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SAN FRANCISCO -- First and foremost, many thanks to those who took the time to email supportive comments in the wake of

last night's piece. I'm truly humbled and appreciative.

Meanwhile, for those emailers insistent on the critical path, well

Happy Holidays to you, too

. Seriously, the critics (as they often do) raised some interesting points, which I'll address in an upcoming column.

That the overwhelming number of emails were pro-TaskMaster might just indicate like-minded folks are tuning in. But I mention it (partially) to encourage those looking for contrarian indicators. Indeed, some might find proof in the pudding of today's market performance, when the

Dow Jones Industrial Average

rose 1.6%, the

S&P 500

gained 0.8% and the

Nasdaq Composite

rose 0.3%.

Still, the fact the rally turned to tapioca after the

Federal Reserve's

nondenial denial of rumors of an inter-meeting rate hike -- major averages, notably the Comp, all ended well off session highs -- must be discouraging for those still (


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) anticipating a V-shaped bottom.

Anyone still (


) doubting the seriousness of what's transpiring, or expecting a quick fix from the Fed, should review the news out of

Charles Schwab

( SCH) today. The discount brokerage giant announced its co-CEOs will take pay cuts of 50% and executive vice presidents will take pay cuts of 20% in the first quarter, according to newswire reports; other officers will take smaller cuts. The executives will not receive annual salary increases, and any bonuses awarded will be in stock options only. Schwab, whose shares dipped 1.1% today, is also offering its employees up to 20 days of voluntary, unpaid leave between Jan. 1 and March 31 and will pay very limited overtime during the first quarter.

The changes are part of Schwab's effort to "produce reasonable business results in the face of adversity," newswires reported, citing a company memorandum.

Other brokerage firms have taken similar steps that have not been publicly disclosed, according to market sources.

The message from Wall Street being not only that perhaps they overspent during the heady days, but that they're not expecting the stock market to come roaring back anytime soon.

Off the Cutting Room Floor

Late last week, a hedge fund manager called to point out that many of his counterparts were buying high-yield telecom bonds.

"When you're getting a turn in a cycle, you get that first," he said, noting bonds issued by companies such as

Global Crossing

( GX),

XO Communications


, and

Level 3 Communications


fell long before the corresponding stocks.

The implication being that telecom stocks, which the source has been long, would soon lift as well. Indeed, shares of the aforementioned, and some other telecom names, rose sharply from lows reached in late November until Dec. 12, when -- of course -- the entire market reversed. (Today, telco service stocks held up reasonably well despite the latest bits (gobs?) of bad news from


(T) - Get AT&T Inc. Report



( LU).)

"Investors believe that once the Fed starts easing and injecting liquidity into the market, the panic in telecom services space will subside," said Erik Gustafson, a fund manager at

Stein Roe & Farnham

, reflecting on recent gains in both the sector's stocks and bonds. "It does not mean there won't be Chapter 11 filings -- too many companies came public and can't access the capital markets -- but bankruptcies in these third-tier companies will benefit the real players that have already raised adequate funding."

Gustafson offered Level 3 and XO Communications as examples of "real" companies in the space. Stein Roe was long both names when we spoke last week. (He couldn't be reached today to confirm if that's still the case.)

After hitting a few roadblocks trying to find out if there's anything to this whole bonds-presage-stocks theory -- not the least of which being the market's recent meltdown -- today, I finally caught up with Jonathan Savas, a director in

Merrill Lynch's

high-yield group. He confirmed that capital markets remain shut in terms of new bond issuance to all but the mostly highly regarded telecom names (and even they have to offer very high yields), but said outstanding bonds in the sector have been on the mend.

In November, the total return of Merrill's

High-Yield Telecom Index

was a negative 10.3%, while Merrill's

Master II High-Yield Index

was off 3.8%, he said. Through yesterday, the telecom index was up 5.2% since the end of November while the Master II index (a broader measure of high-yield performance) was up 2.2%.

Savas also acknowledged recently getting an abnormally large amount of calls from traditional equity players, noting

Williams Communications Group

(WCG) - Get WellCare Health Plans, Inc. Report

is another name in which there's interest.

But (and it's a big one), interest in the bonds from equity players is mainly coming from participants who are


the more speculative telecom stocks, Savas said. It seems the hedge funds may simply be looking to offset those bets with investment in the bonds of better-quality names in the sector.

In general, Savas argued there's more potential upside and less downside risk in the bonds of a telecom company whose stock trades in single digits than the equity itself. That's because any takeover is unlikely to offer much of a premium for the equity stake, but most high-yield bonds have "change of control" provisions, that act as a put for the holder. Additionally, bondholders get paid prior to equity owners in the event of a Chapter 11 filing (assuming


gets paid).

The point of all this is not to "scare" anyone out of telecom stocks (if you haven't been frightened yet, check your pulse), but to suggest there are alternative ways to invest in, or hedge exposure to, the sector.

In that light, I'll note there's an undercurrent of optimism on Wall Street that junk bonds as a group could be the big performers of 2001. Jim Cramer

wrote about this recently, as did Floyd Norris at

The New York Times

. Gustafson said he was planning to shift some of his 401(k) allocation into Stein Roe's high-yield offerings, because "I want to be long these instruments in front of a Fed easing."

Full disclosure: I recently did the same with my IRA, which is with

Putnam Investments


Even high-yield pros such as Savas say the market just isn't liquid or efficient enough to make it a wise investment for most retail investors. Thus, a high-yield bond fund would seem to be the "right" route for those inclined.

Some of the top high-yield funds by total return this year (where the peer group is down 9.3%) are

(TAHYX) - Get Pioneer High Yield A Report

Pioneer High Yield A,

AFBA Five-Star High-Yield



Strong Short-Term High Yield Bond and

( COHYX)CMC High Yield, according to


As with stocks, I urge you to do your own homework before investing in any fund, and find the one that best fits your needs and risk tolerance. Savas observed that more aggressive high-yield funds tend to perform better when things are good and worse when things are bad, proving there might not be such a big difference between fixed-income and equity investing after all.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.