John Bogle, the legendary founder of Vanguard Group, doesn’t have high hopes ahead for financial markets.

He predicts 7 percent annual returns for stocks and 5 percent for bonds — before inflation. With his forecast for 2.5 percent inflation, that translates into real returns of only 4.5 percent for stocks and zero for bonds. 

“These are the most difficult investment conditions I’ve ever seen,” Bogle tells Morningstar.com.

Editor’s Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

He didn’t elaborate, but presumably he’s referring to the global economic slowdown that many experts believe will continue for several years and the massive deleveraging occurring in the United States.

So what should investors do to maximize their returns? Bogle doesn’t like the idea of taking on much more risk. 

But one low-risk move you can make is switching to high-grade corporate bonds from Treasurys. That would increase your yield to a range of 2.5 to 3 percent from one of 1.5 to 2 percent.

In addition, you might extend your bond maturities. “Maybe take a little more maturity risk, which is not credit risk, just volatility risk,” Bogle says.

Other experts recommend blue-chip dividend stocks as a low-risk strategy to boost returns.

MarketWatch columnist Meena Krishnamsetty cites five stocks that offer attractive dividend yields, haven’t fallen in price this year and have seen at least one significant insider purchase.

The list includes Old Republic International, AT&T, Integrys Energy Group, DTE Energy and Alliant Energy.

…….read more Bogle Sees 7% Returns on Stocks, 2% on Bonds

The Size of Major Bull Markets

Back in 2009, we ran this Financial graphart‘s terrific chart of Bear Market Comparisons, 1929-2009. When we put it up way back in early February 2009, there were still 2 weeks left in the 2009 bear. (Its updated here).

Well, in what might not be too auspicious a sign, today we run a new chart called “The Size of Major Bull Markets”. It’s similar to the prior one, only flipped around.

via:
John Paul Koning Financial Graph & Art, October 19, 2012 www.financialgraphart.com

The Bull Case for Safe Havens

“Government securities are the default safe haven in times of heightened risk aversion. But what happens when Government finances are the cause of the tension? Where are the safe havens then?”

Dylan Grice makes the case that “over time, what’s good for the currency and for government finances (bonds) should be good for the rest of the economy (equities) and vice versa.”

The problem is that the last ten years were an outlier, and that goverment bonds have benefited from their “safe haven” status:

The correlation should be positive. Indeed, the following chart shows that the correlation generally has been positive, averaging +0.2 between 1875 and 2002, but -0.3 since 2002 (for the whole period, the average was +0.15). see chart below

Given this outlier status, Investors need to be on the lookout for when government securities lose their safe haven status.

Source: 
The bull case for safe havens Dylan Grice Popular Delusions Société Générale, October 23, 2012

The Canadian economy has shown exceptional resilience during the Great Recession and continues to charge ahead of the U.S. and other developed economies. However, due to their high exposures to volatile materials and energy sectors, the nation’s leading equity indices have underperformed their U.S. peers by a large margin. Still, investors in the pursuit of a meaningful yield can find plenty of investment opportunities in Canadian dividend stocks.

Dividend stocks have fared pretty well on both sides of the border. Despite the recent rebound in bond yields, the U.S. Treasury and Canadian government 10-year bond yields remain below 2%, which makes high-yield dividend stocks with strong fundamentals especially attractive investment vehicles for income investors.

In search of sustainable dividends at reasonably high yields, investors should focus on those companies that pay dividend yields higher than those on comparable assets and that exhibit stability and sustainability of earnings and dividend growth over time. Manageable debt levels, payout ratios below ominous rates and reasonable valuations are also important variables. Here is the top 6 of the 60 Best S&P/TSX Dividend Yielding Stocks. Go HERE or click on the image for the entire list of 60 Dividend Yields:

THESE US COMPANIES HAVE RAISED THEIR DIVIDENDS FOR 50 CONSECUTIVE YEARS

Imagine if you had bought these stocks 20 years ago.

If you had, then right now you’d be earning dividend yields of… 27%… 33%… even as high as 65%. And that’s from brand name companies like Proctor & Gamble (NYSE: PG) and Lowe’s (NYSE: LOW).

Unfortunately, most investors will never see dividend yields like these. They don’t have the patience. They want big dividend checks now, and in a classic twist of irony, they’re missing out on some of the market’s highest-yielding opportunities.

Let me explain…

When most investors think about buying an income stock, they focus solely on the stock’s current yield. They think bigger equals better, and they’re most interested in stocks that offer headline grabbing dividend yields.

