Borrow Long and Invest Short in the Fixed Income Area

With long term rates at all time lows, now is the time to be a borrower if necessary. Mortgage or long term investment loans are the main items falling in this category.

3o year mortgage rates are finally coming down and are currently in the mid 5% range. Rates may go lower, especially with the possibility of further government intervention, but eventually the probability of rates rising is very high. Now is the time to consider refinancing if your rate is much higher as it is very hard to know exactly when rates will begin rising again.

Most importantly, now is NOT the time to be a long term investor of debt instruments,mainly long term bonds of any type. If an investor buys a 30 year bond yielding 3% for $100k, you are locking in a 3% return for the next 30 years. As mentioned above, it is highly likely we will see rates move higher as the stimulus being added via our government will take hold and move rates higher. When this move begins, it may happen rapidly and for an investor locking in the above mentioned 3% for 30 years if rates quickly move to 6% your bond will be immediately revalued at $50k or a 50% loss, forcing you to hold this bond for 30 years to realize your full investment without loss.

Long term Bonds are the next bubble in our opinion, and we want to clearly state that there are sizable risks for long term bond investors at this time. JK

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