Natalie Pace. bestselling author of The Gratitude Game, The ABCs of Money & Put Your Money Where Your Heart is. Co-creator of the Earth Gratitude Project.
Menu

Natalie Pace Blogs

Picture
Photo of Natalie Pace by Marie Commiskey. Avalon Photography.
Picture
Picture
Picture
Picture
Picture

What the Ford Downgrade Means. Main Street Investors Ask Natalie.

11/10/2019

 
Picture
Ford CEO James Hackett created the Ford Smart Mobility program. On May 22, 2017, Hackett succeeded Mark Fields as president and CEO of Ford Motor Company.
Picture

What the Ford Downgrade Means. Main Street Investors Ask Natalie.
 
Dear Natalie. These may be ignorant questions. Am I correct in thinking these bonds are issued as money raisers? I would have presumed that's what stocks were for. Also, is junk bond status something negative? I’m wondering what this means for the overall economy, and for me personally. 
​Signed: 
Feeling a Bit Clueless
 
 
Dear Getting Clued In:
 
Never be embarrassed about asking these kinds of questions. Until we get The ABCs of Money and life math taught in high school and college, most of us are clueless.
 
Stocks raise money by asking people to become a shareholder (i.e. owner). Bonds raise money by borrowing from banks. The banks then sell those bonds to regular folks as "safe" fixed income products that will pay a dividend and then repay the principal at the end of a certain period of time. When bonds are investment grade, then pensions and institutions purchase them. Main Street investors might opt for individual bonds or bond funds, thinking they are safe from a downturn in the stock market. Many Main Street investors hold bonds in their retirement, pensions, 401Ks, mutual funds, annuities, insurance products, etc. without really realizing it.
 
The Ford downgrade is a symptom of a much more widespread problem. There is too much risk in the investment grade bonds for that asset to be considered safe. Over 50% of corporate bonds are at the lowest rung, just above junk status. So, they are just as vulnerable as Ford is to a downgrade.
 
Borrowing from Peter to Pay Paul
The economists contributing to the Financial Stability Report are also concerned about the leverage in corporate bonds and loans. In the May 2019 report, the Feds wrote, “Borrowing by businesses is historically high relative to gross domestic product (GDP), with the most rapid increases in debt concentrated among the riskiest firms amid signs of deteriorating credit standards.” In my August 2019 interview with Liz Ann Sonders, the Chief Investment Strategist at Charles Schwab Inc., she warned that “This highly indebted, weak component of the corporate sphere will mark the end of this cycle in some way.” 


Picture
Ford Smart Mobility LLC purchased Spin, an e-scooter company, on November 8, 2018.

​Corporate Bonds Lost Money in 2018
Last year, corporate bonds lost money in tandem with stocks. Finally, interest rates are starting out too low for the bond market to be of much help in the next stock market correction. Bonds, particularly corporate and muni bonds with credit risk, could lose value in the next downturn (and always lose value in a downgrade), meaning that investors will lose principal on the “safe” side of their nest egg, in addition to the “at risk” side.
 
Being downgraded to “junk” bond status is negative. It means that the bond has been downgraded to speculative and is a higher risk. The ultimate risk is that the company may have to restructure their debt, meaning that bondholders will not receive all of their money back, and will also lose the income they were expecting. After Greek bonds were cut to junk status, MF Global went bankrupt (in 2011).
 
Junk status also means that the next time Ford needs to borrow more money, the company will have to pay a higher interest rate. So, it cuts into Ford’s profits.
 
Many pension funds, bond funds and institutions limit the amount of speculative junk bonds that they hold, in their bylaws. So, junk bonds can become illiquid, which means that investors won’t be able to sell them to someone else. Many Ford bonds are 30-year bonds. That’s a long time to bet that Ford, which has over $220 billion in liabilities, including debt, pensions and other post-employment benefits, will not have to use bankruptcy to restructure. General Motors and Chrysler declared Chapter 11 in 2009. No one will be interested in taking a junk bond off of your hands, unless you take a large haircut on your investment – if you can get anyone to buy it at all.


Stock Investors and Bond Investors Lose When a Company is Downgraded
The bottom line is that when a company is downgraded, investors lose money on the stock and the bond side of the equation. Since 50% of corporate bonds are at the lowest rung, just above junk bond status, this is one of the riskiest areas of the market to be in. If you have high-yielding dividend stocks or bonds, then you are taking on a lot of risk for a very small return (under 5%).
 
GE and Ford are the poster children of what happens to companies that keep borrowing from Main Street to buy back their own stock, while taking on unsustainable debt and short-changing their pension plans. (GE just froze the pension plans of over 20,000 employees this week.) However, they are not the only companies that have bought into this practice. In fact, corporate buybacks have been the fuel of the current bull market. My warnings on GE and Ford began years ago. Click on the blue highlights to see a few of those blogs.
 
Learn Life Math Now
If you don't invest the time and money to get financially literate, then you are vulnerable to the leverage in the world during the late stage of this business cycle... The upside is that if you do become financially literate, you can stop making everyone else rich at your own expense, start living a richer life, provide far better for your own future, protect your assets and even save thousands of dollars annually in your budget with smarter big-ticket choices. Wisdom is the cure. The time is now! Call 310-430-2397 to learn The ABCs of Money that we all should have received in high school. I also offer an unbiased 2nd opinion on your current investing plan. Call or email for pricing and information.
 

