I have people come to me frequently asking to invest 10 or 20 thousand dollars and I tell them to go get some physical silver or gold.
Apmex has 1 oz silver buffaloes right now at about a dollar thirty over spot.
Posted on 12/12/2008 11:51:18 PM PST by TigerLikesRooster
Bond Bubble Hits Manic Stage
by Michael Pento, Delta Global Advisors, Inc. | December 12, 2008 Print
This week marked the beginning of what I believe is the manic bubble stage in the nearly three decade long Treasury bull market. On Monday, the U.S. Department of Treasury sold $27 billion of three month bills at a discount rate of .005%. That rate is the lowest since the auction began in 1929. On Tuesday, $30 billion of four-week Treasury bills were sold at 0%! Again, the lowest yield ever recorded for that security.
According to data compiled by Bloomberg, 41 U.S. money market funds have daily annualized yields at or less than .05% including four funds with a yield of zero. If one needed more evidence of this epic bubble, you could find it in the fact that a 2-year Treasury note yields just .8% and a 1 year bill offers a paltry .45% as of today’s trading.
Now there are those who are claiming these yields are justified because we are entering a Japanese-style lost decade of deflation—Merrily Lynch’s chief North American economist David Rosenberg was espousing that belief just this morning on CNBC’s Squawk Box. What Mr. Rosenberg chooses to ignore is that Japan has a tradition of one of the highest rates of savings on the planet. And while their virtual zero interest rate policy may not have caused runaway inflation domestically, it has served to inflate asset prices across the world due to the Yen carry trade.
Many who claim that there is justification for today’s bond yields are the same folks who claimed back in 2006 that home prices had never before in history declined on a national level and any talk of a bubble in real estate was therefore nonsense. Many of them are also the same people who assured you in the year 2000 that prices of internet stocks were fairly priced because they should be valued by the number of eyeballs that view a webpage.
To receive zero percent interest after loaning your money to the government for one month is ridiculous. Even more absurd is to hand over your money for 10 years and receive just 2.64% per annum. In order to believe you will receive a real rate of return on that trade, you have to assume the rate of inflation will average far below the after tax return on that bond--well below 2%!
The fact is, Treasury issuance is set to increase dramatically as our annual budget deficits are projected to be well north of $1 trillion dollars for at least the next few years. Along with the increasing debt supply, there is a huge increase in potential inflation from the expansion of the Fed’s balance sheet and a Fed Funds rate that is quickly approaching zero. Those two factors alone paint a very ugly picture for the direction of bond prices. Manias can last a very long time and become more extended than reason should allow. But wise investors should eschew owning Treasuries and continue to accumulate inflation-sensitive assets, despite their recent corrections; fundamentals are clearly on their side.
Ping!
Solid corporate bonds are not a bad bet. CDs, less than $100K are as good as FDIC, 1 yr 3.27, 2 yr 3.35% on average, 4%+ is easy to find out 3yrs.
yitbos
I recently went to the bond market. It’s pretty safe.
No. If bonds are high - why buy?
This will all be exacerbated by the increasing number of medicare, medicaid, and social security beneficiaries seeking tax payer funded services which will be further exacerbated by the decreasing number of tax payers who will have to be squeezed harder and harder to fund our socialist utopia.
I’m looking at investing in the old matress myself. It earns about as much as a bond and it’s even safer and way more liquid.
Cash will be king for now. Hell I bought myself a nice TV at a pretty kick a$$ price. Next up a cheap car.
I’m waiting for the government to outlaw private ownership of gold again
Yup. Unfortunately, cash’s reign may be short lived. Paying off debts might be a good idea right now too or, then again, wait and pay off your 30 year mortgage with the worthless dollars in your matress. I guess it depends on what you really believe. I’m thinking it’s probably time to prepare for the worst though. The day may be coming where “pulling your money out” ceases to be an option.
For security and interest on the bond.
You must look at yeild to maturity.
For instance a 10yr Treasury has a 3.75% coupon. Every year (1/2x6mo.) Uncle sam will send you $37.50 on a $1000 bond. But, right now you have to pay $1102.50 ($110-8/32) for it. That means over 10 years you are actually getting a yield of 2.57%.
But if you own a bond, lets say a 10yr 3.75 that you bought 6 months ago for $1000 when the yield to maturity was 3.75, and you want to sell it today, you could get $1102.50 for it (minus a fraction for it being 6 mo. old).
yitbos
At;as Shrugged
Also for liquidity. It is very easy to sell Treasuries, or other high quality corporate bonds. The price will fluctuate. But Treasuries will always pay interest to maturity and pay the principal at due date. Corporate bonds are a little riskier. But, when available, Johnson & Johnson, etc. aren't going bust.
Your broker can show you his portfolio of inventoried bonds. Or you can go on the open market and put in a bid.
yitbos
Again, think about the big plays in oil that has made so many rich (Buffet, Grahamn, etc.). Alternative fuels are about 5-7 years out to affect oil futures. Even then, those alternatives will be a slow growth play.
The world is dependent upon oil simply because it provides so much of our energy and manufacturing needs. It may go down in the short term, but will go up in the long term if you are an investor and not a trader.
Once the US and world economy starts to recover from this recession (2-3 years), oil will sky-rocket. Watch.
Think natural gas. No one ever talks about using less.
yitbos
Let print more money. Then lend gazillions out to people who are tapped out. Then say Hi! and then eat Pizza! Then drink beer until we are all passed out! YEAH!
Raytheon, Boing, and Lockheed-Martin have a hole lot of contracts out there for missiles, satellites and aircraft. Buy those stocks while they are cheap. And sit with them for several years. I know what those programs are.
Buy defense with an incoming anti-defense, pro-peace administration? You’re sure about that?
"Inflation sensitive assets"? Why doesn't he just say silver and gold?
I have people come to me frequently asking to invest 10 or 20 thousand dollars and I tell them to go get some physical silver or gold.
Apmex has 1 oz silver buffaloes right now at about a dollar thirty over spot.
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