Bonds – Page 113 – The Aleph Blog

Eight Notes on Insurance, Economics, and Value Investing

Posted on 23 October 2007 by David Merkel

Doug Kass over at RealMoney made the following comment: “The next shoe to drop will be the failure of a public homebuilder and a private mortgage insurer. The latter concerns me more than the former, as the markets are not aware of the economic implications of my view.”? An interesting comment to be sure.? Unlike other insurers that benefit from state guarantee funds, the mortgage insurers do not so benefit.? That said, in a concentrated sub-industry that has only seven players (MTG, RDN, PMI, TGIC, GNW, ORI, and AIG), one advantage that poses is that failure of one company will not lead to assessments on the rest of the companies, leading to cascading failures.? So who would be affected?? Fannie and Freddie would get a lot of credit risk back, as would any private lender that used the mortgage insurers to reduce risks.? Even some of the mortgage originators with captive mortgage reinsurers would take some degree of a hit (most of the top originators had these).
Some younger friends of mine asked me for advice recently, and the question came up, “Should I invest in the market, or pay down debt?”? Now, we weren’t talking about credit card debt, which they paid off in full every month.? They did have a home equity loan at 8.5% fixed.? My view was this: with 10-year Treasuries yielding 4.4%, and marginal investment grade corporate bonds yielding 6.0% or so, a reasonable return expectation for the equity markets as a whole would be in the 8-9% region.? Add 2-3% to the BBB-bond yield, and that should be a reasonable guess, given that I think the market is somewhere between lightly undervalued and fairly valued.? My advice to them was to pay down the home equity loan, and once it was paid off, invest in an index fund, or a diversified mutual fund.? Until then, better to earn 8.5% with certainty, than 8-9% with uncertainty.
As can be seen from my recent reshaping, yes, I do buy sectors of the market that look ugly.? Shoe retailers and mortgage REITs have not done well of late.? Am I predicting no recession by buying the retailers?? No; so long as the shoe retailers aren’t too trendy, demand for shoes is relatively stable, and these stocks are already discounting a recession.? I chose two that had virtually no debt, so I am on the safer side of the trade, maybe.
Does buying a mortgage REIT mean that I am betting on further FOMC loosening?? No.? The mortgage REITs that I hold embed a pretty nasty set of assumptions for the riskiness of the safest parts of the mortgage bond markets.? While a FOMC loosening would probably help, I’m not counting on that.
My value investing is different than most value investors, because I spend more time on industries, either buying quality companies in beaten-up sectors, or companies with pricing power, where that power is underdiscounted by the market.
If we are trying to estimate the central tendency of inflation and eliminate volatility, it is better to use a trimmed mean, or median, rather than toss out volatile components like food and energy, particularly when those components have led inflation for the last 5-10 years.? The unadjusted CPI is a better predictor of the unadjusted CPI than is the core CPI.
Personally, I think the next ten years will be kinder to “long only” equity managers than hedged managers.? There is only so much room for shorting, which is an artificial overlay on the system.? We aren’t at the limits of shorting yet, but we are getting closer to those limits.? It would not surprise me to see ten years from now to find that balanced fund managers beat hedge fund managers on average (after correcting for survivor bias, which is more severe with hedge funds).? It’s much easier and more effective to do risk management in a long only mode, and I believe that the virtues of long only management, and balanced funds, will become more apparent over the next ten years.
I’m thinking of doing a personal finance post on what insurance to buy.? Is that something that readers would like to read about?

Crash Remembrances

Posted on 20 October 200721 October 2007 by David Merkel

On Friday over at RealMoney, I posted the following:

		David Merkel
		1987 Memories
		10/19/2007 5:20 PM EDT

I was a young actuary when the crash hit in 1987, one year and change into my career. I did not have any investments at that time, but I had just bought a house with my (then) new wife. Few today remember that the crash of 1987 was the culmination of three separate crashes. In late 1986, the US Dollar hit new lows, amid massive intervention by central banks. In February 2007, I came down with a bad cold that sidelined me for four days. Cuddled up with the WSJ while my wife was at work, I concluded that the bond market was about to fall apart, so we accelerated buying a small home. Two months after we completed the financing, mortgage yields rose by 2% during the bond market meltdown.

The stock market roared on, though. Through August, the market rose, and the earnings yield shrank. Bond yields remained stubbornly high; it was a great time to invest in high quality long bonds, particularly long zero coupon bonds.

