The Standard HK: Tuesday, November 04, 2008
Are you depressed about all the money you've lost during the market downturn?
Well cheer up, because even an expert like Stanford University economics professor and Nobel laureate Kenneth Arrow didn't know enough to pull his money out before the market crash.
Arrow, who in 1972 became the youngest person ever to win the Nobel Prize in economics, was in Hong Kong yesterday to deliver the Sun Hung Kai Properties Nobel Laureates Distinguished Lecture at Chinese University.
Arrow later said he has suffered an investment loss of 30 percent during the financial crisis.
p/s photo: Nia Ramdhani
he mentioned 2 important points which i think you might have missed out. The spread between corporate bonds and treasuries remain elevated. CDS indices for investment grade remains high despite falling libor-ois and ted spread.
I verified his statement and realise that bonds spread remain high even for AAA-rated corporate bonds. This is significant because this suggest not only the third tier companies will be defaulting.
my 2 cent worth
10:28 PM
Comments: Fair comment. In a normal rational market, when spreads btw Treasuries and corporate bonds start to widen, its a sign that risk of default is higher and a likelihood of an imminent big correction in the stock markets because investors are pulling money out of corporate bonds, or demanding higher rates to hold them. To see them now, after all the injections of liquidity and after such a huge correction, seems to me its not rational investing. Investors are still demanding higher yields on corporate papers, not so much that they might default (still a risk) but rather to the ability of these companies being able to refinance the bonds when they are due, and also the volatile market situation which makes everyone fly towards Treasuries. The spreads is more a reflection of risk aversion rather than a telling sign on future defaults. The spreads have widened even more on junk bonds, and rightly so as they will be the first to default, and first to find it much harder to get new funding. Hence, your conclusions would be more correct in a normal functioning, pre-correction market... maybe not so much now.
The most important of all for Dr.Doom is that did he made serious money shorting the market when he predicted the October 2008 fall?
Talking is one thing..doing is another..lol :P
11:34 PM