"Dumb lending and dumb borrowing is how the world's third-richest person, Warren Buffett, describes the messy subprime sector," according to Andrew Gordon, senior market analyst of Investor's Daily Edge.

"Buffet hates debt. Hates it when individuals go into debt. And hates it when companies go into debt. He avoids these companies like the plague," adds Gordon.

It's one thing for strong companies with strong growing sales to borrow. It's quite another when weak companies with weak sales borrow. Those companies are asking for trouble.

And when these companies issue junk bonds, it's absolutely crazy that investors lend these weak players money for a measly 100 basis points above what a 10-year note provides. It's "dumb borrowing and dumber lending."

Bankruptcies are at historical lows at the moment, but there are some factors to consider that may change that:
--Interest rates are going up, not only in the U.S. but also in the UK, European Union, New Zealand, and Japan, mainly over concerns of global inflation.
--The economy has slowed.
--Companies can be accused of many things when taking on more debt when rates are low and the economy is going strong, but poor timing isn't one of them. Loading up on debt when rates are rising and growth is slowing is a sign of desperation or self-preservation (against unwanted takeover attempts).

So are companies that are in deep debt in deep trouble? And are the investors who lent them money in for a dousing?

According to Gordon, "Big debt, higher rates, and growing input and labor costs are not a good combination for struggling companies. I'd be shocked if bankruptcies didn't pick up. And if they do, you might see a bigger spread between 10-year notes and corporate bond rates."

Don't expect private equity money to go away and hide. As rates go up, P/Es should start going down. In other words, earnings rise faster than share prices as liquidity migrates from equity to bonds. The spread then fattens, liquidity returns to the equity market, and M&A activity becomes re-energized.

However, if U.S. equity valuations continue to rise, it will probably force a major correction. And the least affected companies will be those with low P/Es and other outstanding value numbers.

"I'm a big believer in value investing - especially in dividend-paying companies where you can get capital appreciation plus yields on dividends that rival and/or exceed what corporate bonds give," states Gordon. "And these days - with rising rates possibly spelling the end of easy money - it makes more sense than ever."

For more information and to read the full article, visit Investor's Daily Edge at http://www.investorsdailyedge.com/archive/index.php

About Andrew Gordon and Investor's Daily Edge (www.investorsdailyedge.com)
Mr. Gordon has a Master's Degree from the London School of Economics and over 25-years of experience. He's also authored six books on the global markets, including China's Oil and Gas Industry, and The World Coal Market. Mr. Gordon specializes in identifying deep value companies with a solid margin of safety as well as income investments with a strong potential for capital gains. He has also become a leading expert in utilizing Exchange Traded Funds (ETFs) to profit from rising and falling market sectors. Mr. Gordon is currently the Editor-in-Chief of two monthly investment research services - INCOME and The Wealth Advantage.

Investor's Daily Edge (www.investorsdailyedge.com) is a free investment newsletter that's delivered by email before the market opens. In each weekday issue you'll receive clear recommendations and practical strategies for protecting your portfolio and multiplying your money - whether the market is rising or falling.

For more information about our editors, or to set up an interview, please contact Wendy Montes de Oca at 561-921-0001 or visit www.investorsdailyedge.com.