Rising Rates: We expect the Fed to be on hold until March 2013, but prudent investors should begin to plan in 2011 for an eventual rise in interest rates. Investors who are willing to move down in credit quality should consider senior loan funds, where yields are relatively high and coupons are likely to rise with short-term rates.
Returning Shareholder Value: Excess cash on corporate balance sheets and greater corporate confidence should spur corporate spending, M&A, and share repurchases. The technology and industrial sectors are likely to benefit from stronger business spending. Companies with a large exposure to U.S. discretionary consumer spending should be avoided.
The Scarcity of Yield: In another year of short-term rates close to zero in the developed world, the BofA Merrill Lynch Global Research “Research Investment Committee” (RIC) believes investors will continue to seek out high yield in both fixed income and equity markets. High-yield and emerging market bonds are forecast to return 5 to10 percent in 2011. The RIC continues to recommend Master Limited Partnerships and Real Estate Investment Trusts (REITs), while investors should avoid “dividend yield traps,” where dividend yields look high because stock prices have fallen faster than dividends can be cut.
there was more, but i thougth these mostly affect RSO but what do i know??? any thoughts/opinions are welcomed
Ghost, thanks for the book reference. I added that one to my book order list. I'm particularly interested in the comparison of the American system verses the Central Bank system of other countries. Merci.
You might also want to consider the book "The Web of Debt" by Ellen Hodgson Brown. She has extensively researched money and the federal reserve system, as well as the two divergent viewpoints on what should be the monetary system in the United States and elsewhere.
In the U.S. fractional reserve system "money" is created "out of thin air" either by the Fed Rsv buying U.S. treasury obligations or by commercial banks creating loans to private parties. The downside of this arrangement is that the population must pay either taxes to pay the interest on the national debt (it is no coincidence that the income tax was instituted at the same time as the Fed Rsv system), or must repay principal plus interest on private loans when they only received principal from the bank. There is never sufficient money to do so, so someone must either not repay principal (in our case the U.S. government) or borrowers will eventually default.
The question Ms. Brown asks is: If Congress has the Constitutional power to "coin money" (issue money for use by citizens in the U.S.) why does the government create debt, sell it to the Fed Rsv, a private corporation, and then the citizens pay interest on the debt forever? Her book answers that question.
You might also want to read about the 1920-22 depression in the United States and the way Presidents Harding and Coolidge handled it, then compare their approach to that of Hoover and FDR. The result in the 1920s was the "Roaring Twenties" while in the 1930s it was the "Great Depression".
Most of the $14 Trillion debt of the United States government is in short term maturities. A 1% increase in average interest costs is an increase in the federal budget of $140 Billion per year. The current annual expenditures are $3.5 Trillion, revenues of about $2.2 Trillion, and an annual deficit of $1.3 Trillion (65 to 70% of revenues).
With those numbers do you expect the Fed Rsv to raise rates anytime soon in the short maturities?
Add in the reduction in federal borrowing (presumably the new congress will not spend as much as the outgoing congress), state borrowing (anyone want to buy California, Illinois or New York bonds without federal backing through stimulus)? The demand for money will drop significantly, so unless the fed rsv tightens, rates should stay low for quite some time or until bondholders fully understand they won't get paid and dump those bonds.
RSO will do well, until the money supply starts shrinking again (lower federal borrowing with the Fed Rsv as purchaser--currently facilitated through the commercial banks borrowing at the discount window and reinvesting in treasuries and contraction in commercial bank lending--credit card, commercial loans, and mortgages).
BTW bankers need inflation in order for people to pay back their principal plus interest without defaulting-- explains why Bernanke is insistent on creating inflation in our economy.
I got into the REITs just after the 3/9/09 bottom, so they've been very good to me. I think they'll continue for a year or so, maybe two years, while housing and small business gears back up. MLPs are also part of my holdings, and they were good to me during the high oil price period, although I got out mostly when oil prices came back down. I'm all for the yield right now, aiming toward retirement at some point over the next 10 years, and there's no way I'm settling for ETFs until I get my balance back in a comfortable range.
I'll take the risk for now. I think it's a good bet to go with REITs for now and the MLPs too.