My 1st Million At 33 – yes, you can do it too

I’m very surprised that bond market has actually gone up (bond yield coming down) along with the stock market. The ^TNX (10 year treasury) has come down to 4.383%, and ^TYX (30 year treasury) has come down to 4.663%. Regardless of how the bond yields are coming down, whether via direct monetization through Fed’s printing, or bond market forecasting economic slowdown, the lower yields will definitely bring some stablizing effect to the housing market fallout.

Although I would like to say that it makes more sense to me that the bond market actions are due to Fed monetization, I cannot find any evidence in their Fed operations of permanent repo. In any case, assuming that Fed can fake everything else, the only thing that it cannot fake is the $US exchange rate with other foreign currency. Furthermore, under normal circumstances, bond yields should have risen when the stock markets go up. Although such weird episodes have happened before, the recent occurrence of synchronous rising is the first one since many months.

If the 30 years treasury yield fall further, it will be on track to match its all-time low at about 4.25% in June of 2003, and June of 2005. That’s just roughly 12% =(4.66%-4.25%) * 30 yr away from the current level. I don’t know how it could possibly make sense to any of the bond buyers, but a 30 year bonds yielding at 4.66% is simply too low. Investing money in a farm will probably bring a much better yield.

This week Fed is supposed to cut interest rate by another 0.25%. I think Bernanke going forward is more likely to surprise the market on the upside (meaning cutting more than less). His philosophy has always been that aggressive cutting can stave off crisis. The only thing that I see however is that there will soon be another bubble in either foreign markets or commodity markets or both, due to these aggressive rate cutting. It’s very important for investors not to sell out completely in the energy/precious metal sectors.

If Fed can successfully bring long term interest rates down to a very low level, then it may actually make sense to start buying real estate at the lower priced area. Although initially I was estimating that the bear market in housing will last all the way to 2012, if bond markets behave irrationally than my original thinking, then the buying time of real estate could be sooner at least for the lower priced area.