This is a teaser from Mike Williams for his True Income service, so there are a few of you out there who already know what I’m about to share — but it’s an ad that’s catching a lot of attention, so I thought I should give it a look.
The ad teases that there’s a “Transaction ID” of 896***AE7 that you can use to make the transaction that Mike Williams is recommending right now. Nothing like a nice, secretive sounding number, right? And if we add on the fact that he redacts part of the name and the transaction id number, well, the Gumshoe can hardly resist!
Here’s what we hear from Mike Williams in the beginning of the ad letter:
“Pay Your Broker $1 and Legally ‘Secure’ 110% Gains in 20 minutes
“An obscure transaction in the brokerage system allows you to “lock-in” a 100+% return BEFORE you invest….
“I don’t believe in bribery.
“But for the past 14 years – I’ve been “securing” up to 100%+ returns when I invest, before I ever put down a single penny… by paying my broker $1.
“He accepts the money… and ‘locks me in’ for a gain of tens of thousands of dollars – even if the stock doesn’t go up. ‘Thanks, Jim,’ I tell him….
“You see – after spending 35 years in the financial business as an analyst, I’ve found an incredible secret to using this transaction in just 20 minutes… from anywhere in the world… without ever being fined, arrested or exposed.
“For example, this past June, I showed a friend of mine how to prearrange a 282% gain on a semiconductor firm… enough to turn every $15,000 into $42,300.
“The unbelievable part is: not only is it legal… but the way this secret works, you’re entitled by law to receive the “secured” payout, once you make the transaction. In other words: You’re under a legal obligation to be paid.
“Yes, I know this sounds too good to be true. And I admit – Once you see how this transaction first became popular, you might decide to avoid it…
“But I can assure you: this is the main way I invest my own money. In fact, as far as I’m concerned – everyone else in the market is playing a sucker’s game…
“Think about it: typically when you invest… you have NO idea whether you’ll make money or not. Not me. I know exactly how much I’m set to receive, and the approximate date I’m set to get it… by executing a $1 transaction with my broker, before I get in.
“The point is: If you’re sick of losing money… what I’m about to reveal could put a fortune in your account this year – all for the price of exactly 1 U.S. dollar per transaction.”
Impeccable logic, no? Getting guaranteed returns sounds a lot better than the rollercoaster most of us have been riding in the stock market over the past couple years. So what’s the secret?
And is it really as edgy as they tease it to be? They do, after all, make mention of the creator of this kind of transaction — a guy who spent a couple years in jail as a result …
“In 1991, Mitch Milton was arrested… handcuffed… and led from his multi-billion-dollar Beverly Hills brokerage firm to a California state prison.
“Hailed as ‘the most powerful financier since J.P. Morgan,’ he was the creator of a new transaction on Wall Street… a way to secure triple-digit investment returns on hundreds of companies – no matter what happens in the market.”
So once again, the copywriters have changed the names to protect the … guilty, I guess. “Mitch Milton” sounds an awful lot like “Michael Milken,” and the strategy that Mike Williams is indeed espousing is buying junk bonds, which is what got Michel Milken in trouble (though not because the bonds themselves are illegal). Milken and Ivan Boesky and their ilk pioneered the junk bond market, which is now known more euphemistically as the “high yield” market by most folks — these are corporate bonds that are used to fund leveraged buyouts, or to borrow money for companies, often smaller companies, who represent more of a credit risk than the A-rated corporate behemoths.
And yes, buying junk bonds (or, to describe it more accurately, lending money to corporations who are high credit risks) is perfectly legal, as far as I know, and it’s quite widespread and much more institutionalized now than it was a couple decades ago when Milken was pulling the strings for his brokerage … it’s often risky, of course, as would be implied by “high credit risk,” since these companies are often unprofitable, or very heavily indebted, but whether or not it’s riskier than the stock market is an open question, and I’m sure it differs with each case.
So Mike Williams, as he has done several times before, is still touting the opportunity presented by these “junk” or high yield bond investments. They often get described as “secured investment contracts” or with other terms that make them seem extra safe, since indeed bondholders do have substantially more claim to a corporations assets than do common shareholders. And if you’re someone who needs or wants income from your investments, there’s a certain comfort in knowing that bond coupon interest payments, unlike stock dividends, can’t just be cut at will (of course, a company can go bankrupt and fail to pay the coupon, or can otherwise come running to bondholders to beg for leniency, and small bondholders like you or I would have no influence on the decision in such a case, but they can’t just opt out like they can with dividends).
So … which bond does he like today?
“206% in next 20 minutes
The most exciting transaction I see right now is for a Texas-based semiconductor firm… which currently offers a 206% total gain, securable in just 20 minutes.
