by Neil George
Wall Street doesn’t want you to own bonds.
In fact, they hate the whole idea of bonds – especially for individual investors who are trying to pay for their retirements.
Bonds, of course, force companies to actually pay investors – and pay them on a regular schedule. Unlike stocks, where dividends can be sliced, diced, and even discontinued – bonds are genuine legally binding contracts – meaning comfy, overpaid CEOs actually have to send checks first to bond investors.
The guys in the executive suites – along with their pals in the investment banks and brokerages – would much rather try to convince retirement investors to just trust them – and so they keep trying to foist dividends from common stocks onto the public.
The charades keep coming every quarter – companies and analysts keep touting earnings and “huge” dividend increases – sometimes amounting to 10 percent boosts in dividend yields.
That’s what gets the headlines – but let’s read the fine print of just how much 10 percent means in real money.
Even with all of the discussions by the talking heads on CNBC about soaring dividends – the average rate for the 500 leading stocks that make up the usual suspects of the S&P 500 index is a miserly 1.99 percent yield.
You can’t live on 1.99 percent – nor can you build a retirement portfolio when you’re only getting a dividend yield of 1.99 percent. And even if every company on the S&P 500 were to boost its dividend by 10 percent – that would still mean that the effective yield would be only 2.19 percent.
As more and more investors wake up from their Wall Street-induced trance – seeing that the general stock market hasn’t and won’t work for their retirement – it’s the bond market that’s been getting their attention.
And Wall Street wants to shut this down – quickly.
But they don’t have much to work with. After all, the S&P 500 is down some 23 percent for the past decade – not something that proves their point to trust stocks. Meanwhile, even the most boring part of the bond market – US governments – are up just a tick shy of 100 percent for the same decade.
So, Wall Street and the guys in the executive suites have created a new playbook to con investors to ditch the success of bonds and come back to stocks.
Wall Street’s Phony Retirement Plan
The plan? Try to convince investors that the bond market is in a bubble that’s about to pop. Then, resume suckering the unwary into buying stocks again.
But there are a collection of problems with Wall Street’s plan – and following it won’t do anything but kill your chances for a successful retirement.
First up, if bonds really are going to head south as Wall Street claims – then interest rates will be heading north – not pretty for businesses. And if interest rates indeed start to rise in earnest – don’t even think that stocks can survive.
But the chances of higher rates are pretty low – especially as inflation is far from rearing its head.
In fact, as we’ve seen, headline US consumer inflation is only running at around 1.1 percent annually – with core inflation running even lower at 0.9 percent.
And on the wholesale level – PPI is running at a core rate of 1.3 percent.
Of course – the next part of the plan is to tell us that low inflation is bad for the economy.
Right.
It’s why we also keep getting the ridiculous pitches that so-called deflation is ready to ravage the US economy. Deflation? Impossible – especially given the continued surge in monetary and credit market conditions.
You just can’t get true deflation with a positive growth in the GDP and a continued surge in money and credit supplies.
Dis-inflation – yes. We can see prices falling where they need to fall based on true market conditions – in sectors such as housing, technology and other markets – including lower value-added labor.
Next, the pitch for a bond bubble moves on to try to tell us that since bonds have rallied so much, they can’t sustain their current prices.
Sure, US government bonds are indeed not just fully priced – but overpriced. That’s why I do not even remotely suggest buying Treasuries – nor have I ever recommended them as part of any core retirement investing plan – especially not in my Pay Me Strategy.
Instead, I continue to recommend and own myself a collection of bonds that not only have performed in the past – but will keep paying you to own them year after year – regardless of what happens with the US government and Wall Street’s whining about bonds trumping stocks.
Wall Street Sells Stocks – While Buying Bonds
Ironically, the same Wall Street guys that are pooh-poohing bonds are the biggest buyers, traders and owners of these same bonds.
Look at the major holders of any corporate or international government bonds – you’ll see the big names of Wall Street. From the big investment banks…to masters of the universe traders…to hedge fund giants – these guys live off of the bond market – even as they tell you to avoid them.
And while they make it hard for individual investors to play in their sandbox of the bond market – inside The Pay Me Strategy I keep showing you how to buy and profit from the very best bonds.
Like my favorite collection of global bonds from countries actually performing – including China, Brazil, Indonesia and plenty of others. An example is my closed-end investment company – the AllianceBernstein Global High Yield Fund ( AWF).
It owns the same great performing bonds as the big guys – but is easy for individual investors like you and me to buy.
It pays over 8.2 percent and has generated a return of more than 344 percent during the past decade (including the inflation years in the middle). Yes – that number is right.
And before you think that it’s too pricey now to buy – nonsense. Despite the stellar performance, it still trades at a discount to its book value of more than 2 percent.
Or how about my series of top performing minibonds? These are real corporate bonds that trade on the New York Stock Exchange just like a stock – only in my favorite part of the market, the less touted “garage” of the NYSE annex.
Here’s a great example I just did a quick review of for my upcoming issue of The Pay Me Strategy – Liberty Media. The company is one of the big drivers of online content and retail around the globe.
I’ve been recommending one of Liberty’s minibonds since back in the depths of the markets in early 2009. And since then – this bond has performed with a return to date of over 245 percent. Yes – that number is right.
And it’s still a great buy – priced at a 12 percent discount to its face value and still paying over 7.5 percent!
Some bubble.
The only bubble in bonds is the one that’s popping Wall Street paychecks – as more and more retirement investors ditch the usual suspect stocks and instead demand to get paid.
If you’d like to get the ticker symbol for the Liberty Media minibond I’ve discussed – as well as all of the details on 28 additional safe retirement securities yielding an average 7.7 percent – click here to try out my Pay Me Strategy for 30 days FREE.
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