Tuesday, January 13, 2009

Investment Ideas for 2009

I remember it wasn't long ago, maybe in late November or early December, that the 3 month US T-bill yield hitted zero. This sounded absurd as why would anyone invest in something, mind you all investments entail risk, for no return. So now somebody rightfully dubs T-bill as the great 'return-free risk', as opposed to 'risk-free return'. I guess the only reason for this abnormality is that massive amount of capital has flown from everywhere into government bond class, and the bond managers have to do something to earn their fees, just like an equity fund manager who must buy when new fund is received. As longer tenure bond yields are also at historical lows, which implies there's much downside for prices to come down, 3 month bet is the safest option as it can always be held to maturity. And those who bought government bond funds don't know they'll be receiving zero return until after the news, since they don't directly participate in the T-bill auction. They probably bought it because they read the yesterday's news in the marketing materials, that government bond funds had little risk but outperformed equity funds by more than 50% last year. This is one layman's investment idea you can consider.

The 2nd idea is a derivative of the 1st, no, it's not a MBO or CDO kind of derivative, but is an origination of Warren Buffett. His rationale is that zero T-bill yield means lending money to the government is no different from putting money under your mattress, except that the government may default. So the next logical thing people will do is to buy as many mattresses as possible to store their wealth, hence all major mattress makers should see much increased sales. Because Buffett himself bought up a lot of household furniture stores last year, he thinks he's gonna make a killing out of it. This is one pro's investment idea you can consider.

Disclosure: I have one mattress (practically only half) and no government bond.

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