Betting on China now?

I’m quite  busy with the ongoing submission lately as we have to constantly address urgent FDA requests which can come anytime. Working during evenings and weekends are becoming norm now. So I may be brief on my blogs. A quick note that I think right now it may be a great time to buy Chinese stocks. I know it is against the herds but that’s often the time most of money could be made. You see, the Chinese market has been bearish for 6 straight years since its peak. It has been struggling and has tried many times to turn around but each time it failed. So the sentiment for the Chinese stocks is extremely poor. That’s one of the greatest indicators for a bottom. When no one wants to talk about something, it often means no one has left to sell and the next direction will be up for it. I guess you can understand in this situation, the stocks are likely very cheap. It is indeed. For the 25 largest Chinese blue-chip stocks, the P/E ratio is only 7 as compared with 18 for the US stocks. They are yielding 2.9% in average and are trading roughly at 1.0 times book value. While no one is interested in the Chinese stocks, the so-called smart money is quietly moving into it: it was reported that the big fund companies such as Goldman Sachs, Morgan Stanley and JP Morgan are buying Chinese stocks now. I think it is the time to put some money in. If you are brave enough, you can buy individual stocks but the much safer way to bet on the Chinese stocks is to buy a basket of blue-chip stocks. You can easily do so to buy iShares China Large-Cap (FXI). It is designed to track the performance of the 25 largest companies in the Chinese equity market that are available to international investors. As you can see below, FXI is presenting a very bullish pattern: inverse head and shoulders. Oftentimes, it is leading to a uptrend. However, keep in mind, FXI has run quite well in the past few weeks and now it is approaching its first resistance line at $37. If it can break out this resistance, it will be a very strong bullish sign. But more often than not, the first attempt is usually failed. So I'd expect that FXI may likely come down first in the next few days or weeks before getting ready for the next run over this Resistance. I just cashed in for my first bet set up 2 weeks ago and will make another bet if it indeed drops a bit.

Macro: The Bottom Line (5/26/2014)

Just when everyone thought easy money was history

 

Almost exactly a year ago, then-Fed Chairman Bernanke uttered his infamous "tapering" comment. What transpired thereafter was nothing short of mayhem: the yield on the 10-year U.S. Treasury rose 1 full percentage point, assets from equities to TIPS sold off across the board, and billions of dollars of market value vanished in the portfolios of major investment funds (including the one where yours truly works at). Beyond the borders of the U.S., finance ministers and central bankers from Brazil to Indonesia - who had become so used to foreign capital flowing into their economies - suddenly found caught in a reversing tide. In short, in May 2013, everyone thought that the era of easy money was over.

Fast forward to May 2014, and you'd be forgiven for thinking that all of the above was nothing more than a nasty nightmare. In fact, what we've seen this month has been the polar opposite of last year's "taper tantrum." For one, the 10-year Treasury yield managed to fall below the 2.50 percent mark for the first time since last fall (to put things into perspective, the yield was above 3 percent at the start of the year). Even more spectacular has been the rally in assets abroad. To such an extent that the Brazilian central bank is once again getting concerned about the strength of the Real currency, not the other way around. And to the point where Spain can borrow for 5 years at the same interest rate as the U.S. Treasury, and Portugal (a country with a 130 percent debt/GDP ratio) managed to auction 10-year bonds for a mere 3.6 percent yield.

What has been the catalyst for this sudden reversal in sentiment? Many would point to a shift in tone since Janet Yellen succeeded Bernanke as Fed chair in February. Indeed, Yellen has presided over quite an aggressive verbal campaign by Fed officials to reassure markets that loose liquidity conditions would continue. And notwithstanding the clumsy "six months" comment in March, the jawboning campaign seems to have mollified investors for now.

But even more so than the Fed, the "taper un-tantrum" has to do with the fact that there's a new 800-pound gorilla in town. This is a player who, after shackling the printing presses for so long, now wants in on the easy-money bandwagon. You guessed it, it's the ECB. We also discussed at length in our May 12th post ("A long overdue wake-up call for euro bulls") the motives behind the change of heart in Frankfurt. Namely, (1) the creeping threat of deflation and, (2) a strengthening euro currency that's eroding the competitiveness gains the peripheral economies have so painfully achieved. Now, the ECB is openly considering a raft of potential measures, including negative deposit rates, hundreds of billions of euros of longer-term loans for European lenders, or outright purchases of bonds (including asset-backed securities and government bonds). And never before has ECB President Draghi staked his credibility to this extent; after shaping market consensus for so many months now, it would be hard to imagine the bank not following through at its June 5 policy meeting with some sort of concrete action.

