This two-year interest rate trend is about to turn. When it flips, JPMorganChase CEO Jamie Dimon’s safe, somewhat-secret 7.4% dividend will directly benefit.
We’ll highlight the name and ticker of my favorite bond fund for 2024 in a moment. First, let’s discuss why we’re discussing it.
For two straight years, the US dollar has rallied relentlessly. Credit (or blame) the Federal Reserve. When the Fed hikes, the buck rallies.
But an inflection point is near. The Fed will pause in its interest-rate hikes soon. This means the greenback is near a top, give or take, because it moves along with its best friend, the Fed Funds Rate. Who leads who is an academic argument… or one to be settled over drinks! The bottom line is that when the Fed cuts, the dollar declines:
The Fed Funds Rate and Dollar Trend Together
The cuts are coming because a recession will eventually arrive. When that happens, Fed rates will plummet. Ironically, the more hawkish the Fed stays now, the more dovish it will be on the other side. Reason being, Jay Powell and his team will break more things by trying to keep rates higher for longer and will have more cleanup to do when they lower them!
We’re 18 months into the current rate hike cycle. My bet is that it won’t take much longer for the economy to slow.
That’s why the buck will likely be lower a year from now. And that will light a fire under emerging-market bonds.
Yes, a weak buck is a big catalyst for emerging bonds. Foreign countries and companies often borrow in US dollars rather than their own currency. But they still have to service the debt in their own currency, or buy dollars to do it, and a pricier buck makes that more difficult.
We have a friendlier setup brewing for 2024. We contrarians should position ourselves for a weaker dollar, which will “surprise everyone” who only reads the headlines. To do so, we turn to Dimon and his iShares JP Morgan USD Emerging Markets Bond ETF (EMB).
EMB has a headline 5.2% yield but that’s too low. The fund’s SEC Yield reveals the sweeter truth.
“SEC Yield” reflects the interest the fund earned, minus expenses, over the past 30 days. It’s fairer and more accurate calculation of what’s current and ahead than is the trailing twelve-month yield.
With the SEC calculation, we’re changing our focus from the rearview mirror to the road ahead. What’s EMB likely to pay over the next 12 months? Using SEC yield gives us a fat 7.4%. Now we’re talking.
With the greenback topping out, EMB will grind higher. Which means price gains on top of a 7.4% payout, paid monthly. Perfect!
About that monthly dividend—it does fluctuate a bit with currency movements. No big deal. Just giving you a heads up that your payment will be relatively steady but not perfectly so:
EMB’s Monthly Dividend: A Bit of Variance
Source: Income Calendar
As contrarian investors we love inflection points in markets. When the herd is convinced that something will happen, the opposite often does. Higher dollar? Perhaps according to the rearview mirror, but the road ahead indicates otherwise—which gives this 7.4% divvie room to accelerate.
Believe it or not, EMB’s 7.4% yield is a little light by our current contrarian standards! Most of my best buys are monthly dividend payers that yield 9%+ or more.
That’s right—nine percent dividends per year. Paid monthly. With price upside!
This means a modest portfolio can earn $3,750 or more in dividends each month, every month. Plus $50,000 or more annually in capital gains. Read my full list of 9%+ monthly dividend payers here.