The Lowest-Risk Way to 200% in Two Years
By Dr. Steve Sjuggerud
August 21, 2007

Last time around, you'd have made roughly 200% in 18 months…

I'm talking about the last time the Federal Reserve started cutting interest rates. As I'll show, if you'd bought shares of Annaly Capital Management (NLY) just before the last time the Fed started cutting interest rates, you'd have made roughly 200% in 18 months – very safely. Here's what happened, and why I think we'll do it again…

At the beginning of 2001, the Federal Reserve cut short-term interest rates down to 6%. As usual with Fed rate cuts, the Fed didn't cut rates just once. In the year 2000 alone, the Fed cut rates from roughly 6% to roughly 2%.

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Investors who understood that the Fed doesn't cut rates just once made a fortune in shares of Annaly…

A month before the Fed rate cut back then, shares of Annaly traded at $8. By mid-2002 – just 18 months later – shares of Annaly were up over $20 a share, for a gain of more than 150%. In addition, Annaly shareholders also made a whopping 41% in dividends in that time as well, bringing your total return to roughly 200%.

Fast forward to 2007… It is obvious that the Fed is about to cut interest rates. The Fed already cut the not-widely-used discount rate. So we should see a Fed rate cut at the next Fed meeting in mid-September, if not sooner. Buying stocks like Annaly now is buying them one month before the Fed rate cut.

Remember, based on history, the Fed doesn't stop at just one rate cut. And the last time around, the safest place to make a pile of money when the Fed is cutting rates was in shares like Annaly.

The reason you make the most money in shares like Annaly is simple...

These companies essentially make money on the "spread" between short-term interest rates and mortgage rates. Right now, that spread is tight, so they don't make much money. But when mortgage rates are 6% and the Fed cuts rates to 2% percent, that's a 4% spread. Companies like Annaly often use 10-times leverage, so they're making a 40% return on equity.

The reason I say this is the safest place to make a pile of money is simple also… Annaly only invests in things that are guaranteed by government agencies. So Annaly's investments have no credit risk. There is basically no chance Annaly won't get paid in full on their investments.

In the latest issue of True Wealth, I recommended a stock like Annaly that I think is currently a better value than Annaly right now.

Shares like these are going to do extremely well in the next two years, I believe… If things happen like they did the last time around, this new recommendation could bring you gains of 200% in the next 18 months.

It's time to buy stocks like Annaly. But you must be careful and buy the safe ones. In the latest issue of True Wealth, I share the stock I believe is the best value of these types of stocks.

Good investing,

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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