| MARKET ROUNDUP | |
| Dow | -26.91 to 17,086.63 |
| S&P 500 | +3.48 to 1,987.01 |
| Nasdaq | +17.68 to 4,473.70 |
| 10-YR Yield | -.002 to 2.464% |
| Gold | -$0.80 to $1,305.50 |
| Crude Oil | +$0.61 to $103 |
Dump your junk!
It’s a mantra that’ll help you clear out the clutter in your garage, your attic and your life. And it’s also one investors sure seem to be taking to heart!
After binging on a record $361 billion in junk bonds (euphemistically known as “high yield”), they just yanked more money from high-risk bonds in a single week than they have in any other week all year. The $2.7 billion worth of fund outflows has put junk bonds on track for their first monthly loss in 11.
This chart of the SPDR Barclays High Yield Bond ETF (JNK), one of two major junk bond exchange traded funds, shows the sharp declines we’ve seen the past couple of weeks. They helped drive JNK down to a six-month low.
Me? I’ve felt for a while now that junk bonds simply don’t offer enough yield to compensate you for the credit risk you take on when you buy them. After all, these are companies with thin cash cushions, low credit ratings, operational challenges, and other significant risk factors.
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“The $2.7 billion worth of fund outflows has put junk bonds on track for their first monthly loss in 11.” |
Instead, if you’re looking for income, one of my favorite options is energy master limited partnerships. MLPs are companies that make money from distributing, storing and transporting oil, gas and gas liquids.
Those businesses spin off hefty amounts of cash, regardless of the price level of the underlying commodities. And the companies use that cash to pay out handsome dividends to shareholders.
If you look at charts of the Alerian MLP ETF (AMLP) or JPMorgan Alerian MLP Index ETN (AMJ), you can see that these kinds of stocks are absolutely on fire. The combination of yields that are much better than Treasuries (recently 5.8 percent for AMLP and 4.3 percent for AMJ), and exposure to the booming domestic energy sector, make them very hard for a smart investor to pass up.
What’s more, I have personal favorites that offer even better growth and income prospects than you get from those diversified ETFs! I can’t wait to share more details about how you can profit from them.
Bottom line: If you haven’t done so already, ditch your junk! Then go shopping for some MLPs!
So have you taken advantage of the relatively high yields and strong underlying business of MLPs? Do you have favorites in the sector you’d like to share with your fellow investors? What are the risks of these investments, and how do you think those risks compare with the risk of other high-yield alternatives like junk bonds? Share your insights at the Money and Markets comments section here.
| OUR READERS SPEAK |
The discussion is still going strong when it comes to the Russian tension, as well as the prospects for energy companies going forward.
Reader David said: “Prior to emigrating to the U.S. from England in 1981, I lived and worked in 17 different countries. It is my experience that ALL governments, read politicians, give us the slant on the news that they want us to believe; usually the one that suits their own agenda.
“It is frightening to hear our government claiming that President Putin needs to be punished for supporting the separatists in the Ukraine, while we support separatist movements in other countries that follow our rules.
“I have no idea who shot down the plane, but don’t see how it would help the separatists, or Russia — unless we think they want to start WWIII, which makes no sense. But I do know who started the overthrow of the elected government of Ukraine — we did. We need to recognize that our actions have consequences that we can’t always control.”
Meanwhile, with regards to the advantages of investing in energy, Reader Sam W. said: “I figured out two months ago that oil prices were going to rise dramatically. I’m retired from a major oil co. I ran the largest crude unit in the world.”
“Bought KMP after Rachel Maddow did her hatchet job. Bought two of Sandridge’s oil trusts that pay 20/25 percent dividends. My unit had used Permian Basin oil since forever, when I started, WTI was $2.60 a barrel. Higher oil prices mean higher royalties. I agree with the author there are many ways to profit in this atmosphere.”
Reader Vinnie also weighed in on some of the negative side effects of rising energy prices, and what you can do about it. His comments: “As gasoline prices rise, so will the cost of transporting everything, and that includes not only consumer goods but the costs of utilities. My solar system allows me to save on utility increases and use my limited funds for other essentials.”
Finally, Reader Thomas makes it clear he’s no fan of the Golden Arches — their food or their stock! He said: “Has anyone out there actually eaten at a McDonalds lately? The food is awful! I have been selling off my holdings in this loser!”
Keep those comments and investment tips coming, folks. All you have to do is go to the comment section here.
| OTHER DEVELOPMENTS OF THE DAY |
 Fighting is continuing to rage in the Ukraine, with two government fighter jets shot down by separatist rebels in the troubled east.
Turns out, I’m not alone. Waning interest in the sport just prompted Dicks Sporting Goods (DKS, Weiss Ratings: B-) to slash more than 400 golf workers who previously offered lessons at its stores.The number of Americans reporting a trip to the links has declined for five straight years.
