The Best Investment in the World, When the Time is Right...
By Dr. Steve Sjuggerud
April 9 , 2007

And the time is right, right now...

The time is right once again for one of my favorite investments in the world... something I call "virtual banks." Between huge dividends and big capital gains, you can make a pile of money with these stocks, relatively safely, in the next few years.

Virtual banks don't have buildings. Or automated tellers. Or real tellers. Or guards. Heck, there's no vault to guard. That means there's practically no overhead. They operate a lot like regular banks – by simply collecting an interest-rate spread. Roughly, they borrow at 5% and invest basically risk-free at 6%. Since they borrow about 10 times their equity, they can make ridiculous returns.

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They generally set themselves up in a way where they don't pay any corporate taxes... but in order to do this, they must pay out the majority of their earnings as dividends. So they're fantastic to own in retirement accounts. When the interest rate cycle is right, you can collect huge dividends that don't get taxed (until you take the money out of your retirement account), and you can make good capital gains as well.

Importantly, virtual banks take on no credit risk. Here's how it works:

Virtual banks buy bundles of mortgages that are guaranteed by a few "government-sponsored enterprises." You've probably heard of these GSEs, as they're called... the Federal National Mortgage Association (Fannie Mae, for short) is a big one. If a homeowner doesn't pay his mortgage, it's the GSE's problem, not the virtual bank's problem.

This is absolutely crucial. Buyers of these loan bundles – like virtual banks – are taking no credit risk. For bankers who were smart enough to get it, this is a license to print money – at the government's expense. 

Because the interest rates these banks deal with are cyclical, the time is not always right to own them. The cycle was right a few years ago... and True Wealth readers jumped into a bank called Annaly Mortgage to make roughly 60% - safely – in less than three years. It was a safe, simple trade that made extraordinary gains.

And now that a few years have passed, it is time once again to own virtual banks. I recommended my favorite large virtual bank to True Wealth subscribers about a month ago, and we're already up by double-digits.

"Interest Rates Are Headed Lower" Says The Bond King The Old Lady And the Salami Slicer Warren Buffett Is Gobbling Up This Stock

The gains are just getting started. We'll make nice gains on the dividends as they increase in the next 12 months – and even nicer gains in the share price appreciation as the rest of the world catches on to just how much money virtual banks can really make as the spread between short-term rates and mortgage rates widens.

In the latest issue of Sjuggerud Confidential, I listed all of the most pure plays in the "virtual bank" world, then recommended one that really has the potential to triple your money in just a few years. I explain exactly how in that issue.

If you’re a True Wealth subscriber and you're not in this trade yet... what are you waiting for? Start picking up large dividends and let the government take all the risk.

Good investing,

Steve