Sell Your Treasurys... Buy This

By Dr. Steve Sjuggerud
Tuesday, January 20, 2009

"No one should have a favorite child," Bill Gross told Barron's over the weekend. But Bill's "favorite child" is "about as good a deal as any in the bond market today."

Bill Gross is known as the Bond King – for good reason. He's the world's biggest bond-fund manager, responsible for some $800 billion in invested assets. He's also the best bond-fund manager who's ever lived. Even today, he's still as good as it gets: He beat 99% of his peers over the last five years.

Bill's "favorite child" fund has less than $1 billion in market cap. But he told Barron's it was his "focus every morning."

The fund yields 23%. It's the Pimco High Income Fund (PHK). According to Bill, "It isn't a high-yield fund anymore; 40% of its assets are high-yield, but 60% are investment-grade."

Since 1970, investment-grade bonds have paid about two percentage points higher than Treasury bonds, on average. So if Treasury bonds paid 4% interest, investment-grade "corporates" paid 6% interest.

However, in November, as the credit crunch hit its worst point, investment-grade corporates were paying over 9% interest, while Treasurys paid less than 3% – a difference of six percentage points. We have only seen such a wide "spread" once before, at the bottom of the Great Depression in 1932.

Unless you believe in the Next Great Depression, you want to own corporate bonds. They're now in a solid uptrend – and they're still paying much higher yields than Treasurys.

With the PIMCO High Income Fund, you get paid 23% in dividends on a better-quality portfolio of bonds than its name would lead you to believe. No wonder the Bond King calls it "about as good a deal as any in the bond market today."

Of course, when the market opens today, shares of PHK will probably jump higher because of a "Barron's Bounce." Fortunately, True Wealth subscribers already own it. Extraordinarily, PHK has soared by over 100% in the last two months!

Not every high-yield bond fond will show you 100% returns... But while most investors fret about the direction of the stock market, income plays like investment-grade corporate bond funds will likely do just fine.

The fall in the stock market we saw at the beginning of 2009 showed us what categories of investments are vulnerable. Good, safe income plays (like the types of bonds Bill Gross has been buying) held up extremely well.

Even if the bond funds you hold have a few bonds that default, you'll still do very well... The interest you can earn right now will more than compensate you for defaults.

If you're worried about the stock market in 2009, then consider investment-grade bonds – they're likely your highest-reward, lowest risk play for the year. Between the income from dividends and the capital gains, you should earn safe double-digit gains.

Good investing,

Steve

Further Reading:

The Next Bubble Is About to Pop

This 27-Year Old Bull Market Ended Last Wednesday

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A GLANCE AT THE OLD "GOLD VS. LANDFILL STUFFING" RATIO

An update on the "gold vs. landfill stuffing" ratio we introduced in 2007...

We compare the price of gold to the share price of Nordstrom to monitor an important trend: the rising value of gold versus the value of stuff that will end up in a landfill. Gold represents timeless, real wealth. Shares in high-end retailer Nordstrom represent the desire to spend $100 on a shirt.

When we first published this ratio, gold was rising and Nordstrom shares were falling. The ratio had climbed from 12 to 24 in gold's favor in less than one year. Now, the ratio is around 65. The housing and credit blowup has sent gold soaring against materialism.

The key to this ratio is the most important trend in the world... the "blowup" of years of dumb government policy. The housing bubble (sponsored by the government with years of absurdly low interest rates and insane loan guarantees) is deflating. Everyone is buying fewer $100 shirts. Meanwhile, the government is handing over $1 trillion in paper money to anyone who hasn't figured out the whole "earn it before you spend it" thing.

The market realizes this "great papering" isn't right... so it's pushing the value of gold higher against the value of currencies, stocks, commodities, housing... and landfill stuffing.

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The Secret of World-Dominating Dividend Stocks
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This Developed Country Is Trading at Emerging-Market Prices
By Tom Dyson Wednesday, January 14, 2009
When you adjust South Korea's stock market for inflation, you see that an investor who bought stocks in the 1970s still hasn't made a penny of return today. It's the same way with Japan and Taiwan. Taiwan's stock market recently touched 1987 levels. And Japan's stock market recently touched 1981 levels.
Why Gold Could Fall 50% from its Highs
By Dr. Steve Sjuggerud Tuesday, January 13, 2009
Since late 1970, gold has risen at about 6% a year, compounded. But amazingly, when the price of gold is above its moving average, it compounds at a double-digit annualized rate. And when it is below the moving average, you lose money. That is a huge difference.


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