Posted on 04/18/2009 3:26:16 PM PDT by WashingtonSource
Are Bonds the New Stocks? Q&A with Robert D. Arnott
This prominent financial analyst contends that the ‘cult of equities’ has obscured for many the importance of bonds, which can outperform equities for extended periods of time.
(Excerpt) Read more at mindovermarket.blogspot.com ...
I would not invest in bonds of more than 90 days maturity. When this recession comes to an end, interest rates are going to skyrocket, and long term bonds are going to suddenly be worth very little.
What about corporate bonds? They have high yields and if held to maturity (presuming the company is sound) could give good yields.
Corporate bonds have higher yields, but don’t imagine that they will keep their value if interest rates go up. The yields on high quality corporate bonds are still lower than what they’d be if the economy were humming and interest rates were higher generally. Of course, you could go with the junk, but then you take a much bigger risk of default.
To tell you the truth, I took my extra cash and paid down (actually off) my mortgage. No risk in that, and saves me better than 6% per annum. The tax benefit for mortgage interest isn’t what it used to be because as a result of the recession, I’m earning less, and paying less in taxes anyway. If it were not for the fact that I had the opportunity to do that, though, I would probably have just kept my cash in an FDIC insured bank account until it looks like we’re actually headed out of the recession. I don’t think we are yet. GM and Chrysler are going to go bankrupt, and the stock market will take a hit on those days. In addition, their bankruptcies will have some subsequent fall out that cannot now be estimated with good accuracy.
You’re brilliant to pay off your mortgage, pun intended.
One more question. What about TIPS — they’re inflationed adjusted?
While current stock prices make them generally attractive investments based on dividend yields and anticipated returns, comparisons with bond yields today is complicated by the wide divergence of bond yields. They range from the very low yields of U.S. Treasuries on one hand, and the high yields of investment-grade corporate bonds, convertible bonds and high-yield bonds on the other.
Who determines that these bonds are investment grade? Would that be the same rating agencies (Moody's etc) that determined all those tranches chock-full-of sub-prime mortgages to be "investment grade securities?"
Fool me once, shame on you. Fool me twice......
With this crew in power, all my cash is in First National Sealed & Buried Mason Jar. The interest paid by FDIC insured (cough, cough) savings accounts is minimal enough that I won’t miss it and this way I will at least have control of my access to my cash.
Bad move in my opinion, unless you have less than $1000. An FDIC insured bank is safe. Your mason jar is not. You don’t get much (if any) interest either way, but safety favors the bank account.
TIPS are inflation adjusted, but you probably have to pay a premium for them, so it all comes out in the wash. Put the money where it’s safe and you can move it fast, once things begin to improve. That usually means a very low interest rate.
My money is safe and as I said in my post, I control my access to it. What happens if Schummer decides to talk about YOUR bank? I hope you won’t be needing that cash immediately. What about the new assessments the FDIC is placing on banks? It could drive good banks under. Suppose Zer0 decides to declare a bank ‘holiday?’
There are waaaay too many variables with this bunch of thugs running things.
(BTW, that mason jar is figurative)
I don’t worry about my bank. I’ve had banks go under that I was deposited in. Never had a problem getting my money. Typically, IF there is a delay, it’s only a day or two. My buddy had a CD where it took him a month to get his money, but his CD had not matured anyway, so they probably did not consider his case a matter of urgency.
My bank is a good bank also. I still keep my ‘operating funds’ and SD box there. But I do not let them build too high. The only thing I lose is the paltry .35% AP interest that my MM earned in exchange for instant access. If and when things get better, I can just redeposit. That MM acct was mearly a parking space for my cash anyway. Everybody’s situation is different.
BONDS are the “bubble”..buy at your own risk. Gold, Silver are the only safe investments long term...!
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