Justin’s note: Regular readers know it’s critical to take a step back and look at the big picture every now and then. Earlier this month, I shared an important update on the bond market—and what it means for your portfolio.
Our friends over at Palm Beach Research Group are also following this sector closely. Like us, they see danger ahead for bondholders. Read on to learn more about what they’re calling “Income Exodus”… and more importantly, what you need to do today to protect your wealth.
By Nick Rokke, analyst, The Palm Beach Daily
Income Exodus is finally upon us…
Income Exodus (or Income Extermination) is when bond investors get “exterminated” by rising interest rates. As interest rates rise, bond prices drop. So when interest rates rise rapidly (like they are now), bond prices drop a lot.
Now, we’re seeing this exodus play out in real time.
Since September 26, bondholders lost nearly $1 trillion according to the Bloomberg Barclays Multiverse Index…
This index tracks the market value of publicly traded bonds around the world.
The reason it’s down is simple: The rate on the benchmark 10-year U.S. Treasury has risen from 2.8% to 3.2% since August 24.
Bloomberg says the bond rout could spark an even worse sell-off than in 1976, the worst year for bond returns over the last four decades.
And there’s good reason for fear…
The Federal Reserve has already hiked rates three times in 2018… with plans for one more rate hike before the end of the year. And Fed chair Jerome Powell has indicated at least three more rate hikes in 2019 and one more in 2020.
We’ve warned you that higher rates were coming for more than a year now. Hopefully, you’ve followed our steps and prepared for Income Exodus… because it’s here.
If not, we’ll show you how to protect your portfolio from extermination. But first…
Bond Investors Are Panic-Selling
Bondholders are selling their positions at the fastest clip in years. The iShares 20+ Year Treasury Bond ETF (TLT) had its two biggest weeks of withdrawals in over a decade.
In July 2018, I told Daily readers to stay away from all long-dated bonds (see July 30 Daily, “Teeka Tiwari on Inflation and Income Exodus”). If TLT investors had listened, they would have saved 21% of their capital.
But it’s not just “safe” government bonds that are getting creamed. So are “junk” bonds. Take a look at this chart of the SPDR Bloomberg Barclays High Yield Bond ETF (JNK):
It hit 52-week lows on October 10… and it’s down 7% over the past 12 months.
Investors are also selling their junk bond holdings. According to Bloomberg, nearly $1.5 billion fled from junk bond ETFs last week. That’s the most in six months.
It takes large institutions to trigger this much selling. And if the smart money is fleeing bonds, it’s a sign that the worst is yet to come…
That’s why you need to prepare now.
How to Insulate Your Portfolio
If you’re looking to protect yourself from Income Exodus, consider buying short-term government bonds. These are bonds that mature in two years or less.
Their par values won’t decline much as interest rates rise. That’s because the closer a bond is to maturing, the less its price fluctuates due to changing rates.
Right now, you can get a 2.9% yield on the 2-year U.S. Treasury. It’s not a lot… But it’s 29 times more than the 0.1% most large banks offer on their savings accounts.
And if you want to generate bigger returns, you can consider buying closed-end funds (CEFs).
It’s a strategy that Palm Beach Letter editor Teeka Tiwari has used over the last three years to sidestep Income Exodus.
Since adding CEFs to the PBL portfolio in 2016, Teeka has averaged realized gains of 15.4%—compared to a 12.6% annual return by the S&P 500 during that span. And the yields collected over that time were nearly 300% greater than the S&P 500’s.
Analyst, The Palm Beach Daily
Justin’s note: You can learn how to create your own “stealth” income streams in Teeka’s brand-new video.
In it, Teeka explains why “the best income opportunity in world history is finally available to you”—and why this strategy is the perfect extension to any retirement account, 401k, or IRA.
Your bank doesn’t want you to know about this (after all, if you move some of your money into these streams, it can’t earn commissions for them). But you can see for yourself right here if this is something for you.
Today, a reader tells us how much he appreciates our Conversations With Casey…
I think your continuing conversations are great and important! The very fact that you are pointing out the dangerous revisionism that is going on, and as planned by the lunatic left, should give every reader the shivers. We are in a recognizable Marxist take-over period of Western thought and we are nearly awake to save ourselves. All the tenets of The Communist Manifesto are playing themselves out… and, I fear, not by chance. When are we going to wake up? Keep us warned and fore-armed.
And as always, if you have any questions or suggestions for the Dispatch, send them to us right here.
How to Livestream Doug Casey’s Presentation in Bermuda
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