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Are Companies Less Risky Than Countries

Are Companies Less Risky Than Countries

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Published by: einstein_wayne on Jun 22, 2012
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:
Are
 
Companies
 
Less
 
Risky
 
ThanCountries
?
From
Gains
 
Pains
&
Capital
(
publishing
@
gainspainscapital
.
com
)
To
:
einstein
 _ 
wayne
@
yahoo
.
com
;
Date
:
Thursday
,
November
17, 2011 11:40
PM
 
IN THIS ISSUE
Fed intervention hasskewed risk in all assetclasses. Who is more credit worthy... Exxon or the US?How to invest in a Crisis.More!
SIGN UP NOW 
to receive your own copy of "Gains Pains & Capital" Click Here November 17, 2011
Are Companies Less Risky Than Countries?
Graham's note: The following is an excerpt from my most recent Private Wealth Advisorynewsletter. In it I explain howthe Fed's moves have changed investor appetite for variousasset classes. To find out more abouPrivate Wealth Advisory...Click Here!
For much of the 20
th
century, sovereign bonds, particularly USTreasuries were considered the least risky assets to own. Theidea was that while corporations and other entities might defaultor go bust, the US , which is the largest economy in the world,will always be able to meet its debt obligations by virtue of itseconomic strength or, at a minimum, printing money to pay back its creditors.However, when the Great Crisis first erupted with Round One in2008, the Governments and Central Banks of the world chosetwo policies to combat debt deflation.The first was to move private sector debts, particularly toxicmortgage backed assets and derivatives, onto the public orsovereign balance sheets. This was most common in developedcountries such as the US, UK, etc.The second policy that Central Banks and SovereignGovernments chose to enact was printing money/ providingcapital injections into their respective economies in an attemptto promote economic growth.Both of these policies put sovereign balance sheets at risk/ damaged their trustworthiness. The first policy didn't actuallyinvolve dealing with the debts via default or restructuring.Rather, the toxic debts and derivatives were merely moved fromthe private sector onto the public's balance sheet. At the sametime, the second policy (monetary intervention) ballooned bothpublic debt and fiscal deficits.As a result of this, the "risk profile" for all asset classes has
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changed dramatically.Let me give you an example.Who do you trust more from an investment perspective: ExxonMobil or the US?Historically, the common thought would have been the US. TheUS offered a better yield and was the largest, strongest economyin the world. Also, Treasuries are backed by the full faith andcredit of the US Government, which has a printing press toinsure you get your money back in one for or another.Today, the issue is far more murky. Take a look at the followingnumbers: 
ExxonMobilThe US of ADebt to Market Cap/ GDP
37%100%
Earnings/ Receipts toMarket Cap/ GDP
8%15%
Cash on Hand
$7.8 billion$73 billion
Credit Rating
AAAAA+
Two year yield
4.8%0.31%
 From a balance sheet perspective, Exxon is more attractive withless debt and a higher yield. It also has a higher credit rating anda history of 
increasing
its payout to investors (the company hasraised its dividend every year for 26 years).In contrast, lending money to the US means receiving next tonothing in yield (0.31%). It also means you're even more likelyto see your investment lose money as Treasuries are in a bubblethat will end as all bubbles do.Other issues to consider are that the US is currently running adeficit of $1.5 trillion, sports a Debt to GDP ratio of 100%(300+% when we consider unfunded liabilities). And shows noindication of reining in these policies.Thus, even by a quick back of the envelope analysis, we findourselves in an environment in which a single corporation suchas Exxon is actually more trustworthy (from an investmentperspective) than the US Government.This represents a complete reversal from the mentality thatdominated investing for most of the last 80+ years. During thattime, stocks were widely held to be riskier assets whileGovernment bonds were considered safe: investment advisorswould urge younger investors to invest heavily in stocks for"growth" while older investors who were closer to retirementwere urged to invest in bonds, particularly Government bondsfor "income".
This
is why the Greek default is so important for the financialworld: if a sovereign nation's bonds can lose 50% in value in asingle day, the entire "risk spectrum" among asset classes haschanged dramatically.Folks, when we're talking about entire countries going bust,
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then you KNOW that we're in for a rough time. The reality isthat the powers that be (the Federal Reserve and ECB) are fastlosing control of the system. Bernanke's already admitted hehasn't got a clue how to solve the financial system's problems.The Bank of England says we're facing the greatest financialcrisis in history. Even the IMF has warned that we're headingtowards a global financial meltdown.The reality is that 2008 was just the warm-up. And we're nowheading into the Second Round of the GREAT CRISIS: theSovereign Default round in which entire countries will go bust.By the time this mess ends, we're facing systemic failure, bank holidays, debt defaults, and more.So if you have not already taken steps to prepare for systemicfailure, you NEED to do so NOW. We're literally at most a fewmonths, and very likely just a few weeks from Europe's banksimploding.If you're an individual investor (not a day trader) looking for themeans of profiting from the European Crisis, then you NEED tocheck out my
 Private Wealth Advisory
newsletter.
 Private Wealth Advisory
is a bi-weekly investment advisory thatuses stocks and ETFs to profit from the dominant market trends.Every two weeks I outline what's REALLY going on behind thescenes in the markets, as well as which investments will profitbest from these developments.Case in point,
 Private Wealth Advisory
 subscribers caught theinitial market Collapse in August. They've also profitedbeautifully from the ongoing turmoil in Europe as well as thevolatility in the US Dollar.In fact,
we just closed out our 16th straight winner yesterday.
And we've only closed ONE LOSING trade since JUNE!My clients include executives at many Fortune 500 companiesas well as strategists at Morgan Stanley ... Merrill Lynch ...Wachovia ... and the Royal Bank of Scotland ... as well asnumerous hedge funds.I'd love for you to join us in profiting from the ongoing marketvolatility.To take out an annual subscription to
 Private Wealth Advisory
now... start profiting from the market's gyrations (again, we'veonly closed ONE LOSING trade since June)...
Click Here Now!!!
Best Regards,Graham Summers
OmniSans Publishing LLC and the Phoenix Capital Logo are registered trademarks of Phoenix CapitalResearch.OmniSans Publishing LLC - PO BOX 6369, Charlottesville, VA 22906
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