That leaves investors precious few options. Beyond U.S. Treasuries, there are basically corporate bonds — the investment-grade ones yielding little more than Treasuries, and the junk bonds carrying much more risk — and dividend stocks that also have the volatility associated with the broader markets, even if they yield 3% or so annually in distributions.
There is sticking the money under your mattress, of course. But Uncle Sam is just as safe and gives you a 1.5% return. So why not go with Treasuries?
The bitter irony of this fact is that it makes U.S. borrowing cheaper than ever before … which means our debts are less of a problem thanks to the strong demand for government bonds.
Where Do We Go From Here?
You could make the case that the only reason we haven’t had a complete meltdown of the markets in the 12 months since the debt ceiling debacle is by virtue of stalling tactics. Legislators bought time, but did not have a solution. The markets got time, too, as corporate profits continued their unmolested march upward. And Treasury bonds were bought some time thanks to the hubbub in Europe distracting the world from America’s very real fiscal crisis.
Legislators could once again fail the American people on tax cuts or spending cuts before year’s end.
The markets could run out of gas as profits stall — something that earnings are indicating is a very real risk.
And once eyes are off of Europe, they will once again notice the rather sordid state of affairs on the other side of the pond.
These are real risks. But like last year, I prefer to not play the panic card. The economy seems to be slowly mending. Even though 163,000 jobs can’t move the needle, and even though job creation is way down from the clip we saw to start 2012, each step we take away from the financial crisis of 2008 lends just a little more confidence and stability to the markets.
Election-year politicking is dangerous, but also can be quite a pressure cooker — and sometimes that’s just what Washington needs.
As for stocks, the 16% rally from last year is something many investors seemed shocked by — proving that pessimism over the state of things has prevented them from realizing the very real opportunities out there.
So don’t panic. These are hard times, but not end times. We will surely see many bumps in the road — but barring a complete breakdown in our financial or political system, America will emerge stronger in 2013.
If we do see a new depression? Well, the stock market likely will be the least of your worries.
Given the alternatives between hoping for the best and hopping in a doomsday bunker, I’d prefer to keep my money cautiously invested and keep my chin up.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.