My economics teacher: Buy treasury bonds!

[Zippyjuan]

What is the general opinion on TIPS?

They offer you some protection on the inflation side but still offer very low rates like other Treasuries. If you are happy with the return offered and intend to hold until maturity they can be OK. You have to purchase them through a bank or broker- they are no longer offered direct from the Treasury. A two year TIPS issued April 2nd of this year was yielding 0.34 percent (compared to 0.33% on standard two year notes). http://www.treasurydirect.gov/RI/OFNtebnd If you have to pay any fee to purchase and/or sell them, that will reduce your return.

The principal of Treasury Inflation-Protected Securities, also called TIPS, is adjusted according to the Consumer Price Index. With a rise in the index, or inflation, the principal increases. With a fall in the index, or deflation, the principal decreases.

Interest and Principal

TIPS pay interest every six months. The interest rate is a fixed rate determined at auction. Though the rate is fixed, interest payments vary because the rate is applied to the adjusted principal.

http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm

 

[smhbbag]

None of you has even offered a reason why treasuries can't go up. All it's been is assertion that yields are too low and prices are already high. That's not an argument.

I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates. All three of those are guaranteed. Their opposites would drive treasuries down. None of those are going to happen.

 

[Carson]

Find a new teacher.

Or listen closer.





P.S. Sorry about that first crack.

 

[Carson]

None of you has even offered a reason why treasuries can't go up. All it's been is assertion that yields are too low and prices are already high. That's not an argument.

I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates. All three of those are guaranteed. Their opposites would drive treasuries down. None of those are going to happen.

Treasuries yields would have to at least rise as fast as inflation to show a profit. No?

Last time I looked the central banks had the lending business so gutted the bank was offering me something like .01 APR. Not much down distance to fall there.

When they double the money supply it then takes twice as many dollars to buy the same amount of stock. They make it appear that the value is rising.

Oh, and they have another couple of tricks in their pocket. Not only do they counterfeit the money supply and end up with all of that cash to dictate their way AND stiff you with the bill for it, they also have a way of cutting themselves in on your stuff with their capital gains taxes.

Are these the false profits we were warned about?

P.S. If your still not seeing it maybe if you, for the sake of argument, imagine that the Dow Jones Industrial Average is based on 100 stocks. To see how the price of one stock compares to inflation knock off a couple of zero's off the DOW chart. That should give you somewhere between 5 and 125 to take up and compare to Robert Sahr's chart based on the consumer price index.

 

[Seraphim]

Treasuries will continue to be highly liquid. Their real return will continue to drop and if you hold them to maturity (mostly the ones over 5 years) your overall purchasing power will drop.

This is an environment of negative real interest rates. It's that simple.

None of you has even offered a reason why treasuries can't go up. All it's been is assertion that yields are too low and prices are already high. That's not an argument.

I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates. All three of those are guaranteed. Their opposites would drive treasuries down. None of those are going to happen.

 

[The Gold Standard]

None of you has even offered a reason why treasuries can't go up. All it's been is assertion that yields are too low and prices are already high. That's not an argument.

Because they already yield almost nothing. Are you going to pay the government to borrow your money? If not, then 0% is as high as they go. A $10,000 bond can't go above $10,000 unless you are going to pay them to take your money. What is a 1 year, $10,000 bond going for now, $9,990 or so? Big upside there.

 

[smhbbag]

Treasuries yields would have to at least rise as fast as inflation to show a profit. No?

No. They have to rise at least as fast as inflation to show a profit if I am buying a single treasury, waiting for coupon payments, and holding until maturity. I'm not. I can't even buy treasuries directly. I am 100% in a long-term treasury mutual fund (a few different ones, actually).

That fund fluctuates in value as the big players are willing to pay more or less to get that yield for themselves. That makes the price of my bonds go up or down in value. I don't care one bit what the coupon payment is. I only care about whether the big guys will be more or less willing to buy those coupons for themselves.

I didn't get 20% return in a month because of coupon payments. I got it because of the European debt crisis. Big money bailed on them. And part of that big money went to treasuries. That bumped the price of my bonds, and the value of the treasury funds I'm in. With any more drama in Europe, the same thing will happen. And Europe will have more drama.

When the stock market corrects significantly within the next year or two (probably sooner), big money will again be seeking a place to go. That's why treasuries are negatively correlated with the stock indices. A bet on treasuries is a bet against the stock market - which is exactly how you should be betting now.

All I'm betting is that what has already happened will happen again. The same factors that made me get 30% last year are all still in place and still true.

You guys talking about me getting less than inflation or whatever just don't get it. The coupon I receive doesn't even really merit being part of my calculation. Big money has to go somewhere, and there is big, big money out there. When they lose confidence in foreign debt and domestic stocks, they don't have many options, even if they don't even want the treasuries. They'll still run to them. And when they do, I make money.

Yesterday a perfect example. The DOW was down by 200 points on a bad jobs report and some European problems. My treasury fund went up almost 2% yesterday alone. Exactly what happened yesterday will continue to happen.

 

[pmbug]

Interesting speculation: http://www.zerohedge.com/news/if-19...-launch-floaters-will-be-signal-get-out-dodge

 

[matt0611]

No. They have to rise at least as fast as inflation to show a profit if I am buying a single treasury, waiting for coupon payments, and holding until maturity. I'm not. I can't even buy treasuries directly. I am 100% in a long-term treasury mutual fund (a few different ones, actually).

