Run, Don't Walk From Treasuries

Seriously, the government has gone to great lengths, using "hedonic" adjustments, changing the basket of goods and services for the inflation calculation, using "owner's equivalent rent" instead of housing prices, and even excluding certain items entirely that have rapidly increasing prices to reduce the reported inflation numbers.

The second problem is that global competition is no longer only a deflationary force. Wages have been rising rapidly throughout the developing world. Also, demand for goods and services in the developing world are exploding. This has put upward pressure on energy and other commodity prices.

Even based on the government's inaccurately low reported inflation figures, the recent headline numbers have been in the 5% to 6% range. Analysis by several independent economists and market watchers has shown that if inflation were calculated similarly to the calculations used during the early 1980s, our headline inflation numbers would be over 10% right now. That compares with a 10-year Treasury yield of around 3.5% -- before taxes. Buying a security that appears to guarantee a substantial loss is not my idea of a rational investment.

With stocks crashing, even the best corporate credits suspect, and cash yields also very low, what can a rational investor who is concerned about safety and some income buy right now? For an investor concerned with safety and income, I would focus on relatively short term AA- and AAA-rated municipal bonds, GNMAs and also the debt of Fannie and Freddie. Municipal bonds are probably the best value right now that they have ever been.