See the posting on the Destiny Solutions discussion board.
The article touting slave-labor Apple is the usual misinformed nonsense that passes for “information”. Apple’s credit-rating isn’t a solid AAA/Aaa, but a notch lower on one leg by S&P. Only JNJ, the Smithsonian, and a couple of development banks might truly be ‘triple-AAA/Aaa’ debt, and I have my doubts about that.
Secondly, a distinction needs to be made between ‘agency-assigned’ ratings and ‘market-implied’ ratings. As everyone knows who read or saw The Big Short, ratings can be bought, and the rating agencies can be bribed. Hence, a would-be bond investor has to dig deeper. The lazy way to do this is to use comparative analysis and to estimate an issuer’s market-implied rating. If the market disagrees with the rating agencies, what the market says should be trusted, not that the rating agencies’ reports should be discarded, because the analysts writing them aren’t dummies and often offer shrewd insights worth considering. It’s when discrepancies arise that disbelief and mistrust have to kick in.
Case in point. Years ago, GE’s debt was rated AAA/Aaa, but the yield on its debt was comparable to that of Mexico’s sovereign debt. The market “knew” that GE wasn’t a top-tier bond issuer, and the market was pricing GE’s debt to reflect the suspicion --which was later confirmed beyond doubt-- that GE had been cooking its books. These days, GE’s debt is rated BBB+/Baa1, which is where the market --in its wisdom-- was pricing it years before GE’s accounting scams and scandals came to light.
The more aggressive way to rate an issuer’s debt is to do the old-fashioned, green-eye shade thing of doing one’s own credit-analysis. Most would-be bond “investors” lack the skills to do this. Hence, they end up losing the money they do and them blame everyone but their own ignorance, laziness, and stupidity.
There’s serious money to be made in bonds, because --on a risk-adjusted basis-- their returns have to equal those of other asset classes, such as equities, or else the arbs step in make it so. That’s how markets work --or are supposed to work-- unless/until the Fed steps in and destroys genuine price discovery, which is where all investors find themselves today.
I just had a really good martini, so that partially influences my response.
Many years ago, 1981 or so, I was taking a look at muni bonds for their tax advantaged income. I called a muni bond broker (this was before internet) and he started right off pushing me to invest in Washington Public Power Supply bonds ( I don’t remember if that was the correct name but its close). He stressed that the bonds were rated AAA.
He wasn’t lying, the bonds were rated AAA at the time of the call. But the bonds and project were in the news every day, and it was very adverse news. This guy was trying to sell me crap. And anyone that was reading a newspaper published in the pacific northwest knew these bonds were crap. The call ended right away.
Bond holders recovered 15 cents or so on the dollar on those bonds. Moral of this is that just because something is rated AAA does not mean its not crap.
You can also check out The Big Short…either the movie or the book, to get an idea about bond ratings.
No one should ever be this guy. https://www.youtube.com/watch?v=Z98uQQxAosoe
I found it ironic that I had to stop a private high school game to speak to some of the fans, and the fans causing the problem were from a school with the word “Christian” in its name.
Yep, bond rating agencies are not perfect. They are the experts and carefully examined the facts before issuing a rating.
But its still a good idea to put some research into bonds before you buy. Bonds issued by large in the news entities are easiest to monitor. Little known issuers are out there looking for funds.
Caveat emptor still applies. Bond rating is only a guide.