Which of these measures will ultimately be implemented, and the overall size of the program, are unclear at the moment. And skeptics (rightfully) point to the fact that such measures are not new to the ECB. After all, the ECB did provide more than 1 trillion euros of 3-year loans to banks at the end of 2011, and purchased up to 200 billion euros of peripheral debt between 2010 and 2012. But the key difference lies in the objective of these programs. Back then, the primary goal was market stabilization, or in other words, to halt the free-fall in Spanish, Italian, and Greek bond prices. Neither inflation (still above the bank's 2 percent target in several key Eurozone economies) nor a weaker euro featured on the ECB's priority list at the time. In fact, unlike in the U.S. or Japan, the ECB ensured that all the extra money from the government-bond purchases was sterilized (i.e. reabsorbed) via its open-market operations, so the net "money-printing effect" from the bond-buying program was neutral. This time is different though. The explicit objective is to reflate the economy and debase the euro, and for a central bank, there's no credible alternative to aggressive money creation to jolt the economic agents in that direction. So if Draghi and his colleagues are genuinely interested in addressing what they claim are their key concerns, they will need more than the "bazooka," they'll need the nuclear option.

 Euro bulls have already come under pressure, with the common currency falling back to 1.36 after approaching the 1.40 mark just weeks prior. Risk assets around the world are also responding to the heightened anticipation, rallying on the prospect of another deluge of central bank liquidity. And while there's always the risk of the ECB underwhelming expectations, we believe that the circumstances are increasingly stacked in favor of more easy money.

On the shoulder of billionnaires

Have you ever heard 13F filings? Likely not; not many people know it. But sometimes 13F may reveal very informative information for your investment decisions. Per the U.S. Securities and Exchange Commission (SEC) reporting requirement,  fund managers with $100 million in qualifying assets must report its holdings on Form 13F  in the past quarter. You may search for and retrieve Form 13F filings using the SEC's EDGAR database.

The latest 13F filings, for the quarter that ended March 31, just become available last week. Here is what I learnt in the first quarter 13F filings. Very interestingly, 4 billionnaire investors, Warren Buffett, John Paulson, Kyle Bass, and Daniel Loeb, have invested big money in one company: All of them are buying Verizon (VZ) big time! I assume everyone knows Verizon, the biggest mobile company in the US. It is a well managed company with great business execution. The stock is paying a high dividen at 4.3%. Apparently all these investment gurus think VZ at this price is still cheap. Actually looking at its chart, you can notice that VZ has just broken out its 2 year resistence line. I think VZ is ready for a big run from here. Likely it will come back to retest its support line around $47-48, which will be a great point for entry.

Another merger idea

Everyone knows Microsoft (MSFT), the largest and best software company in the world. If you are following my blog, you know how much I like MSFT and I’m still thinking MSFT is at a good value at this price and should be added into your retirement portfolio if you haven’t done so. Actually I wish MSFT share price will not go crazy and go up significantly from here, since its low stock price will allow me to extract a lot of income again and again.

Today I have a crazy idea that I think MSFT will buy SAP (SAP) soon.  SAP is a Germany software company which I knew over 10 years ago. I made some money initially but lost a lot during the dot.com crisis. Now I think SAP may become a good acquisition target for Microsoft. I bet not many of you know SAP but it is the largest ERP software in the world. ERP or Enterprise Resource Planning is widely adopted by major companies in the world as it will help and facilitate companies to get an integrated, real-time view of their core business processes and efficiently manage such data throughout every stage of their business. While MSFT is most popular with its consumer software (such as Windows, Xbox, Windows Phone, Surface etc), it is actually also the 3^rd largest ERP software company with business software such as Azure, Office 365, Windows Server, Dynamics etc. MSFT has a clear strategy to expand its business software business by creating the cloud platform Azure. Actually MSFT’s Azure can also support SAP’s applications, which can allow SAP users to easily reconfigure their SAP products to be run in Azure as necessary. More interestingly, MSFT has already started the partnership with SAP in enterprise cloud computing, mobile devices and other areas. Quite often, successful partnership can trigger the merger idea if the great profit prospect is foreseen. One good example is the acquisition of Medarex by Bristol-Myers Squibb. Now everyone knows the first ever leading immune cancer drug on the market, ipilimumab, which is a product from Medarex.  Initially, Medarex was in partnership with BMS for ipilimumab and when it was close to its approval, BMS saw the huge commercial potential of ipilimumab as well as a large pool of antibody products and decided to simply buy out Medarex. This is probably the main reason why BMS has become the leading company in the totally new oncology field: immunotherapy for cancers. If MSFT buys out SAP, it will also become the leading ERP software company, which to me makes a lot of business sense. I bet MSFT is likely also considering this as it is transforming itself at the moment from a customer-software-dominating business more into a business-software company.  Buying SAP is not a bad idea for this potential merger.

