Thoughts from the Forum — 180% Government Bond

by Travis Johnson, Stock Gumshoe | June 19, 2007 1:30 am

For those of you who haven’t been checking things out over at the Gumshoe Forum[1], I thought I’d call your attention to a little discussion of the latest teaser ad — from Stansberry, if memeory serves — for what is purported to be an “F-series” Government Bond that might yield 180%[2].

I’ve participated in the discussion, as has Newshidden, who has come up with a few other sleuthed answers for Gumshoedom. There are a few clues in there as to what Stansberry is talking about, but there isn’t a lot of clarity, in my opinion, as to whether he’s talking about special REITs[3], buying actual agency and collateralized bonds, or something more bizarre.

The basic tease is that the government has made it possible to make lots of money on these “F bonds” by both providing the law that makes them possible, and by controlling interest rates to some degree. He hints that buying these before the next Fed meeting is the way to go.

Now, from the specific clues we can glean a few things — the quotes that Stansberry cites are from articles that are in one case about REITs in general, and in another about Annaly Mortgage specifically (Annally, NLY, is a mortgage REIT). The text of the ad seems to me to hint that the idea is to buy actual mortgage agency bonds[4], though that may be me taking him too literally. Other hints point to significant moments in Mortgage investing history, like the creation of Fannie Mae by FDR back in 1938.

So, this tease is clearly about mortgage investing to some degree, specifically government-related mortgage bonds of some type, and about the tax advantages of REITs, so in some way it’s probably just a tease for the mortgage REITs (there aren’t that many of these REITs, especially if you avoid the subprime ones like Novastar)

But it’s kind of an odd ad. Depending on how you read the tease these advisors are either trying to get you to buy NLY or one of their competitors, or buy some of the more obscrure mortgage bonds through your broker, or something else. Some of these had some great heydays — NLY did have returns approaching that 180% at one point, largely from capital gains and multiple expansion, so that may be where that part of the tease comes from. Unfortunately, most of these securities have dramatically lower yields — as do nearly all REITs — than they did five or six years ago.

So that’s what’s happening of interest in the forum these days. No definitive answers yet, but maybe you’ll be able to provide those. Happy sleuthing.

Update: As of the end of September there’s another, similar teaser making the rounds for the same service — this time, called Virtual Banks that are a Government Economic Security Fund[5]. We’ve started to look into it, feel free to check it out and contribute[6] if you’re interested.

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