How to buy us treasury bonds,good thoughts of teachers day jokes,positive thinking for conception xr,how to get rid of acne with x out - Downloads 2016

Author: admin, 27.11.2014. Category: Quote About Positive Thinking

Now In a recent report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association, it was stated that, "It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The estimate is the Chinese bought a massive 490 tons of gold in 2011 from just 245 tones in 2010.
In the coming years, the deteriorating US dollar will be worth a fraction of a cent and indeed the prospect of a wheel barrow of dollars to buy the groceries for the week is not as farfetched as it sounds. The primary attractions supporting investing in bonds or other fixed income instruments have traditionally been high income and safety. The bottom line is that I support investing in bonds when they possess the characteristics of providing higher income than I can get on a dividend stock. Unfortunately, today the reverse is true as the rates on high-quality bonds are in many cases lower than the dividend income I can earn on high-quality blue-chip dividend stocks. As a result, the higher yield differential benefit of investing in bonds at that time was worth it. At that time, a balanced portfolio could easily be designed to be able to adapt to the future when bonds in a rationally designed ladder matured. Additionally, in 1996 bonds made sense because their yields were high enough to even be considered competitive with the traditional long-term returns of approximately 6%-8% that stocks have historically achieved. Furthermore, the pricing of previously issued bonds going forward remained strong and healthy because of the continuous downtrend in interest rates that followed. Unfortunately, Gary left out capital appreciation, the most important part of a proper calculation which is the primary reason I don’t like bonds today. But most importantly, he leaves out capital appreciation, or in the case of bonds - the lack thereof, and he does not compare apples to apples. I think the reader will discover that the advantage of his selected stocks was much greater than Gary indicated. The first and worst performing stock that Gary improperly presented was the low growth, high yield utility stock Southern Company. However, remember that Gary was comparing apples to oranges by referencing the dividend growth rate which was in fact low as to be expected from a utility, but high enough to produce an equal amount of income. However, something else that Gary failed to take into consideration was the fact that Kellogg was overvalued in 1996, and therefore, a rational valuation oriented investor like yours truly would not have invested in it at that time.
The third worst performing stock suggested by Gary’s graph was Realty Income Corporation, the high-quality REIT known as the monthly income company. Realty Income Corporation generated more than twice as much cumulative total dividend income than the 6% bond, and additionally returned almost $42,000 of capital versus the $10,000 return of principal for the bond. Additionally, it is interesting to note that Realty Income Corporation actually offered a higher current dividend yield than 6% at the beginning of 1996 (see orange highlight on above graph). As it turns out, General Electric was a rather interesting company for Gary to highlight for several reasons. Yet, in spite of all that calamity, long-term shareholder owners of General Electric would have received just under $11,000 of total cumulative dividend income compared to $12,000 of interest income from the 6% bond, and ironically notwithstanding all the volatility in between, just over $21,000 of capital appreciation value.
As an interesting aside, in reality I personally would not have held General Electric over the following 20 years, because in truth and fact, I did own it in 1996 but sold it in 1999 due to excessive overvaluation. Due to the problems the oil sector is now experiencing, energy stocks like Exxon are clearly currently under great stress. Coca-Cola produced approximately half the dividend income as compared to the interest the 6% bond would have generated. Personally, I would have definitely chose 6% bonds over Coca-Cola in 1996 because its dividend yield at that time was only 1%, and it was significantly overvalued.
However, the most interesting aspect of this example was the capital appreciation value that came in at over $67,000, or more than 6 ½ times what the bond returned. I have long admired the Hershey Company, but alas I’ve never been comfortable paying the premium valuation that this company has consistently commanded. Had I been willing to take the risk, since 1996, I would have received just slightly less total cumulative income than I would have received interest on the 6% bond, and my capital appreciation would have been more than fivefold what the bond returned. Deere & Company represents another example of a dividend growth stock that was fairly valued and available at a moderately high yield at the beginning of 1996. In the same vein as Coca-Cola, and similar to Hershey, PepsiCo is a dividend growth stock that I have long been interested in owning. This was another dividend growth stock that was fairly valued in 1996 but still underperformed the 6% bond in total income.
