Special Report: How to Invest for the Death of Bonds

It's been nearly six years since Fed Chief Ben Bernanke slashed interest rates to zero.

Of course, rates were cut to all-time lows for two reasons:

  1. To lower borrowing costs for businesses, especially banks, so they could weather the fallout from the financial crisis; and
  2. To encourage investors to deploy money into the stock market.

It should be a no-brainer that stocks — especially dividend stocks — would appear as an attractive alternative to the ridiculously low yield on Treasury bonds.

Given the Fed's all-out assault on bond yields, investment strategists and traders alike were predicting a severe bear market for Treasury bonds.

Investors were routinely advised to get out of T-bonds. After all, with rates at essentially zero, where could bond prices go but down?

But a funny thing happened on the way to the bond bear market...

U.S. Treasury Bond Prices at All-Time Highs 

Back in 2009, very few investors imagined bond prices could ever approach their financial crisis highs.

But they misunderstood two critically important events: the Fed's quantitative easing and European debt.

Long Bond Higher

The price for the long bond has been on a tear ever since the Fed announced its intention to unleash Operation Twist in August of 2011.

The TLT has rocketed higher by more than 50% — and now sits near an all-time high above $121.

A 220-Year Low for Bond Yields

The 30-year Treasury bond currently yields around 3%. The 10-year sits at 2.3%.

These are just off 220-year lows for yields.

That's right — bond yields haven't been so low since Francis Scott Key wrote the Star-Spangled Banner at Fort McHenry here in Baltimore, Maryland.

These are truly historic times...

The United States has been through a Depression, two World Wars, numerous recessions, oil shocks, assassinations, and a terrorist attack on our own soil... and yet bond prices have never been as high as they are right now.

In the last few years, investors have added a staggering $1.4 trillion to mutual funds that own bonds.

It's easy to understand why investors sought the stability of bonds after the devastating financial crisis. And the safe haven has remained attractive as the U.S. economic recovery has failed to really gain traction...

The fear of Eurozone collapse due to its debt load is real. And while it hasn't become a serious issue yet, investors can imagine a similar scenario playing out here in the United States.

Still, interest rates are at 220-year lows. It's a big bet against two centuries of history to think rates will go lower.

And what happens when the $1.4 trillion that's gone into bond funds in the last five years wants out?

$1.4 trillion can't move quickly or quietly...

It's highly likely that we will see an all-out rout in the bond market.

When Will Interest Rates Rise?

As if 220-year lows for Treasury bond yields weren't enough, there's also the inevitability that the Fed will raise interest rates at some point in the future.

Ben Bernanke had early 2014 set as his target for pushing interest rates up off the floor, but it's not hard to imagine economic conditions pushing that deadline closer to the present. After all, any improvement in unemployment or the housing market will push inflation higher. And as the potential for more quantitative easing fades, rates are also more likely to move higher.

Now, for the income investor, higher interest rates are a good thing as this means the interest payments (dividends) you receive will be higher.

Problem is bond prices fall as interest rates rise. So while the interest rate may be better, the bondholder is losing principle — i.e. he or she is losing the initial investment.

There's no other way to look at it: Bonds are dead as an income investment option.

So investors have just two choices for the $1.4 trillion they've put into bond funds over the last few years: sell bonds to lock in profits... or sell bonds to prevent losses.

Either way, the only rational investment decision is to sell them ASAP.

How to Get Reliable Consistent Income from the Stock Market

My name is Brian Hicks. I've been in the financial newsletter business for 20 years.

Allow me to share with you The Wealth Advisory mantra:

We are income investors, not traders. As income investors, we are not dependent on stock price gains. Stock market corrections should be viewed as an opportunity to add to our income stream at lower prices.

Income investing, on the other hand, is a process that takes place over time. Every time you add to a position, every time you accept stock instead of a dividend payment, every time you take a dividend and invest it in another position... you are creating future wealth.

At The Wealth Advisory, we are keenly aware that more and more individual investors like you are taking control of their investments and retirement planning.

And why not? 

After traditional financial planners and Wall Street advisors utterly failed to protect investors' money during the financial crisis, well, it's easy to see that you can do better...

After all, even in the best years, most mutual funds are lucky to give you better than 8% or 10% gains.

Frankly, that kind of performance just doesn't cut it — especially after the losses most investors sustained during the financial crisis.

So we at The Wealth Advisory firmly believe individual investors can do better than mutual fund managers and financial advisors... much better.

The first step in building a strong portfolio that can grow your wealth now and give you a fantastic income stream in retirement is to own a stable of strong dividend stocks and to reinvest those dividends (i.e. buy more shares with them) for as long as you can. 

However, we don't recommend just any dividend stocks...

Sure, you can own the Wall Street dividend standards like Johnson & Johnson or Proctor & Gamble. These stocks have done a phenomenal job of rewarding their shareholders with growing dividend payments.

But these stocks' glory days are behind them. No investor should count on these companies to grow their dividends like they have in the past.

Rather, individual investors who want to grow their wealth at a market-beating pace need to focus on companies that are likely to grow and increase their dividend payments in the years ahead.

This strategy might take a little more work and imagination than investing in Johnson & Johnson, but the reward will be getting the retirement of your dreams.

With that said, I'd like to introduce you to one of The Wealth Advisory's favorite income stocks... 

MV Oil Trust (NYSE: MVO)

Market Cap: 199.29 million

Revenue: $40.97 million

Shares outstanding: 11.5 million

Dividend: 20.3%

52-week range: $16.50 - $29.15

MV Oil Trust acquires and holds net profits for its trust holders. MV is based in the United States: Austin, Texas, to be exact.

The company focuses on the discovery and production of oil and natural gas in the Mid-Continental U.S. (primarily in Kansas and Colorado).

MV receives royalty interests from its properties, and then pays the majority of that royalty income to its shareholders. Altogether, it holds about 1,000 such properties. The Bank of New York Mellon Trust Company acts as Trustee.

The current share price is around $17. The most recent quarterly dividend payment was $0.89, for an annualized dividend of $3.58... but MVO has paid as much as $1.03 a share, so there may be upside for the dividend.

Also, MV Oil Trust does not hedge its production, so there is upside for the stock simply based on rising oil prices.

MV Oil Trust isn’t set to expire until 2026 — or until it has produced 14 million barrels of oil equivalent. In other words, there is plenty of time for you to enjoy that nice 20% dividend.

Given that it is an unhedged oil play, the stock will perform best when oil prices are rising.


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