Best of Economy & Markets, Part 2

And here’s a few more of my favorites. Links followed by excerpts. Enjoy!

Play Music, Get Rich

As a kid, I used to tease my dad on road trips for tuning in to the classic rock station. It just seemed so stereotypically old-man-ish.

Yet as I approach my 40th birthday, and the inevitable midlife crisis that comes with it, I found myself dusting off my old Metallica And Justice for All CD for the first time in nearly 20 years – and testing the limits of my car stereo.

Hey, it could be worse. At least I didn’t blow my retirement savings on a Ferrari or run away with the secretary.

While I reminisced about my youth, our editorial director, David Dittman, mentioned that he and Metallica frontman James Hetfield both graduated from Brea-Olinda High School in the Los Angeles suburbs.

It seems that, as a young man, Mr. Hetfield already had his life mapped out. In the school’s 1981 yearbook, he listed his future plans as “Play music, get rich.”

Learning From the Greatest Hitter Who Ever Lived

Ted Williams was arguably the best hitter in the history of baseball.

The Boston Red Sox leftfielder finished his 19-year professional career with a lifetime batting average of .344 and an on-base percentage of an incredible .482, and this despite taking time off in the prime of his career to fight in World War II and the Korean War.

He also won the Triple Crown, meaning he led the league in batting average, home runs, and runs batted in… and he did it twice.

To put that in perspective, there’s only been 16 Triple Crown winners in the history of baseball, and two of those belong to Williams. And to cap it off, Williams was also the last Major League Baseball player to bat .400 in a season.

It’s safe to say that Ted Williams knew a thing or two about hitting a baseball.

Interestingly, we can apply a lot of his same insights to investing.

A Look Inside My Retirement Portfolio

I pay my bills by telling other people what to do with their money. But I’m often asked: What do I do with my own money?

Well, that’s a very legitimate question, and I’m happy to share.

Before I get into it, I have to throw out a few common-sense caveats. Remember, I’m 39, have two young boys in the house that can clean out a pantry faster than a swarm of locusts, and a stay-at-home wife. I’m also in the prime of my career and trying to stash as much cash away as possible for retirement.

You might be in a very different stage of life or have a very different situation. What makes sense for me might be absurd for you.

So with that said, let’s get into it.

Deflation: There’s an App for That

Once in a while I see a financial news headline so obviously ridiculous, I feel I should look at the writer with pity in my eyes and pat them on the head, the way you might comfort a child that just dropped his ice cream cone on the floor.

“Inflation is Right Around the Corner, Yellen Insists.”

Of course it is…

In defense of the columnist who wrote the story, these weren’t necessarily his views. He was simply relaying the Fed Chair’s comments from Wednesday.

My real pity is reserved for Ms. Yellen herself. If she actually believes that inflation is on the horizon, she’s clearly not very good at her job. She might even be delusional.

Best of Economy & Markets, Part 1

Here are a handful of my favorite posts from Economy & Markets over the past year. Links followed by excerpts. Enjoy!


How My Friend Retired at 40

I very rarely smoke cigars anymore, but one of the benefits – I would go so far as to call it a health benefit – is that smoking a cigar forces you to sit still and relax for a good 45 minutes. It’s a good way to catch up with someone you haven’t seen in a while.

As we lit up and got settled in, David had some interesting news for me.

“I think this might be my last year,” he said from across the table, smoke wafting into the air. “Things are going well at the office. In fact, I just got a promotion. But it’s wearing me out, and I want to spend more time with my family while I’m still young enough to enjoy it.”

Now, I’ve had plenty of conversations like these with colleagues over the years, and it’s perfectly normal. Except for one thing: David is only 39 years old.

My friend will retire later this year at the ripe old age of 40.

How To Kill A Bull (Market)

Last month I found myself in Lima, the country’s capital, during the Feria del Señor de los Milagros, the city’s annual bullfighting festival.

My sister-in-law had an extra ticket for the corrida, the Spanish word for bullfight. (She’s a Millennial and it was critically important that she have selfies to add to her Instagram feed, and she didn’t want to go alone.)

So I spent my Sunday afternoon in the bullring.

While my sister-in-law might’ve been more interested in watching the strapping young matadors strut around in tight pants, I was really looking forward to the fights. I can’t call myself a true aficionado because that would imply a level of knowledge and expertise I don’t have.

But there’s something otherworldly about a bullfight. The tradition, the music, the artistry… even the blood. It’s something you have to see to understand.

How to Keep Your Retirement Years Golden

I got a nice reminder of why I do what I do a few weeks ago when I met my dad for dinner.

As we sat down to eat, I could tell there was something he wanted to tell me, but he didn’t want to just blurt it out. But, after a few minutes, he couldn’t wait any longer.

“I spoke to your sister earlier today, so she’s already gotten the news. I’ve decided it’s finally time,” he said. “I’m going to retire at the end of this year.”

