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AT&T Offers an Attractive Alternative to Low CD Rates
By EconMatters
With the Fed promising to keep rates low for an extended amount of time, at least for the next two years based upon their latest analysis of the economy, interest rates on CDs is a negative return when you factor in inflation. For example, Chase offers a 6 month CD for an annual percentage yield of 0.20%, a 12 month CD that pays 0.25%, and a two year CD for 0.40% in the southwest part of the country, rates may differ slightly by region of the country.
An investor can find higher paying CDs with institutions that are courting capital but not by much, and beware of any CD`s yielding far above market rates as this is a giant red flag, and not worth the risk.
Keeping Up With The Cost of Inflation
So bottom line this is a bad time to be investing in CDs based strictly on yield. But it gets worse when you factor in the cost of inflation which is running about an annual rate of 3% when you factor in food and energy, and will probably run in the range of 2.5% to 4% at an annual rate over the next two years depending upon fed policy.
So if we take the one year time frame and assume a 3% inflation rate, the CD investor is realizing a negative return of 2.75% on their money. This is not a good scenario for those investors who need a certain fixed return to live on to meet their annual budgetary requirements. So let us explore a way to improve the income generation for these types of investors.
Emergency Base Capital Only in CDs
Now I must mention right here that it is different if the investor is highly likely to need this base capital for some reason during the investing timeframe, this might be the only reason to stay in the CD, but remember penalties may apply to withdrawals made prior to maturity. An alternative is to move a portion of your base capital out of CDs into safe higher yielders, while keeping only the potential emergency capital locked in the safety of CDs.
I am going to recommend a pretty safe high yielding stock that has had a steady stock price over the last couple of years, and provide a conservative entry point, all of which should help the yield investor preserve their base capital.
My Favorite Candidate Is AT&T
The favorite candidate is AT&T, Inc. (T), a really solid company in the telecommunications industry, and a Dow 30 Blue Chip stock, and after being overpriced in 2007, has had a relatively stable price pattern over the last 3 years, maintaining its value and offering investors a plus 5% yield, which certainly keeps your capital ahead of inflation concerns, and today offers an outstanding annual yield of 5.9% which blows the socks off your CD alternatives.
An ideal entry point would be around $25 a share, which the extremely patient investor had about 5 legitimate opportunities over the last two years to pick up this solid company. However, because time might be an issue it is reasonable to assume that a merely patient investor can pick up T at $27 a share sometime in the foreseeable future, just be patient and wait for a market selloff or large investor reallocating capital and you should find your preferred entry point.
Preservation of Capital
At $27 a share your principal base should be safe, given flexibility in your exit point, and you gain a highly attractive 5.9% annual yield on your principal. You will not be alone as many investors like AT&T for this very reason; this is why it holds up better than most stocks in tumultuous market conditions. AT&T currently trades around $29 a share but was as low as $27.70 on August 8th, so just monitor the stock, wait for an overextended selloff, and swoop in and get your preferred price around $27 a share.
Market Overreaction = Buying Opportunity
And if you’re really lucky you might get some negative news where investors overreact and you can pick up this enduring company around $25 a share similarly to how Apple (AAPL) provides excellent buying opportunities regarding over reactions to Steve Jobs retirement news. Just make sure the news isn`t game changing in nature for the company like Congress passes some punitive legislation that negates 30% of the firm`s profits over the next five years.
But other than that when you factor in the attractive yield, every significant pullback in AT&T has been a nice buying opportunity for the conservative investor who seeks a safe return of their capital, and wants to stay ahead of the inflation curve. It sure beats the heck out of Treasuries or CD yields right now, and this appears to be the case for the next couple of years.
Federal Reserve Hedge
The economic downturn and decision by the Fed to maintain an exceedingly low interest rate policy has really put a crimp in CD returns, and for those relying on a fixed income this can be highly problematic, but there are options to protect oneself from these negative realities, and I believe moving at least a portion of your CD base capital into a solid company like AT&T with nearly a 6% yield makes for an ideal hedge against the Federal Reserve and current monetary policy.
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Actually, the stock need not drop one penny to be a wash or even a loss if you reject CPI as bogus.
Do you know what the government did to AT&T in 1983? It was all about money, and we all are still paying for it. Well; Will they do it again?
Wow. Conventional thinking at it's worst. 5% is going put inflation concerns to rest; uh, uh. Let me ask you this; if this Company can provide you with some real increase in purchasing power; that you can spend every year, and then give you your purchasing power back when you sell it; where is this increased purchasing power supposed to come from? This is called going back to basics. This is the really, really, dumb question that a person shouldn't be afraid to ask. And when you sell these stock certificates again, for $27; five years from now; you're going to get back the same purchasing power you paid this year, right? Infaltion has been going on since WWII; shall we say, just so we have really really good statisics to look at, and accelerating sharply since "I am not a crook, Nixon" made dollars infinitely multipliable; Inflation is very popular with the people in charge of "dollars"; it's very reliable. You can depend on inflation. This person is really certifiable; I mean, he's financially illiterate. This is basically the person who thinks Tinkerbelle can fly. What if you did something really crazy, that doesn't make any conventional stock-broker sense at all; like putting 100% of your savings in Silver Bullion; would you be protected against inflation? Probably. Could you sell peaks and buy dips? I don't see why not. Can you sell some everymonth to meet your retirement budget? Yeah, you can. But see, that's crazy, so you better not do that. Growth is over. It's done. Cooked. Put a fork in it. The only thing that's growing is the supply of un-redeemable paper "money".
