One Investment To Avoid At All Costs

| October 10, 2011 | 0 Comments

BondsAs many of you know, I’m a penny stock addict.  I live for penny stocks.  I like digging through and finding diamonds hiding in the rubbish pile.  Nothing makes me smile more than buying a stock on the cheap and then watching its value skyrocket.

That’s why I do what I do.

But just the other day, a colleague posed an interesting question… What part of the market would you stay away from?  I guess he got tired of me telling him how exciting penny stocks are.

It was an interesting topic and one I had to think about.

So, what investment do I give the black mark to?

Looking at the markets – risk, volatility, and stock prices – I knew I could come to only one conclusion.  Stay away from bonds!  I don’t care who you are, right now I believe bonds are a big bear trap just waiting to get sprung.

And it’s not just certain bonds – I’d stay away from all bonds!

I wouldn’t be buying US government bonds, foreign bonds, municipal bonds, or even corporate bonds.  They’re all a death trap.

And the reason why is crystal clear…

First, just look at their prices.  Any bonds with a decent yield are being bid up to record highs.  They’re way overbought in my mind.  It’s good if you’ve been holding onto bonds for the last few years… but you don’t want to buy at the peak with new money.

The second reason to avoid bonds comes from our global economy.  The world over, every economy is struggling.  Even the white hot Chinese market looks to be slowing down.  When it comes to the US and Europe, it looks even worse.

Here’s the problem… the central banks of the world are trying to fix the sluggish economy.

Every central bank is trying to over-stimulate their economy.  They can only do this by deflating the value of their currency (and making money cheap to borrow) by printing as much money as possible.

Do you see the problem here?

While the economic stimulation might be good for businesses, it’s bad news for bonds!

Right now interest rates are at record low levels.  Might they go lower?  Sure.  But over the next few years, they will have to snap back to more reasonable levels… and that means plummeting bond prices.

The other problem…

With all the easy money policies… and money printing, the central banks are creating inflation.  They may not admit it, but the more money they print, the more inflation they may cause.  Just look around, you’re seeing it already in your food and gas prices.

Inflation creates a whole other group of problems…

And their solution is simple… increase interest rates.  In other words, eventually rates will be forced higher and it will cause bond prices to tumble.  That’s why I don’t own any bonds in my portfolio today.

Until next time,

Brian Walker

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Category: Penny Stock Tips

About the Author ()

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.