Bite the Chinese Dim Sum

I'm travelling tonight to Switzerland and have no time to write. I'd like to bring your attention to my previous posting regarding the opportunity of diversifying your currency to some Chinese Yuan, or RMB. I do believe this is a great time to do so as long as you are willing to hold it for long-term and enjoy a good dividend at the same time.

Why is this high dividend yield stock not so risky?

I have been watching Windstream (WIN) for many years due to its very stable and high dividend yield. Founded in 1940s, WIN had been largely focused on the business in providing phone, web and related services to the rural areas in the US. Since not many companies were interested in such businesses, WIN was doing fine without much competition and earned a lot of money. That’s why it could afford to pay back shareholders with quite a high dividend at around 5-10% depending on the stock price. Believe or not, WIN is a Fortune 500 company.

What becomes more interesting now is its strategic transformation under the current management team: They don’t want their business to be limited to the rural areas anymore. They have expanded to the top metropolitan areas in the US as well and more importantly, they have expanded their business to much hot high-tech areas such as data, voice, network, and cloud-based solutions. They have started the transition since 2006 and have become quite successful based on their profits and cash flow. But the Wall Street is still very much underestimating this company based on how low its share price is at the moment. At the current price around $9, WIN is paying you a 11% dividend, which is less than 70% of its free cash flow. This low percentage suggests there is not much risk that WIN will need to cut its dividend even if it faces some challenges down the road. Generally speaking you don’t want to touch stocks with very high dividends as there are usually high risks involved. But this is not the case for WIN. I even believe, when the Street wakes up some day, WIN’s stock price will shoot up substantially from this level. This is a rare combo that you can safely enjoy the high dividend income but also get potential big capital gain. You don't often find this kind of mix for a good stock.  I’d buy WIN now and add more if it goes down further due to overall market weakness.

Macro: The Bottom Line (5/12/2014)

A long overdue wake-up call for euro bulls

 

Lest you thought we've gone radio-silent on our bearish stance toward the euro: we'll be the first to admit that shorting the common currency wouldn't have been the best trade over the past few months. Despite all the fundamental factors suggesting otherwise (which we'll reintroduce shortly), the currency through the start of May continued its inexorable march toward $1.40.

This past week, however, the euro seemed to lose steam. After attempting yet another run for the $1.40 mark, the currency made a rather hasty retreat to below $1.38. The main factor behind the rally was the ECB policy meeting on Thursday. While there were no policy changes, ECB President Draghi's comments were clearly on the dovish side, suggesting the bank could take action as soon as next month. 

In our view, this mini-correction in the euro is long overdue, and may be the start of a more pronounced slide going forward.

 

Before delving into the reasons why, let's put things into context. This was definitely not the first time in 2014 that Draghi has threatened to open the monetary floodgates further; he did that quite explicitly back in February as well. And euro bulls will be the first to point out that this supposed "call to action" in February amounted to little more than three months of inaction. But we think there are compelling reasons to think that this time, things will be different.

The risk of deflation has increased since February: If you recall, one of the main reasons why the ECB has come under pressure to loosen policy has been the ultra-low inflation rates in the Eurozone. The worry is that, with prices increasing at such a modest pace, there'd be an incentive for European consumers and firms to save rather than spend or pursue capital investment. Eventually, if too many economic agents postpone their spending, inflation could slip into negative territory, which would distort incentives even further, as happened in Japan. And if the last few months' economic data is any guide, the risk of such a deflationary scenario has increased. For instance, the latest figures released at the end of April showed that inflation in Spain continues to hover dangerously close to the zero mark, and that in Germany (the Eurozone's strongest economy) it remains close to 4-year lows. Add to the mix the prospect of fiscal retrenchment in France (where the government has just announced 50 billion euros of spending cuts), and you have a recipe for stagnation. Draghi would be remiss to ignore the creeping danger from these developments.

