The Global Economy Hasn't Stopped Nick Lanyi From Uncovering High-Quality, High-Yield Opportunities
Wednesday, March 18, 2009
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The Global Economy Hasn't Stopped Nick Lanyi From Uncovering High-Quality, High-Yield Opportunities
-- An Interview with Nick Lanyi

     Nick Lanyi is the editor of High-Yield International, the leading publication for investors seeking the best income opportunities around the world. 

     The global economy may be slowing, but that hasn't impacted Nick's ability to find investments with "strong income, the potential for capital appreciation, and only moderate risk." In today's issue, we asked Nick to survey the international investment landscape and discuss why he favors one industrial sector, in particular, for its continued ability to deliver high yields at great values. (Full Story Below)

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    The Global Economy Hasn't Stopped Nick Lanyi From Uncovering High-Quality, High-Yield Opportunities

     Q: The world is projected to see its economy shrink for the first time since World War II. What do you think of this assessment? Who is still growing? What will this mean for international investors?

     A: If the U.S., Japan and Europe all report declines of -4% to -5% or worse in the first quarter, it's highly likely that the overall global GDP for all of 2009 will be lower than that in 2008. Almost the entire world is in recession -- a remarkable development, and the reason we've seen stock markets on every continent have suffered serious bear raids.

     However, I think signs of economic turnaround -- or at least a bottom -- will emerge before the end of the year thanks to the massive stimulus packages enacted in the U.S. and China, with the EU and many other countries either having followed suit or considering doing so.

     Whether the world's economy shrinks slightly or grows slightly in a calendar year is not as relevant to investors as the long-term direction. I think this serious recession will last a few quarters, then lead to an economic recovery. Global stock markets seem to reflect a severe, long recession -- and they may be right. But eventually, both economic growth and rising stock prices will return.

     Some positives: China will grow in 2009; the only question is how strongly -- and that's an enormously significant question for the global economy and world stock markets. If it's at the low end projected by some economists (+4% to +6%), Asian stocks will remain stagnant. Demand for oil and other commodities will remain slack, and their prices will fall from current levels. If it's in the +8% range that the Chinese government recently projected, Asian stock markets will rise and commodity prices will probably move higher than current levels (although oil and others have already rallied on glimmers of hope emanating from China).

     Brazil is another relative bright spot. After growing +5.1% in 2008, the economy is slowing significantly -- but should remain positive in 2009, which counts as a boom relative to the prospects for the U.S. and most other developed countries. The Brazilian currency, the real, has lost about -30% vs. the U.S. dollar since last summer, but Brazil's government bond yields are among the highest in the world. As investors shift from recession panic to anticipation of recovery, they'll flock to Brazil's attractive bond and stock markets -- and the real will rally. I can't predict the month that will happen, but I'm confident that scenario will unfold. That's why it continues to make sense to hold high-yielding Brazilian utility and telecom stocks now.

     Q: Safety is first -- many investors are now more concerned with asset protection than growth. Where can investors find the greatest margin of safety? Are there securities that still combine an element of safety and a solid return?

     A: Yes. With asset values sharply down across the board, we're seeing good values in many international stocks, bonds and the closed-end funds and exchange-traded funds that invest in them. Now, there's no such thing as a free lunch: the global recession is for real, and when one invests in high-yield securities, one must accept that volatility and downside risk are the price we pay for the above-average income. But there are degrees of risk, and many of the investments I've recommended in recent months combine strong income, the potential for strong capital appreciation and only moderate risk.

     For the most risk-averse investors who are looking for income, I recommend a closed-end fund or ETF that holds a diversified blend of foreign stocks, bonds or both. Examples include Templeton Global Income (NYSE: GIM), AllianceBernstein Global High Income (NYSE: AWF) and the Global High Income Fund (NYSE: GHI).

     Q: What's the most compelling international income sector right now? What do you tell your family members about?

     A: I give my family the same advice I give my friends in High-Yield International. And as readers know, one area I've emphasized in recent months that balances high yield with great value is high-quality telecom stocks.

     In general, telecoms combine solid cash-generating ability from their core landline operations with growth potential from wireless, cable and broadband operations at home and abroad. But some telecoms are in better shape than others. In developed countries, the strongest players have leveraged their brand names (usually established during decades as the monopoly provider) into leading market positions in most of these areas while also maintaining a strong balance sheet and keeping a tight rein on expenses. France Telecom (NYSE: FTE) is an excellent example. Deutsche Telekom (NYSE: DT), another favorite, has the strong brand name but room for improvement in its operating margins, which I anticipate will happen in the coming years.

     In emerging countries, I like telecoms with tremendous room for growth because of low saturation rates for higher-margin services such as broadband. Brazil's Telesp (NYSE: TSP) is a favorite example.

     If you'd like to learn more about the thoroughly researched, high-quality, high-yield opportunities Nick Lanyi shares with his High-Yield International readers each and every month, please visit this link.

-- Nick Lanyi
Global Dividend Opportunities
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

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Income Notes

Bond prices have had a remarkable lap around the track in the past few weeks.  The yield on the triple-A bond -- which had been at 4.83% last month -- shot to an average 8.93% last week.  The reason: Investors staged a flight from quality as Wall Street awaited a downgrade of GE's credit rating.  S&P brought GE down a peg March 12, to "AA+" and the markets relaxed.  Like floodwaters, the yield on the triple-A has started to recede, though it remains at a tempting 6.19%.  

-- Andy Obermueller

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