This news didn’t come as a total surprise. He’s talked about hanging up his hat for a couple years now, and he’s definitely an appropriate age for retirement. But I could tell that he really struggled with the decision. This was not something he chose to do on a whim.

I could also tell that he was apprehensive about it.

What If It’s The 1990s All Over Again?

The 1990s were fun.

The internet was new, as was high-end coffee for most Americans.

The Cold War had just ended, gasoline was dirt cheap, and rock music was in the midst of its most creative decade since the 1960s. The federal budget was balanced for the first (and last) time in decades. And, best of all, we had the turn of the millennium to look forward to.

So, yes, the 1990s were fun…

But the most fun of all was to be had in the stock market. It was the biggest stock bubble since the Roaring 1920s, and cheap online brokers made the market accessible to the masses. A lot of people got rich in the 1990s…

I’m Changing My Name to Charles Blockchain

saw something last week that brought back memories: Doc Martens boots.

My bartender was wearing a pair of the classic black variety, which, apparently, are back in style after a long 20-year drought.

In case you’re unfamiliar with the brand, imagine something that looks like a combat boot but with a soft rubber sole and distinctive yellow stitching.

Ah, Doc Martens… Along with Seinfeld, flannel shirts, and grunge rock, few things are more quintessentially 1990s. It takes me back to my high school and college years when, for inexplicable reasons, dressing as an odd combination of British punk and Canadian lumberjack was all the rage among American teenagers.

But beyond footwear, 1990s style seems to be making a comeback elsewhere… most notably in the stock market.

A Grumpy Old Man’s Guide to 401k Investing

Perhaps I’ve been spending too much time with my young kids, but I’ve gotten to be quite good at wagging my finger and speaking in a stern, fatherly voice. I love my kids dearly, but at times the rascals need a little discipline. And chances are, when it comes to making full use of your 401(k) plan, you do too. So, as my glasses slide down my nose, I’m going to put on my slippers, roll up my Financial Times newspaper and shake it in your general direction.

So, you – yes, you there! Sit down and listen up because this is important. And don’t you dare delete this email. What I’m about to tell you is for your own good.

If you’re not taking full advantage of your 401(k) plan… well, shame on you. Those things aren’t free, you know. Your employer spends a lot of money administering the thing… for your benefit. So if you can’t be bothered to log in or fill in the forms to participate… you’re just a derned fool. Do you know how many starving children in Ethiopia would love to have a 401(k) plan like yours?

At my first job, we didn’t have 401(k) plans. I had to settle for the measly $2,000 I was allowed to contribute to an IRA at the time. Well, I maxed out that IRA… and I loved it! But what I wouldn’t have done for a proper 401(k) plan. So show some gratitude, would ya!

I know, I know. Money saved in a 401(k) plan is money you can’t spend on some new fangled gewgaw. But if you make decent money, a huge chunk of it is just going to end up going to the tax man.

Stop and use your head for a minute. If you’re in the 28% tax bracket – and if you’re still single (at your age!), you’re in the 28% bracket at an income of just $91,150 – then you effectively earn a 28% “return” on every dollar you contribute, as of day one. Would you rather that 28% go to the gummint? Yeah, that’s what I thought.

You can save $18,000 in a 401(k) plan in 2017. If you get started now, that’s $692 per paycheck. You can do that. Your grandmother used to feed a family of 7 growing kids on $692 per year and never complained. So stop your whining, log in to your plan or call your HR department now and get your contributions on track.

Don’t make me come over there and swat you with this newspaper.

And matching… don’t even get me started on matching. When I was your age, I was lucky if my cheapskate boss matched me even 2%. These days, I’ve seen companies match as much as 6% or 7%. If you’re too big of a sissy to contribute the full $18,000 in salary deferral to your 401(k) plan, then for crying out loud, at least contribute enough to get the full matching amount from your employer. If you don’t, you’re leaving money on the table. And I don’t know about you, son, but I don’t have a money tree in the backyard. When someone offers me free money, I take it.

Ok, I’m going to unroll the newspaper and push my glasses back into place for a moment. In all seriousness, this is the time of year to make changes to your 401(k) plan. If you’re not already maxing out your 401(k) plan for the full $18,000 (or $24,000 if you’re 50 or older) you should really make that a priority. Even if the stock market fails to return a single red cent, the tax savings and employer matching alone make it more than worthwhile.

I realize that not everyone can realistically defer $18,000 of their annual pay. If you’re young, recently started a family or have a non-working spouse, that might not be an attainable goal. But here are a few tips to get you closer.

If you got a raise to start the year, I strongly encourage you to allocate the difference to your 401(k) plan. You were already surviving at your previous pay rate; continue to live your current lifestyle a little longer, and push the salary increase into your retirement plan. Years from now, you’ll be happy you did.