The eventual crash in October is no surprise to me today. Equities could not stand the competition from bonds, so the market slumped from August to October, until the pressure of dynamic hedging took over starting on Friday the 16th, selling into a declining market in order to maintain the hedges, and spilling over in a self-reinforcing way on the 19th. For what it is worth, there was a humongous rally in long bonds as people sought safety.

Now, my Mom was buying the day after the crash. This is why she is more professional than most professionals I know. She bought solid companies that would survive bad times. I knew far more people who sold into the panic. As for me, I got a trial subscription to Value Line, and picked six stocks, which I sold too soon for a 20% gain, and didn’t return to direct investment in single equities until 1992. (I used mutual funds.)

Since then, I have been consistent in plying my advantage in picking cheap stocks where the fundamentals are under-discounted. It’s been a good niche for me, maybe it can be of value to you as well.

PS — no bounce today, kinda like October 16th, 1987.

Position: none

Now, should the crash have been bought? Yes, at least in the short run, even without knowing the verdict of history. The difference between stock and bond yields narrowed dramatically, and option implied volatility was making a bold effort to escape earth orbit. Beyond that, fast moves tend to mean revert; slow moves tend to persist.
Now, my knowledge of the markets was rather crude back in 1987, so I never would have caught those then; nor did most commentators at the time. People were too scared to be rational. Even the FOMC blinked, with a neophyte Greenspan, with no serious crisis imminent, thus beginning his career of throwing liquidity at small problems, and leaving the consequences for later.

Well, at least I bought the lows in 2002. That event was similar, but not nearly as short-run severe as 1987, though it had the “strength” of longer duration as a bear market.

Before I close for the evening, I would like to mention that I will have the portfolio reshaping complete on Monday, and watch for it here first. As an aside, there are a lot of cheap small cap shoe retailers, and a lot of cheap general and apparel retailers also. I don’t normally buy retailers, but this time things are too cheap. Expect to see me buy one.

Society of Actuaries Presentation

Posted on 13 October 200720 June 2017 by David Merkel

Finishing off the presentation proved to be harder than I estimated, together with all of my other duties.? Well, it’s done now, and available for your review here.? For those looking at one of the non-PDF versions, you might be able to see the notes for my talk as well.

I’m writing this before I give the talk.? If I had it to do all over again, I would have made the talk less ambitious.? Then again, of the four topics that I offered them, they picked the most ambitious one.? When you look at the talk, you’ll see that it is a summary of the macroeconomic views that frame my investment decisions.? The presentation will run 40 minutes or so, plus Q&A.? Reading it is faster. 🙂

Enjoy it, give me feedback, and I’ll be back to normal blogging Monday evening.

Swamped With Work, but Here’s a Dozen Observations

Posted on 9 October 2007 by David Merkel

I’m swamped with putting the finishing touches on my talk for the Society of Actuaries, so this post will be brief.? When it’s done, I’ll be posting it here for all of my readers.? When the transcript gets published, I’ll post that as well, but that takes a while.

A few observations, some of them obvious, because we’re at an interesting juncture in the markets now:

The equity markets are near new highs.? Who’da thunk it?
Equity implied volatilities have returned to a semi-normal state, and corporate credit spreads have tightened, but lagged.
Fixed income implied volatilities look high.
Fed policy, if LIBOR, narrow money, or the monetary base is the measure, hasn’t worked that well.
Fed policy, if the stock market or total bank liabilities is the measure (credit expansion), has worked pretty well.
The dollar has bounced, but I would expect it to retrace the losses.
We’re experiencing a small period of macroeconomic quiet amid the start of earnings season.? Earnings season should be good overall, with weakness in housing-related areas, and strength in export-related areas.
Banks should be able to end the logjam in the LBO debt markets.? The cost is feasible.
Residential real estate prices are still weakening, and provide most of the drag on the US banking system and economy.
Inflation is rising with many of our trading partners; the US may begin absorbing some of it.
Our trading partners are going to have to choose between controlling their interest rates, and following US policy, or letting their exchange rates rise further.
In this environment, I am trimming my equity portfolio slowly as positions hit the upper end of their trading bands.? 20% of the portfolio is within 5% of the upper rebalance point.? Almost nothing is within 10% of my lower rebalance point, so I’m not likely to add anytime soon.

