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.

What Killed the Middle Class?

Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000… when they peaked! How could this be?

In our new infographic What Killed the Middle Class?, we take a look at some shocking numbers to show how bad it’s become and what has been fueling this middle-class revolt.


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.