The New America Savings Account
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- Published on Tuesday, 21 August 2012 10:54
- Written by Andrew Snyder, Editorial Director, Insiders Strategy Group
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The Reagan administration gave us a gift. It'll take 30 years to pay off, but now the profit opportunity is immense.
My friends at Ruger (RGR:NYSE) sent me an email yesterday. They just made their millionth gun of the year.
Last year, it took the company all year to hit the milestone.
During this ugly election year, though... Ruger hit the mark on Aug. 15.
In case you haven't seen it in a while, dear reader, this is what success looks like:
In an amazing feat of strength, year-over-year gun sales have risen every month for the last 26 straight months. In July, they surged by 25.5% from the same period last year.
It says a lot about the state of our nation, doesn't it? People are scared. They're angry. And they don't trust the government.
We would rather buy a gun than dump that money into our 401(k).
But a couple of new pistols won't make you rich... at least, not for long. And they certainly won't set you up for a grand retirement. So what are you supposed to do?
What's the wealth recipe in the New America?
Bill hits on some strong ideas in his commentary today. Banks aren't lending -- the gap between deposits and loans looks more like a canyon. And ordinary investors aren't investing -- when they do, they get burnt.
Conventional logic says to run and hide... and bring your guns with you.
But that won't do you much good... at least, not in the long term. Not when Mr. Market finally calls Washington's bluff and inflation roars to life.
I've found the solution tucked away in a law ratified by the Reagan administration. For most folks, the strategy is anything but conventional -- just the way we like it.
Thanks to the Fed's ultra-low interest rates and its massive manipulation of the Treasury market, the banks at the center of Washington's free-money handouts are making their livings without ever doing anything that looks like traditional banking.
As long as Bernanke keeps a lead foot on the throttle, their business is no risk... and all reward. Meanwhile, small-business borrowers are starving to death.
The mainstream media won't touch the subject, but it has been great news for one tiny sector of the lending community.
You see, in 1980, Washington created a class of corporations known as business development companies (BDCs). The goal was to give ordinary Americans a shot at investing in the nation's smallest private businesses.
But for 20 years, the industry languished. Wall Street kept the opportunity to itself.
Now things have changed.
Thanks to Big Ben and his cohorts, today's markets are sick. The big banks don't need to lend when Washington has handed them a virtually guaranteed profit stream.
In fact, as we rang in the new millennium, there were just three members of the BDC family available to ordinary investors. But then the Federal Reserve set its bubble machine to warp speed... and this niche segment has exploded.
Today -- all thanks to the ideas Bill outlines above -- there are 31 BDCs available to retail investors.
If you are an Unconventional Wealth subscriber, you already know which BDC I say is the best of the breed. I introduced it in the June issue.
We're already sitting on a decent capital gain with the play (I expect it to get bigger after tomorrow's earnings report), but we're not holding the shares with hopes that they will double in the next 10 months.
No... we're using the BDC as a form of a New America savings account.
Think of BDCs as the new banking sector. When the big boys stepped out of the game, these little guys took over.
Really, their business models are not all that different from a traditional bank's. They take "deposits" from shareholders and bond owners, and they lend the money to the nation's small-business owners.
And because the big boys abandoned the market... the profit opportunity is wide open. BDCs are able to charge credit card-style interest rates. The firm in the Unconventional Wealth portfolio gets anywhere between 10-12% on its loans...
Not bad in the land of ZIRP.
But here's the kicker. Reagan knew what he was doing. He opened the path to allow BDCs to operate through a structure that's very similar to a REIT.
They don't pay a dime in corporate income tax.
That means the profits stream directly to the shareholder. In our case, that means a rock-solid double-digit payout... paid monthly!
Right now, the annual payout is 11% of share price.
It is not an anomaly. BlackRock Kelso Capital Corp. (BKCC:NASDAQ) pays 10.8%. Apollo Investment Corp. (AINV:NASDAQ) pays 10.5%. And Main Street Capital (MAIN:NYSE) pays 7%.
If you are an income investor... those figures represent the freedom you've been searching for.
The way I see it, your choices are clear.
You can try to hide from this mess along with the rest of the quivering herd. Or you can do what we've done -- point a finger at the guilty, adjust your strategy and find the opportunity, no matter what's tossed your way.
Either way... it never hurts to own a gun or two.
Editor's Note: There's a disturbing secret Obama isn't telling you. Congress is hiding a dark secret that could soon devastate millions of retirement-seeking Americans. One leading financial magazine refers to this event as "a time bomb." In short, if your money is connected in ANY way to the stock market, I urge you to read this eye-opening letter here.
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