Ahead of this realization by the market, we have been in profit-taking mode for the most volatile stocks and moved to hold for longer-term recommendations. 

The Standard & Poor’s 500 Index has recognized this and had started moving sideways with a very slight downward bias as of late.  Do not construe this to be bad news.  In fact, the cup-and-handle formation in the S&P 500 usually precedes a sharp move up. 

That is a very distinct possibility that we will eventually be playing with many of our existing ‘Buy’ recommendations, as well as with new ones, should the scenario materialize.  But we need to get over the cap-and-trade and healthcare reform humps. 

If the cap and trade legislation passes, the overall cost of energy will go up, taxing the whole economy, and there will be a shift to renewables, creating many jobs in this industry and ample profits.  We need to see these issues defined before pulling the trigger in most hugely actionable trades. 

So, I started screening different income-generating strategies and I discovered a great way to have both upside with high-yielding, yet low-default bonds, and at the same time enjoy dividends from mammoth companies that are likely to keep paying them: The TS&W/Claymore Tax-Advantaged Balanced Fund (NYSE: TYW).

I normally shun from recommending funds.  Why pay management fees when I can come up with a similar strategy on my own and recommend it to you? 

But there are two circumstances that make this case different:

• When there is such a level of expertise behind the strategy that it would be almost impossible for a non-expert to replicate with a decent chance to obtain similar results.
• And when the value of diversification is huge, and such diversification is unavailable or almost impossible for the individual investor to obtain.

Both of these reasons are huge factors here.  Let me explain.

Let’s start by explaining what this fund has in its belly.  It can invest from 50% to 60% of the fund in tax-free municipal securities and between 40% and 50% in equities and other income securities.  So we are not only playing the rally in bonds that stand to benefit from the markets’ realization that we are in for a longer recession than expected, that inflation is very subdued, and that the debt placements by the U.S. Treasury were well received. 

It helps the bond market a lot to have seen that the Fed did not continue expanding its quantitative easing.  So why not benefit from this by buying high-yielding, tax–free bonds? 

We are going to get both capital appreciation and a high yield. The fund is positioned right now some 54% in munis and 10% in other income.