Investment Contrarians

10-year Treasury


Where to Look for Income in 2013

By for Investment Contrarians | Jan 11, 2013

Where to Look for Income in 2013Over the last few years, the aggressive monetary policy plan by the Federal Reserve has left many income investors in a difficult position. The low level of interest rates has reduced the income-generating potential of traditional fixed-income products.

Increasingly, more people are creating an investment strategy, looking for stocks with a solid dividend yield to add income to their portfolio.

For dividend yield investors, 2012 was a great year. In total, the S&P 500 corporations paid $281 billion in dividends in 2012, a record high, according to analyst Howard Silverblatt at S&P Dow Jones indices. (Source: “Dividends Galore: Expect Another Record Year in 2013,” Wall Street Journal, January 7, 2013.)

The total paid out in dividend yield was a 17% increase from 2011, and a 14% increase from 2008, which was the previous high until 2011. As I’ve written before, special one-time payments played a large role in dividend yield for 2012. More corporations announced special dividends in December 2012 than at any other time since 1955.

Even though dividend yield taxes are going up, I still believe that due to the low interest rate environment, more institutions will be creating an investment strategy that will focus on placing their funds with companies that pay out a solid dividend yield.

Part of creating an investment strategy is to anticipate what other investors will do. While I do believe interest rates will eventually rise, this most likely won’t occur in 2013. For many people, this will leave an investment strategy to still favor dividend yield over the relatively low rates of fixed income.

With the 10-year Treasury yielding approximately 1.9% and … Read More


Federal Reserve Shocks the Market; How to Protect Your Wealth

By for Investment Contrarians | Jan 8, 2013

Federal Reserve Shocks the MarketAccording to the minutes from the Federal Reserve meeting on December 11–12, it now appears highly likely that the aggressive quantitative easing policy might end sooner than most people had expected. This is a shock to many market participants who had expected an extended period of time under the current quantitative easing policy by the Federal Reserve.

The minutes of the Federal Reserve meeting show that several members stated they believe that the current quantitative easing policy will end, “well before the end of 2013.” Other Federal Reserve members expressed their opinion that this quantitative easing policy will need to be completed by the end of 2013. Many market participants expected this current quantitative easing policy to last well into 2014, perhaps even into 2015. (Source: “Minutes of the Federal Open Market Committee,” Federal Reserve, January 4, 2013.)

The reason this statement is so important is that multiple Federal Reserve members voiced concerns and were of the opinion that the current quantitative easing policy needs to be reduced or completed sooner rather than later. While there was one Federal Reserve member who stated at a meeting before that no further bond purchases are needed, one voice is not enough to alter the opinion of an entire committee. But now, there are many Federal Reserve voices raising concerns.

Because this is the first real evidence that a large number of Federal Reserve committee members are voicing the opinion that the current quantitative easing policy will need to end relatively soon, one must take note. This is a pivotal point for potential change in monetary policy.

With this in mind, if the … Read More


An Alternative to Record-low 10-year Treasury Yields

By for Investment Contrarians | Jun 12, 2012

The rush into the safety of U.S. debt instruments, like 10-year Treasury notes, is doing much to distort the mechanism of the financial markets, throwing a monkey wrench into the investment strategy of many people. With the yield of the 10-year Treasury now trading at approximately 1.55%, it is becoming increasingly difficult for savers to earn enough money on their assets. There are fewer good avenues for a high dividend yield. As other investors have poured money into “safer” assets, it has raised the price and thus lowered the dividend yield. One must be careful not to move into extremely risky assets just for their dividend yield. The potential loss in the value of the asset might wipe out any dividend yield.

When taking into account inflation, investing your money in 10-year Treasury notes at just 1.55% could be a very costly mistake. You are essentially willing to make no money after inflation and perhaps even lose money. The rush into the 10-year Treasury does not consist of small retail investors, but rather large institutions that are parking their money until a better opportunity arises. As a small retail investor, I would caution against following the large funds; in fact, I like to go against them. They are like massive boats; very slow to adjust once they start moving in one direction.

One area that makes sense over an investment horizon greater than a decade consists of stocks that pay a good dividend yield and specifically preferred shares. Preferred shares can be thought of as being in between common shares and bonds. They have a higher dividend yield than common … Read More