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Bond Crash Ahead says Market Watch & Investment News

Submitted by Steve Selengut | RSS Feed | Add Comment | Bookmark Me! print

Paul B. Farrell is a Market Watch behavioral economics columnist and an author of several books on personal finance. On March 21st, his Market Watch column headline read:

"Bond crash dead ahead: tick, tick, BOOM!"

Farrell credits InvestmentNews with the sensationalism, but certainly accepts the premise that rising interest rates will cause fixed income securities of all kinds to fall in price and that there will be a huge decline in the market value of retirement income portfolios.

(Psst... this is the normal behavior of interest rate sensitive securities --- make sure you understand why.)

Keep in mind that both the investment media and most financial advisors are "total return" focused --- and thus totally confused about the purpose of income investing --- the impact of rising interest rates on the actual income received by retirees is not mentioned anywhere in the entire Farrell doomsday report... perhaps because it should be rising! 

Neither are managed Closed End Income Funds. Go figure, and spend some time with this must read article: "The Total Return Shell Game".

As many of you have learned, and as all Market Cycle Investment Management (MCIM) methodology users know firsthand: Managed Income CEFs afford investors the opportunity to benefit from rising interest rates by adding to their existing income portfolio holdings to, at the same time, increase their yield and decrease their cost basis per share.

 "Investors have no idea what's about to happen."

The Farrell article moves on, quoting (as above) Business Week, Bloomberg and other contributors, painting a doom and gloom scenario that fails to address the basic differences between equity and income investing.

How many of the people in the Farrell article are investment managers? Retirement account portfolio managers? How many have read "The Brainwashing of the American Investor" without even realizing that they are inside?

Find out more about Income CEFs here:

 MCIM Methodology Practitioners Can't Wait, Bring It On!

To be a successful income investor, you need to follow the same QDI (quality, diversification, and income) rules as demanded by equity investing but: your primary focus needs to shift from profit-taking to income production. Wall Street, and investment writers like those quoted in the Farrell article, want you to focus on the market value of the portfolio, period.

Thus, they totally disassociate themselves from both an appreciation of the cycles involved, and the strategies needed to deal with these gifts from Mother Nature's cyclical twin sister. Her message is much too simple for MPT spouting economists and expert "Big Journalism" reporters.

There simply are no victims among the professional opportunists who follow her cyclical directives, as follows:

"When I bring you higher equity prices, take reasonable profits and wait patiently for new (IGVS) buying opportunities to arrive... repeat the cycle frequently"

"When I bring you higher yields in quality income CEFs than you can get elsewhere, take advantage of my good nature and treat a year's-income-in-advance-profit as a special gift from the investment gods --- compound your gains immediately and in similar securities. At high price levels, buy fewer shares initially than normal."

"When higher interest rates translate into lower share prices, use income to buy more shares, but never by automatic reinvestment --- be selective based on yield and cost basis."


If you could buy the income securities you hold now at lower prices, to increase yield, raise income, and reduce cost basis, wouldn't you?

Over the past six years, leveraged (not a four letter word), managed CEFs (both taxable and tax free) consistently made their payments to shareholders at rates higher than those that the Market Watch article warns about.

Yes, CEF prices fell during the financial crisis, and they certainly will in the face of higher interest rates, but the cash flow continued unabated in most ... check them out, and please, a little more respect for the investment gods. 

Read the Market Watch Article

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