“The [expletive] banks won’t lend to me,” a wealthy investor/friend complained to me over lunch yesterday.
“I can’t believe it. I make my income off the spread, and they’re cutting off my income.”
While he can’t make his “spread” right now, YOU CAN…
Today, I’ll tell you my friend’s story… And I’ll tell you how you can take advantage of the situation – and earn 14% in interest – starting now.[ad#Google Adsense 336×280-IA]”I’ve had three offers of $5 million or more in the last year to buy this 60-acre property I have, so the land is clearly still valuable,” my friend explained. “Meanwhile, the banks won’t lend me anything on it. Not $2 million, not $1 million, not 10%. Nothing. How am I supposed to eat?”
You might not be too concerned about a rich guy’s “problem.”
But understanding how he generates income here is important… particularly since you can do it now, even though he can’t – with much less risk than he usually takes…
Traditionally, my wealthy friend borrows money at a low interest rate from a bank. Then he reinvests it at a much higher rate of return. The “spread” between those two interest rates is how he earns his income each year.
This year, he has a bit of a problem, though. The banks won’t lend against his assets. So he can’t borrow and reinvest. He can’t earn his typical income. And he’s frustrated.
The thing is, you don’t have to go through all of the hassle to borrow low and invest it at a higher rate… You can simply and easily do it through the stock market. And now happens to be a GREAT time to do this…
A few companies are in the business of borrowing at a low rate and lending at a higher one, safely. The leader in this pack has always been Annaly Capital Management (NYSE: NLY), a longtime holding in my True Wealth newsletter.
Annaly is currently paying a 14% dividend yield. (That’s based on Annaly’s most-recently-announced quarterly dividend of $0.57 times four divided by the stock price.)
To put the story simply, Annaly can borrow money at about 1.5%… and it can put it to work safely (in 100%-government-guaranteed bonds) at about 3.5%. So Annaly earns about a 2% spread. It’s able to borrow enough money… and the stock price is so cheap… the dividend yield works out to about 14% right now.
So far, Annaly hasn’t run into the problem that my rich friend has. Annaly hasn’t had to deal with the banks not willing to lend. I believe this will continue to be the case, as long as Annaly invests in 100%-government-guaranteed bonds.
And right now is a good time to buy a stock like Annaly. It is an incredible value…
It’s trading near its book value (a rough measure of liquidation value). And thanks to the Federal Reserve’s policy of artificially keeping short-term interest rates low (and promising to do so for the next 18 months), Annaly will be able to borrow cheaply for the next 18 months, at least. So Annaly will still be able to earn a wide enough spread to pay solid dividends.
It’s not often that you can buy Annaly near book value when it’s earning such a big interest-rate spread. Take advantage of it while you can.
The banks won’t lend to my wealthy friend, even though he has great collateral. But the banks will lend to Annaly, because what they’re investing in is 100% government-guaranteed. The banks see that collateral as safe.
I don’t see that situation changing. Annaly has weathered a terrible financial crisis in recent years, no worse for the wear. So banks know their money is safe with Annaly.
It’s hard to find income out there right now. Where is the income today? It’s out there – in Annaly. It’s taking advantage of the government’s low interest rates to pay a 14% dividend.
It’s your best bet for income these days.
Source: Daily Wealth