Anyone Who Says to Buy Treasuries Is an Idiot

Posted On May 26, 2016 By

  • Bust out the champagne — good economic news!
  • Anyone who says to buy Treasuries is an idiot
  • A quiet day on Wall Street
  • Is oil heading down again?
  • Science explains Trump’s lies… being chastised for running a bogus government stat… Jim Rickards gets more publicity than Elvis… and more!

Here’s some cheery economic news, maybe…

A report released this week revealed that last month’s new home sales surged to their highest level in over eight years.

The median sales price also topped previous highs, indicating folks are movin’ on up to nicer digs. That set us to scratching our noggin, since median U.S. income has barely budged a jot in years. Where’ the money coming from?

Regardless, Bloomberg assures us the sunny housing data augur well for the economy. It apparently means the economy can stomach higher interest rates. And with all this talk of the Fed tightening this summer, all signs are go.

“Maybe investors are realizing that a hike of 25 basis points is not the end of the world,” chirps Thomas Garcia, head of equity trading at Thornburg Investment Management. “Those were nice housing numbers,” he continues. “It seems as though the market is excited that we are still going strong and the Fed can raise rates.”

Traders now soothsay a sturdy chance of a rate hike by July, based on recent mutterings from Fed officials. Odds for a June hike spiked from 4% last Monday, all the way to 36%.

All these years of zero or next-to-zero interest rates have been locust years for anyone seeking a reasonable return on their savings. Many have rushed to the safety of investments such as Treasuries that pay zilch.

But what happens to Treasuries if the Fed raises rates in June or July?

“Anyone who says you should own Treasuries is an idiot!

That’s what a colleague of our income specialist, Zach Scheidt, told him over email this morning. This blast of spleen was in response to some mainstream media article on how to “Fed-proof” your investments.

The particular quote that triggered the alarm was from a MarketWatch interview with some Wall Street crackerjack. From which:

“To get diversification from equities risk, investors need to own highly rated bonds such as Treasuries.”

Sounds harmless enough to us. But here, Zach takes his own hack at this chap:

“Owning Treasuries in today’s market is just about one of the stupidest things that you can do with your wealth. It’s about as stupid as burying a box of cash in your backyard (except at least you can access your buried cash at any time).

“This statement is just another example of how Wall Street’s self-serving ‘investment advice’ consistently puts innocent investors in harm’s way day after day. To be quite frank, this kind of advice makes me sick.”

Why is Zach so upset about this “prudent” advice Wall Street analysts are giving to investors? And what’s so wrong about holding “highly rated bonds such as Treasuries”?

It all comes down to risk and returns, according to Zach. Higher risk should be compensated with higher returns.

In today’s zero interest rate environment, Treasury bonds are paying investors next to nothing to own them. Case in point: A current 2-year Treasury bond currently pays a supermodel-slender 0.93% yield.

And according to Zach, that means T-bond investors are getting paid nothing to undertake great risk.

Great risk? But aren’t Treasuries the safest things in creation? Not so, says Zach. They’re downright risky these days…

“Treasury bonds carry a significant amount of risk right now because of the danger of higher interest rates.” Hmmm. Go on.

“You see, if the Fed decides to raise rates, Treasury bonds will automatically trade lower. Forbes recently cited a study that indicated some Treasury bonds could fall as much as 10.4% when the Fed starts hiking rates. Think about how many years of minuscule yields it would take to offset that kind of decline.”

Quite a few, we hazard.

Zach also warns that higher rates could spark a recession. So he thinks Treasuries are out. Way too little for way too much risk. But if not Treasuries, what should income-seeking investors do with their money?

First, build a base of healthy dividend stocks.

Zach’s primary focus is on stocks that pay reliable dividends. These include blue chip dividend stocks, private equity companies, preferred stocks and real estate investment trusts (REITs). But that’s not all.

For example, Zach has three companies in his portfolio that specialize in business development. And they’ve posted an average 35.3% gain (including dividends), with an average hold time of three years. Not bad for safe income plays in a market that’s gone nowhere for 18 months.

Zach also recently released the results of a six-month investigation into a growing trend here in America…

In short, a savvy group of Americans have figured out a way to legally piggyback “Canadian Social Security.”

And these folks are now earning monthly investment income checks from $400–4,700 as a result.

If you’re not familiar with it, what is “Canadian Social Security”?

It’s an “old age” benefit program just like we have here in the states… only (from what Zach discovered) it’s far superior.

He found that you can earn thousands in additional retirement income without affecting your U.S. Social Security benefits.

