Meet the stock market: he’s a valuable economic indicator, but he also has a tendency to lie—even compulsively. The stock market misdirects, misleads, and misinforms. The only time to rely on the stock market is when he is accompanied by his more honest older brother. The stock market’s older brother will let you know if his devious younger sibling is telling you the truth or feeding you a tall tale. Who is the stock market’s more trustworthy older brother? The bond market. The bond market keeps his younger brother in line. If the stock market signals that the economy is getting better by … [Read more...]
Young Research & Publishing has been providing research and insights on bonds to institutional investors, corporate financial officers, business owners, and individual investors for over four decades. Richard C. Young started Young Research & Publishing in the 70s to publish the authoritative Young’s World Money Forecast, a 50-page monthly investment report for institutional land high net worth investors. Today, our research on bonds is geared toward investors in or nearing retirement who are looking to preserve and protect wealth.
Inflation Expectations Surge
This is a scary looking chart. The chart shows the 10 year breakeven inflation rate. This is the inflation rate that investors are anticipating over the coming ten years. Expected inflation has surged over a full percentage point since the Fed started their second money-printing crusade. This is unsettling. The central bank is losing credibility by the day. Over the last ten years, inflation expectations have only reached these heights on three other occasions. All three times, the Fed was either tightening monetary policy or on the verge of doing so. Today, the Fed is still easing … [Read more...]
TIPS Yield: What You Should Know Today
With commodities prices surging and inflation pressures heating up in certain sectors of the economy, the financial press is loaded with articles offering advice on how to protect your portfolio from inflation. One of the more common recommendations is to buy Treasury inflation-protected securities (TIPS). This is a strategy we advise against. It isn’t that we are averse to TIPS. But the problem with buying TIPS today is that yields are far too low and durations on many TIPS and TIPS funds are too long. By example, the yield on the Vanguard Inflation-Protected Securities fund is only … [Read more...]
A Threat to the Muni Union
It turns out that not only is the adoption of a right-to-work (RTW) law in states good for business, but even the threat of passing a RTW law is good for business. This is great news for businesses in Wisconsin and the dozen or so other states trying to enact RTW laws and standing up to public union leadership. Idaho became the last state to enact RTW laws in the U.S., becoming the 22nd RTW state back in 1986. Isn’t it shocking to you that the majority of states in the U.S. are non-RTW states? It is to me. That’s a lasting testament to the stranglehold that union leadership has on fiscal … [Read more...]
106% Profits—in Bonds
With stocks rising virtually uninterrupted since the end of August and doubling from their March 2009 lows, you may be kicking yourself for not shifting more of your bond investments into stocks. Don’t. Some bonds have actually beaten stocks. Measuring from their respective cycle lows, the Merrill Lynch High-Yield Master II index is up 106% and the S&P is up about 100%. Not bad for boring old bonds. … [Read more...]
Long Rates Breakout to the Upside
A Low-Risk Inflation Hedge
The conventional wisdom is that bonds are a terrible investment when inflation accelerates. The theory is that rising inflation causes interest rates to rise and bond prices to plummet. The financial media has been pounding the table on this thesis for months. Check out “Stop Gobbling Up Bonds—They’re Risky!” in Fortune’s Investor’s Guide 2011. If inflation is your concern, the pundits will advise you to dump your bonds. They advise you to load up instead on stocks, gold, and other hard assets. Gold and hard assets are certainly an inflation hedge. All investors should own at least some … [Read more...]
The Bear Market in Long Bonds
Soaring long bond yields have pushed the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF down 26% from its August high. Investors who bought the PIMCO ETF in August have now lost more than 7 years interest. Compare that to the PIMCO 1-3 Year Treasury ETF which is down only 0.65% from its 2010 high. You may not like the yields on short bonds today, but loading up on long bonds to pick up yield can quickly decimate a portfolio. … [Read more...]
Interest Rates Surge
Long-term interest rates are surging. After falling below 2.40% in October, the ten year T-note yield has risen to 3.26%--an increase of 86 basis points. An investor who purchased long bonds at their yield low is down almost 7% in only two months. That’s almost 3 years worth of interest. … [Read more...]
Municipal Bonds Plummeting
Muni bonds are cratering. The iShares National Municipal Fund is down more than 5% since the beginning of November. Rising long-term interest rates, a flood of new muni issuance, and lingering state and local budget issues are all contributing to the violent move down in muni bond prices. … [Read more...]
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