Why Is This Man Smiling?

Do you recognize this man? It’s Jamie Diamond, the CEO of JPMorgan Chase, and he’s got plenty of reasons to be smiling. His bank still exists because of the taxpayer bailout. So, thanks to you and me, his paycheck last year wasn’t bad. $16 million.

And, again thanks to you and me, his bank is able to borrow money (our money) from the Fed at virtually no cost and then turn around and lend it out at a big profit. How big? JPMorgan Chase reported $11.7 billion in profit in 2009.

Maybe it’s just me, but I feel like I’ve been ripped off. Clearly, though, a lot of Americans don’t feel that they’ve done enough for Mr. Diamond and the rest of our nation’s bankers. They want to do even more. Are you one of them? Maybe you are but you don’t even know it.

Let’s look at how we can continue to help the Jamie Diamonds of this world.

What You Get

What are you doing with your safe money? Maybe you have a few CDs? If you look online for Chase’s CD rates, this is what you will find:

Or maybe your sacred money is in a money market account with Chase. It’s currently paying 0.02 percent. Or maybe you’ve got a Chase Premier Platinum Checking account? It’s paying 0.01 percent. So if you want to keep Mr. Diamond in $4,000 suits, just pick one of the above. He doesn’t care which one you choose. Regardless, he’ll use your money to get a much better return.

What the Bank Gets

When you deposit money with Chase (or any bank), they pay you interest. Last year, according to their annual report, Chase paid out $4.6 billion in interest to depositors.

The money they don’t lend out they invest. Some of your money goes into bonds — mortgage-backed, Treasuries, and corporates. Last year, the bank took in $12 billion in interest from their bond portfolio.

So they’re paying a small fraction of what they earn to depositors. And while they’re making over 22 percent from their own bond investing, you’re making less than 1 percent in most instances.

That’s the real reason Jamie Diamond is smiling. He’s got hisself a no-lose proposition!

Now you’ve got a choice. You can either keep on giving to our county’s privileged bankers — or you can take the Jamie Diamonds of this world out of the loop and start making the kind of safe profits the banks make.

Cut Out the Middle Man!

Do you buy your stocks online? I do. I save money on every trade by cutting out the middle man (the broker).

I cut out the middle man when I buy tires, too. I go to Tire Rack.com. Their wholesale prices save me nearly $100 per tire.

I shop at Costco. And like every membership warehouse club, they cut out the middle man to save their customers money.

If you could sell your $400,000 house without a realtor, would you? Of course you would. By cutting out the middle man, you’d save $24,000 in real estate commissions.

It’s the right thing to do. So why haven’t you cut out the middle man when you invest your safe money?

Fact is, you can invest your money the same way the banks do… in the same place where Chase invested $54 billion of their depositors’ dollars. And by cutting out the middle man, you can make for yourself the same type of returns the banks makes on your money.

Where the Banks Invest

Last year, Chase invested over $54 billion of their depositors’ dollars in corporate bonds. Corporate bonds. The same safe investment vehicle used by large financial institutions like insurance companies and pension funds. And they booked big gains.

The banks know this market and are savvy enough to choose the right bonds. Now, thanks to Steve McDonald, an analyst and bond expert with ETR’s sister publication, Investor’s Daily Edge, so can you.

Steve’s Secret

Each bond on the market is issued at a “face value” of $1,000. Over a period of time, various market factors can cause a bond to trade for less than that par value — at a discount to the amount to be paid at maturity.

Almost every bond Steve recommends is trading at a discount. So not only do you collect your interest like clockwork, you enjoy capital gains. Add the two together, and you get your “total return.”

Does It Really Work?

And how. Let me give you an example.

Last year on June 2, Steve recommended a Textron bond that was to mature in 2014. The bond was paying interest at 5.125 percent. The going price when he purchased it was $840, which equated to a discount of $160 ($1,000 minus $840).

Just four months later, on October 27, Steve sent an alert to his subscribers to sell the Textron bond at $940 to $950.

Let’s say you purchased five of the Textron bonds. Your cost was $4,200. Had you sold those bonds on October 27 for $940, you would have ended up with $4,843.50. A profit of $643.50! That’s $93.50 in interest and $550 in capital gains.

Here are a couple of Steve’s other actual trades:

  • Genworth

5.75 percent coupon, maturity date 6/2014, “A” rated
Recommended at 71.3 on 6/23/09, sold at 86 on 9/15/09
Expected return: 16 percent annualized
Actual return: 90.5 percent annualized

  • Merrill Lynch

6.05 percent coupon, maturity date 8/2012, “A” rated
Recommended at 87 on 3/31/09, sold at 102 on 8/19/09
Expected return: 11.3 percent annualized
Actual return: 56.7 percent annualized

Is It Safe?

The above returns are so impressive you might get the sense that they involve a lot of risk. Nothing could be further from the truth.

This type of debt investing has an 80-year history of incredible consistency. According to Moody’s, between 1925 and 2005 only 0.23 percent of investment grade bonds (the kind Steve recommends) defaulted. This means that 99.77 percent of these types of investments performed as contractually obligated!

Take it from one of Steve’s subscribers, Les M.: “What I appreciate is I sleep at night.”

What Has the Middle Man Ever Done for You?

Most investors are unaware of this opportunity — and it shouldn’t surprise you to hear that Wall Street doesn’t go out of its way to educate investors on this strategy.

Once you see how profitable and safe this type of investing is, you may never put another dollar into a CD or money market account again. So don’t let the banks continue to fleece you. Take Jamie out of the loop. Then you’ll be smiling instead of him.

If you’d like to know more about this super-safe alternative to the paltry yields available at the bank, click here.