One of the great tragedies of modern finance is the herd mentality.
It’s the idea that if everyone else is doing it… it must be the “safe trade.”
Last year, as the markets cratered during the fourth quarter, the great narrative was that investors should pile into U.S. Treasuries.
Oh… the joy of 4.5% interest rates. You could lock up 3.5% CDs at banks. You could “beat inflation” if you bought two- to five-year bonds.
And you know what? I watched financial advisers do that with retirees’ money. I listen now as these customers complain that their money is locked up in multi-year Treasuries that they’d have to sell at a loss.
Why? Because they didn’t understand how the bond market worked, and they thought that tying up money in these annual coupons was a great idea. Turns out… they’re struggling… and they can’t take advantage of much better opportunities to make income as investors.
Today, I want to explain how bonds work. This is very important. Because when interest rates go higher, you might find yourself in a very difficult position with your money.
Understanding Rates and Bond Prices
Imagine you have a five-year bond, a nice IOU from a company or the government.
When interest rates in the economy go up, it impacts the bond’s value.
When rates rise, newer bonds start offering better interest rates.
If you have an old bond with a fixed interest rate that’s lower than the new ones, it becomes less attractive to buyers. Who wants a bond that pays less when they can get a higher yield elsewhere?
So, what happens to your bond’s value?
The value falls.
Investors won’t pay as much for the bond you bought when they can
invest in ones with a higher rate.
Think of it as trying to sell an old iPhone when a brand-new model just hit the market.
This decrease in bond value is called “price depreciation.”
Now, if you hold onto your bond until it matures, you’ll still get the promised amount back. So, you might not feel the pain if you don’t sell early. But if you need to sell it before it matures, you might get less than what you originally paid for it.
So, your money is locked up… at a specific rate… for a specific amount of time. And if there’s another opportunity that comes along, you’ll have to take the loss with it.
While there’s a lot of focus on equity markets and the concept of a bear market… the real bear market may be found in the U.S. bond market.
The U.S. Bond Market ETF — the total seven-year return — has now turned negative, a stunning turn from the big gains investors made after the Fed slashed interest rates to zero a few years ago.
Looking ahead, it’s hard to see any serious bounce in the U.S. bond market ETFs until the Fed cuts rates. But that’s still a long way off… barring a recession.
What’s the Alternative?
Obviously, there is unique risk in the equity markets as well. Stocks and ETFs can fall in price at any time. But if we use the combination of momentum, global liquidity, insider buying, discounts and technicals to our advantage, we can find incredible equity income opportunities that present both price appreciation upside AND dividends that far surpass what’s offered in U.S. Treasuries.
In addition, we can manage our risk with position stops.
That’s how you find a company like Redwood Trust Inc. (NYSE: RWT), which trades at a discount to its asset value, offers a double-digit dividend, and has rallied by 20% since May.
This week, I’ll be unveiling my latest income play in Tactical Wealth Investor.
You’’ll want to get your hands on this pick because we’re tapping into one of the most reliable sources of dividend payments in the global markets. And you’ll want to take advantage with a yield that surpasses all of the U.S. Treasury markets right now.
Plus, I’ll give you a full breakdown of what’s happening in the global markets right now, and explain why markets will likely face additional pressure heading into 2024. You need to start building a defensive portfolio ahead of this election year. I’ll show you how…
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. This Chart Goes Straight UP
Roger Scott just discovered a “pricing mismatch” in the options market that has shown to pay out double- or even triple-digit returns from small 1% stock movements!
When you see what a $10,000 hypothetical account would have turned into exploiting this pricing mismatch over the last 10 years…
Your jaw will hit the floor!
This has nothing to do with boring income strategies…
Nothing to do with risky short-dated options…
And nothing to do with penny stocks.
In fact, this pricing mismatch only works on some of the safest assets on the planet!
Go Here and Roger Will Reveal Everything
Market Momentum is RED
Equity Momentum is Red at the moment across the board, with only Energy as a strong sector heading into October. We continue to show patience in this environment without forcing any trades.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