Too Many Vultures, Too Much Liquidity

Posted on 3 October 2007 by David Merkel

About a month ago, when the financial markets were more skittish, I saw a series of four articles on more interest in distressed debt investing (One, Two, Three, Four).? In this market, it didn’t surprise me much because we have too many smart people with too much money to invest.? It reminds me a bit of a RealMoney CC post that I made a year and a half ago:

		David Merkel
		Make the Money Sweat, Man! We Got Retirements to Fund, and Little Time to do it!
		3/28/2006 10:23 AM EST

What prompts this post was a bit of research from the estimable Richard Bernstein of Merrill Lynch, where he showed how correlations of returns in risky asset classes have risen over the past six years. (Get your hands on this one if you can.) Commodities, International Stocks, Hedge Funds, and Small Cap Stocks have become more correlated with US Large Cap Stocks over the past five years. With the exception of commodities, the 5-year correlations are over 90%. I would add in other asset classes as well: credit default, emerging markets, junk bonds, low-quality stocks, the toxic waste of Asset- and Mortgage-backed securities, and private equity. Also, all sectors inside the S&P 500 have become more correlated to the S&P 500, with the exception of consumer staples. In my opinion, this is due to the flood of liquidity seeking high stable returns, which is in turn driven partially by the need to fund the retirements of the baby boomers, and by modern portfolio theory with its mistaken view of risk as variability, rather than probability of loss, and the likely severity thereof. Also, the asset allocators use “brain dead” models that for the most part view the past as prologue, and for the most part project future returns as “the present, but not so much.” Works fine in the middle of a liquidity wave, but lousy at the turning points.

Taking risk to get stable returns is a crowded trade. Asset-specific risk may be lower today in a Modern Portfolio Theory sense. Return variability is low; implied volatilities are for the most part low. But in my opinion, the lack of volatility is hiding an increase in systemic risk. When risky assets have a bad time, they may behave badly as a group.

The only uncorrelated classes at present are cash and bonds (the higher quality the better). If you want diversification in this market, remember fixed income and cash. Oh, and as an aside, think of Municipal bonds, because they are the only fixed income asset class that the flood of foreign liquidity hasn’t touched.

Don’t make aggressive moves rapidly, but my advice is to position your portfolios more conservatively within your risk tolerance.

Position: none

We are still on the side of the demographic wave where net saving/investing is taking place, and that forces pension plan sponsors to find high-return areas to place additional monies.? Away from that, the current account deficit has to be recycled, and they aren’t buying US goods and services in size yet.? That’s why there will be vultures aplenty, outside of lower quality mortgages.? Even the debt market for new LBO debt is slowly perking up.? The banks pinned with the loan commitments may be able to get away with mere 5% losses.? Away from that, investment grade and junk grade corporate bonds are looking better as well.

Now, don’t take this as an “all clear.”? There are still significant problems to be digested, particularly in the residential real estate and mortgage markets.? CDOs still offer a bevy of credit issues.? There will be continued difficulties, and I don’t expect big returns.? But with so many willing to take risk at this point, I can’t see a big drop-off until they get whacked by worsening credit conditions.

Cautious Optimism on Relative Performance

Posted on 3 October 2007 by David Merkel

There are times when I feel “in sync” with the markets, and times when I don’t.? Example: for the four months from June 2002 to September 2002, my broad market portfolio lost 32.5% of its value.? Needless to say, I questioned my sanity while BBB bonds traded at 400 basis points over Treasuries.? (Yes, I had those to worry about also, I was managing several billion in corporate and other bonds at the time.)

So what did I do? I kept doing what I always do.? If I found a trade that improved the fundamentals of the portfolio, I did it.? I kept following my discipline, even though it hurt.? In late September, I scraped together my spare cash and invested it into the portfolio. On October 7th, we hit bottom for both the equity and credit markets.? (After the European financial regulators were done making their financial companies sell US stocks, in order to preserve their solvency.) ? Over the next 15 months, I had my best period of outperformance ever.? Including the four-month drawdown (worst in my life), the full nineteen month period gave me a 26% return, which was pretty good for that time period.

In general, the time to give up on a strategy is not when it is hitting you hard and negative.? Instead, look for the fundamental reasons why your strategy isn’t working, and ask how long lasting those factors are, and whether/when they might reverse.? If after that analysis, you realize that the factors are long lasting, and unlikely to reverse anytime soon, then change.? But if they are likely to be transitory, it is time to maintain the discipline and press on.? It will not feel good at the time to do so, but it will likely pay off.? I experienced this while doing small cap value in the 90s, managing corporate bonds 2001-2003, and with my broad market equity strategy 2000-2007.? Things always hurt the worst near bottom turning points, and vice-versa in top formation.

