Bear Traps in the Bond Market
By Bill Bonner
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This is probably the trap Mr. Market is setting. The Great Correction will prove to be more bad news for investors – except for those who have put their money in ‘safe’ US dollars…and US treasury debt. Gradually, investors will move more and more of their money out of ‘risky’ assets and into bonds. Then, Mr. Market can spring his trap. As Lindsey warns, that is when they will stop worrying about debt ceilings and Congressional budget talks. That is when they will realize that it is too late. That is when bond yields shoot up and bond prices fall. That is when investors regret having lent money to Washington.
How far ahead will that be? We wish we knew. But Bill Gross, who famously sold US bonds, could turn out to be years early.
Then, Mr. Market – the joker – will have such a laugh. All those people who tried to get away from risk…by moving to the dollar and US Treasury bonds…will get whacked.
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Bonds are the “guaranteed option” in 401ks. A bear trap can make it a 201k real quick. With the current climate, you have to question if one should be in a 401k in the first place.
401Ks have SIGNIFICANT risks in today’s climate imho.
(1) “Your” 401K really isn’t yours. There are a few hands in it. Some that you might not even be aware of. The company and the plan provider have an interesting relationship to your money. Some of “yours” will become theirs in the process.
(2) Open and supposedly above board, there are fees and commissions in “placing” your investment into the 401K.
(3) Under the table, and possibly, illegal things happen around your 401K. Read about front running, shadowing, and past posting. Just a few of the things that can happen.
Add to the mix: inflation, or maybe hyperinflation, changing tax laws, tax rates, … etc.
And, throw in the wild card trial balloon that keeps coming up out of DC: the exchange of 401Ks and IRAs for an “enhanced social security benefit”. (Would that bring folks out into the street?)
So after all that, I’m no longer sure that automatically recommending 401K participation is such good advice.
Maybe a silver round per week is a better choice.
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