The dysfunction in our nation’s capital has a lot of people worried. And I don’t want you to be one of them. So today, I’m going to show you how to make a lot of money by taking advantage of the pickle the government has put us in.
We’ve reported on it ad nauseum in IDE. The bailouts. The inevitability of higher taxes. Runaway government spending. This year’s federal deficit of $1.5 trillion. Dismal forecasts of government debt reaching 76.5% of GDP by 2019.
And have you looked at the Federal Reserve’s balance sheet lately? Since the beginning of the financial market turmoil in August 2007, the Fed’s balance sheet has ballooned. It’s total assets have increased from $869 billion on August 8, 2007 to well over $2.2 trillion. And foreign central banks’ holdings (money we owe to foreigners) amount to $2.9 trillion. No, it’s not a pretty picture.
Washington’s Escape Hatch
There’s only one way out of this mess. We’ve got to pay our debts back with cheaper dollars. And that means inflation.
And higher interest rates follow inflation like summer follows spring. Interest rates right now are at mind-boggling lows. The three-month T-bill pays 0.06%! Want to go out five years? How does 2.39% sound? And the 10-year pays a whopping 3.66%.
This isn’t normal. The average yield for a 10-year Treasury over the last 30 years has been 7.5%. And, historically, three-month T-bills have approximated the CPI – which, over the last 12 months, came in at 2.7%. The Fed’s zero interest rate policy (ZIRP) has artificially depressed interest rates. But the ZIRP can’t go on forever. And it won’t. Rates will rise. It’s not a question of if. It’s simply a question of when. This is a long-term trend. And taking advantage of long-term trends is what makes you money.
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17 Wins, 17 Doublers Could it get any easier? In the past 6 months Ted Peroulakis has made 17 recommendations worth a minimum 100% each. And you don’t need to be an options expert to do it. Ted shows you step-by-step how to start with a grub stake of just $500 and watch it balloon into $5,343 or more. Read details here. |
What About Bonds?
With inflation on the horizon, you must eliminate bonds with longer maturities from your portfolio. Stay away from Treasuries. Consider only special situation corporate bonds – like the ones Steve McDonald recommends in our Bond Trader service. TIPS are an option, of course, but they’re a bit overpriced at this time.
Your Escape Hatch
Go short. I recommend you look at the ProShares Short Barclays Capital 20+ Year U.S. Treasury Index Fund (TBF). It’s an inverse fund, designed to move up in price in proportion to the decline in price of the 20-year Treasury (as rates go up). Alternatively, the ProShares Ultra Short 20+ Year Treasury (TBT) is designed to deliver double the inverse return of the 20-year Treasury by using leverage. Both funds have an expense ratio of around 1%. There are others, as well.
If you don’t want to buy a fund (they have expenses), you could short one of the many government bond ETFs. You might find this difficult to do. My sources tell me that there are very few shares available at the brokerages to short.
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The Perfect Discovery at Just the Right Time What is the “silver striker”? How can it sustain China’s unquenchable thirst for resources? And make a tiny American mining company $514 billion richer? What’s the best way for you to play it for potential quadruple-digit gains? Wall Streeters will be kicking themselves over this one. Read Bob Irish’s detailed report here. |
Other Strategies
Commodities have historically done well during periods of inflation. Think oil, timber, raw materials, and grain. Real estate has also fared well when inflation rears its head. And there are some great values in real estate today. Did I mention precious metals? They have been a great store of value when currencies are devalued (which is what inflation does). For more specific recommendations on inflationary hedges, see Sound Profits.
Invest Safely,
Bob Irish
Investment Director
Investor’s Daily Edge
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