This is the greatest moment I've ever been a part of in American finance.
The fed funds rate is at 1%. In other words, the cost of money is historically low... and it's headed lower.
Meanwhile, relative to the cost of money, the return on money is higher than it's ever been.
This is something you absolutely have to take advantage of, right now.
This opportunity will vanish soon. And someone will make a fortune... Position yourself right, and that could be you.
The ultimate way trade on this historic discrepancy, for high-returns with very low risk, is through shares of companies like Annaly Capital (NLY).
Annaly is now paying a 16% dividend. And there's an excellent chance that number could go UP next quarter...
Annaly's business is incredibly simple... It borrows money at a low interest rate and invests it at a higher interest rate in an ironclad safe, government-guaranteed investment. It earns the difference – the "spread." As I told you two months ago, when Annaly is in its sweet spot, it makes a fortune.
Right now, the business is in a sweet spot.
Annaly can borrow money incredibly cheaply... In the latest-reported quarter, the company borrowed money at 3.5%. (The credit markets have calmed down a bit, so its cost of borrowing should be even lower next quarter.)
It invests the money in government-guaranteed bonds. You remember how the Treasury bailed out Fannie Mae and Freddie Mac? It wiped out shareholders. But it explicitly guaranteed the bonds. So these "government mortgage bonds" are just as good as risk-free Treasury bonds. Since the bailout, both bonds have the same government backing.
In the latest-reported quarter, Annaly earned 5.6% interest on these risk-free bonds. Therefore, it earned a 2.1% spread.
If the company uses seven times leverage, a 2.1% spread means a 14.7% return on its money. (Now, seven times leverage is real leverage... but this is nowhere near the amount of leverage that got the banks into trouble. And this is not an exotic idea, it's not the "toxic waste" debt you've been reading about. It's government-guaranteed bonds, just like Treasuries.)
Annaly sells for around $13.50 a share. Analysts estimate the company will earn $2.50 per share next year. It pays out essentially all of its earnings in dividends. So that'll be a dividend yield of about 19%!
So if you buy Annaly today, you'll earn roughly 38% in dividends over the next two years. This is ridiculous... An opportunity like this only appears during market turmoil like we're experiencing now.
The story gets even better... How 'bout adding 85% capital gains over two years to your 38% total dividends?
Annaly sells for about $13.50 a share. But its 19% dividend is bound to get investors excited. So let's say investors start diving in. Let's say they drive the share price up to $25 a share. This makes the $2.50 dividend payment a solid 10% yield.
Even if the stock nearly doubles and goes to $25, then investors could still be willing to pay up.
So you could make an 85% capital gain on the stock price (from $13.50 to $25) and as much as 38% in dividends over two years. That would be a total return above 120% – on a government-guaranteed investment!
This is a historic moment. The difference between the cost of money (around 1% and heading lower) and the return on money relative to that cost is at the most extreme levels I've seen in my career.
The ideal way to play it – where you're taking on literally no credit risk to have a very good shot at pocketing a double or more over the next two years – is through buying stocks like Annaly.
Take advantage of this historic moment, right now. And buy stocks like Annaly today.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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