Podcast 11th September 2015
Lets get to the primary objective of reading or listening to what anyone and everyone has to say about China, Fed and market volatility. Where would I invest my USD 10,000 today? Let’s weigh my options.
The default safe haven currency is USD given its strength against majors and emerging market currencies. Read the weekly currency market analysis published by Investors are Idiots.com and INRBONDS.com for currency market trends. I would first look at what US treasuries are offering and then look at higher yielding bonds. One, five and ten year US treasury yields are at levels of 0.36%. 1.5% and 2.2% respectively. Yields are too low for my money to grow and provide me a good corpus for my retirement. There is no capital gains to be made as yields have limited room to fall from hereon.
High yield bonds are at levels of 7.4% after touching lows of 5.3% last year. Are they attractive enough at spreads of around 500bps to 600bps over US treasury yields? Yes to some extent the correction is offering a good entry point into the high yield bond market especially since the US economy is doing reasonably well with over 1.5 million jobs created this year and unemployment rate at eight year lows of 5.1%. However, high yield bonds carry interest rate risk, credit risk and liquidity risk and even if spreads come off, my gains will be capped.
Gold and other commodity investments are in a down cycle and I don’t see too much to gain by investing in commodities even in the long term.
Equities do offer growth to my investment but given all the negative talk of China and Fed, equity indices have turned volatile and have dropped over 10% from highs. However I am looking to grow my money over a longer period of time and i am not afraid of volatility. I also see that interest rates are extremely low and there is money going into high yield bonds indicating that there is growth happening in the private sector as companies are willing to borrow and invest given reasonable cost of debt and investors are willing to lend money to companies as they search for higher returns.
I also see many companies with huge cash piles that are waiting to be put to work. Companies will look at the inorganic route to grow and that will lead to good M&A activity. Many companies are buying out start ups as it gives them the access to new lines of innovations to leverage their business prospects.
I will invest my USD 10,000 in equities with a focus on growth companies and potential acquisition target.
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