I just found the world’s worst investment—and you probably own it.
Regular readers know here at the Palm Beach Research Group, we’re calling for the “income extermination.”
As Palm Beach Letter editor Teeka Tiwari told me in this recent interview, “anyone holding bonds is about to get annihilated. Especially those holding long-term bonds.”
Few bonds are longer-term than Argentina’s century bonds. Last year, the country issued bonds that mature in 2117. And investors scooped them up because of the high yield… Right now, they’re yielding 7.7%.
This may sound like a good bit of income, but these bonds are getting crushed. Just look at this chart of the bond’s price over the past year.
As you can see, it has plummeted 11%.
Now you might think, “I’d never buy bonds from Argentina.” And that may be true.
But for the income-starved investors, the 7.7% yield looks pretty juicy. It can be tough to pass up on something like that right now. And it looks even more appealing because these bonds are issued in dollars. So you have no foreign exchange risk.
But even if you don’t own Argentina’s century bonds… you’re likely holding another ticking time bomb in your portfolio right now…
I’m talking about the 30-year Treasury bond.
You see, savings accounts today yield about 1%. CDs might give you a fraction of a percentage more. 10-year Treasuries only give you 2.8%.
That’s why investors are turning to longer-term Treasuries. And while the 30-year is only yielding 3.1%… it’s considered the “safest yield” today.
As you’ll see in today’s Daily, this is a huge mistake.
The Two Main Ways to Lose Money Owning Bonds
Investors typically buy bonds for their safety. Bond prices fluctuate less than stocks. And when the bond matures, you know how much it’ll be worth.
They also give you income. Most bonds give you semi-annual interest payments. So you get something for your investment. And for those living off their savings, this is very important.
But bonds can lose money. The first, most obvious way is if the bond defaults—you may never see the return of capital if that happens.
While that probably won’t happen anytime soon with U.S. Treasuries, there are two other ways they can lose value. You need to watch out for both today…
No. 1: Inflation—"The Silent Killer”
Inflation is the silent killer for bond investors. It doesn’t make the price of your bonds go down. But it certainly does reduce the value of the money you get back.
The Federal Reserve has a target rate of inflation of 2%. They want our dollars to inflate 2% a year. Said another way, they want the value of our bonds to go down 2% a year.
But a target is hard to set. And I don’t trust the Fed to get it right. Looking at history, since 1914, the purchasing power of the dollar has gone down an average of 3.2% per year.
Let’s say you put $100,000 into 30-year Treasuries today. In 30 years you’ll get that $100,000 back, but it will only be worth the equivalent of $37,693 today.
You get back almost $62,000 less than what you put in.
At today’s current yield of 3.1%, you’re essentially losing 0.1% of real value every year.
No. 2: Rising Interest Rate—“Duration Risk”
Wall Street calls this “duration risk.” It’s the fact that as interest rates rise, the prices of your bonds go down.
If you don’t want to hold that 30-year Treasury for the entire time, you could have to sell it at a loss.
And the longer out a bond matures, the more the price fluctuates.
As Teeka told me in our interview, some long-duration bond funds have already lost 9% of their value. That could only be the beginning…
And interest rates still have a lot higher to go… They’d have to double just to get back to the long-term average.
Just going from 2.7% to 3.1% caused the price of the 30-year Treasury ETF to go down 9%.
If the 30-year goes back to its historical average of 6.9%, holders can expect the prices of their bonds to go down over 40%.
How to Avoid Extermination
To survive the coming interest rate hikes, avoid long-term bonds… And any mutual funds or ETFs that hold long-term bonds.
They will be hit the hardest in the coming income extermination. I wouldn’t be surprised if some of those funds fall over 50%.
I know many of you are desperate to get income from your investments. But don’t reach for yield in long-term bonds. You’ll get burned.
Palm Beach Letter subscribers should read the latest issue to see which safe, high-yielding investments they can make to collect income while avoiding the income extermination.
Everyone else, stick to short-term bonds. You won’t get as much in interest right now. But you’ll be in a better position in a couple years to reap the benefits of higher interest rates.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. If you’re nearing—or planning for—retirement, and you’re desperate for income… Teeka has uncovered a way to collect up to $11,334 per month thanks to an “off-the-books” retirement income source that pays retired congressmen and government insiders millions each year…
Teeka’s put everything you need to take advantage of this one-of-a-kind opportunity into a new book called The Big Black Book of Income Secrets. It’s an easy-to-read instruction manual.
The book contains exact instructions on how to benefit from this retirement plan… along with 20 other secrets that can help you live the retirement you deserve. Click here to learn more.
Today, readers write in thanking Teeka for Wednesday’s crypto market video update…
If you’re a Palm Beach Letter subscriber, know that Teeka sent this same video update to you yesterday. Subscribers can find it right here.
Teeka, I thank you for your admonition of not having so much in the market that you can’t stand it and get out, or even sell much of your exposer when you get scared. The market is down now for me about 70%. I followed your advice and put enough in crypto to make a significant impact on my life if/when it does go 10, 20 or 100 times higher, but not enough to ruin me (emotionally or financially) if it goes to zero. But 70% down is scary no matter what you have in the market.
So I pondered taking some off the table. "Let it go down more and then I’ll buy back in," I said. Not for long, as I rewatched some of your videos. The very next day everything was up 25% in just hours. There is no way I could have timed that. Thank you, thank you, thank you for sharing all your expertise and emotional experience.
