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Thread: My economics teacher: Buy treasury bonds!

  1. #31
    This is why school is supposed to teach people to question and to stimulate their brains to logically think the situation through.
    School is meant to give support in learning, not stuff ones head full of government authorized 'facts'.

    I used to have an economy teacher in high school who liked to brag about his investments in stocks, then there was some economic downturn and we never heard about his stocks again. I guess it didn't work out for him. This made me aware that 'experts' really can be more likely to make mistakes as they get accustomed to certain situations and often misjudge the risks involved. I'm not in stocks though.



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  3. #32
    Quote Originally Posted by smhbbag View Post
    If you think:

    Inflation is a threat
    Interest rates may rise
    The stock market will rise in nominal terms
    International, institutional money will begin to prefer foreign debt to US debt....

    then skip on treasuries.

    I think, however,

    Interest rates are absolutely not going to go up significantly under any near-term circumstances
    The stock market is going to have a major correction downward in the next year or two
    Institutional money will prefer US debt even more relative to the debt of Europe and others.

    Then treasuries are a great buy. I made 20% in a month last year during the European debt crisis. I see more European debt crises coming, so I'm going nowhere. Treasuries are negatively correlated with the DOW, generally. I'm confident the DOW will be lower in a year or two, probably by a large amount. It would be apocalyptic for the Fed to raise interest rates any time in the near future, therefore I don't fear them going up.

    I'm sitting pretty, and y'all are laughing. I made 30% return in the past 12 months, and I expect the next 24 to be even better. I'm 100% in for treasuries. Debt-deflation is the name of the game.

    I'm not advocating something akin to buying at the housing market high. I've been renting since '06, despite having 50+% of a home value saved. We're not at the bottom yet, so I'm holding. I held during last of the boom years, too.
    How much higher do you think treasuries can go? They already yield less than inflation, even using their half assed understated CPI. Do you think the federal government will be borrowing money for free any time soon? That is the only way they can go higher. If you are advocating buying treasuries now then you are advocating something exactly akin to buying at the top of the housing bubble.



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  5. #33
    How much higher do you think treasuries can go? They already yield less than inflation, even using their half assed understated CPI. Do you think the federal government will be borrowing money for free any time soon? That is the only way they can go higher. If you are advocating buying treasuries now then you are advocating something exactly akin to buying at the top of the housing bubble.
    Yes, I think yields can go down even more - a lot more. Big, institutional money has to go somewhere. When the stock market goes down, that drives people to treasuries, even at absurd rates. We're screwed as far as national finances, but Europe is screwed infinitely worse. So, even as our debt is objectively worse as a buy, objectivity doesn't matter. Relativity does. We don't have to outrun the debt bear. We have to outrun the other guy, so to speak.

    And our debt will become more attractive relative to all other options as more global and domestic debt unwinds in a deflationary way. Raising interest rates would be absolute suicide, and will not occur. The fed has directly states their low-interest policy will continue for a few more years. That means I have little to no possibility of losing money. The upside is tremendous, and the downside is minimal, if even existing (because of the fed guarantee of low rates - which is foolish, but it's what they want)
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  6. #34
    Treasury yields are too low to be a good investment- unless you crave maximum security. If you want to keep them until maturity go shorter term. If you are thinking about possibly reselling later, you face enormous risk of higher yields in the future comared to today which means you would have to sell at a lower price than what you paid. But even most dividend paying stocks have higher yields and if you choose stable companies like say utilities the security is about the same as well.

    Now if Treasury yields ever get to ten percent, that is the time to stock up on them and go for longer term bonds. Today is not a great time to be buying Treasuries.

  7. #35
    I'm not an investment expert by a long shot, but I think the best returns I've seen lately are in what my girlfriend is doing, which is picking up rehabilitated foreclosures in lower cost, stable areas, with no money down, built in equity, and then renting them out. All done in absentia. Between the massive housing meltdown and continued Fannie Mae rules, the opportunities are astonishing if one has a decent job, a little cash cash saved up, and good credit. A friend I used to work with at a restaurant who is into real estate helped her get into it.
    Last edited by anaconda; 04-10-2012 at 03:49 PM.