The ECB has become more outspoken about the exchange rate: In February, the euro traded around $1.35, and Draghi was conspicuously silent. But once it came close to breaching $1.40, he blinked. Since then, Draghi along with his colleagues on the ECB Governing Council have been notably more vocal about the dangers of a strong currency to the region's nascent economic recovery. After all, we should not forget that the recent improvements in peripheral countries such as Spain and Portugal have been driven in large part by exports. The ECB would be loath to jeopardize the "green shoots" it has spent so much effort cultivating. In fact, all indications are that the ECB is setting an implicit comfort limit at $1.40 (with an absolute red line at $1.45). Any drive toward those levels could lead to some aggressive jawboning or even intervention.

There's a growing consensus within the ECB for unconventional measures: Part of the reason why the ECB has been so restrained in pursuing stimulus compared to the Fed or Bank of Japan - and by extension, part of the reason why the euro has been so resilient - has been opposition within the ECB board. In particular, the "northern clique" led by Germany has been dogmatically allergic to any suggestion of QE or asset purchases, and has had sufficient influence to tie Draghi's hands. But with the situation showing no signs of turning - either on the inflation or the exchange rate front - these objectors have increasingly found themselves in the minority. So much so that now even the Germans appear to have jumped onto the "unconventional measures" bandwagon - Draghi was even able to announce in April that ECB policymakers were "unanimous" in considering more aggressive measures. And he repeated that very line last Thursday as well.

For the three reasons above, we see a non-trivial chance that the ECB could (finally) act in the near future. When it does, it would refocus attention on the divergence between the ECB's loosening bias and the Fed's moves toward reducing stimulus. It may be time for the euro bulls to start considering their own exit strategies.

Watch $200 level for Tesla

Tesla (TSLA), the Wall Street darling, has been crashing over 30% in the past few weeks. This is one of the most expensive stocks in the world with ridiculously high expectation for it. With such kind of stupid valuation assigned to it, there is simply no way for Tesla to deliver. It has to crash sooner or later. The thing is when people get crazy for something, they simply don't think with brain but only with imagination regardless how unrealistic it is. So it is always very difficult to predict when an expensive and high-flying stock will plunge. I tried once before with Tesla but failed, although I don't believe I was really wrong. It will come down to the ground some day, just a matter of time.

Right now Tesla has just broken down its important support level, $200. Will it further drop? I don't know but I won't be surprised even if it is cut half from this level. If you holds Tesla, watch for the $200 level carefully. Likely it will come back to retest $200, its resistance level for now. If it can break out and surpass this level, then it may restart its bull run for some time. I'm pretty sure there are enough people out there, willing to push it up. But if it cannot hold at the $200 level and starts to resume its downturn, then watch out below. You may want to sell our position if this happens as it could be really ugly for Tesla.

Do you have the gut to buy Russian oil company?

The Ukraine situation seems to get worse everyday since the crisis broke out and it has become very fluid and volatile. Maybe it will be last thing you would think to buy anything from Russia. But if you have the gut and can stomach the volatility, there may be a good opportunity lying in front of your eyes.

Gazprom (OGZPY) is the Russian largest oil company. In the past year, it has declined from its top of around $10 to as low as $6.35, an over 30% drop. As you may see from its chart below, it plunged in Mar due to the intensified Ukraine crisis but the funny thing happened in the past few weeks. As the Ukraine crisis seems becoming even more dangerous, Gazprom is moving higher. When a stock moves higher in a worsening situation, it often suggests that the worst for it has been over with all the bad news already priced in.  Looking at its key statistics, OGZPY is ridiculously cheap: P/E is at extremely low level of 2.45 and it is trading at a 70% discount to its book value. In other words, you are paying 30 cents for $1. It is also paying a 4.68% dividend.

Yes, it is unknown how the Ukraine crisis will end and it is expected that Gazprom's business with Ukraine and EU will likely be significantly impacted. But as it has been reported, Gazprom is discussing with China to export more oil and gas to the country. I'm pretty sure the business with China will be much more valuable for it in the long run, considering how much energy China desperately needs. As it is often said in the stock market: Good things do tend to happen to cheap stocks, I think it is worthwhile to consider to get some shares of OGZPY for the long-term when everyone runs away.

