6 posts tagged “bonds”
IMHO, US Treasuries are the next financial bubble to burst.
- The Fed has been buying Treasuries bonds in an effort to lower borrowing costs and end the worst U.S. economic downturn in 70 years. Its holdings of Treasuries edged up to $759.80 billion from $757.77 billion last week. However, the Federal Reserve's program of buying Treasuries will end in October.
- Even the Chinese, one of the largest buyers of Treasury securities, are buying fewer treasuries. They are buying gold with their US Dollars.
- Yet investors are making huge bets on bonds. In the last six months they have allocated double the amount of new money to bond mutual funds as they did over the entire four years from 2003 through 2006! All academic studies agree that poor market timing decisions are the rule rather than the exception among mutual fund investors.
- Besides that, the federal government actually needs high inflation down the road. Why? So they can pay off this low interest debt with cheapened dollars. Debtors gain during inflationary times.
- It's not just me questioning the current price of treasuries.
Looking at the next 18 months, I see higher yields on the
10-year and the 30-year. Bond prices fall when interest rates rise. With
fewer buyers and a falling US dollar, higher rates are inevitable. Get into TMV or TBT while they are on sale! My earlier posts on bonds should help you.
In a 2003 paper (New Evidence on the Interest Rate Effects of Budget Deficits and Debt), Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, 10 year bond rates will double from their current 3.5%.
I showed that in this earlier post and I explained how to play it!
TBT up $4 since last Friday while TMV is up $10 since last Friday (since I'm a risk taker, I own TMV instead of TBT)
While the Bureau of Labor Statistics is telling us inflation is under control, those who hide in savings bonds are getting short changed.
The stats are skewed because they exclude food and energy, but I'm sure you see that every time you fill up your car or buy groceries.
You can get a much better return using my strategy.
An earlier post encouraged my readers to short 10 Year Treasury bonds using ticker symbol TBT.
Had you bought TBT that day (at $46.30) and held until today ($59.20 as I write this), you have a nice profit!
Essentially the rest of the world is saying "we will buy USA debt only if we get higher interest rates".
 | ||||
| 2 yr | 99 | -5/32 | 1.37 | +0.07 |
| 5 yr | 96 25/32 | -12/32 | 2.94 | +0.08 |
| 10 yr | 93 4/32 | -28/32 | 3.96 | +0.11 |
| 30 yr | 91 13/32 | -2 4/32 | 4.79 | +0.14 |
I’ve sold my gold position once gold crossed $900 an ounce.
I use ticker symbol DGP for my
gold purchases. I probably got out too soon, but I think the falling US dollar and
hyperinflation are still at least 5 months away.
Another vehicle I use is the Ultra Short Lehman 20+ Treasury ProShares (ticker symbol TBT). It is a bet that long bonds will offer higher yields in the future. It has had a +40% run over 6 weeks, so look for pull backs to the $45-$46 range. Since the Fed can’t lower rates any more, this should still be a good play going forward.
I’ll give you my commodities plays and my high dividend plays if you click the donate button in the sidebar.
Thirty-five percent of Americans have stopped investing and twice that many have lowered their retirement contributions. Don’t make that mistake. A University of Michigan study showed that in the history of the market, if you miss 1% of trading days, you miss out on 96% of market gains. And the best way to get back in the game is with an account that has no transaction costs (commissions)
