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A Government Guarantee That You'll Lose Money

By Chuck Saletta – Updated Apr 5, 2017 at 8:01PM

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"Risk-free return" has been replaced with "return-free risk."

One of the classic definitions of insanity is doing the same thing over and over again and expecting different results. Only slightly behind that definition is this one: Making an investment when you are absolutely certain that you will lose money. Yet that's exactly what happened in the government bond market earlier this week.

For the first -- or perhaps second -- time in history, the auction on short-term U.S. Treasury Bills actually had government debt briefly trading at negative yields. Or in other words, whatever sucker bought at the top is absolutely, positively guaranteed to lose money when those bills matured.

Granted, the loss will be tiny: According to Bloomberg, someone who invested $1 million at the peak would wind up losing $25.56 on the deal. Still, what brainiac would knowingly, willingly, and intentionally make an investment that was guaranteed to lose money? More importantly, how can I get that person to lend me money?

Panic, anyone?
Stop and ask yourself why any investor would lend money at a negative interest rate to a country that already owes trillions of dollars and projects another trillion worth of deficits this year. I can almost understand a flight to safety that brings Treasury rates down near to zero. After all, the government's ironclad guarantee to repay its dollar-denominated debts is good as long as its Federal Reserve chairman promises to run the currency printing presses nonstop.

But below zero? That would imply that the government's promise to pay you a dollar in three months is worth more to you than having that very same dollar in your hand today. No rational investor would make that deal, and it sends a pretty clear message that this year's $8.6 trillion worth of government pork failed at its stated goal of calming the market's panic.

Wouldn't you rather get paid to invest?
It seems Treasury bills have recently become a very safe way to guarantee that you'll lose money on your investment. Fortunately for investors who are able to keep their wits about them, however, there are still ways to get decent income from your investments. The common stocks of some very strong companies currently have dividend yields well above those of Treasuries. There are even some companies that:

  • Are profitable.
  • Have no debt.
  • Are worth multiple billions of dollars.
  • Have at least several hundred million dollars of cash on hand.
  • Have stocks yielding as much as or more than Treasuries with maturities as long as 10 years!

Here are just a handful of them:

Company

Market Cap
(in Millions)

Debt

Trailing Earnings
(in Millions)

Cash on Hand
(in Millions)

Dividend
Yield

Texas Instruments (NYSE:TXN)

$20,160

$0

$2,570

$1,990

2.7%

Lorillard (NYSE:LO)

$10,530

$0

$843

$1,210

6.0%

Paychex (NASDAQ:PAYX)

$9,630

$0

$574

$464

4.7%

Analog Devices (NYSE:ADI)

$5,260

$0

$525

$1,310

4.8%

Garmin (NASDAQ:GRMN)

$3,830

$0

$882

$540

4.3%

Maxim Integrated (NASDAQ:MXIM)

$3,760

$0

$302

$1,260

7.3%

Interactive Data (NYSE:IDC)

$2,170

$0

$134

$239

2.7%

Given a choice, which one would you prefer?

  • A government-backed guarantee that you will lose money.
  • The opportunity to get paid to invest and potentially see your money grow over time.

Sure, stocks are risky, and you still can lose money if the businesses behind those shares sour. At some point, the deck becomes so stacked in favor of investing in the stocks of strong companies that it would almost be criminal to ignore them. If negative Treasury bill yields don't signal that point, I'm not quite sure what would.  

The Panic of 2008 may not be over yet, but it's certainly about time to start sweeping up the tremendous bargains it's leaving in its wake.

At the time of publication, Fool contributor Chuck Saletta owned shares of Maxim Integrated. Garmin is a Motley Fool Global Gains recommendation and a Motley Fool Stock Advisor recommendation. Paychex is a Motley Fool Income Investor selection and a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy will gladly pay you $0.99 on Tuesday for $1.00 today.

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Stocks Mentioned

Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$154.78 (-2.32%) $-3.67
Garmin Ltd. Stock Quote
Garmin Ltd.
GRMN
$80.31 (-1.78%) $-1.46
Analog Devices, Inc. Stock Quote
Analog Devices, Inc.
ADI
$139.34 (-1.87%) $-2.65
Paychex, Inc. Stock Quote
Paychex, Inc.
PAYX
$112.21 (-1.04%) $-1.18
Interactive Data Holdings Corporation Stock Quote
Interactive Data Holdings Corporation
IDC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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