Investors snapped up shares of Apple amid optimism about the upcoming launch of the iPhone 6, pushing it to within a couple bucks of an all-time high. But Boeing struggled amid lackluster demand for military aircraft. That happened despite solid orders from the U.K. air show I discussed last week.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 33 comments }
It is interesting that you mentioned two MLP funds that issue standard 1099-b’s rather than the dreaded K-1. Both Alarian AMLP and JPMorgan’s ALJ pay taxes at their level, which diminishes yield but also cuts hassles of the K-1.
There are at least 3 landmines embedded in owning MLP’s as a partner and getting a K1 rather than 1099:
1) State taxes must be paid in any state charging income tax in which a pipeline travels.
2) Placing shares in a Roth or other IRA can evoke the Unrelated Business Taxable Income if distributions exceed $1000 from all such investments per year.
3) Accounting for which portion of distribution is a tax free ‘return of capital’ versus income, and applying the depletion allowances in some cases makes it a confusing and expensive accounting task. Even with the instructions sent by the MLP (often late, requiring amending tax return or filing for an extension) no two accountants follow these instructions in the same manner.
The higher yield of individual MLP’s is simply not worth the time, hassle and expense when compared to Alarian and other MLP mutual funds.
Gee, it was my father that tried to teach I about golf, but I didn’t do much with it ,either.
per Elliott’s comment above: Right On! A purchase of MLP units converts your capital into ordinary gains. Any price appreciation only increases (decreases) the tax basis so your already tax paid investment is returned you as a return of capital and the tax basis gets creamed at a much high tax rate. MLP works if you hold forever and pass on the units in your estate. Otherwise, the taxman takes too much. Better to buy a corporation-taxed entity and skip the future tax liability. I note that Morningstar® newsletters which previously ignored tax issues with MLP units now notes in their margins that MLPs require tax advisor consultations. They must have processed a few K-1s by themselves and seen the tax implications.
I wont invest in anything that has a K-1, and there is a lot of them that MIKE USES SOME TIMES. like DBC,UUP and others. TOOOO MUCH TROUBLE
Hello Mike,
I enjoy your daily columns greatly and thank you for sharing them freely with the world. I am typically a quiet man, but at times, there are things said in many forums that cause me to rebut. And that occurred with one of your readers, David, whom I quote: ““It is frightening to hear our government claiming that President Putin needs to be punished for supporting the separatists in the Ukraine, while we support separatist movements in other countries that follow our rules. But I do know who started the overthrow of the elected government of Ukraine — we did. We need to recognize that our actions have consequences that we can’t always control.â€
David couldn’t be farther from the truth. His statement about the US supporting separatist movements is just diluting the truth, spreading the blame. Putin is a cancer in our century and he must be dealt with directly. Russian thinking only understands strength and each time the world draws a red line and nothing happens, this is a green light for Putin to continue. I am not advocating war. I am a US combat veteran. I live in Ukraine and have, for the past 2 years. I do know that Russians love money, and that’s where the world must come together and deal with Putin: with hard, deliberate and meaningful sanctions. Yes, it will shake the markets, but who cares? Markets will recover, but these innocent families never will. I recommend that anyone who thinks like David, to watch this Youtube video and begin to understand that the US, nor any other nation caused Yanukovich to flee and the subsequent domino effect. The people of Ukraine have the same wishes and desires as the brave men/women of our original 13 Colonies. Understand the root of subject matters better before thoughtlessly laying blame on our government.
https://www.youtube.com/watch?v=Hvds2AIiWLA&index=2&list=FLox62w4tlt-JcZTiWmAHBkg
Dear RC (troll),
I do not trust our government.
Nor did our founding fathers, for basically the same reasons.
Sincerely,
W
Dear W (knucklehead),
Your alliance of thoughts with David and Thomas that our US govt is behind this entire Ukrainian/Russian crisis is as absurd as the conspiracy theory that Apollo 11 never landed on the moon. Think about what you all are saying – that indirectly the US is ultimately responsible for all of this violence, loss of these innocent lives and the current ramping up of Russian forces on the Ukraine border once again!!! All of you need your heads examined. You are just throwing out opinions without even trying to supply a fact. I did my best to provide “ground truth” human intelligence for you by providing that Youtube link. I was hoping you could see and perhaps sense that there are no signs of any US involvement in those poor and defenseless citizens. Folks like you have heads like a brick wall. I don’t know what it takes to alter your thinking. Your insensitivities are depressing at the minimum. I am quite positive that if you asked any Dutch citizen who was responsible for the deaths of their loved ones, they wouldn’t be pointing their fingers at the US. The US had nothing to do with the trigger launch of that BUK missile. Lets brings this back to the bottom line: harder sanctions are sure to follow, which should/could have a market impact and that needs to be respected. By the way, Willie, if you can’t write a civilized letter without name calling, then don’t write anything at all. Otherwise, expect the same or more in a response, as I have graciously given you.
Thanks for the reply RC,
Watched the puff piece viddie.
