One mistake I’ve seen investors make time and time again is leaning too heavily on the latest “investment product” their bank is pitching them.
The problem arises because at the heart of the banking system lies a key conflict of interest: banks make money off fees and interest charged on investments, loans, credit cards and other products, so they’re motivated to get you to use those tools more.
But that usually lies at cross-purposes with our goal as income—and more specifically closed-end fund (CEF)—investors: to retire early on a high income stream (and ideally on our dividends alone), with no need for banks’ expensive loans and debts.
It’s no wonder the 500 or so CEFs out there, whose average yield clocks in north of 8% now (with dividends often paid monthly) never get bankers’ attention—and are never among the products they recommend to their clients!
Buyer beware doesn’t just extend to big banks’ retail products, by the way: even their investing advice needs a big disclaimer on it. Many bank execs and economists were bearish last year, including Morgan Stanley MS
CIO Mike Wilson. Last year, he said the slowdown in economic growth, which would get worse, wasn’t fully priced in; thus he called for stocks to fall 10% in 2023.
Anyone who sold late last year has locked in their 2022 losses and missed out on a near-20% rebound in the S&P 500 this year (not to mention a near-42% return on the NASDAQ NDAQ
). And as studies have shown, once investors have sold out of the market, they often wait too long to buy back in—and miss out on more gains.
Be Your Own Bank With This 10% Yielder
Banks, at their core, have a simple operation: take in cash, have some available for customers when necessary, and lend the rest so they collect income that, in turn, provides their profits.
CEFs operate very much on the same principle. If you buy the PIMCO Corporate & Income Opportunity Fund (PTY) you’re very much buying into something like a bank.
PTY takes $2 billion of cash, makes 10% of it available to PTY shareholders, thanks to its 10% dividend yield that is paid out monthly, and uses the rest to lend money to companies of all stripes; even if you’ve never heard of PTY, you know the companies it lends to: Ford Motor F
Company, Verizon Media, and Carnival Corporation are just three of the 400+ debtors PTY has lent money to.
PTY has made a ton of wealth doing this; its 10% income stream is not only fully covered by current fund returns, it’s overcovered, which would most likely result in the big special dividends this fund gave out in the 2010s, causing PTY’s annualized yield to rise as high as 20%.
Note too that the fund’s dividend payout has remained stable throughout, as well—although a lot of people say double-digit yields are unsustainable, PIMCO’s fund disproves that pretty easily. And since PTY is a CEF, you can buy or sell anytime stock exchanges are open.
In other words, with PTY you’re getting to be the bank and collect a double-digit yield with pretty much zero effort. Which makes the dividend checks, when they start coming in, feel almost magical.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