The third quarter did not work so well for me.? Part of it was value investing being out of style.? With all of the new growth investors over at RealMoney, it is interesting to hear them perk up and crow a bit.? They’ve suffered enough over the past seven years.? But as for me, my sector rotation discipline covers some of that, while staying in a value framework.? In the last few weeks, I might be seeing a turn in my relative performance.? At least, it feels that way.? Ideas are working for the reasons that I would expect.? So, I am guardedly optimistic on relative performance.? But what would you expect?? I’ve been through worse, and bounced back, so I keep doing what I do.

Miscellaneous Notes

Posted on 2 October 2007 by David Merkel

Well, look at the DJIA and Nasdaq Composite.? New 52-week highs.? I am still bearish on our credit markets, tepidly bullish on equities, particularly inflation-sensitive sectors (and insurance), and bearish on Real Estate and Real Estate finance.? This is a hard combo to hold together, but in some ways, I suspect that surplus capital that was making its way to the credit markets is now making its way to the equity markets.

I’m eclectic, what can I say?? I’m always trying to blend signals from the long-, intermediate-, and short-term, with greater emphasis to the longer cycle elements.? I’m not a trader.

Now, just a few notes to catch up on reader questions:

Why FSR and not VR or IPCR then?

I forgot about VR, and will have to consider it in the future.? I like IPCR, but it has run some recently, and their aggregate maximum loss discipline will limit their returns vs those companies that use probable maximum loss.

I think your post is very useful but that it raises some critical issues about successfully forecasting future inflation/real rates. Your study period includes a period where 3 major versions of CPI existing. There is the pre-Reagan CPI, the pre-Boskin CPI and the current. John Williams at shadow statistics calculates all three. The curren pre-Reagan CPI is running over 10% so ?real rates? based on that would be negative 6-7%! The pre-Boskin is I think 5-6% which would still produce negative real rates?.and the Fed is cutting rates!

I wish anyone luck trying to forecast 10 year hence real rates or inflation given this mix. My personal opinion is that due to fiat currencies they are likely to be much higher unless central banks allow a deflationary credit contraction to take force without trying to inflate. History suggests that they all try to inflate!

One thing that is different about my blog is that I will do different sorts of posts.? I’m hard to categorize. ? This comment makes some very good points, most of which I agree with.? I believe inflation is understated in the US, and I think that the idea is growing in the populace, while Ph.D. economists stay in lockstep with the guild, and deny it.? My main article on the topic, for those with access to RealMoney, can be found here.

Also, my main point was not to get people to try to forecast inflation and real interest rates.? It was to point out how changes in inflation and real interest rates disproportionately hurt equity investors compared to bond investors.? That said, it takes a large move in inflation rates to wipe out the ordinary advantage of equities.

Hi, how do you think i-bank incentive fees will effect EPS over the next year?

I worked for a technical trend following CTA in the 90?s that had a severe drawdown of -55% over the course of a year. It started with one bad day and the company was never even remotly profitable again and the owners closed it down 3 years later.

I think that people don?t understand that in order to make incentive fees the hedge funds have to make new highs, just being flat doesn?t cut it. Unless they are constantly making new highs, the hedge fund business is the same model as the mutual fund biz but with much higher overhead.

Alternatively they shut their existing funds down and open new ones to reset the mark but its hard to replace the truely large capital pools.

Interested in your thoughts.

That’s an interesting question.? With respect to compensation from internal hedge funds, there will be some loss of EPS.? That said, investment banks have more true technical information than most hedge funds, and will benefit from trading against funds that are in bad situations.

In general, most hedge funds that lose 25% of capital go out of business.? At 50%, almost all of them do.

That’s all for the evening.? Let’s see if the S&P 500 hits a new high on Tuesday.

Full disclosure: long FSR

Tickers mentioned: VR IPCR

Ten Years From Now

Posted on 29 September 200722 June 2017 by David Merkel

Recently Bill Rempel posed the following question to me:

Could you compare the total return of a 10-yr Treasury bought fresh and new anywhere from 1976-1980, and held to maturity (sending the coupons to cash) — to the total return from an equal-sized basket of stocks or residential real estate over the same time period? Please use “risk-adjusted returns” in the previous comment, re: returns on bonds. As a non-institutional investor who doesn’t care as much about the “mark to model” on any bonds I would hold, I would view double-digit Treasuries as free money, especially in light of long-term returns on stocks barely cracking the DD with divvies included …

He also made this recent post to further elucidate his views. So, let’s do a thought experiment. Suppose you knew where real interest rates and inflation would be ten years from now. How would that affect your investment policy?

