In early October I wrote to you about how lower rates were here to stay – in fact that was the title of the article. I recommended that you buy municipal bonds and buy them through closed-end funds and even recommended one in particular, the Nuveen Municipal Income Fund (NMI). Since then the fund has increased in value by more than 105 plus paid out four nice dividends. More importantly it’s blown away the returns from the stock market over the same period of time. Readers of my CHIRP insider trading service have done even better, picking up a mortgage play, which is up even more and still paying a dividend of over 10% annually.
I chose the Mona bond play and the mortgage play because of the noise…or lack of public noise in the background. You see, while the talking heads were telling you rates were going much higher, in private the bankers were all buying up shares of interest sensitive stocks like the ones I mentioned above and locking in fat yields as well as setting themselves up for capital gains. That’s just how it works folks. What you hear on the news and see on the financial shows is not what is happening behind the scenes. Really, why would they share their best ideas with you for free?
The Income Heist as I call it is still continuing. Interest rates will move higher, but it won’t happen all at one time. That’s what you have to “get”. Just because the trend might be higher, and it’s not right now, that doesn’t mean that getting 10% or 7% is a bad thing. Think about it. Even if rates moved up by 100 basis points, you would still only get 1% max from your savings account and maybe 3.5% form a ten year locked in Treasury bond. What would you rather make, 7% to 10% from a preferred stock or a REIT or the municipal bond or 1% from your savings account or 2% on a five year CD? I thought so.
If you’re looking for good returns then you can still get them. They’re not as good as they were in October, but still way ahead of what the cash market is paying you. Three companies, and I own all of them, are paying nice juicy returns right now. Sure, they’ll be volatile, but I didn’t buy them for a trade, but for income as well as the potential for capital appreciation.
They are the Nuveen Municipal Income Fund (NMI) a closed-end fund, which pays 5.2%, or thereabouts of Federally tax exempt income. It’s a buy under $10. The second is a preferred stock of an online bank called Everbank. The symbol is EVER Pr A and it’s currently yielding around 7.3%. It’s a buy under $22.50 and the third is Annaly Capital (NLY), a riskier mortgage REIT that is paying more than 10%. It’s a buy under $10.
This economy is not growing as fast as it appears on the surface and any disruptions like the massive winter storm in the Northeast or the crisis brewing in Emerging Markets is enough to slow down growth and that means interest rates can’t move higher. Look, even though the Federal Reserve began tapering last month, meaning it has lowered the amount of easy money in the market, interest rates are still lower today than in early January. Even mortgage rates fell back to the low 4% level in early February. What people are missing is that the Federal Reserve is not cutting off the easy money, they’re just slowing it down a little and that still means that interest rates will remain low for the foreseeable future as will the yields from your savings account. So do yourself a favor and follow the insiders and make your own bank heist!
To your wealth,
P.S. from Midas Legacy Editor: Through his Washington contacts, Banker X exposes insider trading activity and sends appropriate specific BUY recommendations to subscribers to his C.H.I.R.P. service.