Wednesday, August 18, 2010

US Bond market is in trouble as economy struggles to bounce back----by Shan Saeed


American economy is in softening mode and will take 3/4 years to get out of this long recession..I think we should call it a depression of a new era. According to
Economist Jeremy Siegel and Wisdom Tree research director Jeremy Schwartz say there's a bubble brewing in the bond market that will cost investors dearly.

Just as investors were too enthusiastic (in 2000) about the growth prospects in the economy, many investors today are far too pessimistic," Its in The Wall Street Journal. Further more, If 10-year interest rates, which are now 2.8 percent, rise to 4 percent as they did last spring, bondholders will suffer a capital loss more than three times the current yield,

The eminent economist pair noted that the rush into bonds has been so strong that last week the yield on 10-year Treasury Inflation-Protected Securities (TIPS) fell below 1 percent, leaving this bond selling at more than 100 times its projected payout.

“The last time interest rates on Treasury bonds were as low as they are today was in 1955,” Siegel and Schwartz say. “The subsequent 10-year annual return to bonds was 1.9 percent, or just slightly above inflation, and the 30-year annual return was 4.6 percent per year, less than the rate of inflation.”

Siegel and Schwartz believe dividend-paying stocks are the safest bet for investors looking for income and inflation protection. Investors should choose technology stocks like Apple, IBM, Google, Baidu: Telecom Stocks like Vodafone, BT, Research in Motion, Stocks for life, Walmart, P&G, Johnson and Johnson, Coke, Pepsi, Nestle, Energy stocks should be considered as safe investment

Investors should buy real assets like COGS i.e. Gold, Silver, Copper, Oil, Natural Gas, Agriculture stocks like wheat, rice, sugar, coffee and corn

Currencies buying opportunities include, Canadian Dollar, Aussie, Swiss Franc, Chinese Yuan, Japanese yen, Korean Won and Swedish Krone

Interest in dividend-oriented ETFs has increased as many investors position for tough times by moving into high-quality companies with solid dividend histories.

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