Stocks and 30 Year Treasuries

What a week in the auto industry. Chrysler, aka Crysler, and General Motors, aka Government Motors, announced the closing of about 2000 dealership. These dealerships were chosen by some reason probably not related to profitability of the individual dealer. Most people associated with Crysler and Government Motors are probably thinking why did we ask the government for money. Be careful what you wish for cause you just might get it.

About 8 months ago, Barrons had a nice article on why GM was a good buy at $25/share. I did not buy the stock then and still do not plan to buy it in the future. The reason for my decision is the metric of pension funding versus shareholder equity which says that funding pensions will cost more than the company is worth. This very smart person had great reasons on the surface but did not get to the real issue. GM hit a 76 year low this week at about $1/share. The moral of the story is be very very selective in buying an stock, I currently like only 4 stocks. You are better off to buy a few that you know very very well than just starting to buy based upon some very smart analyst. Better yet you are probably better off buying a highly rated mutual fund with low fees.

I have been saying that you want to avoid long term bonds. The latest issue of Barrons had an article stating that the 30 year treasury bond has lost 20% this year and this investment should be avoided. The reason is that government spending is causing interest rates to go up and this trend will continue. What does government spending at an annual deficit of a $2 trillion get us:

1) Higher interest rates
2) Losing money on long term bonds
3) Drop in the value of the dollar relative to other currencies
4) Higher prices for commodities that are imported like oil

For someone looking for fixed income, some good alternatives exist in bond funds that invest in corporate bonds and municipal bonds. If you go this route your return will be higher than a money market fund or CD.