Buying Bonds?

December 23, 2010 by Jeremiah | 0 comments

Dear Reader:

I wrote an article back in April. It was titled, “BEWARE of the Treasury Bond Salesman”.

Since November 1st, the long term treasuries have fallen 7% and also since November 1st, the minucipal bond market has fallen 6%.

If you are buying bonds, you need to hold them to maturity. So most people are not looking for 30 year bonds. At least I hope not. Most income people are looking for high yielding, short maturity bonds.

Preferred stocks offer a possible double whammy. You might make a good return on dividends AND get price appreciation on the price of the shares, in a rising market. You would not want to use this stratgey when buying bonds now a days, since if you buy a bond at $1,000 and interest rates go up (which I predict they will in the next year or two) the price of the bond will go down.

So you will not be making money on the bond price appreciation and the interest rate or yield will be based on your purchase price. If you need to cash out the bond, you will take a loss.

What makes the bond market fall? The bond market works opposite of interest rates. When interest rates fall, the price of bonds go up. And when interest rates go up the price of bonds fall.

You probably read or heard on the news that the Federal Reserve announced it would print $600 billion between now and June 2011. This is going to be a bad sign for the United States in the future. I don’t know what is going to happen, but it doesn’t look good to me.

You may have heard about Moody’s. The official name is Moody’s Investors Services and they are a bond rating organization or company. They publish ratings on bonds and people look at the rating to determine the credit worthiness of the bond issuer. If the bond issuer is weak or has poor earnings ability, then the rating of the bonds that the issuer sells will go down.

When the ratings go down, the interest rate that the bond pays to investors will go up. Are you getting the idea? The U.S. is spending more than it is making, and it is only a matter of time before Moody’s and other bond rating companies, start to down grade the US bond rating. Lower ratings, higher interest rates. Higher interest rates, lower bond prices.

My advice? I have a lot of my money in cash right now. I am also invested in companies that trade on foreign exchanges like Australia, Tornoto, etc. I am trying to find value stocks that trade in currencies that are strong right now and look like they will hold their value if the stuff hits the fan in the U.S.

I am also investing in oil and gold/silver mining companies. I am not so much interested in the major players, but in the smaller “Junior” stocks with assets in the ground that are going to be developed.

If you are looking for high yielding stocks, I suggest you sign up for my newsletter and when you do, I’ll send you a free report on a stock that is paying a handsome dividend – 15%.

Send an email to [email protected] and you will receive an e-mail back asking if you want to subscribe. When you confirm that you want to subscribe, you’ll get access to the free report on Investments Making 15%!
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For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!