Launch the Dirigibles! (HYG, FB)

We want to spend a few minutes discussing high yield investments – and not just because we like their prospects. High yield securities, or junk bonds (as many prefer to call them), are an outstanding barometer of market psychology. That is, they provide a very useful snapshot of where both main street and Wall Street stand vis-à-vis the overall state of our bull market at any given moment. How do they do that? It’s a dynamic indicator, to be sure. But by examining the current spread against Treasuries, default rates and the general sensitivity of this unique asset class to the stock market’s gyrations, we can get a fairly accurate read of where the investment world sits. Right. To begin, let’s take a look at the Bank of America/Merrill Lynch U.S. High Yield Master II Index, which offers an ongoing measure of the spread of a representative group of high yield securities against a benchmark government Treasury. A quick glance at the chart shows us that until recently the spread between the two was declining for over two years – save for a couple of minor retracements (green line). But after bottoming in mid-June of this year at just 335…

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Four Weeks and a Forlorn Price for Gold (FCX, DXY, HYG)

‘Fess up, gang. You know it’s true. There’s no single market letter out there that offers you such a wealth of money-making trade ideas on such a consistent basis, none whose social and political acumen is so finely honed, and certainly none that at the same time provides you with first-class weekly entertainment value like arch-egomaniac McAbby’s Bourbon and Bayonets. Just a quick review of the last few weeks’ trade ideas that have moved nicely for us – On July 31st, in our letter called Dollar Fires Shake up the Market, we got very excited about the near term prospects of the dollar, and our bet was both right on time and right on the money. The dollar has risen magnificently since then and made a very nice profit for anyone who went long CALL options at the time. By the way, dollar strength, as we mentioned in that letter, will not be a passing phenomenon. It will continue so long as America is seen as the best bet in the global investment landscape. And with tensions in the Ukraine keeping Europe off the radar for now and the Middle East glowing ever hotter, money flows should continue toward our…

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Junk Sale Offers Profit Treasures (HYG)

Strong earnings reports lift markets. And rising markets build confidence. And confident investors take risks. And a propensity for risk is good for Junk Bonds. This is not the first time we’ve addressed the high yield issue, and we’re returning to it today for a number of reasons. First, because we’re strong believers that junk bonds are an accurate barometer of the health of the bull, and second, because we believe there may be enhanced value in a junk bond investment today, as we write. Let’s examine both items in turn. Give us the Big Picture   We’re going to back up in order to give you an overview of corporate America’s financial status, the better to understand where both overall debt and high yield ‘junk’ debt fit. We’ll start with the following chart that graphically depicts the earthquake in corporate debt repayment that’s occurred over the last five years. As result of the sub-prime loan debacle and the subsequent market crash, corporate America saw fit to pay off over half its existing loan portfolio amid a climate of liquidity fears and very tight lending strictures. The chart is instructive 1) in showing the seriousness of the retrenchment in America’s…

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