Another great opportunity for MSFT

Here is what I said a little over a month ago: But if MSFT continues to listen to my instructions, then I think it may come down a bit first but it has a very strong support at around $38. Buying around $38-39 will be another great opportunity for you before it runs much higher. Sure enough, MSFT did "correct" in the past few weeks and today it closed at $39.54. This is the perfect closing for me as I had a naked put position expired today. The strike price was $39.50. In other words, MSFT is so kind to me to allow me to collect the full amount of income (~$1000) in one month time. See below.

Just to reminde you that Monday will be the last day to buy MSFT if you want to take the advantage of collecting the coming quarterly dividend. By using the option technique, you can further boost your dividend income substantially just as what I did a month ago. At this price, it is a great timme to make this trade for MSFT. I plan to set up a trading order for Monday and hopefully I can get in.

Macro: The Bottom Line (5/5/2014)

 

Where did all the growth go?

 

The past week was not a good one if you're a U.S. growth optimist. For months now, increasing numbers of market commentators have jumped onto the "U.S. economy firing on all cylinders" bandwagon, painting an unequivocally rosy picture of the world's largest economy. Until Wednesday, that is, when the Commerce Department reported that the U.S. economy eked out just 0.1 percent growth in the 1st quarter.

What went wrong?

 

Well, the optimist will certainly point to the age-old culprit: the horrendous weather that much of the country saw over the winter. While mother nature almost certainly played a role, was it really enough though to single-handedly cause growth to grind to a halt? Likely not. For one, several U.S. economic indicators - including the all-important retail sales data - were already pointing to improvement even before the quarter was out. Never underestimate the resiliency of the U.S. consumer. Secondly, economists' consensus estimates for 1st quarter growth, even accounting for the adverse weather effects, were calling for a print of 1.2 percent. Not stellar, especially given what we've gotten used to lately. But certainly nowhere near the zero level.

Weather aside, the real culprits should come as no surprise to the astute follower of the U.S. economy over the last couple of years. The first was inventory overhang. As we've written previously in Red Bull, a significant factor behind the blockbuster U.S. growth figures in the second half of 2013 was rapid inventory accumulation. In fact, close to half of growth in the 3rd quarter of 2013 alone can be attributed to inventory investment. While it's arguable that this trend was in response to stronger demand (or expectations thereof), retailers cannot be expected to splurge on inventory forever. At some point, the glut will be too great relative to demand, and firms will be forced to pull the stops. And this is along the lines of what we saw in the 1st quarter: companies slowing down their pace of inventory acquisition. The second was a sharp drop in fixed capital investment, even though U.S. corporations are awash with cash. True, capital expenditures tend to exhibit wide fluctuations from quarter-to-quarter. Nonetheless, the drop does at least raise questions about why firms - for all the supposed optimism about U.S. growth prospects - are not yet voting with their cash stockpiles.

What about the other major piece of data from the past week: the blowout employment numbers on Friday? There's no denying that the numbers were encouraging: assuming the pace can be sustained, +288K jobs created in a month is a clear sign of normalization in the labor market. But here again, the data was not entirely absent of red flags. Specifically, April also saw a meaningful drop in the labor-force participation rate, taking it back down to the 35-year low of 62.8 percent reached at the end of last year. As a reminder, this figure essentially means that only about six out of every ten Americans is employed or actively looking for a job. While it helps to massage the headline unemployment number lower (down to 6.3% from 6.7%), a lower participation rate puts further strain on America's ability to deal with mounting demographic pressures - namely an ageing population and ballooning pension liabilities.

The bottom line: The U.S. economy is certainly better-positioned for recovery than many other major economies. But until we see signs of sustained business investment, robust productivity growth, and a reversal in the participation rate decline, it's premature to portend a return to the roaring 1990s.

Is Apple still a buy?

Apple has shown its explosive move lately and is close to $600 now. I have talked about investing or trading Apple probably a dozen times in the past. I hope you have got in at around $450 when I thought it was likely its bottom at its last correction.

