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Brett Arends' ROI
Nov. 2, 2010, 12:10 a.m. EDT
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Tracking America's economic decline
First Take "?
Bring on the bargains
By Brett Arends, MarketWatch
BOSTON (MarketWatch) "â? The best way to understand Wall Street is to view it as a heist movie, like "The Sting,"? "The Italian Job"? or "Ocean's Eleven."?
There's just one difference: In your traditional caper, a bunch of little guys get together to steal money from the big guys "â? a tycoon, big bank or major corporation.
On Wall Street, it works the other way around.
A quantitative-easing program that's too small, say under $300 billion, or not open-ended is unlikely to inspire investors, according to Pimco's Tony Crescenzi, who says the Fed also has to avoid stoking inflation expectations. Laura Mandaro reports.
Take the Great Bond Caper taking place right under your nose, right now. Most people don't even know it's going on.
Major corporations are jumping on the bond mania to borrow billions of dollars from ordinary investors at pitifully low interest rates.
Mutual-fund investors are so desperate for income they'll accept almost anything. So Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt (WMT 54.93, +0.62, +1.14%) last week issued $5 billion worth of bonds, or IOUs, at an average rate of 2.9% last week. That included 30-year bonds paying 5% and shorter-term paper paying almost nothing.
Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 162.56, +0.99, +0.61%) sold $1.3 billion in 50-year bonds at just 6.125%.
They're not alone. Other blue chips that have raised big money or are expected to do so shortly include Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 11.33, -0.18, -1.52%) , Coca-Cola Co. /quotes/comstock/13*!ko/quotes/nls/ko (KO 61.85, +0.14, +0.23%) , Johnson & Johnson /quotes/comstock/13*!jnj/quotes/nls/jnj (JNJ 63.92, +0.23, +0.35%) , J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 36.94, -0.48, -1.28%) , Morgan Stanley /quotes/comstock/13*!ms/quotes/nls/ms (MS 24.71, +0.03, +0.12%) and PepsiCo Inc. /quotes/comstock/13*!pep/quotes/nls/pep (PEP 65.70, +0.15, +0.23%)
If you are invested in a mutual fund that owns bonds, including corporate bonds, there's a good chance some of the cash going into these issues is yours. Good luck with that.
We already know that anyone buying these IOUs is taking a terrible risk. If inflation takes off, these bonds will tank. The prices will slump and the coupons will lose their purchasing power.
Federal Reserve Chairman Ben Bernanke has all but promised to make inflation take off, one way or another.
But here is what they're not telling you: The Great Bond Caper is also an incredible tax dodge.
Corporate America is using these bonds to shift millions of dollars of tax liabilities from their boardrooms into your living room.
Corporate America is using these bonds to shift millions of dollars of tax liabilities from their boardrooms into your living room. You are going to be paying more of their taxes for them, so they'll pay less.
How?
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money,"? has just been published by John Wiley & Co.
Warm weather for much of the month of October may lead to hotter discounts for shoppers in the coming months.
12:24 p.m. Today12:24 p.m. Nov. 2, 2010
- jasminemeese | 11:19 p.m. Nov. 1, 2010
"Wall Street is like a heist movie http://on.mktw.net/cm21xz" 12:06 a.m. EDT, Nov. 2, 2010 from MKTWArends
"Tracking America's economic decline http://on.mktw.net/aykBEv" 11:07 p.m. EDT, Oct. 25, 2010 from MKTWArends
"Death of a democracy http://on.mktw.net/cijzCu" 11:41 p.m. EDT, Oct. 18, 2010 from MKTWArends
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