The easy answer would be that you would know what to do with bonds. After all if rates are higher in the future, you would shorten your bond holdings to preserve your capital, and vice-versa if rates were lower.

But what do you do with your stocks? How is their performance impacted by future real interest rates and inflation rates? Before I answer that, let’s consider the difference between the yield of a bond, and its realized return from reinvesting the coupons. The following graph shows the coupon rate on a ten year Treasury note, and the realized return from investing the coupons at money market rates until the bond matured. The realized return is higher than the coupon when the average money market rate was higher than the coupon, and vice versa. But the difference is rarely very large. Most bond income comes from coupons.

Now, let’s consider how the ten year Treasury yield, inflation and real rates have varied over my study period, 1954-1997.

And look at how the ten year Treasury yield, the real rate of interest, and the inflation rate would change over the next ten years.

Looking at these graphs, you can guess that future equity returns are affected by changes in inflation and real interest rates, but here’s proof:

Or, another way of looking at it, future equity returns depend on future real interest rates and inflation rates. Note that bonds only beat stocks for ten-year investments beginning during the period 1964-1973, and not all of the time even then.

I ran a regression on the difference between ten-year stock returns and ten-year realized Treasury note returns, with the regressors being the current inflation and real interest rate, and the inflation and real interest rates 10 years from then. The R-squared was 57% (good in my opinion), and the coefficients were:

Current inflation: +22%
Current real interest rate: -12%
Inflation 10 years from then: -121%
Real interest rates 10 years from then: -46%

There was some autocorrelation of the residuals, indicating that periods of under- and out-performance of equities over bonds tends to persist:

All were statistically significant at a 95% two-sided level. What the regression tells us is that of the four variables considered, the most important one is future inflation rates. If future inflation rises, the value of future cash flow declines. It gets even worse if the Federal Reserve tries to squeeze out inflation by raising real interest rates high enough to overcome the inflation. Oddly, higher current inflation is a modest plus — maybe that indicates pricing power? Perhaps it is useful to think of equities as ultra-long bonds, with rising coupons. Rising rates would hurt those considerably.

Upshots

Note that it was a bullish period, and that stocks did not lose nominal money over a ten-year period to any appreciable extent.
Stocks almost always beat bonds over a ten-year period, except when inflation and real interest rates 10 years from now are high.
Investing in stocks during low interest rate environments can be hazardous to your wealth.
Watch for inflation pressures to protect your portfolio. Stocks get hurt worse than bonds from rising inflation.
Inflation and real rate cycles tend to persist, so when you see a change, be willing to act. Buy stocks when inflation is cresting, and buy short-term bonds when inflation is rising.

A Note on Contrarianism and Bubbles

Posted on 25 September 2007 by David Merkel

There is a misunderstanding about contrarianism, that somehow if a lot of people think something, it must be wrong, so take the other side of the trade.? We can make an exception here for some financial journalists, because they are often late to catch onto a story, and thus, the magazine cover indicator often works.

My point here is that intelligent contrarianism does not work off of what market players think, but how much they have invested relative to their investment policy limits, and the capital that they have available to carry the trade.? When there are many investors that have gone maximum long on a given company, that is a situation to either avoid or short, because unless new longs show up, the current longs have no more buying power — it is a crowded trade.

I saw this with housing in 2005, as I wrote a piece on residential real estate that proved prescient.? It drew a lot of controversy, but my point was plain.? Where would additional buying power come from?? In September of 2005, I concluded that we were at the inflection point.? One of my theories about inflection points is that there is no good numerical signal of an inflection point, but qualitative chatter undergoes a shift at the inflection points.? In that case, I had a series of googlebots trawling the web for real estate related chatter.? The tone shifted in September/October of 2005, but it was largely missed by the media and the markets.

Though I have nothing written on the web on the Internet Bubble, the qualitative chatter change that happened in March of 2000 was commentary from a variety of companies that had relied on vendor financing were turned down by their vendors.? That was new, and it indicated a scarcity of cash.? My rule of thumb on bubbles is that they are primarily financing phenomena; bubbles pop when cash flow proves insufficient to finance them.

