Growing up in a depressed mining area (coal mining isn’t profitable for anyone but the mine owners) teaches you things you would never learn otherwise. This is the only advantage of growing up economically challenged. The word poor is so not cool anymore.

The so-called benefit was to be able to watch people make every conceivable bad money decision. It was almost as if it was a school for how not to do things. They weren’t stupid, far from it. They just had never had any opportunity to learn any other way of doing it.

Whether it was buying a car, a house, investing in the markets or a small business, it was a constant stream of disasters. They seemed to be drawn to the wrong choices.

This describes most small investors. My entire career in the money business has been spent pounding the table about the costly errors the average guy makes with his money. As we plow our way through this most recent economic tumble, the average person is being exposed to new and more expensive ways to throw their money away.

It seems investors can’t do anything right in this market. Treasuries have always been thought of as the ultimate safe haven. The recent huge move up in price, driven by the shift from the crumbling market of ‘08, is about to teach the uninitiated a very costly lesson.

The part that really upsets me is that this is no different from the usual beating the small investor takes.

Institutions such as insurance companies, banks, pension funds and mutual funds, moved into treasuries as a safe haven from last year’s stock debacle well ahead of almost all others. Institutions always move before the small investor.

This gigantic shift of money drove bond prices through the roof. In fact, some treasuries had gone so high the interest rate was ZERO. Most people miss the significance of this, since most people don’t think of treasuries as gaining or dropping in price. The popular concept is that these are just like bank CD’s, no fluctuation, and no risk. Dead wrong.

Unless you are planning to sit on your treasury bonds, notes or bills for the full maturity, you have almost as much risk in these as you do in almost any other investment.

As is always the case, the followers got in after the institutions drove prices out of sight. So, the price the little guys paid a few months ago will drop as the big players continue to sell their positions and move to higher yielding bonds.

When the individual investor sells, he will learn the hard way that treasuries fluctuate in price.  In this case downward from the top of the bubble, and the safe haven has just become another money hole.

Bonds are bonds; the US government guarantee is only good if you hold these to maturity. This may be stating the obvious for many of you, but after almost 20 years of talking to the average investor, believe me, this is big news to them.

The institutions get away with this because they anticipate moves and in most cases create the moves. The average guy follows, as best he can, based on information that is days and weeks old at best. Too little, too late.

Another developing problem with treasuries is that OPEC and China own a huge percentage of our outstanding debt. These same groups are being killed by the worldwide economic slow down and the drop in oil prices. If either of them decides to liquidate their holdings in treasuries, we could see a massive drop in prices beyond that of our own institutional driven drop.

Don’t get caught in this safety trap!

The place to be right now is corporate bonds. The shift from treasuries has just started. This has been prompted by a slight thawing in the fearful response that drove the institutions to treasuries last fall. As this thaw continues, more and more big dollars will leave treasuries and look for higher paying investments that do not carry stock risk.

There was a big jump in corporate bond prices, in some instances 25- 40 percent, in the last few weeks that marked the beginning of the shift to corporates. But this big move has started to correct with the new uncertainty about how the TARP monies will be distributed, the further weakening in the banks and financials, and the concerns about whether or not the banks will be fixed by the government’s efforts.

This temporary drop in prices is one of the best buy signals I have seen since last November. You can pick up investment grade companies at good discounts to PAR and I am seeing yields as high as 7.2% on maturities of six to thirty months.

Here’s an opportunity to get in ahead of the followers. Take a look at the Bond Trader. To date, it has not had a single loss and has taken capital gains in the last few months of 40-90%.

The average total return for the discounted investment grade bonds in the portfolio is between 15% and 33% with maturities under three years and current yields of 7.2%. That’s a lot better than watching your stock portfolio drop every time the wind shifts.

For once, be in front of the followers. Get in on this now. Don’t wait for the TV to tell you its happening. If the TV talking heads are saying it, it already happened.

I’ll be back next week. Keep your powder dry and your eye on the horizon.

Source: The Treasury Bubble