Tax-Cut Deal Results in Turmoil for Bonds By Mark Gongloff and Tom Lauricella Wall Street Journal “The tax deal in Washington led investors to dump government bonds on Tuesday, with yields on Treasurys hitting their highest level in six months... "The tax compromise will keep the economy on track, but there's the question of how we're going to pay for this," said George Goncalves, head of U.S. rates strategy at Nomura Securities International, who has been bearish on Treasurys since mid-October. "It will require more Treasury borrowing."... One fear among bond investors is that foreign … [Read more...]
Up 30% with GNMA
You’re right to be concerned about higher interest rates and a decline in bond prices. Yet it would be a shame to miss the boat on the wonderful returns coming from bond funds with short-term maturities. The Vanguard GNMA fund, for example, with an average maturity of less than two years, has returned 7.6% YTD. For income investors, GNMA provides a relatively attractive yield of 3.27% compared to other short-term bonds like Treasuries. The Vanguard Short-Term Treasury, for example, yields only 0.30%. And compared to stocks, the Vanguard GNMA fund was up 7.2% in 2008 while the S&P 500 … [Read more...]
Gold is at $1,400
Don't tell me there is no inflation, the price of gold has topped $1,400/ounce. The Dow Jones Industrials are up year-to-date and over the past three years. But even so, Gold has beaten the DJIA Total Return (i.e. dividends included) handily as shown in my two charts. Make sure you are not caught off guard here. Your exposure to stocks must be well compensated by owning high yielding dividend payers. … [Read more...]
TIPS Signal Higher Inflation
The bond market made history this week: investors paid to lend the government money. The government may want to throw a parade. Investors shouldn’t. On Monday, five-year Treasury inflation-protected securities (TIPS) were auctioned off at a negative yield of -0.55%. Demand was so strong that the Treasury auction was oversubscribed by a 2.84 bid-to-cover ratio—the number of bids received divided by the number of bids accepted. Anything above a ratio of two is considered a successful auction. TIPS can be an attractive inflation hedge because the principal value increases with inflation. As a … [Read more...]
They’ll Wonder How You Live So Well
The businesses of the top 10 companies in the Vanguard Dividend Achievers fund could easily be part of your Saturday morning errands, especially if the kids and family are visiting. You could start the morning by leaving the house with a can of Diet Pepsi, stop by a Chevron station to fill up the tank, then swing into Walmart for some baby supplies like Pampers and Johnson’s Baby Shampoo for the little ones and Ibuprofen for yourself just in case you use the self-checkout lane. Hop back in the car, zip over to ExxonMobil for a car wash, scoot across the street for a Coke and a Big Mac, and … [Read more...]
The Record High Price of Gold: A Currency Story
Gold reached a record high on Tuesday, closing at $1,271.70 per troy ounce. It is up over 15% this year. That’s great for gold investors, but what does it mean for the currency in which it’s being quoted, the U.S. dollar? Relative to gold, the dollar, as shown in the chart below, is worth only two-thirds what it was worth at the beginning of 2008, just after the start of the market crash. The euro has maintained 60% of its value compared to gold, and the Swiss franc has retained a more impressive 75% of its value. Gold has had a tremendous run relative to all three currencies. This is not … [Read more...]
You, Me and WB: Warren Buffett’s Most Important Advice
Becky and I refinanced our house this week, locking in a 15-year rate. This should be great news, since we will be paying less interest over the life of the loan by retiring the 30-year, and our monthly payment is close to what it was. Yet, somehow, it doesn’t feel like a great move, especially after waving goodbye to a sizable chunk of cash to get the deal done and signing a mountain of documentation. Since when do you have to sign a copy of a copy just to make sure they can prove you got the copy? That was new to us, and we hesitated and then continued signing away with the enthusiasm of a … [Read more...]
A Must-Have MLP Fund
You don’t want to miss the boat on master limited partnerships (MLPs) especially now that the asset class is receiving more press. A recent Wall Street Journal piece by Tom Lauricella and Carolyn Cui, “Frenzy in Energy Partnerships,” shed more light on the relatively unknown natural resource pipeline market, which has been attracting billions of dollars owing to its attractive 6%–7% yield. In fact, as the article points out, through the beginning of this month, MLPs rallied 15% on the year and 11% per year over the past 10—as measured by the industry benchmark, the Alerian MLP Index—for … [Read more...]
Back to Even and Then Some
Are you tired of the media’s nonstop market analysis yet? It’s distracting at best and harmful to your health at worst. With the Dow up 7.1% in the month of July, it’s worth noting how little ground has been picked up from mid-June of this year through the end of July. Even after climbing out of the valley of the March 2009 lows, the price of the Dow is still only worth three-quarters of its value from its October 2007 peak. Those taking a balanced investment approach had a much better experience. I like using the Vanguard Wellesley fund to illustrate the advantages of a balanced … [Read more...]
Get Yourself Some Debt
“Get yourself some debt” isn’t the advice you’d expect to hear from your financial advisor. But with interest rates at record lows it makes sense to continue carrying debt in the form of a refinanced 15-year mortgage on your primary residence or vacation home. One of the key advantages of debt is its defensive qualities against inflation. A dollar today locked in at these low rates goes at least as far tomorrow and could go much further in the not too distant future. I realize paying off a mortgage today with rates of return on treasury bonds so low can make sense, especially if you’re on a … [Read more...]