Stay on the Short Side of Junk Bonds

The short side of junk bonds was a great place to be during the last two stock market declines.

Boom & Bust subscribers know this already. We recommended shorting a particular junk bond fund in late July 2011. And by October 4, just 47 trading days later, our open profits in this bond position surged to 15% as the junk bond market followed the S&P 500’s 14% decline. Harry followed a similar strategy, using a different investment tool, with his Forecast readers.

In fact, junk bonds have tracked the market for years now. Take a look…

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The junk bond fund in our Boom & Bust model portfolio acted as a near perfect hedge in 2011, tracking the markets as it did. It tracked the markets with equal precision in 2008. As the S&P 500 shed more than 50% in 16 months, junk bonds dropped like a rock too, losing about 45% of their value.

Fast-forward to 2013. Since the start of the year, these two markets have diverged. Equities have marched higher. Yet junk bonds haven’t been able to mount an equally strong advance.

There could be two possible reasons for this:

1. Weakness in the junk bond market is forewarning a pending stock market correction, or…

2. Investors have developed a taste for dividend-paying stocks, in lieu of junk bonds, which are now yielding just 5%.

Either way, stay on the short side of the junk bond market.

Why Winners Keep Winning (And Losers Keep Losing)

If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.

Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”

But today, there is MORE than ample evidence that proves:

  • The stock market is NOT perfectly efficient
  • Passive investing can be MORE risky than active investing

You CAN beat the market… you just need to use the right strategy!

Get your own FREE copy of the latest report from Chief Investment Analysts, Adam O’Dell, “Why Winners Keep Winning (And Losers Keep Losing)”

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.