Now, with both the residential real estate and internet bubbles, there were a bunch of naysayers prior to the bubbles.? Most were way too early.? Keynes observed something to the effect that markets can remain irrational longer than an investor can remain solvent.? Risk control is a key here, as well as cash flow analysis. When does the financing fall apart?? What will the inflection point, with all of its fog, look like?? Where is the weak spot in the financing chain?

Those naysayers were an inadequate reason to take a contrarian position; many of them didn’t have a dog in the fight, aside from intellectual bragging rights.? Rather, the contrarian position was to ask what side had overcommitted relative to their ability to carry the positions, and the ability of others to get financing to buy them out.

Where I differ with many permabears is that I am usually unwilling to extend my logic to second order effects.? Just because one area of the economy is falling apart, doesn’t mean that a related area will of necessity get blasted.? There are dampening effects to almost any economic phenomena, such that you don’t get cascading effects where failure in one area leads to failure in others, leading to a failure of the system as a whole.? The exception is of course the great depression, and that was a situation where the whole economy was overlevered.? We’re not there today, yet…

Okay, one semi-practical application, and then this article ends.? I get a certain amount of pushback for being bearish on the US Dollar.? I’ve been bearish on the US Dollar since mid-2002, when I saw that our monetary and fiscal policy were shifting to aggressive levels of ~~debasement~~ stimulus.? Today I heard someone dismiss further US dollar weakness because “everyone knows that.”? Well, if everyone knows that, tell it to the foreign investors who are stuffed to the gills with US dollar claims (bonds), such that their economies are beginning to suffer higher inflation.? I see a continued crowded trade here, and I am waiting to see where the pain points are, such that foreign central banks begin to intervene to prop up the dollar.? It hasn’t happened yet, and we are within 20 basis points of taking out the all time low in the dollar index, set back in 1992.

The Longer View, Part 5

Posted on 24 September 200725 September 2007 by David Merkel

There’s no order to this post, so enjoy my reflections on broader trends that are affecting the markets.

Corn-based ethanol is costly, and a mistake for our government to subsidize it, when we could buy sugar-based ethanol from Brazil. I’m no environmentalist, but even I can see the advantages of eliminating sugar subsidies and quotas here in the US. The only people hurt are some rich farmers that bribe Washington to keep the subsidies. With a little encouragement from the US, Brazil could adopt more environmentally friendly harvesting techniques, while not kicking up costs that much. Such a deal, better economics, and better for the environment.
Stories like this always make me skeptical. Remember cold fusion? Maye there is a real innovation here that produces more energy than it consumes on net. I wouldn’t bet on it, though.
Since the creation of the Earth, farming has been the dominant occupation of man, until now. More people are employed outside of farming, than inside it. This is not big news, except to confirm that what happened to the developed world 80 years ago is happening to the world as a whole now.
ETFs are not open end mutual funds, where there is one price struck per day for liquidity. For small ETFs, the bid-ask spread can be quite wide on small funds. This shouldn’t be too surprising; the same is true of any small stock. If there is demand for an ETF concept, more units will get created as people bid for them, and the bid-ask spread will narrow.
Rationality in markets is misunderstood. You can bring bright people to manage money, and they will still in aggregate become prey to the speculative aspects of the markets. Some will resist it, but most won’t. It is not a question of intelligence, but of discipline.
Give Hersh Shefrin some credit. I think that behavioral finance is a much richer explanation of the markets than modern portfolio theory. MPT exists because it is easily mathematically tractable, which allow professors to publish, and not because it is a correct description of reality.
It’s tough to be an orphan company. Much as I like investing in companies that have no analyst coverage, if they are cheap enough, when a company loses analyst coverage, the stock price typically declines, and often, the company disappears within a few years. Perhaps the lack of analyst coverage is a proxy for the demand for a company to be public, rather than private.
Here’s a good article on why the market crashed in October of 1987. My quick summary for why it happened was that bonds were more attractive relative to stocks, and dynamic hedging left the market unstable, as many player were willing to sell on big down days.
Will junk defaults triple from 2007 to 2008? Seems reasonable to me; given all of the CCC and single-B issuance over the last few years, the companies that have recently issued bonds seem weak to me.
Can Thompson-Reuters give Bloomberg a run for its money? My guess would be no. Bloomberg is a much richer system, and for those that need that level of complexity, that is where you can get it with great ease.

Enough for the evening. More to come tomorrow.