However, his graph compared dividend growth rates, not dividend income generation or capital appreciation, to the income from high interest paying bonds that are actually not currently available. If I was an investment salesman, although I am not, and came to you with the following proposition, would you be interested? Then I assumed an inflation rate of 2%, which is significantly less than the rate of inflation over the last couple of decades. Additionally, the only time that bond investing can get complicated, is if you decide to sell the bond prior to it maturing. Much has been made about the declining value of bonds in a rising interest rate environment. The first thing to note is that all of the different rate curves collapse to $10,000 at the end (you get your face value back).
But what I really don’t understand is how a lower yielding 4% bond rate starts out at $10,800. Gary then follows the above up with two graphs with stock and bond calculations at various rates. The next figure shows the value of $10,000 invested with ten-year bond rates at 4%, 5%, and 6%.
Once again, the biggest problem I have with the above graph is that high-quality 10-year bonds that are paying 4%, 5%, or 6% are not available today. But unfortunately for Gary and the rest of us, rates like that are simply not available today.
Additionally, Gary attempts to support his argument by presenting his views of a Monte Carlo simulation by Wade Pfau and the glide path. Now, I will admit that the link to the above article allegedly supports the general idea of including fixed income in all portfolios. But my bottom-line point is that retired investors should not buy bonds until they once again provide the traditional yield advantage over stocks that they have in the past. But until that happens, I don’t believe it makes sense to invest in low yielding bonds unless you keep your maturities ridiculously short.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. When a mortgage broker or analyst wakes up in the morning the first thing they do is take a shower, brush their teeth, then check the rate on the 10 year US treasury bond.
Behind this ridiculous government guarantee, investors know that the Federal Reserve has promised to purchase $40 billion of mortgage debt every month in their new QE-ternity program.
This means that not only is the debt guaranteed by the government, if they ever want to flip the bonds at a higher price they can just offload them onto the Fed. This has set up a mortgage debt environment so toxic that it will make the original subprime crisis look like a warm up. Imagine that you are an average working American family and you decide it is time to purchase a home. Let's now extrapolate this further because many people (including me) believe that mortgage rates have the ability to fall even further in the short term.
The Thompsons rush out to purchase their $350,000 home with only $1,100 per month in payments. Interest rates are now rising quickly, beginning to move back toward the normal historical rate between 7 - 10%. Without going into a full discussion on the subject, what do you think rising rates would do to the value of home builder stocks which are now priced for building levels during the 2001 super boom years.
People say it is ridiculous to bet against housing because today it is a direct bet against the United States government.
We're not going to stop at this point, however, because the story only gets more exciting from here.
If we are to take a global tour of the greatest debt super cycle in history it is only right that we start at the epicenter of the financial universe.
The United States 10 year treasury bond is without question the most important bond in the financial world today. Since the conclusion of world war two US treasury bonds have been considered a risk free bond. The market now believes this more than any other time in history, which can be seen in the chart below going back to 1800. This low yield in treasuries has simultaneously collapsed interest rates (raised the price) of other bonds in the market.


Sales of junk bonds soared 35% globally last year as the global default rate dropped to only 2.7%. If interest rates begin to rise on US treasuries, the epicenter of the global financial system, it would re-price every risk asset on the planet. However, there are some additional precession waves that will occur due to rising yields beyond the direct losses in the bond market.
People invest their principal in bonds and receive a stated interest rate (coupon) over the life of the bond and are given the promise of having their principal returned at maturity. Both stocks and bonds fluctuate in price as a direct consequence of the liquidity they provide investors.
In fact, there was a time when I completely avoided investing in stocks altogether, favoring investing only in bonds instead. Therefore, just as I exclusively invested in bonds during 1979-1985, today I am exclusively investing in high-quality blue-chip dividend stocks. At that time (1996) the dividend yield range on most fairly valued dividend growth stocks was only 1%-3%. Consequently, I was delighted to support building retirement portfolios balanced between stocks and bonds, especially for retired investors that needed a high level of current income. If capital appreciation was high enough, and the dividend growth stocks were generating enough current income due to growth yield (yield on cost) investors would have the option to reinvest the proceeds in either new bonds or stocks as they chose according to their specific needs and risk tolerances. Consequently, due to the predictability of their then higher fixed income stream, and the high certainty that your principal would be returned at maturity (at least in nominal terms), it was quite rational to opt for the lower risk qualities available with investing in bonds. Here I will add that this was not predictable, because forecasting future interest rates never is, but it was an excellent side effect and benefit for owners of bonds previously issued when rates were higher. However, with rates as low as they are today, logic would dictate that the direction of interest rates is more likely to be higher than lower going forward.
