For years Great Investor Robert Kessler has correctly predicted that interest rates would decline to record lows and remain subdued because of subpar economic growth. The founder and CEO of Kessler Investment Advisors is sticking to his guns and maintains that U.S. Treasury bonds will continue to be a major beneficiary. He’ll explain why he thinks Treasuries, one of the most vilified investments on Wall Street should be a core holding in everyone’s portfolio.
WEALTHTRACK Episode #1102; Originally Broadcast on July 04, 2014
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I just received a client letter from past WealthTrack guest and top financial advisor, Erin Botsford of The Botsford Group. I am sharing the first paragraph with you here.
This will be a special 4th of July celebration for our family. Our son, Kevin, is officially out of the Air Force! To say I am proud of his service over the past seven years would be an understatement. His personal commitment to do everything he was asked to protect the sovereignty of the United States and the American way of life has been an inspiration to me. Kevin deployed to the Middle East six times in the past seven and a half years, missing two Christmas holidays and a lot of Aggie Football! Without complaint, he left his wife and son to serve in conditions many of us cannot comprehend. As a country, we are fortunate to have a culture that continues to inspire young people to answer the call of duty. As you celebrate the 4th of July this year, I trust you will remember what it takes to keep our country free; it’s the sacrifices of the men and women in uniform, along with their families. They pay the price so we can continue to enjoy our way of life. May we never take their service and for some, the ultimate sacrifice, for granted.
I share Erin’s sentiments as an American and mom of a Marine Lieutenant on his second tour in Afghanistan.
On WEALTHTRACK this week we are featuring one of our most iconoclastic guests, who has invested against the crowd for as long as I have known him. How many times in recent years have you heard money managers, financial advisors and economists say that interest rates are about to go up and advise you to shorten the maturities in your bond portfolios because long-term bonds, Treasury bonds in particular, are very sensitive to changes in interest rates?
Despite the widespread advice to the contrary, that sensitivity has worked mostly to bond investors’ advantage over the last 30 plus years. Interest rates on 10-year U.S Treasury notes, for instance have declined from a high of close to 16% in 1981 to a low of 1.39% in 2012. Rates bounced up this week, closing at 2.69% by the end of U.S. trading today, still near historic lows.
What happens if rates go up? A rise of only 1% would send the prices of high yield corporate bonds down about 4%, emerging market bonds would suffer about a 6% hit, U.S. investment grade corporates would experience a 7% fall, 7-10 year Treasuries nearly 8%, and long-term Treasury bonds would plummet more than 16%!
Many pros have warned of that danger on this program for years now. The chorus is growing louder today after a stronger than anticipated employment report from the Labor Department. Businesses added 288,000 jobs to their payrolls last month and the unemployment rate dropped to 6.1%, the lowest since September of 2008. Leading economist Nancy Lazar at Cornerstone Macro says based on the percentage of industries reporting higher employment, known as the diffusion index, this is the broadest U.S. employment recovery in 14 years.
Skeptics will counter that strength by pointing out the number of long-term unemployed. According to Bloomberg, 32.8% of the unemployed have been out of work for 27 weeks or longer, twice the historical average of 15.1% since the data was first kept in 1948. In addition the labor participation rate remains stubbornly low with only 62.8% of working age people employed.
There has been one consistent hold out on WEALTHTRACK over the years, who has stuck with his low interest rate theme and U.S. Treasuries. He is this week’s Great Investor guest. Robert Kessler is the founder and CEO of Kessler Investment Advisors, a manager of fixed-income portfolios specializing in U.S. Treasuries. For the 15 years that I have been interviewing him he has correctly predicted that interest rates would fall and that U.S. Treasuries would perform well.
I hope you enjoy his perspective.
Have a great 4th of July weekend and make the week ahead a profitable and a productive one!
IGNORE THE CROWD AND OWN SOME U.S. TREASURY BILLS, NOTES OR BONDS FOR THEIR LIQUIDITY AND SECURITY. . .
- Multiple geopolitical hot spots shaking investor confidence
- Economic challenges around the world
- U.S. Stock market near record highs
- U.S. Treasuries: Investment of choice in times of uncertainty & trouble
- Treasuries provide insurance & stability
- Buy a long-term Zero Coupon Bond (Also known as U.S. Treasury Strip)
- Zero Coupon Bonds are…
- Stripped of interest payments
- Sell at deep discount
- Pay full principal at maturity
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ROBERT KESSLER – IN DEFENSE OF BONDS
It is now accepted wisdom on Wall Street that the great bond rally of the past 30 years is over and that we have entered a new era of higher interest rates. Not so fast says this week’s Great Investor guest, Robert Kessler. He points out we have had many false alarms about economic growth and central bank tightening over the last 6 years only to see interest rates retreat again. WATCH NOW…
Three years into an economic recovery, it sure doesn’t feel like one. We are even beginning to hear the dreaded “R” for recession word here in the U.S. A recent headline in the Financial Times read: “Blue-Chips Raise Recession Fears.” The FT reported that “estimates of revenue growth for the largest us companies are being scaled back sharply by Wall Street analysts, signaling a mounting risk that the world’s largest economy may enter recession later this year.”
A SIMPLE CHOICE
Great Investor Robert Kessler, CEO of Kessler Investment Advisors has managed portfolios of global government debt for decades. In recent years however he has narrowed his focus to U.S. Treasury debt. He explains why.