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  • Why This Economic "Recovery" is So Weak

    We start today with an excellent editorial I read last week written by Mort Zuckerman, Editor-In-Chief of U.S. News & World Report. My goal every week is to do a lot of reading and summarize what I’ve learned in these pages week in and week out.

    But every now and then I run across something so good that it just makes sense to reprint it in its entirety, even if it’s not my own work. Not many of my contemporaries are willing to do that, as they think it makes them look less scholarly. I don’t have that problem. 

    Following that, we’ll take a look at the stock markets now that the S&P 500 Index has finally reached a new record high. You would think that investors would be jubilant with stocks at new record highs, but consumer confidence is still in the tank. We’ll look at some of the reasons why.

    Finally, we will revisit the public’s continued love affair with taxable bonds. Despite the huge bull market in stocks, investors continue to pour money into bonds and bond mutual funds. I continue to maintain that long-only bonds are in for a bear market due to rising long-term interest rates.

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  • On the Fed, the Keystone Pipeline & the War On Jobs

    The Fed Open Market Committee met last week and its decision was to continue the $85 billion a month in purchases of mortgages and Treasury bonds indefinitely. However, in his press conference after the meeting, Fed Chairman Bernanke hinted that the Fed could reduce these purchases later this year if the economy continues to improve. Very few in the financial media picked up on this important new clue, so I will expound on it today.

    There are some reasons to believe that the economy will improve later this year. The housing sector continues to rebound. Home prices have surged so far this year. The number of people who are "under water" on their mortgages is falling, and foreclosures are down as well. Some other economic indicators are also pointing higher. So while the economy still feels like a recession, growth should be better in the second half.

    Would you like to know the real story on why we haven't started building the Keystone Pipeline that would bring apprx. 600,000 barrels of oil a day from Canada and North Dakota to the Texas Gulf Coast? So did I. Today, I have reprinted the best article I have seen on this subject. I trust you'll find it enlightening, but it will almost certainly make you mad!

    Finally, I've been warning about the bond market bubble since late last summer, and Treasury bond prices have come down significantly since the peak back in late July. I close out today's letter with some links to the actively-managed bond programs we recommend. If you still haven't taken steps to protect yourself from bond losses, I urge you to consider moving to one or more of these professionally managed programs before it's too late.

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  • Desperate Fed Launches Unprecedented QE3

    The Federal Reserve announced a new round of quantitative easing (QE3) last Thursday at the end of its latest policy meeting. While the announcement was widely expected, Fed Chairman Bernanke had some surprises in store. He announced that the Fed will buy $40 billion in mortgage backed bonds every month until the economy gets better. When will that happen? No one knows. So the latest round of QE is unprecedented in that no one knows how long it will last or how much money the Fed will have to print.

    To me and many others, this is a sign of desperation on the part of the Fed. Depending on how large QE3 turns out to be, it could spark the next round of inflation. Even worse, QE3 may not work just as QE1 and QE2 didn't work. Some argue that this unprecedented move by the Fed is an effort to get President Obama re-elected. Yet we are continually reminded that the Fed is non-political. What we do know is that Bernanke is out of a job if Romney wins. So one wonders.

    Today we will analyze the Fed's latest move, the logic (or lack thereof) behind it, why it is dangerous, why it is unprecedented and lastly, why QE mainly helps only the wealthy. It should be an interesting letter.

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  • Spain & Weak US Economy Dominate Markets

    Stock markets around the world have been pummeled in recent weeks amidst the growing reality that we’re in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last week’s very disappointing economic reports.

    At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spain’s own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks. Interest rates have soared once again to levels that led to the European Central Bank’s €1 trillion bailout package late last year and early this year.

    Last week, the yield on Spain’s 10-year bonds spiked to 6.7%, a whopping premium of more than 5.5% above the yield on the 10-year German bund at the time. Meanwhile, short-term rates in Germany fell to zero as new money seeks a safe haven there and in the US where 10-year Treasury-note yields fell to a post-war record low of 1.45% last Friday.

    Spain is facing a full-fledged banking crisis and knows it. Yet Spain's leaders do not want a bailout and the accompanying loss of sovereignty. They see that such bailouts in Ireland and Portugal have not gone well. Still, Spain is running out of money fast, and the country is largely shot out of the credit markets. How this plays out is uncertain, but it won't be pretty.