To be clear, the above graph compares dividend growth rates only to the interest rate of a bond. So allow me to present the complete picture utilizing the same stocks that Gary referenced in his article. I have placed a highlighted circle around the cumulative total dividend income and around the capital appreciation component, and total income plus capital appreciation for the reader’s quick reference. According to Gary’s graph, it produced less cumulative dividend income than the 6% bond.
But even with this lowest growth example, Southern Company produced a capital appreciation value in excess of $17,000 while the bond only returned the original $10,000. But once again, he was referring to the dividend growth rate only, and failed to include total cumulative income or capital appreciation which would be a more exact comparison. I felt that this example was especially misleading because simply referencing its dividend growth rate of just less than 4% ignored the significant total income advantage it generated over the bond and the capital appreciation value.
There was arguably more risk here, but Realty Income Corporation even offered a yield advantage over the 6% bond.
First of all, it became insanely overvalued coming into the irrational exuberant timeframe 1996-2000, which led to what can only be called a catastrophic fall from grace by the end of 2002. I only mention this because it speaks to risk control that comes when prudent investors pay attention to sound valuation. Nevertheless, I find it interesting that Exxon, thanks to its long and consistent history of raising its dividend, generated a slight total dividend income advantage over the 6% bond.
However, in spite of that fact, Emerson Electric underperformed the 6% bond based on total dividends, but did return just over $28,000 of capital value. This company did produce less total dividend income than the 6% bond produced interest, but it did provide just under $45,000 of capital value providing a solid hedge against inflation.
First of all, Clorox was very attractively valued at the beginning of 1996 and offered a dividend yield of close to 3%.
In other words, when a great dividend growth stock can be purchased at a sound valuation and an attractive dividend yield, the long-term rewards can be quite satisfying. The following performance report would support that my decision to avoid Hershey has been a mistake. Consequently, it would have produced cumulative dividend income that was only slightly less than the 6% bond. However, excessive overvaluation in 1996 coupled with a low dividend yield in 1996 was a deterrent.
However, capital appreciation that was more than fivefold the bond supports the benefit of investing in stocks over bonds regarding the opportunity of fighting inflation. Furthermore, his graphic presented the argument that stocks did not provide enough of an advantage over bonds to justify the risk.
But most to the point, comparing the dividend growth rates of stocks offers no relation or relative merit to the interest rate available on the bond. The only thing that would have been relevant is a side-by-side comparison of the total returns generated by each, which is what I presented.
The proposition is as follows: I would like to offer you a 20-year investment that will start out paying you 4% per annum, however, the yield will drop or decrease by 2% every year thereafter until maturity. However, the odds are extremely high that that is exactly what you would be doing if you invested in an AAA rated corporate bond today. This simply provides liquidity risk or benefit depending on what interest rates have done since you originally purchased your bond. I guess he is suggesting that the 4% rate would be at a premium at that time to the nonexistent 5% bond that he presented.
It also shows the total value of $10,000 worth of DGI stock invested in a 3% dividend yielding company, which grows its dividend and its stock price at 3%, 5%, and 7% rates. The best rate that I see on a 10-year corporate bond of any quality is an A rated corporate which only offers a yield of 3.52%.
Consequently, bonds do not offer any protection against inflation risk, and that is a real risk. However, I believe that Gary dramatically oversimplifies what Wade Pfau’s work was really about. Nevertheless, my main point is that there is much more to the glide path scenario than Gary would like us to believe with his glide path graph. Pfau has done a lot of Monte Carlo simulations of various retirement outcomes (oh, goody, Monte Carlos; my engineer brain starts to get excited).
