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Understanding the psychology of bonds.

December 10, 2010

This article is strictly my opinion. Everything I say is false only if there are strict and intelligent protective laws and they are being enforced! I believe that my views will benefit all of you who want to avoid being ripped off by fraudulent bonds issued by governments, municipalities, corporations or any entity out to “milk” innocent investors. I wrote this article with special compassion for Africans who live in departing cash economies.  Any cash economy in a culture that is moving away from the family farm and its bartering system will produce crooks offering fraudulent bond issues. Any simple or centralized economy in a dictatorial country that is also moving toward democracy will produce crooks offering fraudulent bonds. That is a given. When there is not enough cash to go around to buy the new goods and services that come with expanded trade, someone will sell you a bag of bonds. It happened during the industrial revolution in 19th century England and it is happening during the electronic revolution in 21st century US.

An US bond is a certificate issued by the US government, the most trustworthy bond issue in the world. When you cash it in you will get your cash back plus a small cash profit, rain or shine. If there was inflation between the time you bought the bond and the time you cash it in, the total you get back will probably have less purchasing power than your original investment. Therefore, if you are an investor in US Bonds you should oppose deficit spending caused by big government, needless wars, perks and waste.

A Municipal Bond is a certificate issued by a municipality trying to supplement taxes and raise more cash to build and run an improved community. It is usually Fed tax-free because we want to help our cities. If you are an investor in “Munis,” as they are called,  it’s like putting your money on the horns of a deer running wild in the winds. Municipalities are wasteful, always in debt, and can easily go bankrupt at times of economic recessions. You won’t retrieve your money back. You are better off investing in school district bonds, to help educate our children, although not all school districts coming to easy money will use it wisely. C-MOR has a cardinal rule: People who rent your cash will end managing your money in such a way that they benefit from it first, their friends or relatives second, the city, school district or corporation they represent third and you… the fourth!

A corporate Bond is a certificate issued by a corporation trying to raise money they can’t raise in the stock market, for whatever reason. I would never buy a corporate bond because if a company is fantastic I will buy its stocks for more profits. Understanding the psychology of bonds is all about trust and I don’t trust secure bonds no matter what the label says. Lehaim!

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