    Following that discussion, I will address the fact that consumer confidence is dropping like a stone in the US. This has prompted new hopes that the Fed will unleash QE3. We will know soon enough as the next Fed policy meeting is June 19-20.

    We end up today with a suggestion on my part that the current swoon in stocks is a BUYING OPPORTUNITY. No one knows where the bottom is, of course, but consider this. If the Supreme Court renders Obamacare unconstitutional later this month, and I think it will, we could see a MONSTER RALLY in stocks. The High Court's decision is scheduled to be announced on June 25. This is why I think you need to be getting back in the market now, while it's down. And I offer two excellent suggestions on just how to do that at the end.

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  • Why Convertible Bonds Should be Part of Your Asset Allocation

    Where should you be investing now? Bonds? With interest rates beginning to spike, bonds prices are getting hammered. Stocks?The stock market, on the other hand, has seemed to go too far, too fast this year, leaving many to fear a major correction just ahead That's bad news for buy-and-hold investors. Cash? Let's not forget that many risk-free assets literally cost you money to hold them on an inflation-adjusted basis. What's an investor to do? This week's E-Letter has one answer.

    It's no secret that I am sold on Wellesley Investment Advisors' convertible bond managed account program. Yet, many of my readers have held off on this investment, possibly because of some analysts are saying that it's time to ditch bonds. It's clear that investors do not realize that convertible bonds are a completely different animal than interest-sensitive Treasury and corporate issues.

    This knowledge gap has caused many to reject convertibles when they should be embracing them. Greg Miller, CPA, is one of the foremost experts on convertible bonds in the country. In our webinars, he notes that anyone who listens to his presentation will know more about convertible bonds than 99% of the US population and even many investment professionals. Today, I'm going to offer you the opportunity to learn more about the hybrid nature of convertible bonds and why, when properly managed, they have the potential to make money in whatever market environment we may face in the future.

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  • Why Convertible Bonds Make Sense Now

    This week, we revisit Wellesley Investment Advisors. You may recall that Wellesley has been very successful by investing in convertible bonds, but only certain types of convertible bonds. Wellesley invests primarily in convertible bonds that have "put" options which allow them to exit positions prior to maturity. This gives Wellesley a big advantage as you will read in today's E-Letter. I happen to believe that most sophisticated investors should have an allocation to convertible bonds in their portfolios, and I also believe that Wellesley Investment Advisors is the place to be. With a 16-year track record and average annual returns of almost 10%(net of all fees and expenses), I believe most investors reading this should take a serious look at Wellesley right away. (Past performance is not necessarily indicative of future results.) I feel that the Wellesley Limited Risk Investing program could be an excellent choice during the current uncertain market environment, especially given Wellesley's opinion that convertible bonds may be a hot place to be in 2012. I think you owe it to yourself to at least check out this program to see if it can complement your other allocations. My recommendation to you today is that you take a serious look at Wellesley right away so that you can get your account opened before the end of the year. That way, you will have the benefit of professionally managed convertible bonds in your portfolio to start the New Year. Don't procrastinate, call today 800-348-3601.

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  • Retirement Income With Limited Risk

    IN THIS ISSUE:

    1.   The Retirement Income Dilemma

    2.   Convertible Bonds as an Income Option

    3.   Revisiting the Advantages of Convertible Bonds

    4.   The Wellesley Advantage – A New Webinar

    5.   Another Chance to Hear Greg Miller, CPA

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  • Treasury Bonds - The Next "Lost Decade?"

    Much has been written about the 'lost decade' in stocks, a 10-year period (2000-2009) in which the major stock indexes produced a negative return. This dismal performance may be one of the reasons that retail investors are flocking into bond mutual funds, according to data from the Investment Company Institute.

    However, there are some analysts who are predicting that the next 'lost decade' may be in bonds, and especially long-term Treasury bonds which are usually more susceptible to interest rate movements. With interest rates at all-time lows, it would seem that yields have nowhere to go but up - pushing bond prices down. The bottom line is that retail mutual fund investors may be setting themselves up for another extended period of low, or even negative annualized performance.

    This week, I'm going to discuss some of the reasons why bond investors may be setting themselves up for disappointing results. I'll also revisit a bond investment that has the ability to trade long-term Treasury bond mutual funds on both a long or short basis, providing the potential for gain no matter what long-term Treasury yields do in the future. You'll definitely want to read about his program, and even attend our upcoming webinar this Thursday featuring this innovative Treasury bond investment program.

