Review: The Weekend That Changed Wall Street: An Eyewitness Account - Bargaineering

Review: The Weekend That Changed Wall Street: An Eyewitness Account

Posted: 27 Oct 2010 09:08 AM PDT

I’ve read a lot of books about the credit crisis from Hank Paulson’s On The Brink to Michael Lewis’s The Big Short, so I’m pretty familiar with the behind the scenes weekend activity that precipitated the collapse of Lehman Brothers on September 15th, 2008. In both books, the weekend itself was a tent pole in the larger story but not the sole focus of the book. Paulson’s book focused on the government’s activity, specifically the Treasury, while the Big Short focused on the market players who saw the crash coming and were able to benefit from it.

Maria Bartiromo, long time CNBC anchor, focused on the weekend itself in The Weekend That Changed Wall Street: An Eyewitness Account and taps inside sources who were actually there including many of the top executives in those meetings. If you’ve read any of my book reviews, you know I’m a sucker for juicy insider-type information and this book delivers. Bartiromo has been a fixture in Wall Street reporting and it shows in the people she interviews for her book. If you wanted insider information about what happened that weekend, this is the book to get and I believe few people other than Bartiromo would’ve had the access to write it.

I think that anyone who hopes to speak intelligently about the credit crisis needs to read this book and the two I mentioned in the introduction. The credit crisis is remarkably complex but books like these do a good job distilling the crisis into ideas we can understand, even if we don’t have the financial training. While I consider myself educated, I don’t think I have the necessary tools to truly understand the magnitude of the crisis, yet through books like these I was able to understand what happened, why, and how we almost saw our financial system collapse.

Review: The Weekend That Changed Wall Street: An Eyewitness Account from personal finance blog Bargaineering.com.

How to Buy Foreign Government Bonds

Posted: 27 Oct 2010 04:18 AM PDT

Reader Sam asked me if I could write a post about buying foreign government bonds as a way of diversifying your portfolio. The idea of buying foreign government bonds is appealing on several levels because you get to invest in a foreign currency, you get a regular coupon, and it definitely diversifies your portfolio.

I don’t foresee myself investing in foreign government bonds. With so many risk factors at play, I think I’d much rather invest in equities if I were to go international. Bonds should be used as a “safer” investment and when you go international, you introduce so many risks that cut into the idea that bonds are a safe investment.

That being said, it’s still important to understand how things work and if you want to buy foreign government bonds, here’s how.

Risks of Foreign Government Bonds

What are the risks? There are many. First, you have to deal with currency risk. Since you’ll be buying foreign government bonds with foreign currency, you’ll be affected by the fluctuations in the exchange rate. If the dollar becomes more valuable, your investment loses value in dollar terms. If the dollar gets weaker, your investment gains value in dollar terms. If you haven’t been keeping up with the performance of the dollar, you might be aware at how volatile it can be. While it’s valuable to diversify, be sure you’re aware of how much this diversification might cost you in the way of risk.

Second, buying foreign government bonds subjects you to country risk. Unlike in the United States, it’s not as uncommon for foreign government to default on their debts. If you remember the last time we had a financial crisis, in the 90’s, you might recall that it was started when Russia “defaulted” on its bonds (technically, they devalued the ruble and declared a moratorium on about $13.5b of its debt). In the 1980’s, you may remember Mexico defaulting on its debt as well (August 1982). It doesn’t happen often, but it’s happened more often than you’re probably comfortable with. If you are aware of this and can accept it, then buying a foreign government bond might make sense for you.

How to Buy Foreign Government Bonds

The easiest way is to purchase these bonds by way of a mutual fund. Morningstar offers the following 25 World bond funds, ranked by 3 year performance. There are significant advantages when you buy shares of a mutual fund, rather than the bond itself. You get diversification across several bonds and countries, thus reducing your risk of a single country defaulting. You also get access to a more liquid market, selling shares of a mutual fund is much easier than selling an actual bond. Finally, you don’t have to worry about foreign exchange headaches when it comes to actually buying the bonds.

If bond funds don’t interest you and you want to purchase individual foreign government bonds, ask your current stock broker if they offer foreign government bonds. You might be able to purchase them through your broker and save yourself some time. The cheapest route will always be to purchase the bonds directly from the government, through whatever auction system they have, but using your broker can cut through some of the red tape and reduce your headaches.

How to Buy Foreign Government Bonds from personal finance blog Bargaineering.com.