Sell "Safe" Treasury Bonds, Buy "Risky" Emerging Market Bonds

When all else fails and the markets are in a pickle, you can always count on your uncle to be there for you and your portfolio.

Your Uncle Sam, that is.

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Except right now. Uncle Sam has troubles of his own. In fact, thanks to the largess of the West Wing and the leadership in Congress, Uncle Sam is running into a bit of a cash squeeze.

With not just billions of dollars - but trillions of dollars being showered on nearly everybody with a hand out and a lobbyist over the past several months - the deficit spending of the federal government is beginning to take a toll on the market for what's nearly always been considered the super safe place to put cash in tough times: US government bonds.

The first major telltale sign came from the US Treasury as it reported the cashflow statement for the government's coffers for the first quarter of the year. Traditionally, this is the one time of the year whereby taxpayers like you and I send in the remainder of our taxes for the prior year's bills from Uncle Sam.

Most years at this time the inflow actually outpaces the outflow and the result is that the federal government runs a surplus - if only for a brief time.

This year, given the work of lobbyists and their targets in the West Wing and Congress, the cash coming in couldn't meet what was going out, meaning that the government is already running a deficit.

The result is that the US Treasury has to peddle more and more bonds out to the market to borrow money to make up for the deficit even earlier in the year. This surge in supply is now moving the market for US Treasuries into the red.

So far, if we look at the US Treasury market - every part of the market from the short end to the long-term is losing money for investors who just wanted to put cash in a safe haven for a while until the recession or worse begins to ease and better opportunities genuinely develop.

If we look at the 1 to 2 year maturities - the impact is minimal - but still a loss so far this year amounting to some 0.03 percent. Then moving to the 3 to 5 year maturities - the loss rate starts to climb more steeply by some 2.3 percent. The core intermediate 7 to 10 year maturities are delivering a loss of 7.8 percent while the longer term maturities of 10 years out to 30 have really taken some hits resulting in red on investor's investment statements of nearly 16 percent.

And it's going to get worse.

Usually in a recession - especially one that should be expected to last and linger longer - US Treasuries are the place to be. Slower growth tends to support less inflation pressure and with less opportunities in other typically riskier assets like stocks - Treasuries fare well - at least earning their coupon rates of yield.

But with so much new borrowing from Uncle Sam - the supply is just overwhelming demand.

This week, the US Treasury auctioned off a new batch of bonds with 7 year maturities. And by some measures it was successful. The number of bids outnumbered the amount offered by a ratio of 2.26 - which was better than the last three auctions of similar bond maturities over the past three months' average of 2.3. This is being taken as a positive sign that perhaps the fear of debt trouble of Uncle Sam might be overdone.

And sure, there is plenty of chatter about how the US government might lose its vaunted Aaa/AAA credit ratings - especially as rating agencies such as Standard and Poors have cut the outlook for a peer - Britain's debt - to negative. But while such talk makes for great pitches from the fear mongers of the markets - the reality is that Uncle Sam can indeed keep issuing bonds for a while before the government is in similar trouble as the UK.

Right now our debt to GDP is bad - at nearly 80 percent representing some 11.2 trillion in gross debt. But in the UK, it's over 100 percent and climbing.

But the real trouble isn't about default risk by the US government. Rather, it's about pricing of new bonds and the impact on the existing trillions of dollars' worth of bonds in the market.

So far this year, the West Wing has driven the amount of traded debt of Uncle Sam to a record of some 6.4 trillion dollars. The deficit for this year is set to be close to 2 trillion, meaning that in percentage terms it will soar - roughly triple last year's number - to over 13 percent of GDP.

The total amount of Treasury bonds that need to be sold through the government's fiscal year end in September should be over 3.2 trillion.

Again, while this reads like the stuff of doomsday - if the US government was a corporation, the debt to assets would be a paltry rate as Uncle Sam has multiples of the debt in varied assets ranging from land and other resources to financial and other assets around the nation and the globe.

The real issue is that Treasury prices are likely to suffer as the supply keeps being pushed out.

So, what action do you need to do to keep your portfolio from being further stressed?

First, look at your own direct holdings. Do you have any US government bond funds in your brokerage or trust accounts? If you do - it's time to take that cash out of them and head elsewhere for a while.

And more likely than not - if you were to look at your current asset mix of your retirement accounts - such as your 401k or 403b or other qualified plans - you probably have a US government bond fund that is a big chunk of your retirement assets. Again - time to sell.

Putting it into cash might sound pretty unappealing with yields so low, but it might well be better than giving up gains over the past 12 months in these funds and then some.

And at the same time that this otherwise traditional port-in-a-storm segment of the market faces its own hurricane - the risky side of the bond market is what you need to buy and continue to own through the next many months.

Yes, emerging market government bonds. These are the bonds that you've been told are the risky part of the market. But at the same time - these are the bonds of countries that have lots of cash on hand and stockpiles of reserves on hand. Nations such as the leaders in Asia and Latin America.

These are exactly what's inside my five core bond funds that are the bedrock of the stocks that pay you to own them.