Remember: Just pay your broker $1 for the transaction… send him the 9-letter/number Transaction ID… and tell him how much you want to invest. That’s all it takes.
Here’s a look at what you’ll receive:
“Company: **esca** Semicon******
“Transaction ID: 35****AP2
“‘Secured’ Return: 206%
“In short: By investing $10,000 into this transaction today… you can legally prearrange a 206% return within 20 minutes…
“That gives you a total gain of $20,600 on a single company… every last cent of which you’re entitled to receive by law.
“The best part: You’ll receive a $3,946 interest payment every 6 months, while you wait for the full return… deposited directly into your brokerage account. “
OK, so this one is Freescale Semiconductor, a semiconductor company that was bought by a group of private equity companies, using heavy leverage, back when rainbows and sunshine were flying out of orifices everywhere (2006). Blackstone and the Carlyle Group were two of the major firms who invested, and the company was bought for about $17 billion — as of the end of 2008, Blackstone and Carlyle had each written down their investment in Freescale by about 85%, so not exactly a shining moment in the history of private equity.
But still, the company exists and it’s doing business, and those private equity guys borrowed a lot of money to buy it, so there are several bonds trading on Freescale.
The “Transaction ID” number is the CUSIP number, which is a unique identifying number for all securities — bond traders use it the same way we’d use a stock ticker to buy shares of a company.
And the specific CUSIP for this teased bond is 35687MAP2
This particular bond is a senior subordinate note on Freescale, it has a high coupon rate of 10.125%, which means that the original investors who bought it at par when it was sold would have paid $1,000 for a bond and received semi-annual payments of a bit over $50 per bond ($101.25 per year).
The bonus from buying beaten-down junk bonds, though, is that they’re usually trading at a big discount to the principal amount of the loan — which tells you that investors are worried about the company’s ability to pay back that $1,000 at the maturity date (in this case, the maturity is a ways off — December 15, 2016 is when Freescale is obligated to return the principal of $1,000 to you).
Right now the last trade was at $575, so the annual yield is getting closer to 20%, plus you get almost a 100% gain when that $575 gets paid back in full (assuming the company is still a going concern that can pay its bills and debts) with a $1,000 check on the maturity date.
And the “give your broker $1” bit? Bond trading for individual investors is a bit murky in most cases — you can get bond quotes and info from sources like FINRA, which is what I used get the above information (the page is available here), but many bond don’t trade often, and the pricing is uncertain. Historically, many bonds have been traded not by commission but by the broker actually taking a cut — effectively buying it from someone for $55, say, and selling it to you for $57, and pocketing the $2 spread. Some brokers trade bonds for a set $1 per bond commission or something like that, some mark up the bonds and don’t tell you what the commission really is, it’s an area where a phone call to your broker to get the details straight is probably a good idea before you think about investing in these instruments (or perhaps switching brokers).
The other note about bond transactions — and let me be clear that I’m not an expert at bond trading, I almost never buy bonds — is that they are not as easy as stocks. You can see a bond quoted on a site like FINRA or a trading data site and think it looks like a great deal, but it’s always quite possible, particularly for bonds that aren’t heavily traded like many smaller junk bonds, that your broker won’t be able to find the bond for you to buy — or that he’ll demand a large minimum order to make the effort to put the buy together. So be careful about assuming that just because a financial instrument exists, it’s easily available for individual investors, that’s not always the case. Many bonds are hard to trade, particularly if you’re a small investor (a minimum of ten bonds, or $10,000 principal value, is fairly common).
And, of course, buying individual corporate bonds carries similar kinds of risk to buying individual stocks — a particular company can always collapse or fail to pay the bondholders, or go into bankruptcy, with uncertain results as the courts work out how much of the carcass you’ll receive … and if you know going in that this is a junk bond with a high yield and a low credit rating, you should certainly already have that thought in the back of your mind. Investors can make a killing from these bonds if they find one that has a better chance of paying off at maturity than the market currently reflects, but it’s that kind of analysis that you need to do for any individual corporate bond you buy … will they keep paying their coupon, and will they be able to pay back my principal at maturity?
So … would you throw your cash behind Freescale Semiconductor? Think Mike Williams is right when he implies that they’re probably good for the money in seven years, and able to make those semiannual coupon payments? Have great advice for your fellow readers about buying and selling bonds? Brokers that are great or lousy for this kind of investing? Let us know with a comment below.
And as you can imagine, the last year has been a rough one for investors in corporate credit — so the Stock Gumshoe Reviews site certainly reflects some frustration with older picks from True Income, though the reviews are pretty mixed overall. If you’ve ever subscribed, or you’re a current subscriber who wants to update us on how Mike is doing, click here to share your review now. Thanks!