Now that Detroit is officially bankrupt, investors have one more reason to dump municipal bonds. Here’s why they should think twice before they do. Read more...
Treasury Bonds
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What the Detroit Bankruptcy Means for Municipal Bonds
Investors Turn to TIPS as Warren Buffett Warns on Inflation
Warren Buffett last week did more than warn investors on the dangers of low interest rates and inflation.
The Oracle of Omaha also had harsh words for traditional bonds.
In a Fortunearticle Buffett went so far as to say, "Right now bonds should come with a warning label."
"They are among the most dangerous of assets," Buffett wrote, "Over the past century these instruments have destroyed the purchasing power of investors in many countries."
To prove his point Buffett labeled inflation as the primary threat to bond investors, noting it takes no less than $7 today to buy what $1 did in 1965.
Instead of bonds, Buffett recommends "productive assets," including farmland and real estate.
But he saved his highest praise for stocks, especially the stocks of companies like The Coca-Cola Co. (NYSE: KO) and International Business Machines Corp. (NYSE: IBM), that consistently deliver inflation-beating returns.
But what if you're not comfortable betting most or all of your chips on stocks? And if traditional bonds are out, where else can investors turn for inflation beating returns?
Unlike regular bonds, TIPS are designed to protect your principal against the ravages of inflation.
In fact, TIPS zig when other securities zag, providing diversification and safety to your portfolio.
TIPS are considered to be an extremely low-risk investment since they are backed by the U.S. government, and their par value rises with inflation while their interest rate remains fixed.
Here's how they work.
The Oracle of Omaha also had harsh words for traditional bonds.
In a Fortunearticle Buffett went so far as to say, "Right now bonds should come with a warning label."
"They are among the most dangerous of assets," Buffett wrote, "Over the past century these instruments have destroyed the purchasing power of investors in many countries."
To prove his point Buffett labeled inflation as the primary threat to bond investors, noting it takes no less than $7 today to buy what $1 did in 1965.
Instead of bonds, Buffett recommends "productive assets," including farmland and real estate.
But he saved his highest praise for stocks, especially the stocks of companies like The Coca-Cola Co. (NYSE: KO) and International Business Machines Corp. (NYSE: IBM), that consistently deliver inflation-beating returns.
But what if you're not comfortable betting most or all of your chips on stocks? And if traditional bonds are out, where else can investors turn for inflation beating returns?
TIPS Insure Wealth Against Inflation
Enter Treasury Inflation Protected Securities, or TIPS.Unlike regular bonds, TIPS are designed to protect your principal against the ravages of inflation.
In fact, TIPS zig when other securities zag, providing diversification and safety to your portfolio.
TIPS are considered to be an extremely low-risk investment since they are backed by the U.S. government, and their par value rises with inflation while their interest rate remains fixed.
Here's how they work.
To continue reading, please click here...
Money-Markets, CDs, and Bonds: The Ups and Downs of Stashing Your Cash
In today's volatile markets many investors are faced with the same troublesome question - "Where should I park my cash?"
In fact, investors have withdrawn a net total of $328 billion from the stock market since 2007, according to Strategic Insight.
Ever since, a big portion that cash has been looking for a home.
It seems simple enough, but investors are finding the answer to be more complicated than they imagined...
Thanks to our friends at the Federal Reserve, interest rates are at record lows. In fact, they're so low that most investors are getting practically nothing in returns.
Meanwhile, the stock market has put on a New Year's rally, rewarding those who were willing to jump in while leaving cautious investors wondering if they're holding too much boring old cash.
However, in order to have an adequate safety net, your cash on hand should be enough to cover about a year's worth of expenses, according to Shah Gilani, a retired hedge fund manager and Editor of the acclaimed Wall Street Insights & Indictments newsletter.
"That's a good safety net," Shah says.
But no matter how much cash you hold, you still have to balance your need for higher returns against your risk tolerance.
Because whether you're thinking "safety first" or are tempted to reach for a little more yield, the choice you make might determine whether you're able to sleep at night.
In fact, investors have withdrawn a net total of $328 billion from the stock market since 2007, according to Strategic Insight.
Ever since, a big portion that cash has been looking for a home.
It seems simple enough, but investors are finding the answer to be more complicated than they imagined...
Thanks to our friends at the Federal Reserve, interest rates are at record lows. In fact, they're so low that most investors are getting practically nothing in returns.
Meanwhile, the stock market has put on a New Year's rally, rewarding those who were willing to jump in while leaving cautious investors wondering if they're holding too much boring old cash.
However, in order to have an adequate safety net, your cash on hand should be enough to cover about a year's worth of expenses, according to Shah Gilani, a retired hedge fund manager and Editor of the acclaimed Wall Street Insights & Indictments newsletter.
