March 2013 - Forecasts & Trends

The Fed Open Market Committee met last week and its decision was to continue the $85 billion a month in purchases of mortgages and Treasury bonds indefinitely. However, in his press conference after the meeting, Fed Chairman Bernanke hinted that the Fed could reduce these purchases later this year if the economy continues to improve. Very few in the financial media picked up on this important new clue, so I will expound on it today.

There are some reasons to believe that the economy will improve later this year. The housing sector continues to rebound. Home prices have surged so far this year. The number of people who are "under water" on their mortgages is falling, and foreclosures are down as well. Some other economic indicators are also pointing higher. So while the economy still feels like a recession, growth should be better in the second half.

Would you like to know the real story on why we haven't started building the Keystone Pipeline that would bring apprx. 600,000 barrels of oil a day from Canada and North Dakota to the Texas Gulf Coast? So did I. Today, I have reprinted the best article I have seen on this subject. I trust you'll find it enlightening, but it will almost certainly make you mad!

Finally, I've been warning about the bond market bubble since late last summer, and Treasury bond prices have come down significantly since the peak back in late July. I close out today's letter with some links to the actively-managed bond programs we recommend. If you still haven't taken steps to protect yourself from bond losses, I urge you to consider moving to one or more of these professionally managed programs before it's too late.

The demand for high-yield bonds and bond funds has literally exploded over the past couple of years as the Fed continues to keep downward pressure on interest rates. Often known as "junk" bonds, these debt instruments typically pay a higher rate of interest to compensate for their higher potential for default. Some retirees see this higher income as a godsend, but the higher yield definitely comes at a price.

Unfortunately, many high-yield bond investors are buying and holding these bonds and bond funds without regard to the risks they are taking. As the number of analysts predicting a high-yield bond bubble increases, the risks of buying and holding these securities increases.

This week, I call upon high-yield bond expert, Steven D. Landis, CFP®, to shed some light on how you can participate in the higher yield and potential capital gains in high-yield bonds while minimizing the risks of doing so. He'll also explain why it really doesn't matter whether there's a high-yield bond bubble now or in the future, IF you have the right strategy on your side.