Now, at a price of $600, is it Apple too expensive to buy? Well, it is definitely not as good as when it was $500 or $450. But from its valuation perspective, Apple is still rather cheap. The recent very strong earning report has demonstrated its capability to make money, tons of money! I expect Apple will go beyond $1000 within 1-2 years. With this expectation, buying anything which can safely double is not really expensive. I still like Apple tremendously at the current price. Given its recent swift moving-up, it may likely come down a bit but I don't expect it will drop below $550. Buying Apple at its weakness will be a great long-term investment. And even better, reinvest its dividend to make yourself very rich in the long run.

Be cautious: the market is likly topping

Here is what I predicted on Apr 11: "...but I have a strong gut feeling that the market has reached or at least very close to its short-term bottom. Likely in the next 2 weeks, it will come back and make a big jump up. You can feel some capitulation today, which is often the feeling at the bottom." Yes, the market has exactly behaved as "instructed" and I have made some money with SSO. But I don't feel very well about it now. As I have also said, in the intermediate term, I think the market may likely experience a quite significant correction, something like 10-15% decline. May is typically a very bearish month for the stock market. Maybe very soon, probably in days, we will start to see it. Well the S&P 500 index charting is also showing a bearish head and shoulders pattern. If you want to buy some protection as insurance in case the market indeed drops like a stone, you can consider VXX or SDS, both of which will shoot up when the market is down.

Buy coal bond

Not sure how many of you really know bond investment. I bet not many. Just some basics. Difference between bond vs stock investment is just like lender vs owner. If you buy a bond, you basically lend your money to the business or the government. Your expectation is to get pay via interest and you don't care whether the business is doing well or poorly. It is a legal obligation that the business must pay you the interest as long as it is not bankrupted. So the only thing you care about is that the business is still alive even if it is not making money because legally it must pay you first. Just think about your mortgage obligation. Will the bank waive your monthly payment because you are not doing well financially? You are kidding me. On the other hand, if you buy a stock, you are basically part of the owner of the company, even so very tiny part for most of us. As the owner, you will only get pay if your business is doing well, right? There is no law saying that your business must legally pay you first! I hope you can understand the difference now: buying bonds is generally much safer than buying stocks but the earning is fixed via the predefined interest rate. It won't go up even if the business is doing well and it won't go down even if the business is doing poorly unless the business is bankrupted. If you buy a bond from a reasonably well company, your money is rather safe. Actually even if a company is bankrupt, most of the time the bondholder can get at least part of their money back via liquidation. Rarely they will loose everything but it may well be a total loss for shareholders if a company is not dong well.

A bond is usually issued at a face value of $1000 with a fixed interest and duration. You get paid by the interest for the duration and you get your principle back at $1000 per bond when it matures. Sometimes, a bond price will be less than the issue value, i.e. less than $1000. Say if you buy a bond at $850, you get a discount but you will still get back at $1000 per bond if you hold it up till maturity. So you will make $150 capital gain, in addition to the interest you have accrued.

Right now, the coal sector is very depressed and almost everything in this sector is on fire sale, including bonds. I think you can buy the Arch Coal bond at discount. Lately Goldman Sachs has just upgraded the outlook for Arch Coal stock, which is a good sign that this company may likely have reached its bottom. In other words, there is relatively safety in investing this bond.

The bond I'm talking about is Arch Coal’s 9.875% bond that matures on 6/15/19. Right now, it is priced at around $890 per bond. The CUSIP is 039380aj9.  Since the interest of 9.875% is based on the face value of $1000, your real interest income would be higher at around 11% based on your discount price of $890. As long as you hold the bond, you will guaranteed to be paid at 11% till Jun 15, 2019 as long as the company is still running. At the maturity, you will get $1000 per bond, another $110 gain per bond. If the coal industry is really recovering in the next few years, which I highly expect, your bond price may even go higher than $1000. If that happens, you can also decide to sell your bond earlier than 2019 with more profit.

Trading bond is a bit different from stocks. In Etrade, you can search a bond with the CUSIP number at the bond platform and then request for a quote of its price. Given its relative safety and reliable income, you may want to consider to add some bonds into your portfolio to diversify. One last note, bond price is sensitive to and inversely related to interest rate. It is almost guaranteed that the interest rate will substantially go up in the long run and bond prices will go down with it.  Generally speaking, don't buy long-term bonds beyond 7 years of maturity as short-term bonds are not so sensitive to interest rate increase and you can always hold your bonds to maturity to get your full money back regardless of bond price.