[caption id="" align="alignleft" width="180" caption="Creative Commons License photo credit: Sweet One"][/caption]
Anyone who has or ever had a diversified portfolio, and is middle aged or older, has been given the sage advice to have much of his or her investments in bonds, which are less risky than equities.
This was the advice given by Nouriel Roubini, the famous New York University economics professor, who predicted the economic down turn we are currently going through.
Business Week reported that Professor Roubini believes that the focus on austerity, and the impulse to rein in spending, will result in weak economies and equities, which will leave investors seeking the shelter of bonds.
Roubini specifically named and recommended U.S., German, and Canadians bonds for investors to run to. The returns in bonds may not be as huge as the returns in equities, but at least they are relatively safer than the predicted roller coaster rides in store for equity holders.
What was conspicuous about Professor Roubini’s advice was his not mention and recommendation of corporate bonds, which are more secure than the issuing corporation’s equities. This is so, as in the case of insolvency by the issuing bond corporations, bond holders are first in line to receive their investments back.
Professor Roubini’s not recommending corporate bonds also underscored that corporations are not going to fare well in the near future - at least until we are out of these economic doldrums.
Roubini also elaborated, saying that in the months to come there will be volatility, and that the credit spreads will widen.
But the news wasn’t all bad; he believes that the world economies should avoid a double-dip recession.
Another silver lining for us is that the U.S. isn’t in such a bad economic state. Roubini still has confidence in U.S. bonds, meaning that he foresees America being able to meet its' debt obligations in the future. Anyone else see the irony?
Professor Roubini implied that the volatility, in part, will be due to the spending cuts. Yet, the countries advocating such cuts are the ones whose bonds are being recommended.
During the recent G-20 meeting in Canada, President Obama disagreed with Germany and Canada over their austere economic posture - but you noticed that US bonds were also among Roubini’s recommendations? That is because he knows that the Congress and the Senate will not assent to any more spending.
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الاثنين، 5 يوليو 2010
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