‘Pay Me’ Stocks

The way to overcome rising taxes, inflation and all the rest of the current and pending threats to your retirement is to have more cash coming in every month. It’s that simple.

Of course the real rub is to make sure that your retirement portfolio is not just yielding you more now – but will be capable of keeping it coming in the ever-challenging months, quarters and year to come. This is where the steady dividend payers that I have in the portfolio of The Pay Me Strategy comes in.

The stocks, bonds and funds that I continue to research and review throughout every month are chosen not only to overcome the challenges of failing first-tier governments, rising taxes and inflation – but also to capitalize on what’s actually working in markets around the world.

Take a core favorite in the world of government debts. Not all governments are up to their eyeballs and then some in unserviceable debt. Plenty of nations that actually work at producing goods and services for export are building up reserves and savings.

This in turn not only insures that their bonds will keep paying – but also leads to higher prices. The Western Assets Emerging Markets closed-end investment company (NYSE: ESD) makes it easy to do just that.

The fund invests in a wide collection of just the right mix of improving credit countries. And from its current dividend – paying over 8.2% – to its gains running at over 73% in total return over the past 12 months – this is perfect alongside the other closed-end funds that I have in the portfolio to pay for your retirement.

Or take a company that’s actually cashing in on the credit messes of the US and EU. WP Carey (NYSE: WPC) is a real estate finance company.

That sounds scary until you understand what this company actually does. When corporations or even governments such as California need to raise cash, WP Carey is there to step up and cash in.

It focuses on sale and lease back deals. This means that a company with a distribution center or a government with a maintenance facility needing to raise cash, sells the buildings and land to WP Carey – which turns around and leases them back for long term contracts.

And when times are bad, the deals only get better. Carey is paying near 8% and continues to percolate along with returns in excess of 51% over the past 12 months.

Cash, cash and more cash from reliable sources – that’s how you can protect yourself and profit from others’ mistakes, whether by governments, markets or any other players. With high steady dividends, you’ll withstand whatever challenges come along and still be able to afford a comfortable retirement.

ETF Stock watchlist

We expect the bank dividend cycle to pick up steam in the second half of this year, but in the meantime, VIG and VTV represent excellent ways for prudent investors to get some exposure to financials. VIG and VTV are trading a combined eight cents off their 52-week highs.

‘Cautiously bullish’ is the theme du jour. The bears seem to have little ammunition and sell programs have had scant success in turning positive days negative.

Another bad sign for the bears is that they can’t use weak volume to their advantage, but it is that weak volume that keeps us being too enthusiastic about the recent move higher. We certainly do like the leadership that the tech sector is exerting.

Most of tech’s marquee names are high-quality companies that are flush with cash and the sector is home to many a sterling balance sheet.

On the other hand, the leadership we’re seeing out of big financials is curious given that the government is telling major banks to hold off on dividend increases and share repurchases until the economy improves.

Financials’ resurgence has been helpful to a couple our holdings, so we’re not going to complain too much. We found some interesting data released earlier this week by the Investment Company Institute that said that fund managers are low on cash.

They have roughly $172 billion to pour into stocks and while that may sound like a lot of money, and it is, in stock market parlance it isn’t all that much.

The good news is that ICI said late this week that more than $36 billion has flowed out of money market funds recently and that means retail investors are starting to put fresh cash to work.

This is exactly what the bulls need to keep this rally going. Meanwhille, here are three ETFs on our Stocknod buy list:

SPDR Morgan Stanley Technology ETF (NYSE: MTK)

The Nasdaq continues its leadership of U.S. equities and that is benefiting MTK. Apple continues to be one of the strongest U.S. stocks, Amazon and eBay are firming up and some of the blue chip tech names are starting to look strong.

Oddly enough regarding tech, we’re about 10 years removed from when the Nasdaq crossed 5,000 and while that lofty level may never be seen again, at least not anytime soon, the tech sector is experiencing a renaissance of sorts.

Most big-name tech companies are flush with mounds of free cash and they sport impressive balance sheets.

MTK is not the most popular or the most heavily traded tech ETF, and for one reason or another, you won’t find a lot of experts recommending MTK. That’s fine, but it cannot be ignored that MTK is up 3% in the past week, outperforming both the Nasdaq and the S&P 500.

In the past month, MTK is up 8%, the same as the Nasdaq and better than the S&P 500 and we are now positive on the trade. MTK is just two cents away from a new 52-week high as we write this issue.

Vanguard Dividend Appreciation ETF (NYSE: VIG) and Vanguard Value ETF (NYSE: VTV)

The past week or so has been a good time to be involved with financials and that means good things for VIG and VTV, both of which devote decent portions of their respective weights to the financial services sector. As of this writing, S&P 500 financials are on a 10-day winning streak, their best run in 12 years.

VTV’s slight weighting to Goldman Sachs has been a boon for the ETF and what is most impressive about the recent performance of both VIG and VTV is that banks have been told by federal regulators to hold off on dividend increases and share repurchases until the economy really improves.

We expect the bank dividend cycle to pick up steam in the second half of this year, but in the meantime, VIG and VTV represent excellent ways for prudent investors to get some exposure to financials. VIG and VTV are trading a combined eight cents off their 52-week highs.

