WEBVTT - Hilltop's Grant Recommends Buying Closed-End Bond Funds (Audio)

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<v Speaker 1>to learn more. The stock market is adding to this

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<v Speaker 1>week's advanced The S and P five funded is on

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<v Speaker 1>course for its biggest weekly game since March. The equity

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<v Speaker 1>benchmarks remain higher after Federal Reserve cheer Johnny Yellen said

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<v Speaker 1>the ongoing improvement in the US economy would warrant another

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<v Speaker 1>interest rate increase in the coming months. She stopped short

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<v Speaker 1>of giving an explicit hint that this central bank will

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<v Speaker 1>act in June. The dollar extended its largest monthly game. Banks,

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<v Speaker 1>healthcare and consumer discretionary shares are up the most. We

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<v Speaker 1>check the markets every fifteen minutes throughout the trading day.

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<v Speaker 1>Down Industrial lavery is up thirteen points at seventeen thousand,

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<v Speaker 1>eight hundred forty one s and p f I funded

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<v Speaker 1>up four points to tens of a percent to two

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<v Speaker 1>thousand ninety four and azzak is up twenty two points,

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<v Speaker 1>a gain of half a percent. It's trading at forty

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<v Speaker 1>nine twenty four. West Texas Intermedia Crude oil down eighteen

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<v Speaker 1>cents of barrel a third of a percent at forty

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<v Speaker 1>nine thirty. It's about gold is down twelve dollars ninety

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<v Speaker 1>cents announce at twelve O nine eighty ten. Your treasury

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<v Speaker 1>down six thirty seconds with the yield of one point

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<v Speaker 1>eight five percent. And that's a Bloomberg business flash. You're

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<v Speaker 1>listening to taking stock with pin Box and Kathleen Hayes

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<v Speaker 1>on Bloomberg Radio Fetcher. Yellen says that yes, a rate

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<v Speaker 1>high is appropriate and coming months be a little bit

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<v Speaker 1>of a sell off in the bond market with the

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<v Speaker 1>benchmark tenure yield down about six thirty seconds, make that

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<v Speaker 1>three sixteen seals at one point eight five So how

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<v Speaker 1>about a forecast for that ten year no yield going

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<v Speaker 1>down to one point two five per cent. Well, that's

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<v Speaker 1>exactly what our next guest is looking for. We're very

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<v Speaker 1>happy to welcome Mark Grant back to taking Stock. He's

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<v Speaker 1>chief Fixed Income Strategies for Hilltop Securities, joining us from

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<v Speaker 1>Fort lauder Day. All, good afternoon, Mark, Good afternoon, Kathleen.

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<v Speaker 1>It's great to be with both you and Pim. So

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<v Speaker 1>Janet Yellen, did you take away anything special from her

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<v Speaker 1>remark speaking to Greg make you at Radcliffe Day today.

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<v Speaker 1>I said earlier in the year that I didn't think

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<v Speaker 1>and I still don't think that it's appropriate that the

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<v Speaker 1>Fed do anything. I now have a feeling that they

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<v Speaker 1>are going to make one move, probably in June, maybe

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<v Speaker 1>July bases points. I think the odds are about now

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<v Speaker 1>that's coming. The way she sounded today, I think it's

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<v Speaker 1>a mistake, but I think that's what's gonna happen. Hey, Mark,

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<v Speaker 1>I just want to understand something, because if you look

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<v Speaker 1>at the debt that countries and people have taken on,

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<v Speaker 1>this debt funded consumption, it works great for a while,

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<v Speaker 1>but doesn't it end at a certain point. Well them,

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<v Speaker 1>right now, according to the Rating Agency fits, there's nine

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<v Speaker 1>point nine trillion dollars of debt that's yielding less than

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<v Speaker 1>zero in other words, of negative yielding debt, and the

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<v Speaker 1>ECB is making noises that it's going to expand its program,

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<v Speaker 1>as well as the Japanese Central Bank, So interestingly enough him,

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<v Speaker 1>I have a divergent opinion here, not unusual for me,

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<v Speaker 1>but um, I think the FED may raise the rate

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<v Speaker 1>basis points. But I'm looking, and we've seen so far

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<v Speaker 1>in the last thirty days a yield curve that is

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<v Speaker 1>flattening significantly and may even go negative. And the reason

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<v Speaker 1>for that is the tremendous amount of money that's coming

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<v Speaker 1>out of Asia and out of Europe, and it's buying

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<v Speaker 1>longer term US security is not just treasuries, but corporate

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<v Speaker 1>bonds and other mortgage back bonds, and so I see

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<v Speaker 1>a flattening yield curve, and I'm looking for the tenure

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<v Speaker 1>to head down to one in a quarter because demand

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<v Speaker 1>is going to be much stronger in my opinion, than supply.

