The best place to invest your money is in short term Treasury – stagflation takes control over economy
Ron Gibson
Jun. 21, 2007

The economy faces something dreadful for the long end of the bond market and the stock market. Economic stagnation in US and worldwide inflation is making things tough for investors. The stock market and the bond market will register negative growth this year. After several years of back-to-back super growth the stock market is ready to enter a long-term bear phase.

The banks and the financial services will lead the route in the stock market. Just like real estate the M&A bubble is about to burst. The bigger problem is that the environment will not trigger a recession right now. Instead, something very different will happen. The economy will register a 1.0 to 2.0% growth for now but the inflation will rise to 6%. The Fed will not raise rates because political pressures in the election year. As a result, the shorter end of the yield spectrum will go lower while longer end will go higher.

An 8 to 9% yield on 10 year Notes is possible by end of 2008. The one-year Tbill will yield lower because the market will sense the mood of the Fed – lower rate by middle of 2008. The economy will start slowing down in 2008 and finally by middle of 2008, a nasty recession will hit the min streets triggered by consumer burden of debt service charges, massive home foreclosures and depressed business confidence.

The right place for your money is in short end of the yield curve. A two-year note or one year Tbill should be good. Be careful about FDIC insured banks. FDIC may not be able to protect all the deposits if three or more big banks go belly up. It is better to open a commodity account and park your money in short term Tbill. You pay approximately $40 for $10,000 Tbill. But your money is safe. The only entity you can really trust at this stage is the Federal Government. It is time to park your money in short term Treasuries.

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