How to maximize what your cash pays even when nothing is paying much of anything now
Got cash?
Maybe you’d love to invest it, but where?
The stock market seems pricy after a 70% rally from the March 2009 lows. And it’s been so up and down lately that it doesn’t inspire much confidence. So maybe stocks are just too risky for you. Or you’re close to retirement or those college tuition payments and can’t take a risk. Maybe you’d just like to wait. Or maybe you just need more income than most stocks pay these days.
Bonds are, well, no bargain. A three month Treasury bill pays just 0.12%. A two-year note pays just 0.79%. Inflation may not be very high at an annual rate of 2.6% for headline inflation (and 1.6% minus volatile energy and food prices) but it’s enough to eat up all the interest from those investments and more. (TIPS, Treasury Inflation-Protected Securities will protect you from inflation but the yields are really low (1.43% for a 10-year TIPS at recent auction) and they only protect you from inflation and not rising interest rates. I-Bonds, a savings bond that pays an interest rate that combines a fixed component, currently 0.3%, with an inflation-adjusted variable rate, current 3.06%, offer a higher yield but since the variable rate is pegged to inflation and not interest rates, the yield on these bonds won’t neceesarily go up if interest rates do. You also have to hold for at least 12 months. (After that and until you’ve held for 5 years you lose the last 3-months of interest when you sell.)
You could lock your money up for decades and get 4.56% in a 30-year Treasury bond but 30 years is forever. And besides interest rates have to go up from today’s lows and that means bond prices will be coming down, probably fast enough to eat up all the interest that bond pays and more.
A certificate of deposit (CD) would make sure you get your invested capital back intact but the highest rates I can find for a one-year CD are 1.88% (at Eastbank) and 1.7% (at Tennessee Commerce Bank). That doesn’t even beat headline inflation.
Might as well keep it buried in the back yard—except that loses out to inflation too.
Here’s my advice: Think short term. It’s the best way right now to maximize long-term income.
Buy Telkom Indonesia (TLK)
Telkom Indonesia (TLK), or Telekomunikasi Indonesia, is a complicated machine with all the parts, I think, moving together in the right direction. Let me explain.
First, there’s the growth in Indonesia’s economy, which is forecast to show a 5.2% increase in GDP in 2010 after 4.3% growth in 2009.
When elephants fly–dividends from emerging market stocks
When emerging stock markets hand you lemons, make lemonade.
Specifically dividend-paying lemonade.
So far 2010 hasn’t exactly been kind to emerging market stocks. The ETF (exchange traded fund) that tracks the iShares MSCI Emerging Markets Index (EEM) was down 6.4% from the close on December 31 through the close on February 8.
Individual emerging markets did even worse. The iShares MSCI Brazil Index ETF (EWZ) was down 15.8% from December 31 to February 8. The iShares FTSE/Xinhua China 25 Index ETF (FXI) was down 12%. The iShares MSCI BRIC Index ETF BRIC) of stocks from Brazil, Russia, India, and China was down 13.4%.
So how do you make lemonade from these lemons? Especially when it’s not at all clear that these markets, which have tumbled on worries about a slowdown in China’s economic growth (for more on why I think that worry is overstated see my post http://jubakpicks.com/2010/01/28/the-rout-in-global-stocks-is-a-tempest-in-the-teapot-of-chinas-command-economy/ ) and on fears that the budget crisis in Greece would spread to the rest of the European Union, are done falling.
Update HDFC Bank (HDB)
At the end of January the Reserve Bank of India, the country’s central bank, held a conference call for analysts and investors.
The message: The bank is worried about continued growth in government borrowing and strong demand for loans from the commercial sector. And that the bank will move to reduce excess liquidity in the banking sector before it leads to rising expectations for higher inflation.
Look out Indian banks, higher interest rates ahead.
I’d be surprised if Indian bank stocks didn’t retreat as the Reserve Bank of India moves from rhetoric to action.
Shares of Indian banks such as Jubak Picks 50 member HDFC Bank (HDB) are already down 20% since January 19 as part of the global correction in emerging markets. Any further decline would give long-term investors who are impressed, as I am, by the results out of Indian retail banks a chance to get into (or add to positions in) the sector at a reasonable price. (For more on building a global portfolio see my post http://jubakpicks.com/2010/02/05/how-to-build-a-global-portfolio-what-countries-do-you-want-to-own/ )
How to build a global portfolio: What countries do you want to own?
If you were building a global stock portfolio for the long run—let’s say 2020 and beyond—how would you weight the world’s stock markets?
Personally, over that time period I’d pick India over China, Poland over India, and Brazil over them all. And I’d give U.S. stocks a bigger piece of the pie than they’d earn if you looked just at near term numbers.
