Friday, August 29, 2008

Buy Baghdad, Sell Cleveland

Several weeks ago I mentioned how much advice was flying around usually unsolicited and often without basis. One of the items that had caught my ear was the advice to buy National City Bank stock. It hasn't done much in either direction since then, but the last time I saw an EKG that looked like the chart of NCC they were pulling the sheet over the patient's head.

Something today struck me as an interesting anecdotal side note. The bond market now values Iraqi bonds as safer than Nat City. The bond market measures the relative riskiness of bonds by the "spread" above US Treasuries. More risk, wider spread to reflect the market demand for a higher return on higher risk. Currently Iraqi debt trades to yield 4.84% more than treasuries. Conversely to Nat City bonds yield 9.59% over treasury bonds. In other words it takes a lot more to entice a bond investor to hold the debt of the bank in Cleveland than the one in the Green Zone.

It is of course the old story of wondering is one is chasing an ambulance or a hearse. In any event, I think I'd give such investment advice a wide berth unless its a replacement for a Powerball fix.

John Barnyak
Stonehouse Asset Management