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Your Last Opportunity to Make a Fortune from Bonds

By Tom Dyson, publisher, The Palm Beach Letter
Monday, March 1, 2010

In early 2009, the stock market was collapsing, the economy was contracting, the Fed was pumping money into the markets, and the government was rescuing the banking system.

While everyone else was panicking into gold and cash, I recommended you load up with bonds.

I figured commodities and stocks would be terrible investments as the world economy contracted. But as long as America stayed solvent, bonds would be great investments.

To understand this idea, you have to understand the difference between a bond and a stock...

A stock is ownership. When you buy a stock, you are entitled to whatever dividends it generates until you decide to sell your stock. Profits, revenues, and growth are extremely important to you. Without them, your asset loses its value and your investment declines.

A bond is not ownership. It's a loan. You lend your money, receive interest, and after a certain time, you get your money back. You have no interest in future profits, revenues, or growth at the company you loan to. The borrower's solvency is what matters most to you.

In a contracting economy, revenues and profit shrivel. Stocks get crushed. But as long as America remained solvent and liquid, I knew interest and principal payments would continue. In other words, my subscribers would be safe in bonds. Here's what I wrote:

The important thing is, as long as the government is working hard behind the scenes, printing money, guaranteeing debt, bailing out failed companies, building infrastructure, supplying credit, and buying financial assets, there will be NO more bankruptcies, NO more defaults, and NO more credit crunches. Just a "vegetable" economy.

This vegetable economy will be difficult for most investors, but for bond investors, it couldn't be better.
I called this the Golden Age of Bond Investing. In my 12% Letter, I recommended a fund of corporate bonds yielding 20%. That fund has since gone up 80%, generating 20% in dividends. Over the next few months, I added seven more bond investments into our portfolio.

With the exception of the 20% bond fund, which hit a stop loss, every single one of these bonds is currently showing a profit. The average gain is 20%. We're also earning 9% a year in income.

The Golden Age of Bond Investing still has years left to run, and we'll keep holding these bonds and enjoying the steady income they pay us. But the opportunity to load up with mispriced bonds paying ridiculously high yields passed last year with the credit crunch...

Or so I thought.

Last week, I discovered a new bond investment. These bonds are still trading at crisis levels, selling for about 60 cents on the dollar on average.

It's like cleaning up after a dinner party and finding an unopened bottle of wine.

These bonds are your last opportunity to make a fortune from the Golden Age of Bond investing. I'll tell you about them in tomorrow's column...

Good investing,

Tom Dyson

Further Reading:

In Tom's first essay on the Golden Age of Bond Investing, he described something called the "Greenspan Put." If you understand this, you understand why there's been a fantastic opportunity in bonds. Get the super-simple explanation here: Make 20% Yields from Our Vegetable Economy.
You should also be sure to read Tom's follow-up essay, where he lays out exactly why bond investors will crush stock investors during times when "safety trumps growth": The Golden Age of Bond Investing.

Market Notes


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Special "3-month low" edition...

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