You can read Zach’s full investigation… and discover how to begin earning income… by clicking here

[Ed. note: If you have at least $20,000 in capital to invest: You might want to check out Zach’s strategy for pulling down safe, regular income payments amounting to hundreds of dollars at a time. This strategy has long been a favorite of our publisher Joe Schriefer, who conducted a unique “experiment” to demonstrate how easy it is. Give it a look at this link.]

Let’s drop in on the markets…

A quiet day overall. The market’s pulled back a bit today after a strong beginning to the week. The Dow’s off 25, the S&P’s off just a shade. The Nasdaq’s up a few points, though.

Gold’s down another three bucks today on all the rate hike talk. Meanwhile, oil’s back under $50, but barely, at $49.48. That’s in keeping with one of this year’s market themes. When oil’s up, so are stocks. When oil’s down, so are stocks.

Speaking of oil…

Trend trader Michael Covel’s spelling Greg Guenthner at The Rude Awakening this week. And he turned his sights to oil today.

In late 2014, oil began its collapse. And Michael’s proprietary system triggered an oil “sell” signal that August, when oil was still $95 a barrel:

The Great Oil Collapse

If you jumped on that price trend and rode it out, Michael says, you had a chance to make a killing. And to this date, oil remains in a downtrend, according to Michael’s long-term trend following system. “And that’s all you need to know,” he adds by way of emphasis.

If oil and stocks continue to move in tandem, that should mean stocks will fall.

But as Michael himself admits, no one can predict the future price of any commodity or stock. For every so-called expert who thinks oil is going down, there’s another who says it’s going up. “The only thing you can know is the price action right now,” says Michael.

And to him, the trend is down.

Worried about a market crash if Michael’s right? Follow these instructions.

Well, when the market collapsed in 2008, a man named Jeff followed that simple set of instructions.

By the time the collapse was done, he had DOUBLED the size of his retirement account.

He said: “I doubled my money in the greatest financial debacle of my lifetime.”

Click here to see the instructions Jeff followed.

Science says masculine insecurities are driving Trump’s “train of lies”…

According to Raw Story, a 2015 study revealed something about braggadocious men who lie about their virility…

“Men lie when they feel that their masculinity has been questioned or they fear that they do not measure up to other men.” It therefore concludes that “the joke about men driving expensive sports cars to compensate for other shortcomings is true.”

Donald Trump

In the study, men took part in a “grip test” to assess the average fellow’s grip measure. After he did so, each man was given a fictional reading. Some were told they had a stronger grip than the average man. Others were told they were weaker. “After being given this information about their strength relative to other men… the men were then asked a series of questions.

“Time after time,” Raw Story continues, the men told that they ranked below average exaggerated the number of sexual partners they’d had, lied about their height, exaggerated their athletic achievements and pooh-poohed activities they perceived as “feminine.” And they say Trump sorts into that category.

Well, there you have it. Masculine insecurities explain Trump’s lies. Maybe they also explain Hillary’s?

“I have to chuckle that you would repeat something so far out of whack as to be absurd — you’re better than this,” as one reader wraps us on the knuckles.

The reader refers to a government stat we ran yesterday showing that automobile accidents caused $877 billion in economic losses in 2010, or more than $2,700 per year for every single person in the country.

“That number is simply absurd. Assume that the vast majority of economic loss due to traffic accidents is covered by insurance. That would mean that all 300 million Americans would have to pay insurance premiums greater than $2,700 per person. How many average American families of four do you know paying $10,000-plus per year in auto insurance? By this math, there should be no auto insurance companies still standing (enter Obama-AutoCare).

“I suppose this is one of those cases where they calculate the impact of the $500-per-hour lawyer getting stuck in traffic for an hour as a $500 loss.”

The 5: You’re probably right. It is a government stat, after all. Just look at the unemployment numbers.

“One reader expressed his lack of enthusiasm for the further mention of $10,000 gold,” writes another reader, switching gears.

“But I would like to point out is the fact that if an ounce gold costs $10,000, then a good men’s suit will also cost $10,000, and I wonder how much a dozen eggs, a loaf of bread and a package of bacon will set us back. My guess is that if your dollar falls to the value of 1/10,000th of an ounce of gold, you will not like it very much. This will be a new unpleasant world for most people!”

The 5: That it would. And yes, those items you mention would set you back quite a bit if gold were $10,000.

“Jim Rickards gets more ink than Elvis at the peak of his career,” writes another reader who also thinks we’ve overdone it.

“I get it… Gold is going to $10,000. I get it… He has a guru picking ‘penny gold’ stocks. I get it. I bought and read The New Case for Gold.”

“Keep the gold stories coming,” shoots back another reader. “I read every one!”

The 5: You win some, you lose some. But more ink than Elvis? Really?

Regards,

Brian Maher
The 5 Min. Forecast

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