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<v Speaker 1>That seems to me to be so important here for

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<v Speaker 1>people to think about when they think about the bond market.

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<v Speaker 1>Of course, the treasury marketing me up by treasuries, but

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<v Speaker 1>it obviously helps set the price in the yield for

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<v Speaker 1>all kinds of fixed income in US and around the world.

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<v Speaker 1>Is that it's not so much necessarily that yields will

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<v Speaker 1>go a lot lower because we're having a recession or

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<v Speaker 1>that there's deflation the United States. It has much more

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<v Speaker 1>to do just with investors, particularly big institutions around the world,

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<v Speaker 1>saying I need some yield and compared to so many

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<v Speaker 1>other parts of the world, this is where I'm going

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<v Speaker 1>to get at US, even US treasuries. I think that's correct, Kathleen,

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<v Speaker 1>as a matter of fact, and almost nobody in the

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<v Speaker 1>media talks about this. But I have a solution to

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<v Speaker 1>the problem, which is to buy closed den bond funds.

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<v Speaker 1>And recently we saw Bill Gros come out saying he

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<v Speaker 1>thought also was the best solution, and we've seen Randy

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<v Speaker 1>Forsyth over Barons be very positive. But I spent about

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<v Speaker 1>forty hours over a weekend once and went through the

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<v Speaker 1>closed in bond funds and using Bloomberg for a lot

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<v Speaker 1>of the research, took it down to eleven bond funds,

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<v Speaker 1>and these eleven bond funds the last time I did

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<v Speaker 1>the calculation, pay on average ten point to nine. That's

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<v Speaker 1>ten point. They trade like equities. In other words, there's stock,

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<v Speaker 1>but instead of the ownership being General Motors or IBM

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<v Speaker 1>or something, the ownership is a bond portfolio, diversified bond

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<v Speaker 1>portfolio managed by black Rock or BABS and Mass Mutual

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<v Speaker 1>or PIMCO or some of the very biggest names out there.

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<v Speaker 1>And they also, interestingly enough, pay every month, so you

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<v Speaker 1>get to check every single month, and you're getting over

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<v Speaker 1>ten percent with a monthly check. And I don't know

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<v Speaker 1>better place to put money. What are the risks? Mark? Well,

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<v Speaker 1>the perpetuals like stocks, meaning that they don't have a maturity.

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<v Speaker 1>So if you're comparing them to have their bonds pim

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<v Speaker 1>you would say that it's a perpetual security. They have

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<v Speaker 1>some leverage in them, and the good news for a

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<v Speaker 1>person or an institution. And by the way, I'm in

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<v Speaker 1>talks right now with some of the biggest institutions in

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<v Speaker 1>the world about getting into these um so there's some

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<v Speaker 1>leverage in them. But even pre the FED doing something,

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<v Speaker 1>or after the FED doing something, they're still in such

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<v Speaker 1>low interest rates, and the differential between the bond yields

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<v Speaker 1>and the UH leverage is so great I'm not concerned

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<v Speaker 1>about it. UH. And then there also is a question

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<v Speaker 1>of liquidity that I can also report because I do

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<v Speaker 1>business with a lot of very large institutions that there's

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<v Speaker 1>very little liquidity in anything these days. But those would

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<v Speaker 1>be the risks in these uh gurity. So in a

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<v Speaker 1>nut shelf for a novice investor who may not know,

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<v Speaker 1>tell us, okay, in a show, what is a closed

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<v Speaker 1>end bond fund? How does comparison to just a basic

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<v Speaker 1>bond fund, mutual fund? You know, it's put a plain vanilla.

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<v Speaker 1>Is it something that a retail investor can buy easily?

