Worst Investment You Can Make In 2011 By Michael Lombardi
Today, in 2011, I feel totally the opposite about bonds. I think they are a
terrible investment. In fact, I don’t personally own any bonds. Today, the 10-year U.S. Treasury yields 3.33%. In early October of 2010, that same 10-year U.S. Treasury was yielding 2.4%. Bond investors who bought at any time since June 2010 would face large losses on their bonds if they sold today.
If I’m right about my prediction on the future of the U.S. dollar, given the fast-paced debt accumulation of our government,
interest rates will need to rise in order to attract foreigners to purchase the U.S. Treasuries we so desperately need to sell to fund the government.
If I’m right about inflation and it starts to
rise unexpectedly in light of all the financial liquidity in the market place,
interest rates will rise to fend off inflation.If I’m wrong about the stock market, and in the short term to long term it continues to rise, interest rates will rise in an effort to prevent another stock market bubble.
Finally, if I’m wrong about the U.S. economy and Gross Domestic Product (GDP) starts to rise three percent to five percent per annum again, interest rates will rise to cool the economy.
Any way you look at it,
interest rates, in my humble opinion, will rise more aggressively than analyst are currently predicting. And that is what makes bonds such a bad investment right now.
If we look at the stock market, the Dow Jones Industrial Average is at its highest level since June 2008. But back then, the 10-year U.S. Treasury was yielding over five percent. Based on the charts, U.S. Treasuries are well known for lagging the direction of the stock market. In other words, the prices of bonds, which are based on their yields, closely follow the direction of the stock market: up or down.
Finally, higher interest rates are not just a negative for the bond market; they are a
big drag on the U.S. housing market. The more rates rise, the smaller the pool of qualified buyers for homes. And maybe that’s just what the Dow Jones U.S. Home Construction Index has been telling us—it’s still down close to 70% since 2006.
Where the Market Stands; Where it’s Headed:
The Dow Jones Industrial Average has enjoyed a tremendous January thus far, up 209 points or 1.8% on the year.
As I have been writing since late December,
I expect the stock market to continue rising in the immediate term, as the bear market rally that started in March 2009 gives its final “blow off.†The Dow Jones Industrials at 12,000 is a strong possibility.
However, and as per my lead article today, rising interest rates will cap the growth of the stock market sooner rather than later. I’m turning bearish on stocks in the short to long term for a variety of reasons that I regularly write about in PROFIT CONFIDENTIAL.
http://www.dailymarkets.com/stock/2011/ ... e-in-2011/
It's all about "how much you made when you were right" & "how little you lost when you were wrong"