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We Are In the Camp of a Weak Economy


...what do you do with your money if rates are 3% in 6 months?

Well how do you like that? 5% for 6 month T Bills.....And you wanna buy Iraq paper at 9%? Or junk at 225 basis points over Treasuries?

Personally, I like 5% T Bills compared to stocks and most other asset classes but that is for another day. One of the risks they carry is reinvestment risk --in other words what do you do with your money if rates are 3% in 6 months?

Click chart to see larger image:

I have been openly negative on bonds for what seems like forever, but Minyans, I am happy and my clients are happy as we have succeeded in the most important part of my investment philosophy - capital preservation. You are only served up a fat pitch every so often, not daily, so, as Toddo likes to say, sometimes it is best to do nothing than to 'trade just to trade'--I am paraphrasing, I know.

So now what? I have been calling for a cycle HIGH, although a minor high garnered from a good (sorry he must remain anonymous) that ends this Friday. Then the last leg down into June 1. Maybe a nasty leg? Not sure, but that's how I am used to them ending. My target is 5.40% 10's but that is truly a guesstimate.

We are in the camp of a weak economy, led by already softening housing, and a softer stock market later in the year, leading to perhaps dramatic easing later on. What to do? As I see bonds in the final leg that I like, I will buy 'em, as anything in that vicinity will be a big winner by year end IMHO. No one is going to ring a bell and say , 'Bennet, go buy bonds now.' So I will leg into 'em. Anyway that is my story and I continue to stick to it. And one more thing, I am sticking with quality as spreads could surprise people as they blow out. Not advice, just my plan. Hope everyone finds it helpful.
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Position in various Treasuries

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