So we're not exactly teetering on the brink of recession. But rates could certainly change. As you can see in the chart above, big spikes have often been followed by quick moves lower, as the Fed has a habit of overdoing it both when it raises rates and when it lowers them. To make matters worse, China is staring at a looming financial crisis. Chinese property developer Country Garden Holdings (OTC: CTRYF), one of the largest companies in the world, is selling off foreign assets as it tries to deal with roughly $36 billion in debt. And another Chinese developer is in even worse shape. Evergrande, which has $300 billion in debt, was ordered by a court to liquidate its assets in order to pay creditors. Should China's woes make their way over to the U.S., the economy could hit the brakes and rates could in fact be lowered. Either way, bonds are the place to be right now. If the economy remains strong and rates stay stable, bondholders will continue to enjoy stronger yields than they've seen in years. Investment-grade corporate bonds are yielding 6%. Non-investment-grade bonds rated BB or better are yielding more than 7%. (Remember, bondholders are guaranteed to get their money back at maturity unless the company goes bankrupt.) And if rates fall as Warren wants, bond prices will rise and produce nice gains for bondholders, because bond prices move in the opposite direction of rates. In that scenario, investors could either take their profits or continue to collect a high rate of interest (which will look progressively better as rates move lower) until maturity. I've been telling my subscribers to load up on bonds for a while now. It's hard to imagine a better scenario for this investment class. Good investing, Marc P.S. The Federal Reserve has created the opportunity of the decade. This phenomenon occurs only once every five to 15 years... but this time, it's unfolded faster and more violently than ever before. Go here to find out how I plan to use this situation to my advantage and collect a 1,368% gain by this time next year. |
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