Record-low rates aid struggling economy

Record-low interest rates are still needed to stabilize the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.

He cited still-fragile economic conditions, and noted that inflation is low, which gives the government freedom to keep rates at rock-bottom levels.

Deciding when to tighten credit is the biggest challenge facing Bernanke, whose second term started in February. Moving too soon could stall any recovery and flat line any stress tests. Waiting too long could unleash inflation and sow the seeds for new speculative bubbles in stocks or commodities or other assets. Welcome to the US Economic conundrum.

One of the reasons the Fed is holding rates so low is because of stubbornly high unemployment, Bernanke said. It’s now at 9.7%, a potential restraining force on the economy’s rebound.

The Fed also wants to see more lending by banks before it starts tightening credit. The Fed kept a pledge last week to hold rates at record lows for an “extended period,” a decision that drew one dissent. Does this mean 3 months, 6 months or even longer? That is the million dollar question.

Bernanke said the term “extended period” isn’t a fixed number of months. Rather, it is tied to how economic conditions evolve. If the economy were to rebound more strongly than anticipated, then the Fed would “respond appropriately” and start raising rates, Bernanke explained.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, however, expressed concern that keeping rates at record lows could cause a buildup of “financial imbalances” and put the economy’s stability at risk. Analysts took that to mean low rates could spur a new speculative bubble later on that could burst and hurt the economy.

In other observations, Bernanke said the housing market is “still quite weak.”

I don’t believe the US Economy is quiet ready for any planned stress tests.  At least not any with much weight.

Treasury’s Biggest Weekly Loss

Treasury prices posted gains on Friday, but remained headed for a weekly loss as yields on 10-year notes touched the highest levels since June amid heightened concerns about the government’s ability to finance its deficits and as investors turn to seeking out higher yields in other asset classes.

Still, U.S. debt yields, which move inversely to prices, were deemed attractive by some.

Yields on 10-year notes (UST10Y 3.86, -0.02, -0.46%)  fell 2 basis points, or 0.02%, to 3.86%. Last June, they peaked at 3.94%, which was the highest since October 2008, when the credit crisis really took off and sent yields to all-time lows.

Yields on 2-year notes (UST2YR 1.06, -0.02, -1.77%)  declined 2 basis points to 1.06%, after closing at the highest rate this year.

The week’s losses came as the successive Treasury auctions received poor demand from investors, coming at higher-than anticipated yields and with smaller proportions of the auctions being bought by a group of investors that includes foreign central banks. See previous column on auctions.

Providing some support for bonds, analysts pointed to a lack of note or bond auctions next week and the potential for month-end buying.

Benchmark bond indexes, at the end of every month, add to the index any debt that was sold during the period, which usually extended the duration of the index. Duration is a measure of price sensitivity to a change in interest rates, and is partly determined by maturity. Fund managers who try to match their holdings to benchmark indexes therefore buy recently-issued debt at month end.

That followed a government report which said the U.S. economy grew at a revised 5.6% pace in the fourth quarter, slower than reported earlier.

Benchmark 10-year securities are still on pace for the biggest weekly jump in yields since December.

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China tops USA in Clean energy spending

China is emerging as the world’s clean-energy powerhouse, according to a new study by The Pew Charitable Trusts.

China is emerging as the world’s clean-energy powerhouse, according to a new study by The Pew Charitable Trusts.

Last year, China spent more than any other major country on clean energy, including wind and solar, toppling the U.S. from the top spot for the first time in five years, the Pew report says. The U.S. is also on the verge of losing the top spot in terms of installed renewable energy to China.

Unless U.S. policies change to encourage more investment, the U.S. could miss its chance to lead the expanding clean-energy industry, says Phyllis Cuttino, project director at Pew. The USA’s entrepreneurial tradition and strengths in innovation give it the potential to recoup leadership, the Pew report says.

Cuttino’s sentiments echo those expressed late last year by Energy Secretary Steven Chu. He noted in congressional testimony that the U.S. “has fallen behind” other countries in the race to be at the forefront of the clean-energy industry. Although Chu said he was confident the U.S could make up the ground, he cited China as a formidable competitor.

In recent years, China has emerged as the No. 1 maker of solar cells for solar panels and, most recently, as the leader in wind-turbine-making capacity. China’s leaders have also set in motion plans to get 15% of the country’s energy from renewable sources by 2020.

The Pew report, using data compiled by Bloomberg New Energy Finance, examined the world’s top 20 economies. It found that:

• From 2005 through 2009, China’s clean-energy investment, including wind and solar, soared 148% vs. 103% for the USA.

• Clean-energy investment in Asia, mostly China, rose 37% last year to $39 billion. By contrast, investment declined 33% last year in the Americas as the economy slowed and credit markets tightened.

• Ten of the leading economies devoted a greater percentage of gross domestic product to clean energy than the U.S. in 2009.

The U.S. has no national standard for expanded use of renewable energy. The American Wind Energy Association and others argue a national standard would do more to help manufacturers prepare for a big U.S. market for their products. The U.S. has also offered on-again, off-again financial incentives for renewable energy while other countries’ support has been steady.