When and if bonds make economic sense, as they have in the past, I would be enthusiastic about including them in retirement portfolios, as I have been in the past. But in my opinion the reality in the current interest rate environment is that I can find fairly valued, high quality dividend growth stocks that offer higher current yields than I can find on high-quality bonds, and they at least provide the potential to fight inflation. When that happens, and I believe that it will, but I don’t know when, bonds will once again become a viable investment alternative. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. As just discussed in the previous section, the 10 year bond is the epicenter of the financial universe and the US mortgage market provides the perfect example of why.
They then add a "spread" on top of this rate to determine what the homeowner will pay monthly.
This is due to the fact that the government now purchases or insures over 95% of all mortgages today. The losses mortgage debt holders will take are obvious when interest rates rise (rising bond rates = lower bond prices), however, in order to understand how the actual homeowners will be crushed as well we need to dig deeper. If mortgage rates were at 10.5% today the Thompsons could afford to pay $130,000 total for a home (all these estimate a 10% down payment). If the Federal Reserve and the government, which have nationalized the mortgage market, can artificially push rates down to 1.5%, imagine that the Thompsons had the opportunity to lock in at that rate. Rates stop at 4.5% (still historically very low) when the Fed announces they will purchase another round of mortgages. They realize that by locking in at the all time record lowest rates in history they have moved into a coffin. As soon as interest rates either stop going down, or (gasp) begin to rise, home prices will plunge. The 10 year treasury bond touched below 1.4% this past summer, a new all time record low going back hundreds of years. Investors (think baby boomers ready to retire) have been forced to buy riskier bonds to try and receive a decent return on their money. The chart below shows the 30 year secular bond bull market from the early 1920's to the early 1950's. It would push up interest rates on mortgage bonds, commercial real estate bonds, municipal bonds, corporate bonds, and junk bonds.
Obviously not (and neither would the market), so the interest rates on junk bonds would soar in order to price the spread against default.


Under normal times, bonds would typically pay a higher rate of interest than the dividend rate on stocks. That time was from 1979 through all of 1985, a period of time when AAA rated corporate bonds were paying double-digit interest rates. However, I consider this a temporary posturing as I would once again enthusiastically utilize bonds when they make economic sense and provide the safety and predictability that they traditionally have. With interest rates attractive at the time, it was logical to build a balanced portfolio of high-quality bonds laddered across various maturities, coupled with attractively valued dividend growth stocks with lower yields but capital appreciation potential in order to fight inflation.
However, I will include the entire dividend record, plus report the capital appreciation thereby reporting the more important total return differential. Kellogg did in fact produce half as much dividend income as the 6% bond produced interest, so on that front Gary wins. But my main point is that Gary’s graph greatly understates the value of investing in Realty Income Corporation in 1996, which by the way was also attractively valued at that time. Then with the Great Recession came another catastrophic drop in price, and making matters worse, a 51% dividend cut in 2009 followed by another 25% cut in 2010.
But more importantly, even when measured in the backdrop of the current or recent poor performance of energy stocks, the fact that it almost quadrupled the original $10,000 investment is worth noting.
I would agree with Gary that this example did not beat bonds by enough to justify the risk. I am not generally against stocks, but I am against them when they don’t make economic sense.
Over time, the company’s dividend yield eventually caught up to the 6% bond, resulting in total dividend income that was significantly higher than the cumulative total interest on the bond. Nevertheless, even this overvalued low yielding dividend growth stock since 1996 produced an attractive level of total dividend income, albeit less than that 6% bond.
Nevertheless, this AAA rated blue-chip outperformed the 6% bond on total income, and generated over $46,000 of inflation fighting capital appreciation. So sorry, Gary, I believe you meant well, but I did not find your concluding argument relative or even germane to the subject.
Additionally, I will virtually guarantee that I will return approximately 67% of your original principal invested after the 20 years have passed.
On the other hand, the alleged lower risk of bonds only applies to the predictability of receiving a fixed amount of interest each year, and a high probability of having your original investment returned. As I did in my original article, and for those that would like to learn more about the relationship between bond prices and interest rates here is a link to a Wells Fargo educational piece that summarizes things nicely. The current rate environment gives about 4% yield for a high-rated corporate bond and rates are likely to go up. As I will discuss later, if I could in fact find quality bonds of reasonable maturities with yields of at least 5%, but preferably higher, I might to an extent buy into Gary’s argument.
