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Is the corporate bond market really as bad as Cramer makes them sound
in this column? Any more detailed information?
JW
----------------------------
The Ties That Bond
By James J. Cramer
10/30/00 7:28 PM ET
The only fixed income guy I know who isn't worried about his job next
year is Jon Corzine. And that's because he managed to escape the bond
market, where he toiled for years at his old firm, Goldman Sachs, and
wound up against an easy U.S. Senate challenger in his home state of
New Jersey.
If you live and breathe equities, you may not know that the
underpinnings of all finance revolve around the debt markets, not
equities. Further, you may not know about the pounding going on in
the bond business.
The issuing and trading of corporates and Treasuries used to be giant
businesses responsible for a massive amount of the profits at the big
brokerage houses. Now it is assets under management, underwritings
and proprietary trading that make the profits.
The bondie folks aren't carrying their weight any more. In some
firms, where they used to be responsible for black ink, they are now
responsible for black holes. But to corporate America, particularly
growth corporate America, fixed income matters aplenty. The nation's
phone networks have been built with bonds, not stocks, and the freeze
in bonds -- they simply aren't trading -- has been a nightmare for
the phone company buildouts.
As the year winds down, the bad news in corporate bonds just keeps
getting worse. The market, far from coming back, continues to
deteriorate. No volume. Lots of pending defaults. Lots of bad paper
out there. Lots of mutual fund redemptions. The bond bleeding spurts,
with no tourniquets in sight. And the layoffs in that end of the
business threaten to be monumental, especially given the merger of so
many big brokerages.
Most people who just got into this stock market in the last few years
have no idea how important the bond market is. They just don't know
that if the bond market doesn't improve, the telco equipment market
just won't come back. In fact, if you asked me what the single
biggest impediment to Cisco (CSCO:Nasdaq - news - boards) making its
numbers next year, it's the bond market. If we don't get some spark
that allows growth companies to borrow, Cisco will have problems
making its numbers one day.
That's what the stock market is saying. It is finally beginning to
listen to the bond market. It doesn't like what it hears.
-------------------------
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com. At time of publication, his fund was long Cisco.
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