With banks in the United States continuing to draw tighter the purse strings as they continue the slow recovery from the bursting of the housing market bubble, and people’s Treasury, bank account, and money market interest rates plummetting alongside mortgage application rates (as mortgage interest rates are rising), many are left wondering what they can do to maket their money earn better interest rates.
Investors and economists are generally expecting the Federal Reserve to act to cut interest rates yet again as a hedge against soaring commodities prices. This act, should it be taken, will further weaken the weak Dollar and inspire banks to cut their paid out interest rates even more.
All this is helping commodities prices soar as investors look for a good deal and the Dollar withers in its purchasing capability.
Howard Simons, a strategist at Bianco Research in Chicago, says, "The guys who screwed up the mortgage markets are bringing their awesome skill sets to bear on physical commodity markets."
One of the answers seems to lie with investing in buying tax-free municipal bonds, a type of investment that has been around for 50 years.
Municipal bonds are used to finance local expenses like new highways or building bridges. Municipal bonds are very popular with people who earn large incomes because they offer a safe, steady return to balance out a more aggressive stock portfolio and, even more importantly to them, they cut down on their taxable income (it should be remembered that the 10% of the wealthiest Americans foot 70% of the federal income tax bill buy themselves every year).
Usually, tax-free investments pay out significantly less than those on which you owe taxes on your returns. This is due to the fact that tax-free investment vehicles must tie up their underlying investments in very safe financial vehicles. In the financial world, decreased risk equals decreased return potential.
However, these days superstars of the investment world such as Wilbur Ross and Bill Gross are buying up every tax-free municipal bond, or "muni", vehicle that they can sink their money into, even as hedge fund managers have sold out their stakes in munis because of the aforementioned tightening of the purse strings by lenders.
Historically, whenever an anomaly such as this–where a tax-free investment vessel is paying out more than a taxable one–there are two eventual outcomes: "munis" returns remain steady while federal Treasury bond yields fall through the floor, which means for you that you have more security in tough financial times; or, munis’ prices will go through the ceiling, which means for you that they can then be sold for a sizeable profit.
So; when it comes to investing right now, you may want to think globally but act locally.
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