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ProShares Short High Yield Message Board

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  • roderickb99 roderickb99 Jan 1, 2012 2:03 PM Flag

    I'm First ..

    Do long term graph of JNK vs 500,

    I used to run some mutual funds and asked a bond
    colleague about junk. He had no interest. He said
    they are stock equivalets. He was a magna cum laude
    Chicago MBA and tended to know.

    Mike Milken and I were in same class at Wharton. He
    invented this asset class. Failure rates are not
    that high AND if you are in big fund like JNK, so
    what if one fails.

    This fund is now too small and its sister Long Fund
    hardly trades.

    I would say any losses in defaults on Junk are made
    up by yield. JNK has gotten so much money its yield
    is not down to 8% as it buys lower yield junk bonds.

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    • Sounds like the mid 80's all over again. Back then there were endless articles and studies about the safety and attractiveness of Junk. How did that work out for all the people who followed the hype piled into Junk in the pursuit of high yield (exactly like they're doing now)?

      It is worth mentioning that Milken got this asset class accepted as legitimate by downplaying its risks. He blurred the distinction between junk and fallen angels, a safer asset class. Since junk trades at par, downside potential is far greater than upside.

      With junk, investor losses far exceed default rates, because any given junk default has a far more damaging effect.

      Last but not least, people are piling into junk now not because they understand this asset class and consider it a good investment but because it is being hyped by Wall Street as a superior yield vehicle.

      People entering on greed will exit just as quickly on fear. This looming threat of mass exodus is an even greater risk for investors than the other issues I point out above.

      Take a look at what happened to JNK in a one month period, beginning in August 2008, and keep in mind that now these ETFs have attracted even *more* money than before the 2008 crash.

      If SJB isn't a buy right now I don't know what is. Of course no one knows when the bubble will burst, but patience will pay off.

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