bonds and income

We were talking about having a cashflow without having a job. Real estate, pyramid schemes, stock dividends and bonds are the usual topics for consideration.

There has been plenty of talk recently about how the government is going out of its way to protect the bondholders of the failing financials. It is high time I learned more about bonds. John Hussman's piece today addresses the current mess and ends with a note about bonds.

the potential downside in the S&P 500 from these levels could approach 30-40%. That is not a typo, and it is not a possibility that should be ruled out. ... what matters is the long-term stream of deliverable cash flows that investors can actually expect to reach their hands. It's exactly that consideration that makes it clear that we will sink deeper into this crisis until we observe debt restructuring on a large scale. If we don't restructure the debt, the debt will fail, because for many borrowers, the cash flows aren't there, and it is not possible to service the debt on existing terms.

the overall price-volume behavior still appears more consistent with a standard bear market rally punctuated by periodic short-squeezes. ... [In bonds,] it is too early to purchase distressed corporate debt