Phil Anthropy

Why Treasuries Are the Way to Go in This Market

Not sure I understand why I should buy treasuries when a) one can get some of the new preferred stocks issued by major companies in lieu of bonds, which can yield over 7% at qualified dividend tax rates; b) the Fed will find it increasingly difficult to lower rates further, meaning that treasury yield is probably all one can expect, not additional appreciation of the bond.

Ben Bernanke's Fed Offers Investors False Reassurance

The Treasury Sec on CNBC was talking about Chinese investment in our treasuries. I was confused, because on the one hand he said that foreign direct investment was ok, including purchase of treasuries, but on the other hand he said in reply to questions on Chinese diversification of reserve currencies that the amount of Chinese investment in treasuries was not that great. Assuming I understood him correctly and am quoting him correctly, I don't know which to believe. It seems to me that several speakers over the past months have said that the Chinese purchase of treasuries wasn't a large enough proportion of treasuries to hurt us if they stopped buying. If that is true, then who is doing the buying of treasuries? My own theory, for what it's worth, is that the Fed itself has been doing the buying, using printed money. I don't know if that could actually happen, but it would explain how interest rates can remain so low when our deficit is increasing, and how the printing of money can be noninflationary (it never gets into the economy -- just recycles into treasuries and other federal debt). I would love to be wrong on this, so please correct me if you have information that shows it to be all foolish conjecture on my part. From what I see, we are locked in a financial deadly embrace. If the dollar plummets, it will destabilize financial systems. So everybody is walking on eggshells trying to avoid that while still protecting themselves if it actually happens. I would presume that the diversification of reserve currencies isn't a big deal now, because governments are probably hedged against a falling dollar through currency options. But those options don't last forever, so eventually the Euro will ascend as the world's dominant currency, in my view. The big risk is that more countries will start pricing oil in Euros, not dollars, so nobody will want our dollars. We do have a lot of overseas sales of manufactured goods, but it is only a matter of time until the Chinese and Indians undercut us in those markets. I give it another 20 years or so, and unless trends change, we'll be waiters and dishwashers to the world's tourists. I hope I am wrong.