So, while you dump your supposedly safe US Treasuries - buy the AllianceBernstein Global High Yield (NYSE: AWF). Buy the Templeton Emerging Markets (NYSE: TEI). Buy the Western Assets Emerging Markets (NYSE: EFL). Collectively these three alone are generating yields right now of nearly 9 percent while continuing to perform with a year to date average return of 31 percent which is an annual rate of return of nearly 100 percent.

Sell "Safe" Treasury Bonds, Buy "Risky" Emerging Market Bonds

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The Bond Market and How You Can Benefit

In the investment world, there are two words we hear more than any others--stocks and bonds. While each can offer their own advantages and disadvantages, both should be included in your portfolio. As a general rule, stocks have outperformed bonds since 1926; returning 10.4 percent against government bonds' 5.4 percent showing.

However, when stocks go bad--and they will--bonds will always be there for you. Over short periods of time (like the bear market of 2000 to 2002) bonds easily outpaced the growth of stocks. However the world of bonds can be a confusing one, so let's learn a little more about them.

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Why to get fond of bonds

The first word in smart investing is "diversification". That means you own a good mix of volatile stocks and steady bonds in your portfolio. When one takes a hit, the other will usually hold steady.

Whereas stocks will only give you liquid results when you sell, bonds pay interest regularly, making them an attractive investment choice for retirees looking for regular income.

Bonds are also some of the some of the safest investment choices you can make, second only to cash. U.S. Treasuries offer a risk-free vehicle of stashing funds for a limited amount of time, and you'll usually see modest gains while you're at it.

Also, many bonds provide income that's tax-free. That's a good thing, even though most of these pay a lower yield than what you might get from taxable bonds.

Bonds at work

When you purchase a bond, you're basically lending money to a corporation or the government so they can go about their everyday business or complete certain projects. In return, they pay you interest annually and then give back what you've invested once the bond "matures", meaning its term ends.

Now for a little lingo. A bond's "par value" is the price paid for it when it was new. A "coupon", is what the bond pays annually in interest. For example, a ,000 bond paying 8 percent a year would have a coupon of 0. If you don't buy a bond new, you'll be purchasing from another person in the "secondary" market, and you'll pay the current market price on the bond (which fluctuates daily) though still receiving the same coupon. A bond's "total return" is all the money you will earn off of the bond. That includes the annual interest along with its loss or gain in the market.

Bountiful Bonds

There are a ton of bonds to choose from, but the safest choice is a U.S. Treasury. Interest and payments on these are guaranteed by the "full faith and credit" of the United States Government.

Within Treasuries, there are several bonds to choose from, all requiring different investment commitments, terms, and interest rates.

You can also choose from mortgage-backed bonds, which can yield around 1 percent more than Treasury bonds with a typical ,000 investment. Then there are corporate bonds. Most of these are issued in ,000 denominations and have terms ranging form one to 20 years, or even a few weeks to 100 years. The values of corporate bonds depend on the credit of the company you're bonding. Like everything else, it's a risk-reward proposition when selecting a corporate bond.

Finally, you can also purchase municipal bonds in state and local governments and agencies. These are usually available in denominations starting at ,000, with terms of 30 to 40 years. The great thing about municipal bonds is that your interest returns are typically exempt from most federal, state, and local taxes.

Risk-Reward

Though bonds are typically less volatile than stocks, there are still risks. Interest payments can be worn by inflation. If interest rates rise, bond prices will fall. Also, some bond issuers reserve the right to "call" back bonds before term. If this happens, you'll only get "par value" on the buy back, though "callable" bonds offer higher interest returns than noncallable bonds. Also, if a corporation you have bonded goes belly-up, say goodbye to your money. Finally, bonds, as with most investments, are at the mercy of the ups and downs of the everyday market. Just remember, the longer before your bond matures, the more unpredictable it becomes.

The Bond Market and How You Can Benefit

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7 Foolproof Ways to Increase Your Market Presence

Whether you're talking about the articles you include in your e-zine or about your sales message, one thing is certain: Content is king. The written word has the power to educate and inform... as well as create buzz about your website, product, or service. That's why one of my jobs as it pertains to marketing and publishing is to circulate e-zine article through multiple delivery channels. Reaching potential subscribers this way helps us increase our readership and, ultimately, our revenues.

I am a firm believer in leveraging marketing messages too. By circulating it in multiple channels - online, e-mail, print, direct mail, and so forth - we are able to touch our prospects through whatever medium they prefer. And for those who like to receive their information through more than one medium, our message is re-enforced every time they see it in another channel.

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I strongly encourage you to take this multi-channel marketing approach with your own online business. Here are seven of the best and most cost-effective channels to include in your marketing plan:

1. Paid Search Ads (Pay-Per-Click)

Google and Yahoo are the Titans of the paid-search ad world, with nearly 70 percent of market share. But there are other search engines that have a loyal following, such as MSN.com (with 16 percent market share), AOL.com (with 9.6 percent), Ask.com (5.1 percent), Infospace.com (1.1 percent), and Lycos.com (0.9 percent).