"That's a good safety net," Shah says.
But no matter how much cash you hold, you still have to balance your need for higher returns against your risk tolerance.
Because whether you're thinking "safety first" or are tempted to reach for a little more yield, the choice you make might determine whether you're able to sleep at night.
Three Places to Park Your Cash
With that in mind, here's a look at three of the most popular places to park your cash.To continue reading, please click here...
Why Warren Buffett Is Buying – And You Should Be Too
Legendary investor Warren Buffett recently made news with his purchase of International Business Machines Corp. (NYSE: IBM), though I can't say I'm surprised.
Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.
And guess what, it's exactly what I've been counseling investors to do since this crisis began - bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").
According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).
In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.
Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.
There are technical similarities, too.
For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.
Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.
Coke is up tenfold since then. Enough said.
Here's what I think Buffett sees:
Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.
And guess what, it's exactly what I've been counseling investors to do since this crisis began - bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").
According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).
In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.
Buffett Pulls the Trigger
As a long time Buffett watcher, I am somewhat surprised that he picked up Intel and IBM, if only because the Oracle of Omaha has a well-documented aversion to tech.Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.
There are technical similarities, too.
For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.
Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.
Coke is up tenfold since then. Enough said.
Here's what I think Buffett sees:
To continue reading, please click here...
How to Protect Yourself From the Collapse of Treasury Bonds
By now, you've probably taken note of the growing bubble in Treasury bonds.
The yield on the 10-year Treasury bond fell below 2% for the first time in 50 years in the wake of the U.S. credit rating downgrade.
That's irrational, and more importantly, dangerous.
A Treasury bond bubble is a unique creature. In fact, it's never been seen before, so determining its fate requires some careful thought.
But what's absolutely certain is that U.S. Treasuries are not a safe haven investment - far from it.
Treasury bonds carry five very dangerous risks - including negative yields, higher inflation, panic selling, an outright collapse, and default.
So let's take a closer look at those risks before determining the best way to profit.
First, real yields on Treasuries, after accounting for inflation, are now negative. Not only are nominal Treasury yields below the current inflation rate, but 10-year Treasury Inflation Protected Securities (TIPS) have traded on a yield of less than zero.
That is very unusual and economically distorting. Long-term bond yields in the zero-inflation 19th century never fell below 2.2%, which is to be expected. The guy who provides the money should get paid for doing so. However, any reversion to historical patterns would cause a major bond bear market. Ten-year Treasury yields would rise to the 5% to 6% range - even if inflation gets no faster - giving investors a 27% mark-to-market loss.
Of course, inflation will accelerate.
The consumer price index (CPI) inflation is up 3.6% from last year. And it's likely to rise much further as a result of the Federal Reserve's loose monetary policies.
If inflation were to rise to 10%, which is perfectly plausible, bond yields would have to rise to 12% to 13%, giving investors a 59% mark-to-market loss as well as eroding the value of their principal.
To continue reading, please click here...
The yield on the 10-year Treasury bond fell below 2% for the first time in 50 years in the wake of the U.S. credit rating downgrade.
That's irrational, and more importantly, dangerous.
A Treasury bond bubble is a unique creature. In fact, it's never been seen before, so determining its fate requires some careful thought.
But what's absolutely certain is that U.S. Treasuries are not a safe haven investment - far from it.
Treasury bonds carry five very dangerous risks - including negative yields, higher inflation, panic selling, an outright collapse, and default.
So let's take a closer look at those risks before determining the best way to profit.
First, real yields on Treasuries, after accounting for inflation, are now negative. Not only are nominal Treasury yields below the current inflation rate, but 10-year Treasury Inflation Protected Securities (TIPS) have traded on a yield of less than zero.
That is very unusual and economically distorting. Long-term bond yields in the zero-inflation 19th century never fell below 2.2%, which is to be expected. The guy who provides the money should get paid for doing so. However, any reversion to historical patterns would cause a major bond bear market. Ten-year Treasury yields would rise to the 5% to 6% range - even if inflation gets no faster - giving investors a 27% mark-to-market loss.
Of course, inflation will accelerate.
The consumer price index (CPI) inflation is up 3.6% from last year. And it's likely to rise much further as a result of the Federal Reserve's loose monetary policies.
If inflation were to rise to 10%, which is perfectly plausible, bond yields would have to rise to 12% to 13%, giving investors a 59% mark-to-market loss as well as eroding the value of their principal.
To continue reading, please click here...
To continue reading, please click here...
Moodys Warns U.S. May Get Credit Downgrade in "Coming Two Years"
The United States' AAA credit rating may be at risk sooner than previously thought as the nation fails to deal with its growing debt, Moody's Investors Service warned last week. Moody's said December's extension of the Bush-era tax cuts, combined with results from the November elections, may lead to further gridlock in Congress, increasing its doubts about the federal government's determination to reduce its debt. The credit ratings agency said it might put a "negative" outlook on the AAA rating of U.S. debt sooner than anticipated as the country's budget deficit expands.
