Don’t Buy Treasury Bills and Bonds

Don’t buy U.S. Treasury products (Bills, Notes and Bonds) was among the insights presented by Dr. Alfred Gobar at the RIAOC meeting from 12-14-2010.  Dr. Gobar is a private practice economist that feels that inflation and interest rates are heading up in the next five years.  This means that he feels that those that are tying up capital in fixed income products such as Treasury Bills and Bonds are going to be overall money losers.  This is because he is expecting inflation to run 2-3% in the next couple of years, with interest rates perhaps reaching Carter Administration levels of 13-14% in Five (5) years.  If he is even close to correct on his prognostications on inflation and interest rates, 10 year Treasury notes yielding 3.45% (as they did today, 12-14-2010) will definitely be big time losers.  Aside from this introductory note, Dr. Gobar was quite informative regarding the economic outlook for Southern California.  His family for a few generations has been a large investor in Southern California real estate, and he says that he has held off on most Commercial Real Estate Investments and will continue to do so for most of 2011.  He mentioned that his greatest successes have come in value investing, where he has gotten hidden value.  He mentioned that in a previous recessionary market, he purchased vacant land that had utilities in place with improvements on the lot such as a curb.  He purchased this industrial lot for the same cost as a raw land nearby in the High Desert community of Victorville.  He held the property for 8 years and sold for more than Seven (7) times the price he paid for it.

Dr. Gobar also pointed out that from October 2009 to October 2010, job loss in Southern California was approximately 40,000, compared to 600,000 jobs lost in in the period between October 2008 and October 2009.  Thus, relatively speaking, the worst seems to be over.  Dr. Gobar did not directly address the possibility of a Double Dip recession, but by his comments he did not seem to expect one either.  He also noted that he wasn’t terribly concerned with the growing Federal Debt, though he did say it is a problem that needed to be addressed.  Aside from the typical hysteria that U.S. is in complete debt to China and Japan, Dr. Gobar mentioned that China holds less than 15% of the Federal debt.  While 15% isn’t chump change, it wasn’t enough to concern Dr. Gobar.  The bottom line, Dr. Gobar’s prediction for 2011 is relatively flat, and he’s not going to put in too much of his money into the commercial real estate market unless he finds an absolute bargain.