  8. #36
    Heard this from Hue Hendry (hudge fund manager):

    If you believe we will have hyperinflation sometime in the next few years, you should buy long term treasury bonds right now. Why?

    Well, for hyperinflation to occur, we would need significant amounts of money printing (QE3, 4, 5) and in order for these programs to happen, we would need much more deflation. Deflation is very good for long term bonds.

  9. #37
    Check out the yield curve. You will see that there is scant room for "massive" moves- rates of return offered to go "down a lot more". http://www.treasury.gov/resource-cen...spx?data=yield

    As of April 2. 2012 you can lock up your money for two years and get a total return of one third of one percent. Stretch it out to three years and you up it to one half of one percent. If you think these rates will fall farther, then buy. If you think inflation will be lower than that over the time frame of the Treasury you purchase, buy. Otherwise, not a good investment. Meanwhile the energy stock I own (SRE) has an annual yield of 3.82% while a one year Treasury bill will yield me 0.18% (that is zero point one eight percent or less than one fifth of a percent).

  10. #38

  11. #39
    Quote Originally Posted by John F Kennedy III View Post
    Don't worry, it'll get confiscated. Hopefully you'll learn then.
    They confiscated Gold during the Great Depression.

    Which brings to mind, they even confiscated pigs.

  12. #40



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  14. #41
    Quote Originally Posted by GeorgiaAvenger View Post
    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/...tips_rates.htm
    Last edited by Zippyjuan; 04-10-2012 at 07:49 PM.

  15. #42
    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.
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  16. #43
    Find a new teacher.

    Or listen closer.





    P.S. Sorry about that first crack.

  17. #44
    Quote Originally Posted by smhbbag View Post
    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.

  18. #45
    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.

    Quote Originally Posted by smhbbag View Post
    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.

  19. #46
    Quote Originally Posted by smhbbag View Post
    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.

  20. #47
    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.
    Last edited by smhbbag; 04-11-2012 at 01:07 AM.
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  21. #48



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  23. #49
    Quote Originally Posted by smhbbag View Post
    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.
    Last edited by matt0611; 04-11-2012 at 07:40 AM.

  24. #50
    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.
    Last edited by flynn; 04-11-2012 at 07:53 AM.

  25. #51
    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.
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  26. #52
    Quote Originally Posted by smhbbag View Post
    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.

  27. #53
    Quote Originally Posted by smhbbag View Post
    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 ...
    Last edited by tremendoustie; 04-11-2012 at 04:09 PM.
    “If you're on the wrong road, progress means doing an about-turn and walking back to the right road; in that case, the man who turns back soonest is the most progressive.” -CS Lewis

    The use of force to impose morality is itself immoral, and generosity with others' money is still theft.

    If our society were a forum, congress would be the illiterate troll that somehow got a hold of the only ban hammer.

  28. #54
    it's like playing monopoly but somebody claims to be the bank.
    So why is that a problem for the owner of treasuries?
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  29. #55
    Quote Originally Posted by smhbbag View Post
    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%?
    Last edited by matt0611; 04-11-2012 at 06:19 PM.

  30. #56
    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.



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  32. #57
    Quote Originally Posted by smhbbag View Post
    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.
    Quote Originally Posted by Torchbearer
    what works can never be discussed online. there is only one language the government understands, and until the people start speaking it by the magazine full... things will remain the same.
    Hear/buy my music here "government is the enemy of liberty"-RP Support me on Patreon here Ephesians 6:12

  33. #58
    Quote Originally Posted by heavenlyboy34 View Post
    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.
    Last edited by rpwi; 04-11-2012 at 07:34 PM.

  34. #59
    ^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.
    Rights come from responsibilities. A right is what you need to discharge your obligations.

    We should never talk about rights apart from responsibilities, for rights have no other source..

  35. #60
    LibForestPaul
    Member

    Quote Originally Posted by smhbbag View Post
    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?

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