Pay-per-click (PPC) ads with any of these search engines is a cost-effective way to target prospects looking for your specific product and get broad exposure. You create a text ad, then bid on keywords (the words or phrases your target audience will be searching for) to determine your ad's placement.

PPC paid search ads are perfect for acquiring new customers. That's because leads that come in this way are searching specifically for your information (via targeted keywords). This makes them highly qualified prospects. For ETR's sister publication, Total Health Breakthroughs,PPC represents more than 30 percent of its online marketing mix.

2. Organic Search Results (Search Engine Marketing)

Search engine marketing (SEM) has a nominal cost. Annual fees with search engine networks or directories typically range from to per year.

Some consumers give organic search results more "credibility" than paid search ads. And because they "trust" the results of an organic search more, they are more likely to click on an organic link. A recent survey by Jupiter Research illustrated that 80 percent of Web users seek organic search results. Their rationale is that organic results are un-biased. The marketer didn't pay for that ad space. So the link's appearance in the search results is based purely on various search algorithms and Web crawlers.

Your goal should be to balance your online presence with both paid ads and organic search results. Optimize your efforts by (among other things) making sure you have keywords in all the right places. That includes title tags, URLs, and inside articles themselves.

3. Banner Ads

Running banner ads on other websites can be another cost-effective part of your online marketing mix. The pricing model for this is typically CPM - a specified price for every 1,000 impressions/views you receive (usually between and $10).

Your media budget for banner ads will vary by:

--website
--ad unit size/type (300 x 250 typically performs best)
--location on website (home page, inside pages)
--whether the ad is targeted to a specific page or is on every page of the site
--the time of year the ad is running

Online ad networks are a cheaper alternative. Their CPM usually ranges between and , and they have a wider reach. Some networks to consider: Advertising.com, ValueClick.com, and FastClick.com. You can find a full list of sites here: imediaconnection.com/resourceconnection/adnetwork.asp.

4. Reciprocal Ad Swaps

Some of your best resources will be your fellow publishers. This channel often gets overlooked by marketers who don't give it the respect it deserves. In the work I do, I spend a good portion of my time researching publishers and websites in our industry. I look for relevant connections between their publications (print and online) and ours.

Let's say I come across an e-letter about marketing that has a list of readers similar in size to my company's list. Since many of our subscribers are interested in marketing, they might be interested in a product offered by that marketing e-letter. And that publisher's subscribers might be interested in one of our marketing products.

Swapping ads will save you money on lead-generation initiatives. Since you won't be paying for access to the other publisher's list of subscribers, you can get new customers for free. The only "cost" is allowing the other publisher to access your own list. It's a win-win situation. This technique also opens the door to potential joint-venture opportunities.

5. Co-Registration

Co-reg ads use a CPL (cost per lead) payment model. You pay for the leads you capture. Your text ad and a small image of your publication appear on a webpage on another publisher's website after a primary transaction occurs. Your ad shares the page with other publishers looking to build their own e-mail lists with free subscriptions to their e-letters or free e-reports.

To make this work, I've found that you need to send special introductory "bonding" e-mails to the people who sign up for your newsletter before they get added to the general circulation. This helps them remember that they signed up for your e-letter. (So when it shows up in their inbox they won't think it's spam.) And it helps increase the potential that those subscribers will convert to paying customers.

6. Direct Mail

Direct mail is still a consumer favorite - and another good way to get your sales message out. It can be especially effective used in concert with another effort, such as an e-mail campaign. A recent survey published in DM News indicated that 70 percent of respondents preferred receiving unsolicited correspondence via mail vs. e-mail.

As with any marketing medium, though, you can end up paying a lot. The most costly direct-mail packages are magalogs and tabloids (four-color mailers that look like magazines). However, 6 x 9 postcards, tri-fold self-mailers, and simple sales letters are three low-cost ways of taking advantage of this channel.

Although 100 percent ROI (return on investment) is what you should aim for, many direct mailers are content with 80 percent. This lower figure takes into consideration the lifetime value of the names that come in from this channel, because they are typically reliable buyers in the future.

7. Print ads

This is another channel that's gets a raw deal. One reason is because it can be costly. To place an ad in a high-circulation magazine or newspaper, you could shell out serious money. But you don't need a big budget to take advantage of print ads. If you don't have deep pockets, consider targeted newspapers and periodicals.

Let's say you're selling an investment report. Try using the Internet to research the wealthiest cities in America. Once you get that list, look online for local newspapers in those communities. These smaller newspapers hit your target audience... and offer a much cheaper ad rate than some of the larger, broad-circulation publications. You end up getting quality rather than quantity.

I once paid for an ad in a local newspaper in Aspen, CO that had a flat rate of less than 0. My ROI on this effort turned out to be more than 1,000 percent. How's that for a positive response rate!

The seven marketing channels I've just described can help you reach more customers... and eventually add dollar signs to your bottom line. So start the Near Year off with a marketing bang. By leveraging the seven channels of multi-channel marketing, I'm confident you will be amazed by the results.

By Wendy Montes de Oca

7 Foolproof Ways to Increase Your Market Presence

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