Six Month T-Bills at 4.75% Starting to Look Attractive
Wednesday, March 8th, 2006
By Michael Lombardi, MBA for Profit Confidential
U.S. six-month T-Bills at 4.75% are starting to look attractive, but I wouldn’t buy them just yet. Why? Because rates are going higher. Within the next couple of months, you will likely be able to get 5% on six-month T-bills, maybe even on 91-day T-bills.
And, this isn’t just a U.S. thing–interest rates are rising worldwide. The European Central Bank raised interest rates a quarter point last week, while analysts believe the ECB will raise rates two more times this year. In Japan, the Central Bank there may shift its interest rate policy when it meets this week. Only Canada has been slow to raise interest rates (because higher interest rates there will only add to the Canadian dollar’s fuel).
According to Merrill Lynch, so far in 2006, U.S. Treasuries are down 0.74%, including reinvested interest. This is the single worst start to a year for Treasuries since 1999.
U.S. bonds are definitely not the place to be in light of rising global interest rates. Last week, U.S. 10-year Treasuries had their biggest weekly drop since January. If you need to park cash, go with very short-term T-bills.
I keep warning my readers: The investing and non-investing public has not yet fully understood how higher interest rates will affect the economy. It takes six to 12 months for higher rates to filter through the economy. We already see the effects of higher rates on the real estate market.
But, the general stock market hasn’t hurting yet. And it’s only a matter of time before it does. If American investors can get 5% from guaranteed short-term T-bills, why risk their capital on stocks or real estate? As for companies that make up the popular stock market averages, their borrowing costs are rising rapidly. The U.S. Prime Rate, the rate at which the most solid companies can borrow money, is now at 7.5% — that’s up 36% from a year ago. Higher borrowing costs are going to start hurting companies with big debt soon (if they haven’t started already).
NEWSFLASH-Sales of existing U.S. homes fell 2.8% in January of 2006 to a new two-year low. The number of resale homes now on the market in the U.S. has hit 2.91 million… the biggest number since August 1998. This could just be the beginning of progressively worse housing statistics.
Next Post: Interest Rates Are On The Rise
Previous Post: Stick With Proven Winners
Tags: ECB, interest rates, stock market, U.S. Treasuries
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
