"Uncle_vito" <uncle_vito2002@[EMAIL PROTECTED]
> wrote in message
news:s_idnQuHVa7mXU_anZ2dnUVZ_sKqnZ2d@[EMAIL PROTECTED]
> So how are investors supposed to know which companies use leverage and
> which
> do not.
Debt to equity ratio, commonly found on the financial websites. Benjamin
Graham wouldn't buy a company unless they were leveraged less than 1.2 to
1.
> Typically companies that use leverage have higher returns. So am I
> supposed to invest for lower returns on the assumption that these
> companies
> do not use leverage and my money is therefore safer?
The trick is to find companies who are not leveraging and getting good
returns.
>
> This whole market is a giant crapshoot. Where am I supposed to put my
> extra
> money?
Municipal bonds (if your marginal rate is 25% or above) or if failing
that,
dividend paying stocks. Plenty of both right now, and they appear to be
the
way for the average guy with cash to make out in this market.
JG
>
> Vito
>
>
> "Papadillos" <papadillos@[EMAIL PROTECTED]
> wrote in message
> news:C3F7E60C.584B%papadillos@[EMAIL PROTECTED]
>> Financial Times (Blogs)
>> John Gapper
>> March 7, 2008
>>
>> Carlyle Capital and the failure of memory
>>
>> Opinions vary on whether, when the financial system eventually recovers
>> from
>> the credit crisis, which it does not look like doing any time soon,
>> things
>> will work differently in future.
>>
>> Some argue that the shock caused by over-complexity in the credit
market
>> is
>> so great that investors will pull back permanently from putting money
in
>> collateralised debt obligations and the like.
>>
>> Instead, there will be a long-term swing towards 3re-intermediation2 -
>> banks
>> providing credit directly from their balance sheets rather than acting
as
>> intermediaries that transfer that risk to investors by selling them
>> sophisticated securities.
>>
>> Personally, I do not believe it and Exhibit A for my scepticism is
>> Carlyle
>> Capital, which has got itself into trouble by leveraging its equity 28
>> times
>> to buy supposedly impeccably safe AAA-rated mortgage-backed securities.
>>
>> This is the same trap that befell Long-Term Capital Management only 10
>> years
>> ago - it employed leverage of nearly 40 times its equity to arbitrage
>> tiny
>> differences in bond prices. When markets became volatile, small
movements
>> in
>> the prices of those securities brought the fund down because they were
>> heavily magnified by leverage.
>>
>> After Long-Term Capital, there was a lot of talk about how hedge funds
>> would
>> avoid such high levels of leverage again. But Carlyle Capital has been
>> caught out by doing the same thing again.
>>
>> The broader point is that financial markets have a tendency to repeat
the
>> cycle of greed, during which competition reduces yields and forces
banks
>> and
>> funds use more leverage and complexity to make profits, followed by
fear.
>>
>> During times of fear, everyone regrets what has happened and says it
will
>> not happen again. But Carlyle Capital shows that mistakes repeat
>> themselves,
>> after an time long enough for jobs to change hands and investors to
>> forget.
>>
>> http://blogs.ft.com/gapperblog/
>>
>>
>
>
>
>
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