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Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger"We're taking a hard look at municipal bonds," says Keith Fitz-Gerald. In The Money Map Report, he adds, "Our favorite play is Nuveen Quality Income Municipal Fund (NYSE: NQU).
"If you have been thinking about putting some new cash to work, now's a great time to do so. In general, municipal bonds are about as cheap as they've been in decades.
"Munis are really very simple instruments. When most states, cities or even counties engage in large-scale construction projects, they typically issue debt in exchange for the money they need in the form of a municipal bond.
"Because the Fed considers them tax-free instruments, munis with lower rates can actually equal far higher taxable yields. For instance, a 3%-to-5% tax-free note can be equal to a taxable one of 5% to 7% under normal circumstances, particularly for investors in higher tax brackets.
"But these are hardly 'normal' times. Especially when you consider that many munis are actually paying more than taxable treasuries at the moment.
"Our favorite play is the Nuveen Quality Income Municipal Fund, which is paying a juicy 5.60% tax free at a time when 10-year treasuries are offer a taxable 4.10%. Put another way, in order to equalize the two, we'd have to find a taxable yield of 7.82%.
"Another thing that's attractive about NQU today is that it's trading at a 9.82% below net asset value, which means you can pick it up at nearly 10% off.
"Under 'Obamanomics', muni bonds could really be a ticket to consistent returns.That's important because if Barack Obama winds up in the Oval office, the chances are good that he'll raise taxes or burn off Bush's tax incentives at the very minimum.
"If he does, a whole bunch of people who have previously never sought out tax free investments will go running right for them like a sumo wrestler goes running for the counter at an all-you-can-eat buffet.
"Which means that munis, long regarded as 'boring' staid investments, could be anything but for the next 12 months. And that gives them plenty of capital appreciation potential.
"The other thing worth noting, especially after nine very difficult months in the markets, is that NQU has a beta of 0.17, which means it is only 17% as sensitive as the overall markets.
"And that makes it a great choice for stability and higher returns -- irrespective of whether you believe we are forming a new base now after last week's rallies or that we are doomed to plumb deeper, steeper lows."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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