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  • Bonds: What the Smart Money is Doing Now

    Responses to my March 23 E-Letter about the possibility of another serious financial crisis in the future continue to roll in. Many of these respondents want to know how to position their assets in case another financial apocalypse is waiting around the corner. This week, I'll begin to answer that question by focusing on a debt/equity hybrid of sorts known as convertible bonds.

    More specifically, I'm going to revisit one of the most innovative and unique bond strategies that I have ever encountered. Greg Miller, CPA, founder and CEO of Wellesley Investment Advisors, has developed a trading strategy that relies on strict fundamental analysis to select among the various convertible bond offerings available. Plus, I'll let you in on a special feature found in many convertible bonds that can actually serve to further reduce the risk of this special investment class.

    I have a major allocation of my personal portfolio with Wellesley, and suggest that you seriously consider this program. With interest rates near all-time lows and the possibility of rising rates in the future, you owe it to yourself to consider Wellesley's convertible bond strategy as a possible replacement for your current bond allocation.

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  • The Fed Blinks, Now What?

    Last Thursday, after the stock market close, the Federal Reserve took what some are saying is the first step in the process of tightening up on the money supply by raising the discount rate by 0.25%. Fed Chairman Bernanke was quick to dispel any rumors of interest rate increases in the near future, as we would expect him to do.

    The markets, perhaps the better indicator of investor sentiment, have been mixed after the Fed's action. After stock futures took a hit on late Thursday after the late-day announcement, the Dow actually closed at a gain on Friday. Since then, the Dow has been generally down, but the markets are definitely not in a panic. If the discount rate increase was a trial balloon for future interest rate increases, as I think it was, then the Fed has, so far, received an answer that the economy and stock market may be ready to at least entertain the idea.

    So what does this mean to you as an investor? For those wanting to capitalize on the price movement of the long-term Treasury bond, it could mean an opportunity is at hand. However, there are still many uncertainties in the world that could drive Treasury bond prices up or down. Fortunately, there is a way to invest so that you can have a long or inverse (short) exposure to price movements of long-term Treasuries. This week, I'll again discuss the Hg Capital Long/Short Government Bond Program and why this strategy may be tailor made for the bond markets ahead.

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  • The Case for High-Yield Bonds

    High-yield bonds, otherwise known as 'junk bonds,' have enjoyed spectacular gains so far in 2009. Both the Barclays and Merrill Lynch high-yield bond indexes are up over 40% year-to-date as of August 31st, and inflows to high-yield bond mutual funds is at or near record levels. What these investors may not know, however, is that high-yield bonds, besides having a higher risk of default, also have a higher correlation with equity markets than other types of bond investments. As a result, high-yield bond investments can be very volatile.

    Fortunately, there is a way to invest in high-yield bond mutual funds within an active management strategy that can go to cash when the high-yield bond market turns negative. This week, I'm going to feature a whitepaper on high-yield bond investing by Steven D. Landis, CFP, co-founder of Sojourn Financial Strategies, LLC. Steve's paper will not only provide some valuable background on high-yield bonds, but will also discuss why an actively managed high-yield bond program may still be a good investment in 2009. After that, I'll discuss Sojourn's Columbus High-Yield Bond Program that Steve manages. I think you'll find this program to be a viable way to introduce additional diversification into your investment portfolio.

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  • On The Economy, Bonds & Bear Market Rallies

    Last Wednesday the government reported that 1Q GDP declined at an annual rate of 6.1%, thus confirming that we are still in a deep recession. While the GDP report was worse than the pre-report consensus, it was very much in line with what I predicted in my April 21 E-Letter. I continue to believe that we will be in this recession all year.

    Several recently released studies highlight the fact that long maturity Treasury bonds have outperformed stocks over the last 40+ years, and by a substantial margin over the last 28 years. I will examine these reports as we go along. Does this mean you should put all of your money in bonds now? I'll tell you why I believe that would be the wrong move to make at this time.

    Finally, we get calls every day asking if the recent rally in the stock markets means that the bear market is over, or if this is just a bear market rally. While no one knows for sure, we will take a look at some past bear market rallies to keep things in perspective. I think you'll find this week's letter interesting....