Word: stocked
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Investors have spent the past year or so relearning an important lesson: stocks are risky. From May of last year to March of this one, stocks in the U.S., as measured by the S&P 500 index, lost more than half their value. Many overseas stock markets did even worse...
After being burned, we humans tend to avoid what singed us and seek something soothing. High-quality bonds - in particular, the "risk free" ones issued by the U.S. government - were the most soothing investments of all during the financial crisis. While stocks were losing more than half their value, 10-year Treasuries returned more than 10% during that May-to-March period. And so - big surprise - investors have poured $240 billion into bond mutual funds so far this year, according to the Investment Company Institute. Stock funds - despite a big rebound in stock prices since March - have taken in less...
Makes sense, right? Stocks, risky. Bonds, safe. Or at least safer. But risk in financial markets has an irritating habit of following investors around. The big rush into bonds - especially high-quality, low-risk bonds such as Treasuries and government-guaranteed mortgage securities - may have created a situation in which most of today's bond investors are bound to lose money. Not 50% losses, as in the stock market, but losses nonetheless. Which for many newcomers to bonds will be a big shock...
Before we get into the details, it's worth going over the difference between stocks and bonds. When you buy stock, you get part ownership of a company. If it does well, you share in the gains. If it flounders, you lose money. Bonds, on the other hand, represent a promise from a company or government or other borrower to pay you back, with interest. When you buy a bond, you're making a loan. Sometimes bond issuers (a.k.a. borrowers) renege on their promises. The financial crisis originated with a rash of defaults on subprime mortgages that had been packaged...
...into an epic of malfeasance--capital crimes on an international scale. The movie also has the requisite Moore grandstanding scenes: attempting a citizen's arrest of AIG executives, parking a Brink's truck in front of banking establishments to retrieve the bailout billions they received, wrapping the New York Stock Exchange building in yellow tape that reads CRIME SCENE. The Underdog telling off the overlord: it's a fixture of earnest Hollywood drama...