If you generally get large tax refunds every year, consider chatting with your HR department about increasing the number of exemptions you claim. This will cause you to withhold less in taxes, which will boost your paychecks. You can then use higher effective pay to contribute more to your 401(k) plan.

And finally, consider living more modestly. If you rent an apartment, consider getting a roommate or downgrading to a cheaper apartment. Money spent on rent is effectively money wasted. It’s better to use that money to build your future.

Listen to me, son. It’s for your own good.

How to Make a 9.4% Yield in Today’s Market


Earlier this month, I wrote that tax-free closed-end bond funds were ripe for the picking, and this is still the case today. In my income-driven newsletter Peak Income, we currently have three open recommendations yielding a fat, tax-free 6%.

But, as nice as tax-free income can be, the world of closed-end funds (“CEFs”) is much wider. There are CEFs that invest in taxable bonds… stocks… REITs… commodities… There are even CEFs that do nothing but invest in other CEFs.

So today, we’re going to take a look at some of these different fund types, and examine their pricing after the post-Trump bond yield spike. I covered muni funds in my last article, so let’s start with their taxable cousins.

That 90-Cent Dollar: Investment-Grade Taxable Bond Funds

The taxable bond fund space tends to be one of the largest and most actively traded, and there are good reasons for that. Because CEFs juice their returns with borrowed money, it makes sense to use lower-volatility investments like bonds. When the investments in question don’t fluctuate in value all that much, you can more safely add juice to the portfolio via leverage.

Bonds are also fairly illiquid and don’t trade all that regularly. So, by putting a portfolio of bonds into a CEF, you effectively convert illiquid assets into something that’s a lot easier and cheaper to buy and sell.

Taxable bond ETFs generally trade at a slight discount to NAV, but at times those discounts can get extremely wide, which is generally the best time to buy them. This is the time when you can get that elusive 90-cent dollar.

Right now, you can take your pick of investment-grade bond CEFs trading at discounts to NAV of 8%-10%, or even more, and sporting dividend yields well in excess of 6%.

In this bond market, that’s not half bad.

Fed Proof: Loan Funds

You’re probably aware of how the mortgage market works. The bank that made your mortgage loan probably didn’t hang onto it. It’s far more likely that they sold it to Fannie Mae or to some other institutional investor who, in turn, lumped it together with thousands of other loans and turned it into an investment product.

Bank loans often work the same way. Corporate loans are less standardized and harder to package as investments than mortgages, but it can be done. And there are CEFs that specialize in this field. I recommended one to my Peak Income readers this month and another to my Boom & Bust readers, and both are performing even better than expected!

And why might that be? I’ll give you a one-word answer: the Fed!

Bank loans generally have floating rates, so they’re considered to be “Fed proof.” An aggressive Fed means a higher payout, so these funds have avoided the beating that most of the rest of the income world has taken.

All the same, there are still bargains out there. You can put together a portfolio of loan CEFs trading at modest discounts to NAV and yielding 6% or more. Again, that’s not bad in this market.

Fantastic Bargains: Equity Funds

There are also plenty of stock CEFs to choose from, though these can look a lot different than the traditional stock mutual funds you’re accustomed to. Because CEFs tend to be income focused – and because they employ leverage – equity CEFs are inclined to concentrate in utilities, telecom and other low-volatility, high-yield sectors. But there are also specialty equity CEFs that focus on specific corners of the market, and that’s what get me excited.

Right now, Peak Income has two open recommendations in REIT funds and two more in MLP funds.

Real estate stocks have gotten absolutely hammered since the presidential election. REITs have come to be seen as a bond substitute, so rising bond yields (and falling bond prices) means rising REIT yields (and falling REIT prices). And this has created some fantastic bargains for us.

As an example, one of our REIT CEFs is trading at a 12% discount to its NAV… and the NAV itself has been depressed by the selloff in REITs. So, we have a fund trading at a deep discount to an already deeply discounted sector… and it’s yielding over 8% to boot.

MLP funds are also looking good right now, particularly because of the tax issues that can come with owning individual MLPs. Rather than the standard brokerage account 1099, unitholders of MLPs get a separate K1 tax form for every MLP they own… plus they can’t hold the MLPs in an IRA account without risking major tax complications.

But owning MLPs via a CEF eliminates these problems and allows for stress-free IRA ownership. Because of this, MLP CEFs often trade at a premium to NAV rather than the discount that you see in most of the rest of the CEF world. Yet today, many MLP CEFs actually trade at deep discounts, as investors dumped the sector a year ago and have yet to fully return.

To give a perfect example, one of my favorites MLPs – which happens to be a Peak Income holding – is currently trading at a 12% discount to NAV and is yielding 9.4%. And if that doesn’t pique your interest, then I’ll leave you with this to think on…

Do you expect the stock market, as elevated as it is, to return anything close to these numbers long-term?

I didn’t think so.