Don’t get me wrong… to some extent they’re right. Clearly, a higher dividend puts more cash in your pocket.

But as I told you recently, yield isn’t the only key to a good income investment… you also need to consider a company’s dividend growth. Dividend growth can turn lower-yielding stocks into big income producers over time.

For example, right now Proctor & Gamble pays a dividend yield of 3.2%… nothing special. But in the past 20 years, the company has raised its dividend 799%. That means if you had bought the stock back in 1992, then you would be currently earning a yield on cost of 33%.

The same goes for Johnson & Johnson (NYSE: JNJ) and Coca-Cola (NYSE: KO). If you had bought shares of these companies twenty years ago, thanks to dividend increases, those shares would be paying you over 27% today.

That’s the power of dividend growth… and it’s why I think it’s one of the most important aspects of any income investment.

But that begs the question, how do you know if a company is going to increase its dividend? Dividend increases are decided by a company’s board of directors, and there’s no law that says a company must increase its payout.

That’s why I’ve found its best to look at companies that already have a strong track record of growing their dividend. If a company has a history of increasing its dividend year in and year out, then dividend increases are clearly an important part of the company’s culture. All other things being equal, if a company has increased its dividend consistently for 10, 20… even 50 years or more, then it’s going to be far more likely to keep its dividends growing in the future.

With that in mind, I recently conducted an extensive search to try and find companies that have raised their dividends for 50 years of more.

As you can see, each of these stocks has increased its dividend every year for at least half a century.

The market clearly rewards that kind of behavior. Of the 14 companies on the list, all of them have handedly outperformed the 342% return from the S&P 500 in the last 20 years.

But the real story is what those dividend increases have been able to do for income-oriented investors. Just look at the dividend yields you’d currently be earning if you had bought these stocks just 20 years ago…

As you can see, after 20 years of consecutive dividend increases, each of these stocks offers a very attractive yield on cost. The highest yielding stock on the list – Lowe’s – has a yield on cost of 65%… and that’s from a $37 billion company.

That just goes to show what dividend increases can do for your portfolio. Thanks to dividend increases, some of the market’s lowest-yielding stocks can turn into big dividend payers over time.

Of course with investing, nothing is 100% certain. Just because a stock has increased its dividend for 50 consecutive years, it doesn’t mean it’s guaranteed to increase it for another 50.

But the lesson here is simple — if you’re ignoring dividend increases, then you could be missing out on some of the market’s biggest high-yield opportunities.

[Note: If you’re interested in dividend growth, you need to learn more about my “WGB Retirement Fund.” The 12 stocks that make up this “fund” have seen dividend increases of 21% in the past year… 85% in four years… and even one that stock that’s increased payments every year for half a century. Maybe that’s why some of America’s largest pension funds own millions of dollars worth of these stocks. To learn more about these stocks — including several names and ticker symbols — follow this link.]

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — Top 10 Stocks

P.S. — Don’t miss a single issue! Add our address, Research@DividendOpportunities.com, to your Address Book or Safe List. For instructions, go here.

Disclosure: Neither Paul Tracy nor StreetAuthority own shares of the securities mentioned in this article. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.

Journalists, politicians and economists all seem to agree that the biggest economic issue currently worrying voters is unemployment. It follows then that most believe that the deciding factor in the presidential race will be the ability of each candidate to convince the public that his policies will create jobs. It seems that everyone got this memo…except the voters.

According to the results of a Fox News poll released last week (a random telephone sample of more than 1,200 registered voters) 41 % identified “inflation” as “the biggest economic problem they faced.” This is nearly double the 24% that named “unemployment” as their chief concern. For further comparison, 19% identified “taxes” and 7% “the housing market” as their primary concern. A full 44% of women, who often do more of the household shopping and would therefore be more sensitive to prices changes, identified rising prices as their primary concern.

My most recent video blog addresses this topic in detail.

While these statistics do not surprise me, they should shock the hell out of the establishment.  According to the Federal Reserve, inflation is not a concern at all.  Time after time, in front of Congress and the press, Fed Chairman Ben Bernanke has said that inflation is contained and that it is below the Fed’s “mandated” rate of inflation (whatever that may be). The Bureau of Labor Statistics is saying the same thing. The measures they use to monitor inflation, such as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE), show annual inflation well below 2%.  In fact, the GDP price deflator used by the Commerce Department to calculate the second quarter’s 1.3% annual growth rate assumed annual inflation was running at just 1.6%.

