The New Math of Stock Maneuvers to Protect Corporate Bond Value
It appears that bond holders of Bear Stearns have started buying the discredited bank’s stock. It appears they want to vote on Bernanke’s fire sale. This will make their bonds more valuable. This is where we get lost. Do bonds not have fixed values? Why choose bonds if risky trade is your goal?
Opacity is a competitive weapon of the typical financial planning Guru. Jargon is as forbidding as suits and a plush office. You do as you are told because you do not understand the advice. Please write for us if we have got things wrong. Here is our understanding of a corporate bond in the meantime.
Any bond guarantees a low but an assured return. It is not unlike a bank deposit. Municipalities float bonds more often than profit-making corporations. It is a hands-off way of funding. You provide money for fixed returns. You have no voting rights. The latter comes with equity. You then take responsibility for risk. Bonds and stocks should be like cake and cheese. Feed your hunger but in distinct courses of a banquet. Dealing in both at the same time should be like a Chantilly with your steak.
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