U.S. Credit Downgrade Possible, Moody's Warns
The United States' AAA credit rating may be at risk sooner than previously thought as the nation fails to deal with its growing debt, Moody's Investors Service warned last week.
Moody's said December's extension of the Bush-era tax cuts, combined with results from the November elections, may lead to further gridlock in Congress, increasing its doubts about the federal government's determination to reduce its debt.
The credit ratings agency said it might put a "negative" outlook on the AAA rating of U.S. debt sooner than anticipated as the country's budget deficit expands.
Moody's said December's extension of the Bush-era tax cuts, combined with results from the November elections, may lead to further gridlock in Congress, increasing its doubts about the federal government's determination to reduce its debt.
The credit ratings agency said it might put a "negative" outlook on the AAA rating of U.S. debt sooner than anticipated as the country's budget deficit expands.
Don't Get Bullied out of Bonds
Bonds have provided a welcome safe-haven for investors seeking shelter from the financial maelstrom of the past two years, offering steady returns while stocks bounce up and down.
Now some analysts are afraid that once the selling of bonds begins it will be indiscriminate, and there will be a bloodbath. But that fear totally ignores the new investment reality in which we're living.
The fact is, stocks won't be crawling out of the gutter anytime soon, and until they do, investors will continue to look elsewhere for a store of value. They have already decided they can find it in two places: U.S. bonds and gold.
Now some analysts are afraid that once the selling of bonds begins it will be indiscriminate, and there will be a bloodbath. But that fear totally ignores the new investment reality in which we're living.
The fact is, stocks won't be crawling out of the gutter anytime soon, and until they do, investors will continue to look elsewhere for a store of value. They have already decided they can find it in two places: U.S. bonds and gold.
Will The Fed Fall Back on Treasury Purchases to Fuel Economic Growth?
Faced with a faltering recovery, the U.S. Federal Reserve today (Tuesday) will again consider ramping up purchases of Treasuries, a policy known as quantitative easing, to promote growth.
The Standard & Poor's 500 Index closed yesterday with a 1.5% gain on speculation that the Fed would at least indicate to investors that it is prepared to take further action to support the economy.
The Fed conducted its last major round of Treasury purchases from January 2009 to March 2010, buying $1.25 trillion in mortgage-backed securities and about $175 billion in debt owed by government agencies. The Fed planned on gradually reducing its balance sheet as the debt matured or was prepaid.
But last month the Fed signaled it might resume its quantitative easing steps when it voted to reinvest the principal payments in longer term Treasury securities. And with little improvement in the U.S. economy since then, analysts think the central bank is preparing to take the next step.
"The Fed's rhetoric will get the markets ready for the real possibility of expanding their balance sheet at a later meeting this year," Richard Clarida, a Columbia University professor and global strategic adviser for PIMCO, said Monday in a Bloomberg radio interview.
The Standard & Poor's 500 Index closed yesterday with a 1.5% gain on speculation that the Fed would at least indicate to investors that it is prepared to take further action to support the economy.
The Fed conducted its last major round of Treasury purchases from January 2009 to March 2010, buying $1.25 trillion in mortgage-backed securities and about $175 billion in debt owed by government agencies. The Fed planned on gradually reducing its balance sheet as the debt matured or was prepaid.
But last month the Fed signaled it might resume its quantitative easing steps when it voted to reinvest the principal payments in longer term Treasury securities. And with little improvement in the U.S. economy since then, analysts think the central bank is preparing to take the next step.
"The Fed's rhetoric will get the markets ready for the real possibility of expanding their balance sheet at a later meeting this year," Richard Clarida, a Columbia University professor and global strategic adviser for PIMCO, said Monday in a Bloomberg radio interview.
How to Profit From the "Widow-Maker" Trade – Shorting U.S. Treasury Bonds
Although we're in the midst of a U.S. Treasury bond bubble so big that pundits are calling for investors to short the government paper, resist the urge to jump in with both feet.
Doing so right now is nothing more than a "widow-maker" trade that will test both your patience and your pocket book. And yet, "shorting" the U.S. Treasury bond market is an opportunity you can't afford to pass up - so long as you execute the trade correctly.
For the best Treasury bond strategy to deploy right now, please read on...
Doing so right now is nothing more than a "widow-maker" trade that will test both your patience and your pocket book. And yet, "shorting" the U.S. Treasury bond market is an opportunity you can't afford to pass up - so long as you execute the trade correctly.
For the best Treasury bond strategy to deploy right now, please read on...