“We want to be free from politicians that are only concerned with themselves”
(I paraphrase)
So – what’s any different now?
Sincerely,
Willie
Muy Contento encuentra esta pagina
I read that the situation is not black and white….the whole mess in the Ukraine is very complex….I have come to the conclusion that there are no good guys only bad ones.
Putin comes from the KGB and Russia is not a democratic free country. But the EU wanted the Ukraine and so did the City of London Central Bankers….support for the Neo Nazis within the Ukraine was an integral part of bringing down the elected President who decided not the enter the EU….the EU is either socialist or Fascist whichever way you look at them….the City of London Central Bankers are behind the huge debt and mess America is now in….remember your Federal Reserve is a private bank holding your debt…who owns it?!!! It is a total mess of bad players all fighting for power and Obama goes along with the City of London….bad dude.
I completely agree with David that the US is behind the whole messy situation in Ukraine. Our actions got this ball rolling and now we are trying to blame Russia for the what is happening.
UNSUBSCRIBE ME FROM YOUR E-MAIL EFFECTIVE 7/22/14
CRY BABBY
Please understand that my intent is not to be critical; but, to possibly save you some embarrassment in the future. It’s not proper to say “My grandfather and father tried to teach my brother and I the sport….” It should be … to teach my brother and me…” There is a test for when to use “I” or “me”. If you leave your brother out, you would say “…to teach me the sport…” You wouldn’t say “…to teach I the sport…” You could say “…My brother and I learned…” But you wouldn’t say …”my brother and me learned…” Cheers!
Hi Mike I know that GNI isn’t in the Tech field, but would appreciate any insight you could give. Thanking you in advance. A loyal reader.
The MLPs have some complicated tax issues, at least with the ones I have tried. I had KKR and Eagle Pet. Still wading through the tax implications.
If you’re wary of investing after a bull run on energy MLPs, UBS has recently introduced an ex-Energy MLP index ETN, FMLP. I bought the leveraged version of that ETN (LMLP) to introduce something with a low equity correlation into my holdings. Unfortunately, the index is new so there is no past performance available. Its first coupon payout should not be indicative of future payouts given the ETN has just completed its IPO. IMHO there was a bit of confusion surrounding that payout that caused the priced to briefly drop, which is when I picked up some shares. Given that it’s still pretty illiquid, a small sale could produce an exaggerated price drop that might make for a good entry point.
thanks
As for myself, I intend to buy 25 thousand shares of stock in Warden Oil.
go for it
Mike, always good. I am a newbie to the Wise Guy’s Methodology. I have always found it tuff to make a buck with an ETF, but it seems you Wise Guy’s like the structure, particularly with miners and now oil. MLP’s – I have little experience. Moving, storing and processing oil and gas, yeah buddy I can see a winner there. Please keep it real. A’s get a bad rap, you Guys might be different , time will tell. Giving a little intel and making a pick is good, but not when you suggest that you can only get the really good stuff by paying more. It’s subtle but it’s there and a turn off.
HI Mike, What do you think about term life insurance policies during this current crisis? Will these companies be able to pay out on the policies?
Mike, Will insurance companies fold under the current crises getting worse? I have term life and pay monthly premiums. Am I wasting my money before the storm?
Please quit using anything with a K-1 for our positions
this is a time to promote peace in other mind
Michael,
Speaking of passing gas, is NTI a sell? The main stream thinks so, but Weiss has upgraded the stock just this month (I’ve worked at the refinery and at 7-11 in the day, Which NTI’s holding of SuperAmerica stores acquired here in Minnesota. The old Ashland Oil … ).
Also, some of your ratings contain details that are *not* up to date. most telling is the PDLI A rating, although they’re set to lose 80% of their income stream at the end of the year.
Is this a “trend”?
Watching,
Willie
Most middle income and retired people in this country have been and are being robbed blind by our own government in three ways. 1. Most people are getting paid virtually no interest on their savings because of the government’s deliberate repression of interest rates. This is huge and is causing people to spend their actual savings principle instead of the normal interest income on those savings. 2. Many, many people have been robbed of the equity in their homes by the government’s deliberate crashing of the housing markets. And 3. because of the government’s deliberately changed tax treatment on the sale of their homes, they can’t even take a tax loss on the capital loss on the sale of these homes! Tom
I invested in Tall Grass Limited Partners. (TEP) about a year ago and enjoy a 100%
growth It is associated with KMP and KMI. I think it still has legs. What do you think? .
To reader David. Life in Ukraine would be so simple if a rogue, criminal president could be impeached and the Russian bear was not on the doorstep (now inside) directing the fate of some 40,000,000 people.
Whoever shot down the Malaysian plane was stupid. According to David that could not have been the Russians or their proxies. Why?
This is Really easy! Thanks!
This is really easy! Thank you!
Muy Satisfecho para participar la pagina de Money and Markets
difficult grap but it is easy to know