Learn how to save thousands annually in your budget with smarter big-ticket energy choices, and how to invest in your nest egg with a time-proven strategy that earns gains in recessions and outperforms the bull markets in between. Join me at one of my upcoming Investor Educational Retreats. You have 3 to choose from below. 

Arizona is my most affordable retreat. Students register for 1/2 off!
Anyone who registers for the Florida or England Retreat by October 31, 2019 receives the lowest price. 

​Call 310-430-2397 or email [email protected] to learn more now. 
Picture
Picture
Picture

Other Blogs of Interest
The Dow Dropped Over 1000 Points
Tesla's 3Q 2019 Deliveries Could Hit 100,000.
Do We Talk Ourselves into Recessions? Interview with Nobel Prize Winning Economist Robert J. Shiller.
​The Winners and Loser of a Clean Energy Policy. 
Make the Climate Strike Personal. 
Ford is Downgraded to Junk.
From Buried Alive in Bill to Buying Your Own Island.
The Manufacturing Recession. An Interview with Liz Ann Sonders.
Gold Mining ETFs Have Doubled. 
The Gold Bull Market Has Begun. 
The We Work IPO. 
The Highs and Hangovers of Investing in Cannabis. 
Recession Proof Your Life. 
China Takes a Bite Out of Apple Sales.
Will the Dow Hit 30,000? A Check Up on the Economy
Red Flags in the Boeing 2Q 2019 Earnings Report
The Weakening Economy. 
Think Capture Gains
, Not Stop Losses. 
Buy and Hold Works. Right?
​Wall Street Secrets Your Broker Isn't Telling You. 
Unaffordability: The Unspoken Housing Crisis in America. 
Are You Being Pressured to Buy a Home or Stocks?
What's Your Exit Strategy? 
Will the Feds Lower Interest Rates on June 19, 2019?
Should You Buy Tesla at a 2 1/2 Year Low? 
It's Time To Do Your Annual Rebalancing.
Cannabis Crashes. Should You Get High Again? 
Are You Suffering From Buy High, Sell Low Mentality?
Financial Engineering is Not Real Growth
The Zoom IPO. 
10 Rally Killers. Fix the Roof While the Sun is Shining.
Uber vs. Lyft. Which IPO Will Drive Returns?
Boeing Cuts 737 Production by 20%.
Tesla Delivery Data Disappoints. Stock Tanks.
Why Did Wells Fargo's CEO Get the Boot?
Earth Gratitude This Earth Day. 
Real Estate is Back to an All-Time High. 
Is the Spring Rally Over?
The Lyft IPO Hits Wall Street. Should you take a ride?
Cannabis Doubles. Did you miss the party?
12 Investing Mistakes
Drowning in Debt? Get Solutions. 
What's Hot in 2019?
The Debt Ceiling Was Hit (Again) on March 1, 2019.
How Bad Will the GDP Report Be?
2019 Investor IQ Test
The State of the Union
CBD Oil for Sale.
The High Cost of Free Advice. 
Apple's Real Problem in China: Huawei. 
2019 Crystal Ball.
2018 is the Worst December Ever. 
Will the Feds Raise Interest Rates? Should They? Learn what you're not being told in the MSM.
Why FANG, Banks and Your Value Funds Are in Trouble.
When the Santa Rally is a Loser, the Next Year is a Bigger Loser. 
Russia Dumps Treasuries and Buys Gold
OPEC and Russia Cut Oil Production. 
​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.



Comments are closed.

    Author

    Natalie Pace is the co-creator of the Earth  Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.

    Archives

    April 2025
    March 2025
    February 2025
    January 2025
    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    June 2016

    Categories

    All

    RSS Feed

Proudly powered by Weebly
Photo from Alex Proimos
  • Store
  • Blog
  • Privacy Policy
  • About Natalie Pace
  • Books by Natalie Pace.
  • Vision Mission Goals
  • Media Images
  • Natalie Pace Coaching Calendar
  • Calendar of Events
  • Restormel Retreat 2027
  • Wealth Secrets of the 1% Fireside Seminar
  • Stock Master Class 2025
  • Natalie Pace June 6-8, 2025 Financial Freedom Retreat. Online.
  • Real Estate Master Class
  • Rebalancing Master Class Jan. 18, 2025
  • Bond Master Class 2024
  • Options for Beginners Master Class
  • Sustainability Summit
  • Restormel Retreat 2025
  • Store
  • Blog
  • Privacy Policy
  • About Natalie Pace
  • Books by Natalie Pace.
  • Vision Mission Goals
  • Media Images
  • Natalie Pace Coaching Calendar
  • Calendar of Events
  • Restormel Retreat 2027
  • Wealth Secrets of the 1% Fireside Seminar
  • Stock Master Class 2025
  • Natalie Pace June 6-8, 2025 Financial Freedom Retreat. Online.
  • Real Estate Master Class
  • Rebalancing Master Class Jan. 18, 2025
  • Bond Master Class 2024
  • Options for Beginners Master Class
  • Sustainability Summit
  • Restormel Retreat 2025