Little reported in all this bull market hoopla with stocks, is that medium-grade investment quality bonds (BBB-rated), and higher-quality “junk” (BB and B) bonds are also doing rather well.

This goes to what I was talking about earlier this week: finding half-way decent investments where you do not run the same kinds of risks as you do with stocks.

My theory about this (which I had before the Wall Street Journal recently ran an article on this bond topic!) is that the 2000’s are the years when corporate bondholders get their “revenge” on equity (i.e. stocks).

In the 1990’s, it was the stock market that took off. And in general, companies borrowed all they could, since they were paying some small percentage for an interest rate (7-8%), and making these big returns in their stock price (20+ % per year was the overall market gain 1995-1999).

Inevitably, what happened is that the accounting started getting a little loose, and the bond-rating agencies a little sloppy. In the extreme, you had the Enrons and WorldComs, Tycos, Global Crossings, double crossings, etc.

But isn’t it usually the case, when sh*t hits the fan, that many people then start going in the other extreme?? So companies begin to focus on cleaning up debt, and the bond rating agencies get very stingy about giving out the very good ratings (AAA, AA, A). No one wants that phone call, screaming “why didn’t you downgrade that firm before it blew up!!!” So everyone is painted with the same, unflattering, brush . . .

I figured this meant that a lot of corporate bond debt out there was a lot higher rated in balance-sheet reality, than the official rating agencies were giving it credit. And that meant there was money to be made, buying something for less than it might be worth.

Right now, the United States keeps pumping money into the economy. The Federal Reserve is working to keep interest rates low, and Congress is running a sizeable deficit. Few people are arguing that business activity is going down.