Skip to main content

Although the NY Times today has a nice "explanatory" article on the credit crunch, including the very nice graphic here,  perhaps a better way of examining the credit crunch and its potential for disaster is by looking at 2 Mutual funds...

This is the Marketwatch (soon to be Murdoch's Marketwatch!) snapshot of the PIMCO Total Return Bond Fund, which I believe is the largest bond mutual fund in the US, if not the world.

If you have a 401(k), no doubt either this fund or a similar offering from Vanguard or Fidelity is the "safer, more conservative" offering in your portfolio.

It's said to have about 77% of its portfolio in AAA rated securities (which, as the NYT graphic above mentioned, just might include collateralized debt obligations (do a search of the PDF) which just might - it's not ruled out - it just might be infected with BBB sub-prime collateralized debt obligations.

We really can't tell, and especially now, since like most companies, PIMCO doesn't publish their portfolio changes daily (maybe they should, by law?)

Now PIMCO also has a junk "high yield" bond fund.

It's down almost 10% from its high.

What's odd to me is that its yield is recorded by Marketwatch as6.28%.

But the "Total Return Fund's 12 month yield is 4.56%!

Now to me, junk, being junk should be priced mucho risky relative to the "total" market.

But there's only a 2% spread.

This says to me that the credit crunch right now is either in an embryonic stage, with truly catastrophic results still to be shown, or that PIMCO is ripping us off.

You decide

Originally posted to Mumon on Sun Aug 05, 2007 at 08:28 AM PDT.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Tip jar (7+ / 0-)

    for the 401(k).

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Sun Aug 05, 2007 at 08:18:44 AM PDT

  •  Well (0+ / 0-)

    If I had very long time horizon and tons of money I'd throw some into bond funds and into high-yield bond funds. I'd enter in the minimum to start and then dollar cost average over the next few years. As rates are going to eventually head downward, if you have several years or longer, putting in money now will result in large returns later.

  •  Watching from the Sidelines (1+ / 0-)
    Recommended by:
    Mumon

    Company I work for was acquired last year by some behemoth or another.  When my 401(k) was transferred over to the new plan, I kept my money in the money-market option, thinking that I would decide what to do with it a bit later.  My short term savings is in an FDIC-insured high-yield savings account (5.00% interest APY).  I think I'm just going to keep my eyes open for a bit before moving my 401(k) back into equities.

    Strange stuff going on in the markets.

    I think Sen. Clinton would make a very good president.

    by bink on Sun Aug 05, 2007 at 08:38:21 AM PDT

    •  Make sure that later isn't years down the road (0+ / 0-)

      Many a person has been frozen trying to decide while precious years tick away and their nest egg doesn't grow as much as it should to keep up with inflation.

      Believe me I've been there standing at the crossroads. Heck I'm there right now actually as I want to leave my job but at the same time just became eligible to sign up for the 401k.

      •  My advice: (0+ / 0-)

        Market timing - on a 3-6month time frame - is good.

        Market timing on a daily basis is a fool's game.

        Now IS  a good time to sit on the sidelines, and SLOWLY get positions in the "next" things.

        Which, to me right now, looks like the debt securities AFTER the shakeout.

        None of which I can, you know, actually do with a 401(k), so it's huge cash (& international securities) until this crap shakes out in the US.

        And THEN  - or slightly before then - I'll jump in with both feet.

        "It's better to realize you're a swan than to live life as a disgruntled duck."

        by Mumon on Sun Aug 05, 2007 at 09:09:14 AM PDT

        [ Parent ]

  •  I'm 40 so I have little in bonds (0+ / 0-)

    It didn't seem like the time to hold bonds when interest rates were at rock bottom.  Not too long afterwards making that decision my 403b became frozen in time as I was laid off from the organization. My current employer makes you wait one year before joining their 401K plan -- it's with Fidelity.  

    I gotta ask about signing up as I've read that milestone. I want to leave but I shouldn't leave that 6 percent match on the table I suppose even if god willing I get a better offer in the near term.

    Typically I eschew market timing but occasionally there are are big huge warning signs that should not be ignored. I'm young enough that I should shoulder more risk and higher return, so being mostly stocks made sense.  I did however have a lot of money in bonds from 2000-2004 -- It was my house downpayment fund. Bought the house in late 2003 with a low fixed rate and refied in 2004 at almost the rock bottom into fixed rate plus variable HELOC.  So far I'm way, way ahead and I'd have to reach nearly the interest rate cap before the total payment would be over what I had.

    My goal is to try and pay down that HELOC and sock away as much as I can for a rainy day as I'm terrified that the YOYO society might force me into unemployment, early retirement or even underemployment.  I hope they fix healthcare soon so that we don't have to worry about losing your job and your access to healthcare.

  •  The only game to play (1+ / 0-)
    Recommended by:
    Mumon

    Is called "diversification." Keep your assets spread out in new tech, high tech, commodities, gold, power, medical, finance, etc. I just picked up a small position in CFC (Countrywide Financial) with an eye toward bottom-feeding.

    You can let the market roll over you, or you can make it work to your advantage. Pays to be nimble.

    Every day's another chance to stick it to The Man. - dls.

    by The Raven on Sun Aug 05, 2007 at 09:02:13 AM PDT

    •  CFC... (1+ / 0-)
      Recommended by:
      The Raven

      The bid price on their bonds is 80.

      Their effective yield is 34%.

      The problem with CFC (if they were acquired by Kentucky Fried Chicken which name would they keep?) is that you don't know what's behind their debt.

      You don't know what's behind anybody's debt.

      CFC says it has a nice credit line right now, but we have absolutely positively no idea what kind of debt they didn't sell.

      Except that it might be more than likely that it includes  the debt they couldn't sell.

      Otherwise, if not for that, I'd pounce on CFC.

      "It's better to realize you're a swan than to live life as a disgruntled duck."

      by Mumon on Sun Aug 05, 2007 at 09:07:10 AM PDT

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site