Monday, November 07, 2005


Rates on Treasury bills rise at auction

The demand for money has jumped! A lot of people will consider the jump in T-bill rates as a negative but in this situation is is not. The situation is that margin debt has declined for a long time. Now that there is volatility back in the market, borrowing is ready to heat up. With 10 year rates at around 4.5%, there may be some leveraging of bonds again.

The bottom line is that stocks are cheap, inflation is tame and the ten year return on stocks from here is likely to be better than 11% compounded. The ten year return on bonds from here is likely to be only slightly better than 4.5% as the principle will only earn 4.5%. The reinvested coupons may earn a little more.

Wow, 11% versus 4.5%, which are you going to take?