Please, please tell Teeka that his training video today, March 21, was the finest training I have ever had as an investor and was certainly timely… Hope he and his staff realize how much they mean to many of us out here who are just searching for a way to make a better life for themselves and their families…
Your video on March 21 was excellent. It definitely grounds a person. I also saw some of those bear markets and reacted exactly the way you said. But now, because my positions are smaller and I have more experience, I will hold my positions and purchase those I wasn’t able to get into at one time.
I have been following your work for many months now and I sincerely thank you and your team for all the hard work you all do.
The recent video you posted yesterday regarding the volatility and comparing the crypto market to the Nasdaq and Oracle markets back in the early ‘80s and ‘90s was phenomenal. It was exactly what my brother and I needed. I am a huge believer in blockchain, so I am in this game for the long run… We are big players in the cryptocurrency space, and sometimes it’s great to get reconfirmation from someone like yourself.
Once again, thank you brother.
Thank you, Teeka, for this update. It’s very informative and assuring. Great to have your insight. Keep up the fantastic work.
All the best.
I greatly enjoyed Teeka’s video update today about volatility in the crypto markets. In addition to his monthly ideas regarding specific cryptocurrencies in which to invest, I would love to see additional perspectives and opinions on such topics as market behavior and future directions that draw on his years of experience in the stock market. These insights are most helpful in staying the course and deciding among his many recommendations. Thanks!
Teeka, thanks tons for today’s update on volatility. I’ve been investing (in some stocks, but mostly real estate) since about 1980. I fully agree with Teeka: "The crypto market is a great speculative investment for any investor to get into today."
I, too, lived through the ’80s, ’90s, and early 2000s. It WAS brutal! But if you stayed in the market, whether stocks or real estate, it was well worth the time, money, and stress.
Thanks again, Teeka, for sharing your insights. Keep up the great work.
And remember: "Let the game come to you." 🙂
I have invested many thousands of dollars in more newsletters than I can keep track of. I will not live long enough to make enough profit to pay for most of them.
Yours is the pleasant exception.
Keep up the good work!
I just watched Teeka’s most recent video update on managing ourselves while enduring the volatile crypto market, and I have to say thank you!
I, too, have lived long enough to see how markets come back and that if one is invested in quality companies (or coins), waiting is better than selling in a panic. However, it does help to have Teeka sending us reinforcement messages. And today’s video, with its historic take on an example, was really appreciated. I always can and do learn more from Teeka!
Keep the information coming, and I’m only too happy to let the game come to me. Thank you!
Just watched Teeka’s latest update. This is like the third or fourth one he’s done on the subject of not panicking over crypto volatility and downturns.
I got “the message” the first time.
I started with $17,000 last April and September… I watched it go up to $318,000 and then tank back to $109,000. I took out $10,000 of my original front money in December. So, now I’ve got but $7,000 exposure. Not sweating anything, but keeping track of my trades for the IRS!
Sorry to surmise he’s getting so hammered that he has to repeatedly calm down us subscribers! I wish him well.
I would like to thank Teeka for all his great advice, knowledge, and insight into the cryptocurrency space. Really enjoyed the video. I’m delighted I joined Palm Beach Confidential. I’m sure I’d have sold out at a loss and have run for the hills at this stage, but thanks to Teeka’s great advice and insight, along with his encouragement, I’m still in the game and very confident that huge gains are on the way
Thanks to all at Palm Beach Confidential.
Kudos and praise for Teeka.
He is clearly passionate about crypto and it shows. He is not in this game just to make money off subscribers. He truly appears to work his butt off to help make everyone money from his experience and ideas.
Thanks for the hard work and awesome videos – please keep them coming!
Great update video—length was awesome. Maybe next time overlay the crypto chart or bring up the market cap chart. Would love to see more of this type.
I just shared this as a comment on the live call, but wanted to share it here as well: WOW WOW WOW! Teeka’s video on crypto volatility is so amazing, with so much wisdom, that I must say I think it’s worth the subscription price—just for this one video!
I will be remembering his words for a long time. This was exactly what I needed to hear.
Thank you, Teeka!
The last video from Teeka comparing the Nasdaq and Oracle in the ‘80s and ‘90s was priceless. I also lived through that period as an investor and agree completely with the emotional challenges one goes through.
I am 77 years old and have followed Teeka since November 2017. I have invested in 13 of his picks so far, keeping the positioning between $300 and $400. I am not worrying at all about the volatility, taking total comfort in the "rule of Teeka."
My friends think I’m crazy for doing cryptocurrencies, but I’m quietly thinking that I’ll have the last laugh. Thank you, Teeka!
Hi Teeka and your entire team,
I want to thank you very much for all your incredible research and information that you continue to send your readers!
I have really just started my journey into the crypto space and have built up a portfolio of 14 cryptocurrency positions since October 2017. I am a small investor, so I have a uniform position size of only C$400 per position.
This last video that you sent out on March 21 about market volatility has really helped me understand what we are going through right now and has given me hope that these investments have the potential to change the financial future of myself and my family!
Though my wife is supportive in what I am trying to do, it does not feel real for her. She wants me to "show her the money" to make it real!
I have faith that by this time next year… or before… I will be able to show her why I have spent so much time learning about this space and investing in it.
Thank you again!
Are you buying into the recent crypto correction? Or has volatility kept you away from the space? Let us know right here…