In fact, Bernanke thinks inflation is so low that he is actually worried about deflation, which he believes is a more dangerous issue. As a result, he is recommending policies that look to raise the inflation rate, not just to combat the phantom menace of deflation but to boost the housing market and reduce unemployment. He mistakenly believes these problems are the ones that concern Americans the most.

If inflation really is as subdued as the government claims, how is it that so many people are concerned?  It’s not as if the media or political candidates are fanning the fears of rising prices. In fact, given the media’s preoccupation with the housing market, the fact that nearly seven times as many Americans worry more about rising food prices than falling home prices shows just how large the inflation problem must be. Yet most economic observers continue to swallow the government’s inflation propaganda hook, line and sinker.  In fact, although the Fox poll came out last week, I did not read or hear a single story on this topic, even from Fox news itself, which appears to not have noticed the significance of its own data.

For years my critics have always attempted to discredit my inflation fears by pointing to government statistics showing low rates. However, I have long maintained that such statistics underreport inflation, and the results of this poll seem to confirm my suspicion. There are only two possible ways to explain the disconnect. Either the government is correct and consumers are worried about a non-existent problem, or the consumers’ concerns are real and the government’s statistics are not. From my perspective, it seems that it is far more likely that consumers are in the right.  If so, we are in a lot of trouble.

If annual inflation is actually higher than 3%, which would certainly be the case if consumers are so worried about it, then we are already in recession. Had government used a 3% inflation deflator (rather than the 1.6% that they actually used) to calculate 2nd quarter GDP, then growth would have been reported at negative .1% rather than the positive 1.3%.  I believe that if the government used more accurate inflation data over the past several years, it is possible that we would have seen no statistical recovery from the recession that began in the fourth quarter of 2007. This would help explain why the “recovery” has failed to create jobs or lift personal incomes.

The Fed’s zero percent interest rate policy is predicated on the assumption that there is currently no inflation. If this is not accurate, then they are making a major policy mistake. The Fed is easing when it should be tightening. If inflation is such a major concern now, imagine how much bigger the problem will become once the Fed achieves its goal of pushing the rate higher. More importantly, how much tighter will future monetary policy have to be to put the inflation genie back in her bottle? If inflation becomes so virulent before the Fed realizes its mistake, then it may be forced to raise interest rates significantly. U.S. national debt is projected to reach $20 trillion within a few years. As a result, a 10% interest rate (which would be needed to combat 1970’s style inflation) will require the U.S. government to pay about $2 trillion per year in interest on the national debt. This will absolutely upend all economic projections.

Since 10% interest rates will likely crush the economy, not to mention the banks and the real estate market, tax revenues will plunge and non-interest government expenditures will go through the roof. Assuming we try to borrow the difference, annual budget deficits could go much, much higher from the already ridiculously high levels that they have reached during President Obama’s term. Annual deficits of $2 trillion, $3 trillion, or even $4 trillion, would result in a sovereign debt crisis that would force the Federal Government to either default on its obligations or inflate them away.  Given the tendency for politicians to prefer the latter, voters who think rising prices are a problem now should just wait until they see what is waiting down the road!

Peter Schiff’s new book, The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country is now available. Order your copy today. 

For in-depth analysis of this and other investment topics, subscribe to Peter Schiff’s Global Investor newsletter. CLICK HERE for your free subscription. 

There is a real danger that the “nightmare” euro crisis could destroy the European Union and Germany should either step up to fix it or step out of the currency union altogether, fund manager George Soros said on Monday.

The crisis “is having tremendous impact in the state of affairs, it is pushing the EU into a lasting depression, and it is entirely self-created,” said Soros, Chairman of Soros Fund Management.

“There is a real danger of the euro destroying the European Union. The way to escape it is for Germany to accept … greater commitment to helping not only its interests but the interests of the debtor countries, and playing the role of the benevolent hegemon,” he said at a luncheon hosted by the National Association for Business Economics

Germany should act as the leader of the union such as the United States was for the free world after the Second World War, Soros said.

The influential fund manager floated another solution to the crisis that has gone on for more than two years: Germany could leave the euro, “and the problem would disappear in thin air,” as the value of the euro declines and yields on the bonds of debtor countries adjust.

The notion that governments are “riskless” is the main false assumption underlying the euro zone, Soros said, adding it could be corrected by introducing Eurobonds.

“But that has become politically unacceptable by Germany,” he added.