And the bad news keeps coming. On Tuesday, FedEx, considered a bellwether because its shipping operations span the globe, said that trading volumes had slowed to recession levels. On Thursday, railroad giant Norfolk Southern dropped 9 percent after reporting a steep fall in shipments.
If the economy continues to slow, or falls into a recession, investors in high-yield bonds will get hurt, too. They appear to be reassured by the low number of bonds defaulting now, about 3 percent. But defaults could rise fast. In 2008, defaults peaked at 13 percent, clobbering investors in high-yield. Investors in mutual funds holding so-called junk lost 26 percent that year, according to Morningstar, a fund tracker.
"If you need income, you don't have much choice but to go to riskier assets," says Fridson, the junk bond expert. But he adds, "If the country falls back into recession, people will face losses."
Should junk tumble, Grant, the newsletter editor, quips that Bernanke should consider a "handwritten apology" to investors or possibly a spoken one on "60 Minutes." But he holds out the possibility prices will continue to rise, noting that the Fed's efforts to stimulate the economy, as well as similar bond-buying plans by central banks in Europe and Japan, are unprecedented.
"One can't be dogmatic about likely outcomes of an untried, worldwide experiment," Grant says. "We're all lab rats. Investors are lab rats."
Count George Cipolloni, former bull, among the worrywarts.
Last year, when other investors were selling stocks and junk because of fear the U.S. was about to fall into another recession, Cipolloni, co-manager of the Berwyn Income Fund, bought by the armload, just as he did in previous market dips. Since 2009, his fund has returned 54 percent.
But he's selling now, and piling up cash. It now accounts for 24 percent of the fund's holdings, up from 7 percent about a year ago.
"We're trying to be as risk-averse as possible," Cipolloni says. "We don't want to lose money."
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