Asset allocation in a down market

[Peace]

Regarding everbank and others offering FDIC foreign CDs,

you are insured only against insolvency – not against loss of interest and principal.  If you choose a currency that goes down against the dollar, the value of your CD goes down.  See this:

http://www.viewfromsiliconvalley.com/id217.html

 

[technovelist]

Right, and if you choose the dollar and it goes down in value (as it has been doing for the past 100 years or so), the value of your CD goes down as well. Not in dollars, of course, but in real purchasing power terms.

In other words, you can’t avoid risk: you can only choose which types of risks to take.

[Anonymous]

Chris Johnston

It is currently correct to be out of stocks. However, there are very powerful cyclical influences that I have written about in here for a fall rally. We will probably drop into that timeframe, which could setup a very nice buy spot. I am not going to review everything again at this point. I like the fact that there is alot of developing bearishness about stocks. This will make the rally more powerful, and more likely to happen. You want to buy into bearishness, and sell into optimism when trading stocks.

We need a bond rally to kick it off, and that is developing as we speak. If it continues into the fall, we will be in business for long stock positions. Until then, I would recommend a cash position in stock accounts.

[powayseller]

Don’t treasury bill values fluctuate, so you could lose some principal if you sell before the end of the term? It seems too risky to hold treasury bills if you want only a 4 month or 1 year holding period. If fewer investors buy treasury bonds at auction, making the price go up, you are compensated with a higher yield at maturity, but who wants to hold treasury bills for 10 or 30 years? This is why I have not bought treasury bills before, but perhaps I am wrong?

Chris, when you say the bond market rallies, you are talking about the 30 year bond price increasing, not about the yield increasing (i.e. lower price). That’s what caught me off guard when we discussed this yesterday, because in the newspaper, they talk about the yield not the price. As long as the oil price stays high, and the oil nations have so many dollars to invest in treasury bills, the bond will keep rallying. But this is offset by declining imports as consumer spending slows, and that would lower bond prices. Which side will win: rising oil prices or declining goods? There’s an economic boom in the Middle East, as the high oil prices are really enriching them. If they do as China does, i.e. print money so they don’t have to convert the dollars into their own currency, then they have to return the dollars to the US to invest, and where to put it? – US treasury bonds.

[desmond]

PS

You are getting mixed up betweent T-Bills and Bonds. T-Bills can be bought for as short as a 7 day maturity. Or you can buy 30-60-90-180-360 day T-Bills. Bonds are usually longer maturity dates. Please go to treasurydirect.gov,for a government site it is excellent,and it will answer all you questions and turn you into a auction pro. Once you figure it out and open an account, I suggest you buy a 7 day T-Bill for a $1,000.00 to get your feet wet, once you figure it out you will never go back.

[theplayers]

PS,

I’m not 100% in cash. We hold some foreign currency (Swiss francs) and some gold in a gold pool account at Kitco.

Re: t-bills, there is an auction every Monday which determines what the yield will be for that particular 6-month t-bill. For instance, last Monday, the yield was 5.297%. That 5.297% gain is not taxed by California, which makes the after-tax gain higher. Assuming a Calif tax rate of 9.25% on the gain, than a 6-month CD would have to have a rate of approx 5.78% in order to have the same after-tax gain. And as far as length of t-bills or CD’s, I’m more comfortable with 6-months right now, and 1-year rates are not much higher anyway.

[powayseller]

theplayers, why did you choose kitco over GLD or the coin dealer in Pacific Beach recommened by 4plexowner? Thanks for all the advice so far.

[technovelist]

I thought the minimum T-Bill purchase was $10,000. When did they change that?

[desmond]

There may be 10k minimums at brokerages, but if you buy directly from the government, the minimum is $1,000.00

[Anonymous]

Dear Masayako: A couple of different ideas for you. I generally agree with the conservative views posted above and have the same concerns you do. If the real estate market really falls apart, the good old stock market will as well, I do not know how it could avoid it. I think the only reason it appears as though the indexes have held up so far is because there are many components of the indexes benefitting from the rise in commodities. If the stock market and real estate market do fall apart then we very well could see a deflationary environment and if so, you are going to want to have an abnormally large allocation to Treasury Securities and maybe add some gold. If you are concerned about the dollar losing its value further then you could consider investing in a foreign currency mutual fund in addition to the gold. One newsletter writer that has a well respected following, has been at the business for a while and by the way resides in the San Diego area (La Jolla) is Richard Russell. His website can be found at http://www.DowTheoryLetters.com. I hope this information helps and isn’t out of bounds. Best of luck. Duffy, Inc.

[Author]

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