Here's A Little Song I Wrote

I have received many questions regarding the credit markets. Let's discuss:



1) Allianz has decided to delist its AZM preferred. This has nothing to do with the health of Allianz, but rather the burdensome reporting requirements required to list a security on a U.S. exchange. Allianz has decided that being listed on the NYSE is not worth the time, effort and money required to list AZM.

2) Will RBS or ING suspend preferred dividends? From an economic perspective, both of these firms are unable to pay preferred dividends. Payments are being made using government aid money. Thus far, the British and Dutch governments have permitted such payments. If the political winds shift the dividends could be suspended. Only own RBS, ABN AMRO or ING if you have faith in national governments. Freddie and Fannie preferreds have taught me not to touch governments.

3) What preferreds to I like? Most preferreds are no longer cheap. The two which I think may offer the best values are National City NCCprC (PNC) and Countrywide CFCprA (BAC).

Do not be lulled into a false sense of security (don't panic unduly either). My fear is that investors are increasingly densistize to risk. This happened between 2003 and 2oo6. Invetsors, reaching for yield, would invest in securities inconsistent with their risk tolerances to pick up yield. That could be a dangerous proposition this time around (but bot yet).

Long-term treasuries yields will remain low (for now), but when it pops it could be ugly. Remember, a 10 year noncallable bond will experience of about 3 to 5 points of price decline for a 50 basis point rise of its YTM. Although I agree that PIMCO is mostly right in stating that low long-term interest rates will probably be with us for awhile. Please e-mail or post questions.