Moreover, even when yields were much higher, they still didn’t fight inflation, but they at least generated a high enough level of current income that they made sense to include in a balanced portfolio of stocks and bonds. For example, Gary offers what I interpret as a moderately cynical statement about investors and stock picking. The reader is free to review the entire article, as I have, to gain a deeper insight into what I’m discussing.
However, I do not believe that bonds make economic sense at today’s low level of interest rates. I would rather take the risk that I may or may not beat inflation with a temporary overweight in stocks, over the risk of being virtually guaranteed that I won’t. If you cannot stomach temporarily having all your money in dividend stocks, then put it in cash, not bonds.
The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within.
That begins with a calculation of your monthly income to determine after taxes, other expenses, and what may be put away in the 401k, how much you have left for a mortgage payment every month.
The bank representative opens up their calculator and writes down a number on a piece of paper.
Two of Thompson's neighbors put their home on the market to cash in on their new $350,000 home price. I am betting against the 10 year US treasury bond (the United States government), which means I will subsequently bet against (or avoid) the investment classes that will be impacted the most by the 10 year losing value. Here we will start having fun with the big real estate numbers before we move on to the rest of the world. A perfect example of this can be found in municipal (local government) bonds, which recently touched a 47 year low in interest rates. Interest rates rising means that the underlying value of the bond is falling as we discussed in earlier sections. Let's discuss how this will impact prices there before moving on to the next rogue wave coming.
When I could get interest rates of 10% to as much as 15% by investing in high-quality bonds, I avoided stocks altogether. The dividend growth rate and the total income it produced are two entirely different things. However, Kellogg did return a capital appreciation value of just under $17,000, which brought the stock to a virtual dead heat with a 6% bond regarding a factual comparison of total return. However, I would argue that prudent valuation oriented dividend growth investors should not have invested in Coca-Cola at the beginning of 1996. And as Gary alluded to in his graph, its dividend growth rate was also high at approximately 10% per annum. And in spite of the overvaluation headwinds, it would have produced more than three times my original investment thanks to the inflation fighting capabilities of capital appreciation.
Because by definition, bonds are fixed income instruments, they have no inflation fighting capacity at all.
If you have any confusion about how this all works, I believe the Wells Fargo investing basics explanation will clear things up. I plotted the cost (or value) of a $10,000 face value 10-year bond with a 5% coupon, with various market rates (4, 5, and 6 percent).
He looked at various ratios of stocks and bonds in an investment portfolio (and look, please, cash is just a very low return bond as far as this analysis is concerned). The yields they offer are simply not high enough to overcome the inflation risk (and tax risk if in taxable accounts) that is highly certain to destroy their true future purchasing power. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. The following chart showing the dominance of government run Fannie, Freddie, and Ginnie does not include the VA (Veteran government program) or the government run Federal Housing Authority (FHA) which takes care of insuring the rest of the mortgages on the backs of the US tax payer.
The Thompsons then call their real estate agent with this number in hand and start looking at homes. This does not mean I believe the US will default on its debt and the price on US bonds will go to zero.
The chart below shows the collapse not only in the interest rate in high yield (junk) bonds, but the collapse in the "spread" against treasuries.
Interest rates then peaked and the current secular bull market began in the early 1980's and it has lasted until today (30 years). Fixed income investments provide little or no inflation protection, especially when interest rates are as low as they are today. It made no sense to me to assume the risk that came from owning stocks when I could get double-digit rates on bonds and be virtually guaranteed to get my principal back.
Consequently, according to the performance report below, Southern Company actually produced approximately the same dividend income as the 6% bond produced cumulative total interest. In contrast, it cannot be said that stocks will absolutely fight inflation, but they at least provide the potential to. But my primary point is that liquidity risk, when investing in bonds at low rates of interest like we have today, is very high.
You buy a bond at a specific amount (face value), it will then pay a specific rate of interest over the specified time if held to maturity.
If you can understand just what we have discussed so far and can now begin to extrapolate out into a future world with higher rates you will be miles ahead of everyone else around you. What he showed is that the best chance of having your money last through retirement is to follow a "glide path" (see the figure below, my interpretation of the concept).
Remember that bonds just moving back to historical normal values would collapse many bond funds.



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