That fund fluctuates in value as the big players are willing to pay more or less to get that yield for themselves. That makes the price of my bonds go up or down in value. I don't care one bit what the coupon payment is. I only care about whether the big guys will be more or less willing to buy those coupons for themselves.

I didn't get 20% return in a month because of coupon payments. I got it because of the European debt crisis. Big money bailed on them. And part of that big money went to treasuries. That bumped the price of my bonds, and the value of the treasury funds I'm in. With any more drama in Europe, the same thing will happen. And Europe will have more drama.

When the stock market corrects significantly within the next year or two (probably sooner), big money will again be seeking a place to go. That's why treasuries are negatively correlated with the stock indices. A bet on treasuries is a bet against the stock market - which is exactly how you should be betting now.

All I'm betting is that what has already happened will happen again. The same factors that made me get 30% last year are all still in place and still true.

You guys talking about me getting less than inflation or whatever just don't get it. The coupon I receive doesn't even really merit being part of my calculation. Big money has to go somewhere, and there is big, big money out there. When they lose confidence in foreign debt and domestic stocks, they don't have many options, even if they don't even want the treasuries. They'll still run to them. And when they do, I make money.

Yesterday a perfect example. The DOW was down by 200 points on a bad jobs report and some European problems. My treasury fund went up almost 2% yesterday alone. Exactly what happened yesterday will continue to happen.

"Big money" was once in Greek bonds too...

Oh, and 61% of that "big money" going into treasuries last year....came off a printing press.

 

[flynn]

Nah, you could buy any stocks in the dow jones, it has more chance of beating treasuries in the next 5 years. Problem is, if people don't buy them, Ben Bernanke would buy the tbills himself with the printing press. That's why people dump their money on real estate everywhere.

 

[smhbbag]

Problem is, if people don't buy them, Ben Bernanke would buy the tbills himself with the printing press.

Why is that a problem for the owner of treasuries? That pushes interest rates down, and bond prices up.

 

[flynn]

Why is that a problem for the owner of treasuries? That pushes interest rates down, and bond prices up.

it's like playing monopoly but somebody claims to be the bank.

 

[tremendoustie]

None of you has even offered a reason why treasuries can't go up. All it's been is assertion that yields are too low and prices are already high. That's not an argument.

I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates. All three of those are guaranteed. Their opposites would drive treasuries down. None of those are going to happen.

You think falling interest rates are "guaranteed"? Ha! You'll be in for a bumpy ride ...

Being owed dollars is just about the worst situation to be in right now, when we're staring high inflation in the face. Being owed dollars by a broke government ...

 

[smhbbag]

it's like playing monopoly but somebody claims to be the bank.

So why is that a problem for the owner of treasuries?

 

[matt0611]

So why is that a problem for the owner of treasuries?

LOL, you think once inflation officially hits 7,8,9+% anyone is going to want treasuries yielding 2 or 3%?

 

[Seraphim]

The Fed will ensure short term rates are pushed down lower and lower. Anything under 3 year notes will likely see 1.5-2% yields for a few more years.

The problem for those holding the bonds to maturity, they will lose purchasing power as inflation will NOT hold near or below that.

Matt0611 got it right. Yay for you, you have liquidity that is/will continue to yield negative real returns for the coupon.

 

[heavenlyboy34]

Y'all must consider me really dumb. My entire 401k has been in a long-term treasury fund for over a year now.

Being dumb, I only got 30% return on my whole pot in the last 12 months.

Maybe if I hang around I'll learn something.

When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.

Giving the government free money (which is basically what buying bonds is) doesn't strike me as the brightest idea or a good investment.

 

[rpwi]

Giving the government free money (which is basically what buying bonds is) doesn't strike me as the brightest idea or a good investment.

Straight up...yes t-bills are awful investments. But the real reason the big traders buy them is for their resale value. If you know an over-priced stock is going to be even more over-priced do you buy or sell? You buy of course. Because the Federal Reserves uses t-bills as their counter-weight to insert and take away reserves from the banking system much of the value actually derives from the expected demand the Federal Reserve 'open market' will have for t-bills. If there is volatility or if the market is getting churned, t-bill values go up. If the inter-bank lending rate for reserves is higher than the fed funds rate, then the Fed buys t-bills and their price goes up.

So savvy traders can and do make a lot of money off of over-priced t-bills because they can read where the fed funds rate is going and/or how the demand for bank reserves is heading.

Still...t-bill purchases are incredibly speculative.

 

[smhbbag]

^Finally, one guy actually gets it. Normally, they're highly speculative. I stay in cash or cash equivalents until/unless I know of something I consider nearly a sure thing. I've never lost money in the market, even though I've only been investing for a decade or so. I go all in on that one thing when it does arise. Last year, the stars aligned to my satisfaction on treasuries and I jumped in.

The stars are still aligned. There is no possible way any of the factors that would hurt treasuries will come true. Interest rates aren't going anywhere. Foreign debt is screwed far worse than we are. The stock market is going down. If those are true, and they are, then treasuries are virtually no risk. High inflation cannot happen because of all the debt that is still unwinding. I don't really feel any risk.

 

[LibForestPaul]

Interest rates aren't going anywhere. Foreign debt is screwed far worse than we are. The stock market is going down. If those are true, and they are, then treasuries are virtually no risk. High inflation cannot happen because of all the debt that is still unwinding. I don't really feel any risk.

Why do TBTB want these stars aligned as you say?