ZH has degerated from having readership comprised of finance wonks to a bunch of gold and silver trolls. You guys clutter up the message board; ZH needs an admin.
PMs have had a good run, and they may well run for quite a while longer - we all know the reasons why, but it's a fair bet that PMs will crash at some point, whether it's from $1,790 or from $5,000, and not a one of you has any idea when that will happen. And when that does come to pass, 99% of you will not catch the top, and will watch it fall most of the way back down while you're busy cheering each other on.
PMs could be a nice, stable store of wealth (that is, when they are not ripping up or crashing down in value), but they do not produce value. Businesses produce value, while also owning assets (factories, land, patents, etc.). No matter what happens with our gov't debt, or other problems of the day, we're not going to stop drinking Coke, or using Crest, or using phones. Verizon gets more of my money every month than I care to think about. The only thing that will change is that instead of paying 5 cents for a Coke, or 50 cents, or $1.25, you'll be paying $5, and the KO dividend will grow along with its book value.
So buy your gold and silver, but understand that not everyone can own only PMs - someone has to own the other assets - and some assets might be more preferable to others. Such as T vs a CD. ...and leave the author alone.
To think that politicians and bankers have a handle on this situation IS VERY optimistic if not delusional. What more evidence do you need? Frankly, I'm sick of all the happy sunshine trolls pretending that everything is going to be okay. They smugly pronounce how smart they are for being contrarians. As if all our leaders, better known as megalomaniacs, sociopaths and narcissists are going to magically come together and solve the biggest problems in generations. This is the end of Rome my friend. This isn't 1980. Do you understand the gravity of the situation?
Can you say with any confidence that you believe gold and other PMs will crash within 12 months or at the very least not continue to rise?
Can you give me one good reason to believe that the fundamental factor causing economic stagnation (excessive public and private debt) will change?
Can you give me one good reason to believe that the path of western governments will not be currency debasement and monetization of debt?
Can you give me one good reason to believe that buying AT&T stock at $27 today would give me anything close to the likely ROI on PMs over the next 12 months?
I agree that dividend yielding stocks are generally the best investment one can make if purchased properly, but I sincerely contest the idea that it is a better investment than gold at this moment. There is zero rational reason to believe that.
"Can you give me one good reason....."
LOL. You can expect white noise for a reply. None of the anti-gold people can lay out a scenario where the supposed crash occurs.
Nominal options on futures contracts in gold is greater than mine output for the year: don't forget the futures themselves, then the ETFs and miner stocks. Leverage over physical is what?
100x?
A sell signal would be a market-maker failing in a bull market: think the bankruptcy of oil trader SemGroup in 2008 during the crude bull. They couldn't make margin: WTF?
This is part of a common theme: hedge funds 'buying' the entire market rather than taking positions within a market. The ugliness starts w/ deleveraging in other markets & liquidity squeeze. The margin calls wipe out paper positions and put a lot of physical on the market with no cash to be had.
It looked like this was taking place earlier in the month so I would not relax.
Yeah, I see your point and prices would drop under that scenario. I don't want to trifle here, because I did say "crash", however I would expect that your scenario would result in a great buying opportunity as the fundamentals would still be pointing up for gold.
If the CME continues to raise margin requirements, then your scenario loses some of its steam, I believe.
#1 - nope - don't know when
#2 - almost certainly not, unless the tea partiers get what they are wishing for
#3 - nope. you might see a consolidation of banking power and money printing ability a la Europe. A Eurozone, but with teeth.
#4 - very, very hard to say. It would depend on your point of entry, no? Gold is high, but how high is high? I don't claim to have the answer here; I'm just annoyed at all the PM cheerleaders who claim they do - who say that no matter what happens, gold will go up. They're going to get creamed, because with that mentality, they won't recognize when things do turn around.
#5 - so are you 100% in PMs? I get the distinct impression that some of the folks on this board are all-in, which I suspect is not saying much. 100 pieces of silver buried in one's backyard is not a retirement plan, and to physically hold a metric ton of silver on your property is impractical.
I think you're right that many will be creamed. They are in for the wrong reasons and will therefore fail to see when the party has come to an end.
Of course this assumes that the world financial system doesn't break down and recovers at some point. I don't think that's anywhere close to impossible, but it's not a given either.
As to the holding of large amounts of silver, that's what gold is for.
The purpose with going with physical over paper is that there is a possibility the paper game could break down and the price of physical will skyrocket while leaving paper holders with nothing
It's not hard to liquidate physical into currency if one so desires.
Take a look at PBT or HGT as an alternative.... Hell, even MO and RAI are better
Shadowstats has "real" CPI annual increase currently at over 10%.
http://www.shadowstats.com/alternate_data/inflation-charts
Thanks for noticing.
I'm supposed to put my money in AT&T instead of a bank CD? Because it's a "solid company?"
Maybe I can use the stock certificates as kindling or something. Seems overpriced on that basis.
Better than GM or Shittybank/corp/thingie/incongruent-it
(maniacial laughter morphing to tears.... thsi is what they want... to force everybody into high risk assets... openly crying... looking for Ativan and Thorazine)