turn around.  And a monkey would probably be more entertaining and less annoying.  I do not think there are many credible economists who are ready to say that this thing is over.  And looking at the big picture I don't think anyone with a shred of intellectual integrity would stand by the all is clear call. 

So "dickweed" (his words) ended by extending his challenge for open debate.  If you are reading this Dennie, I would love to debate you on the issues.  And I will not hide behind an alias.  The only thing I ask is that you actually man up and let me get a word in edgewise and give me more than the 20 seconds you gave Mike.  I doubt you are man enough for that though.  But if I am wrong, send me an email through the contact us link at the bottom of the page. 

Well, well, well, once again Jim Cramer is going to be wrong.  Cramer has been going on and on for months now about the bottom in housing coming no later than the end of June, 2009.  Last night on his show he declared the "official bottom" for the housing market about 2 weeks before his self imposed deadline. 

Keeping it all in perspective, remember that sometimes listening to Cramer can be very dangerous to your wealth.  Recall if you will that he was saying all was fine with Bear Stearns right before they blew up.  He will argue that he was the only one advocating a sell towards the end of last year before the market really tanked.  That assumes of course that you had any money left after some of his blown calls throughout the year prior to that Today Show interview. 

He was also talking about the banks over the summer last year and his "fortress four" which were I believe JPM, BAC, WFC and USB which were all supposedly safe to get into.  Towards the end of the summer he also began touting Wachovia and threatened to make his fortress four into the fortress five.  Anyone remember that? 

I don't want to come off like I am bashing Cramer but hopefully people take his recommendations with a big grain of salt.  Realize that he has a show to do and a vested interest in pushing stocks.  He has many friends on the street and that makes for potential conflicts of interest. 

Why is Cramer wrong? 11 reasons:

1.  It is just too early for a true bottom.  Buyers are still gun-shy.

2.  Unemployment will continue to rise at least through the end of this year.  Even Obama has admitted as much. 

3.  According to RealtyTrac there is a huge shadow inventory of homes that banks have on their books that they have not done anything with yet. 

4.  The 17% jump in housing starts last month were largely skewed towards multi family units. 

5.  Interest rates are heading north, not south, and will likely continue to do so as we continue to print money at will. 

6.  Lending standards and credit qualifications are much tighter today than at any time over the last few years.

7.  Banks are hoarding money instead of lending to keep their balance sheets bolstered.

8.  Foreclosure rates and bankruptcies are actually accelerating.

9.  The $8000 tax credit expires in about 2 months.

10.  The bulk of Alt A and Option ARM resets are actually 1-2 years out.  These resets dwarf the sub-prime resets. 

11.  As more and more people become unemployed and lose the ability to pay mortgages, they will also realize they are paying on a quickly depreciating asset.  As that realization hits home it will become more "acceptable" to just walk away by mailing your keys back to your bank and taking the hit on your credit report.  That will seem much more palatable than losing 6 figures on your house.  And it won't seem as bad morally and ethically as a few hundred thousand people do the same.  This may be the next big crisis that hits that not many are talking about. 

How all of this adds up to a bottom in housing this month boggles the mind.  Before you drink the main stream media kool-aid please do some critical thinking on your own.  The bottom will come in time, but that time is not this month.

Wanted to do a quick update on where I think we are in these great unchartered waters.  Today the market closed up 96 pts right at 8500 on the DOW.  It seems like things just want to keep going up for now.  I was thinking this morning that the fundamentals may not matter anymore and I am kind of on the fence with those thoughts.  What I mean is we keep hearing about recovery this and recovery that but what is it all really based on?  The market is up over 30% from the March lows but I can't help but think that is do to nothing more than all of the hot money being thrown at the problems. 

The facts, if you look at them, just do not seem to support all of the euphoria.  It doesn't seem to matter that we are still losing over half a million jobs a month.  Hey, this month was a little less bad than last month.  Yeah!  Let's celebrate.  The fact is the bond market seems to be doing a death defying act by staying where it is even as yields continue to creep up.  Does no one realize that interest rates spiked this week?  How do we get a housing recovery if rates continue to rise?  God forbid we get back into the mid 5% range.  Maybe this is what climbing the wall of worry is all about.  Be that as it may there is this nagging feeling that things are about to get really hairy. 

The dollar may be telling the story as it closed this week under 80 for the first time in quite a while.  Gold and oil are spiking as it looks like we may be heading back towards exactly what happened last summer.  The dollar tanks and cash flees towards hard assets.  If that is the case then it is hard to believe that a spike in inflation is not right around the corner.  Just seems scary,  rising rates, rising commodity prices, rising unemployment just seems to equal much bigger problems on the horizon. 

Something I have been convinced about for quite some time is that we are really not close to a bottom in housing.  I remember back in March of 2006 when subprime first reared it's ugly head in the mainstream media.  I remember Bernanke coming out and saying that the subprime crisis was unlikely to spill over into the broader market and economy.  He also said the cost for the whole fiasco would be somewhere in the neighborhood of $50-60 billion dollars.  As we all know that estimate was spectactularly wrong.  As wrong as Rumsfeld was in 2002 when he estimated the total cost of the Iraq war would be somewhere around $60 billion dollars also. 

I was watching some clown on CNBC the other day who poo-poohed what he called the "fear mongers".  His reasoning was that if these guys were negative for long enough that eventually they would right.  He seemed to blame the whole crisis on this "mentality".  How idiotic.  I guess you can say the same thing about all the cheerleading going on right now.  If enough people in the media and government come out and say things are OK and have bottomed for long enough, eventually they will be right also.  I guess that can pump the market for a while and make things seem like they really are better. 

What they failed to talk about in this interview was how some of the people they referenced actually gave reasons WHY what was going on was unsustainable.  Robert Shiller actually gave facts as to why home price increases were unsustainable.  How they were going up at a pace that was well above the long term moving averages and that they would have to mean revert.  But no one wanted to hear that at the time.  Peter Schiff was railing on about the trade deficits and debt explosion and how that would negatively effect the dollar and the greater economy.  He was marginalized as a nut job.  Roubini was looked at as a fringe thinker etc. etc. etc.  I could go on and on.  The bottom line is no one wanted to listen to reason during the boom times.  Now as we pay the price we find ourselves slipping back to that line of thinking. 

How is it that our memories can be that short?  How is it that it is so easy for J6P to go back and listen and trust in the same people who got this thing so wrong for so long?  Why is it so difficult to believe that maybe, just maybe, we as a country are going to have to take our foot off the accelorator for a few years until this thing plays itself out?  Why is it so hard to accept that maybe we will actually need to live within our means or even below our means for a while?  I guess the answer to that is that message makes it hard for the big guys to make money and it certainly makes it harder the politicians to get re-elected.  Selling a message of something for nothing seems to be a whole lot easier then selling a message of sacrifice. 

The unfortunate truth is, if you believe in mean reversion, that housing prices have at least another 15% to go to the downside.  That is if they just go back to the trendline.  If they actually overshoot to the downside which is likely in my opinion, you could be looking at another 25-30% from here.  But what do I know, I'm just another lunatic.