This week marks the 2-year anniversary of the 2009 stock market bottom, but there’s little celebrating among retail investors. General speaking, individual investors fled from the stock market in 2008 and 2009 for the perceived safety of the bond market, a trend which didn’t abate until late 2010.
But with yields rising and concerns mounting about budget deficits at all levels of government, the question begs: Are bonds still safe?
If by “bonds” you mean U.S. Treasuries, the answer is “no”.
The Treasury market typifies perhaps the most overvalued area of the bond market. Who will buy Treasuries when the Fed doesn’t?
Specifically, I worry about the end of the Fed’s QE2 program, slated for June 30. If someone has been buying $1.5 trillion worth of Treasuries and now doesn’t buy $1.5 trillion worth of Treasuries, it certainly will affect yields on the upside.
‘D-Day’ for Debt
June 30, 2011 could be “D-Day” for the Treasury market – a day fraught with hope for victory, but fueled with immediate uncertainty and fear as to what would happen in the short term.
Noting the Fed has bought roughly 70% of Treasuries since QE2 was launched. Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets.
Citing the Federal Reserve’s own analysis, QE2 has lowered Treasury yields by at least 0.5% on debts maturing in 5-, 10- and 30-years. Whether rates will rise by that much (or more) when QE2 ends remains to be seen; but I wouldn’t recommend sticking around to find out.
It becomes a question of who is the last to leave the party, to a certain extent: who leaves first and who’s the last one standing on June 30.
Better bond opportunities may be found in other areas of the fixed-income market, which provide a safe spread, including: emerging market corporate and sovereigns with higher initial real interest rates and wider credit spreads; floating as opposed to fixed interest rates; and “importantly” denominated in currencies other than the dollar.
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Jim has worked as a Portfolio Manager & Financial Advisor since 1996. In May 2005, Jim founded WHI Financial Services, LLC, WHIFinancial.com, a Registered Investment Advisory firm, with headquarters in Texas. His primary focus is on portfolio management, financial & retirement planning, and financial advisory & insurance services. Jim manages investment portfolios & advises individuals, small to mid-size companies, and non-profit organizations on a variety of financial and business issues.
Prior to founding WHI Financial Services, LLC, Jim worked as a portfolio manager & financial advisor for two international investment firms. From 2001 to 2005, Jim worked with Prudential Securities (merger with Wachovia Securities, now Wells Fargo Financial Advisors), and from 1996 to 2001, he was working with Merrill Lynch. While working with both Wachovia Securities and Merrill Lynch, Jim enjoyed dual responsibilities as a portfolio manager, financial advisor and leader of the Professional Development Program.
Jim's responsibilities as leader of the Professional Development Program included, recruiting, interviewing, training, and overseeing the daily operations of all financial advisors involved in the Professional Development Program. Jim was responsible for managing between 10-20 advisors, while still managing his own client investment accounts.
In addition to his experience in the financial services area, Jim has been involved in several start-up companies. Jim's Philanthropic work includes serving as President/Treasurer of a private foundation established to provide non-profit organizations financial assistance, and Chairman/President of the Believe In Your Dreams Foundation. In 2007, Jim established the Believe In Your Dreams Foundation, a 501(c)3 organization, to help individuals who are suffering from life-altering circumstances beyond their control.
Jim has taught investment, insurance, and credit repair classes through continuing education at universities in CA & TX since 1997. Jim attended the University of Minnesota where his focus was Management & Marketing.
Jim has recently written two books, one called "Your Financial Lifecycle" a book which describes several key investment topics everyone will face throughout their life, and a book titled, "The Truth about Your Credit Score", which defines how credit scores are calculated and how you can increase your credit score, including templates which you can use to send to creditors.
Jim's books can be purchased on Amazon.com, via Author search, or by emailing him directly at JimWigen@GetWealthyStayWealthy.com.
In the Fall of 2011, Jim will be starting his radio show called, The Jim Wigen Show, Teaching You to Get Wealthy & Stay Wealthy. You can hear his shows through streaming audio by visiting JimWigen.com.
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