GUARANTEED INCOME for Your Short-Term Cash
Right now, interest rates are sky-high…
The most recent U.S. inflation figure is 6%, which means the Fed will continue to maintain a tight money stance.
On March 7, Federal Reserve Chairman Jerome Powell presented the Federal Reserve Semiannual Monetary Policy Report to Congress.
He didn’t paint a pretty picture…
Here’s part of what he had to say:
My colleagues and I are acutely aware that high inflation is causing significant hardship, and we are strongly committed to returning inflation to our 2% goal. Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do.
The meeting between Powell and congressional members revealed that the Fed is surprised at how hot, and persistent, inflation has been running.
Powell is finally admitting that today’s inflation looks to be far more embedded than transitory as the Fed originally and persistently pronounced.
And, quite frankly, it’s astonishing it took the Fed so long to arrive at that conclusion…
As you can see from the chart below, it has been apparent to anyone who was paying attention during the past 24 months that inflation was ratcheting higher. The inflation rate was more than 9% in June 2022.
Here are some of the increases that you and I are dealing with…
For the 12 months ending January 2023, here’s how much the consumer price index (CPI) increased for specific consumer goods when compared with the same time a year prior.
- Food: 10.1%
- Transportation services: 14.6%
- Utility gas service: 26.7%
- Fuel oil: 27.7%
Of the 20 consumer goods and services that the CPI focuses on… 17 were still moving higher from where they were at the same time in 2022.
On March 14, the U.S. Labor Department reported that the core inflation rate is 5.5%.
However, food and energy prices – the two categories experiencing the largest cost increases – are not included in this calculation. A ridiculous exemption if you are looking for the true rate of inflation!
The fact of the matter is… we’re in the midst of the highest inflationary levels we’ve seen since the early 1980s.
Fight Inflation With Guaranteed Income
Embedded inflation means interest rates will remain elevated, and Fed Chairman Powell clearly indicated in his testimony on Capitol Hill that more rate increases are coming… at least in the near term.
It’s time for you, as an investor, to adjust your portfolio accordingly…
Current circumstances present you with an opportunity that has not been attractive for years… short-term U.S. Treasury bills (T-bills).
For the last year, the Federal Reserve has tried to accomplish one goal – lower inflation by raising interest rates.
The result has been benchmark interest rates rising by 4.5% in a year. As you can see in the chart below, rates have increased from a range of 0% to 0.25% to a range of 4.5% to 4.75%.
The Fed’s interest rate hikes are having an impact on inflation. As the first chart indicated, the level of inflation has declined in response to the interest rate increases, dropping from a high of 9.1% in June 2022 to 6% as of February 2023.
Another quarter-point interest rate hike is expected in May, but there’s much speculation that the Fed might pause after that.
There’s good reason for that speculation…
The rate increases that are already in place are starting to wreak havoc on the banking industry. The collapses of Silicon Valley Bank and Signature Bank in early March may cause the Fed to reconsider additional rate hikes later this year.
And once the market gets the sense that the Fed will pause, or pivot, market interest rates will drop rapidly. The opportunity to lock in the best income opportunities will quickly disappear.
But the opportunity for Super Income is still available now.
For that reason, I’m recommending investors buy short-term U.S. T-bills.
The Case for Ultimate Protection
T-bills are certainly not the sexiest recommendation I’ve ever made, but when a storm is howling outside, you take shelter to protect yourself.
The current storm is the combination of persistent inflation, a slowing economy and a volatile stock market.
I don’t think there is any debate that we’re in an incredibly difficult economic environment. And there’s no telling how long it could last or when conditions will begin to improve.
Treasurys are considered the safest investment on the planet. If the U.S. defaults on its debt, we have bigger things to worry about than not getting our money back.
The current yield on specific short-term T-bills is better than what you can find from nearly all savings accounts, money market accounts and certificates of deposit.
Importantly, you’ll keep your maturity short so that the money will be available to you in 12 to 24 months. At that point, you can decide to buy stocks, preferred shares, exchange-traded funds or another T-bill.
And if rates do happen to fall sooner than I expect and you don’t want to wait until our T-bill’s maturity date, you’ll likely be able to sell it for a profit.
You can buy a T-bill through your broker or straight from the U.S. government at TreasuryDirect.gov.
Here are two T-bills I currently own that perfectly fit the strategy...
The first T-bill has approximately one year until maturity, and the second matures in about two years.
Action to Take: Buy the U.S. Treasury bill (CUSIP 91282cbv2) that matures on April 15, 2024. At the current price, this bond has a yield to maturity of 4.4%.
Action to Take: Buy the U.S. Treasury bill (CUSIP 9128284m9) that matures on April 30, 2025. At the current price, this bond has a yield to maturity of 3.75%
(Note: Some brokers may charge a fee to place a trade with a representative. If yours does, ask them to point you to where you can buy it online yourself.)
T-bills pay a face value of $100 at maturity. Both of the recommended T-bills are selling at a discount to that face value. The difference between what you pay for the bond and the $100 per bond you receive at maturity determines the yield to maturity.
The “Super Income System”
Pocketing hefty, guaranteed income is what we’re offered with these T-bills.
What we’re trying to do is simply own an ultra-safe investment that matures in 12 to 24 months to stabilize your portfolio in a volatile market and earn a decent return.
Over the past decade, safe income opportunities have been few and far between.
But now – for a short time at least – that has changed.
Treasury bills are paying mammoth yields right now… and are fully backed by Uncle Sam to boot.
Take advantage of it.