Category: Income Investing

With a 10-year note that is yielding less than two percent, what is a fixed-income investor to do?

Income stocks have never looked better than after yesterday’s Fed bombshell.

As a great options trader once told me - professional options traders are a different breed. We take a statistical, mathematical, rational approach to the marketplace. We add another layer of probability and risk management that is not possible with stocks alone.

We make investments on things like volatility and don't always care which way a stock or ETF moves. Everything we do is at least partially hedged, which reduces the need for Maalox, Prozac and heavy drinking, which many of my stock-trading buddies rely on almost daily.

It's been a wild ride lately. I think this two year chart of the Russell 2000 Small Cap Index pretty much sums it up.
 

There are a lot of opinions being offered regarding the current state of the U.S., European and global economy. I'm sure you've heard many of them so I won't go into great detail here today.

The bottom line is that evidence suggests GDP growth is slowing, despite government stimulus. And many governments, ours included, are running out of options given their relatively high debt to GDP levels and already low interest rate policies.

In a speech at George Washington University today, President Obama outlined his proposal to cut the federal deficit by $4 trillion in the next 12 years.

And with $65 trillion in current unfunded liabilities for Medicare, Medicaid and Social Security, it should be no surprise that cuts to these programs are in the works.

Medicare and Medicaid spending alone amount to $12,000 a year per recipient right now. At the current rate, that amount will balloon to $44,000 a year by 2040.

Indeed, according to a study done by Mary Meeker from Kleiner Perkins Caulfield & Byers, the Congressional Budget Office reports that if nothing is done about entitlement and debt, "...entitlement and net interest payments combined will equal all federal revenue by 2025, just 14 years from now."

PIMCO’s Bill Gross is sometimes called the “Bond King” because his investment skill has made his investment funds the biggest and most successful bond funds in the world, and rewarded him with a personal fortune of $1.8 billion.

30 years of consistent returns have made Gross a top choice for pension funds that depend on virtually guaranteed returns. And that investors are paying close attention to the fact that only has Gross sold all U.S. Treasury bonds from his investment funds, he’s also actively selling Treasuries short, in order to profit from falling prices.

It's the first day of the second quarter, and also April Fool's day, so be on your guard. The first day of the month has been an overwhelmingly bullish day ever since the stock market bottomed in March 2009. And the first day of a new quarter has also been bullish, as new money gets put to work by mutual funds.

Today we also have a strong non-farm payroll number to propel stocks higher.

The economy added 216,000 new jobs in March. This is a net number that includes job losses at the government level. Private hiring has now topped 200,000 jobs for two months running, for the first time since 2006.

The government published unemployment rate fell to 8.8%. And while that's still unacceptably high, it's an improvement.

Whether or not we can give the Fed any credit for helping the jobs market with QE2, today's jobs number increases the odds that the Fed will stand down in June, and not move directly into another round of stimulus QE3.

And while we've discussed the end of QE2 as a potentially bearish catalyst for stocks, it could also be considered a sign of confidence in the U.S. economy. I know that might seem like a stretch, and I still expect there to be some kind of correction ahead of June (sell in May?).

One of Warren Buffett's top executives at Berkshire Hathaway has resigned amidst a swirl of insider trading controversy. Former MidAmerican CEO David Sokol bought $10 million worth of Lubrizol (NYSE:LZ) before he suggested a Berkshire-Hathaway buyout of the company to Buffett.

Lubrizol stock jumped nearly 30% on the news that Berkshire would acquire the company. Sokol made nearly $3 million on the deal. And he is insisting that he did nothing wrong.

Individual investors are up in arms about this case, as it appears inappropriate, at best.

Even after Wall Street's greed nearly collapsed the banking system and forced hundred of billions in taxpayer-funded bailouts, bankers are still finding ways to line their own pockets.

The Wall Street Journal is reporting that bonuses at publicly traded banks hit $135 billion in 2010. That's a record high for compensation on Wall Street. It works out to about $141,000 per employee.

This $135 billion represents a 5.7 percent increase in combined compensation for the same group of companies in 2009.

With President Obama extending the Bush-era tax cuts for at least two more years, dividend investors can breathe a sigh of relief.

Taxes on dividends were slated to increase from today's 15% rate up to as high as 40% if the current tax rates were allowed to expire.

While some investors are waiting for the seal of approval from the United States Congress to make the tax relief official, many dividend investors are already taking advantage of the good news and are loading up on their favorite dividend stocks.