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<v Speaker 1>Mark ers is something that you have to work with

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<v Speaker 1>the mark rants of the world to buy. No, you

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<v Speaker 1>can buy it very easily, just like you can buy

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<v Speaker 1>IBM stock. The the the issue here which is the

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<v Speaker 1>same and inequities. You have to know what you're doing.

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<v Speaker 1>You have to do homework. You have to differentiate between

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<v Speaker 1>the bond funds to close down bond funds that look

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<v Speaker 1>attractive and the ones that aren't. So yes, you have

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<v Speaker 1>to know something about these things. But you can buy

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<v Speaker 1>them exactly the same through anyone you want, any broker

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<v Speaker 1>dealers that you want is you would buy an equity.

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<v Speaker 1>What I am looking for here, and even with if

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<v Speaker 1>the Fed does decide to do something in a period

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<v Speaker 1>of incredibly low interest rates, even if you took from

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<v Speaker 1>the beginning of this year to today, the Dad Jones

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<v Speaker 1>is up four and these bond funds are paying over ten. Well,

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<v Speaker 1>I'll take the yield, thank you very much, and I'll

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<v Speaker 1>take a monthly check versus a stock with the dividend

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<v Speaker 1>that pays four times a year or a bond that

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<v Speaker 1>pays twice a year. I think this is the absolutely

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<v Speaker 1>best thing in an institution or a person could put

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<v Speaker 1>their money in at the present time. Mark do lingering

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<v Speaker 1>negative interest rates just draw more money into the United States,

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<v Speaker 1>into the very assets that you've described. Yes, and that's

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<v Speaker 1>exactly what I think is going on. You know, Europe

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<v Speaker 1>operates differently than the United States. The government basically puts

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<v Speaker 1>the arm on the institutions over there that manage the

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<v Speaker 1>pension money, manage different things for the governmental entities to

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<v Speaker 1>buy bonds denominated in euros and so forth. However, what's

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<v Speaker 1>taken places with the expansion of the European Central Bank's

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<v Speaker 1>program to buy more corporate bonds as well as sovereign

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<v Speaker 1>debt bonds, and they may even expanded into equities. You're

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<v Speaker 1>seeing the ability of a lot of the European institutions

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<v Speaker 1>now to come to America put money in American securities

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<v Speaker 1>as arguably the safest place to put money, it's certainly

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<v Speaker 1>not the place to get the most yield. Just for

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<v Speaker 1>a comparison for your audience, PIM, the ten year German

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<v Speaker 1>sovereign debt is yielding zero point one four per cent

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<v Speaker 1>and UH that's in comparison PIM to the United States

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<v Speaker 1>tenure Treasury, which is yielding UH closed today at one

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<v Speaker 1>point eight five. And then if you take going into

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<v Speaker 1>corporate yields, which is where I like presently, or some

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<v Speaker 1>of the mortgage yields, you're just picking up a tremendous

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<v Speaker 1>amount of yield over what you can get most of

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<v Speaker 1>the rest of the world. Could you just there, is

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<v Speaker 1>there a couple of funds, a couple of names you

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<v Speaker 1>want to throw out to our listeners of an example

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<v Speaker 1>of a good closed end bond funds so they can

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<v Speaker 1>start educating themselves and learning more about these vehicles. I

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<v Speaker 1>wish I could. Unfortunately, Kathleen, my compliance department forbids me

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<v Speaker 1>from doing that, and someone would have to get ahold

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<v Speaker 1>of lead for the funds that I like, but I

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<v Speaker 1>can't state them in public. Thank you very much for

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<v Speaker 1>spending time with a smart. Grant is the chief fixed

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<v Speaker 1>and strategist for Hilltop Securities. He's based in Fort Lauderdale, Florida.

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<v Speaker 1>This is taking Stock on bloom Burke. I'm Pim Fox.

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<v Speaker 1>We've been talking about Janet Yellen and her speech today,

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<v Speaker 1>her conversation rather at Harvard University and Kathleen. It seems

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<v Speaker 1>as though it hasn't really done very much to the

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<v Speaker 1>stock market. It did fall right during her conversation, but

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<v Speaker 1>afterwards stock market has come back. SMP five or two

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<v Speaker 1>tenths of a percent down, Jones Industrial Average up one

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<v Speaker 1>tenth of a percent. You're listening to taking Stock