Dear Reader,

John Mauldin here. Chairman of Mauldin Economics. Despite Bernanke's promise to keep rates low, the free markets are taking over, and long-term interest rates are starting to rocket higher. As a result, sovereign bond prices are plunging.

Hardly surprising. When rates are artificially low as a result of the financial repression coming from central banks, there is nowhere to go but back up. It's the next phase of the endgame. Investors around the world are finally realizing that central banks can keep interest rates artificially depressed for only so long.

It's a very dangerous phase. Many investors, seeing rates rise on Treasury bonds and notes, are attracted to the higher yields. They've conveniently forgotten about all the dangers out there, and many are now plowing money back into Treasury securities - and even worse, into bond funds.

That would be fine in normal times. But we're not in normal times.

We're in a new normal, where you have to be extremely careful about every financial decision you make. Especially when it comes to boosting and securing your investment income.

Buying bonds and Treasury notes right now - even as the yields appear more attractive - is the worst thing you could do for your portfolio.

You could lose an entire year's worth of income in just a few weeks as bond and note prices fall.

At this stage of the endgame, there's another big mistake many investors make: they cling to traditional income-paying stocks, most of which are extremely vulnerable to a rising interest-rate environment.

I don't want you to make these two mistakes, so my recommendation right now is simple: There are three critical steps you should take immediately as interest rates begin to rise:

FIRST, if you have not done so already, exit all your long-term sovereign bond holdings (other than for trading purposes). Bond prices will continue to fall.

SECOND, get out of all the vulnerable interest-sensitive stocks. They're subject to sharp downdrafts. I would be very concerned about the 25 widely held income stocks that my team has identified as exceptionally vulnerable. See the team's list below.

THIRD, beef up your income portfolio... especially with my team's choice of three rock-solid companies paying nice dividends. Companies that will benefit from rising interest rates.

My team gives you all the details in the letter below.

Best wishes,

John

---

Governments and Central Banks
First Whacked You with
Extremely Low Interest Rates.

Now Your Wealth Is Being Decimated
as the Free Markets Take Over, Interest Rates
Explode Higher, and Bond Prices Plummet.

Is there no way out from under the carnage that the ongoing financial crisis is causing you?

First, Western governments and central banks destroyed your potential investment income by forcing interest rates down to historic lows to help bail out banks and investment brokers.

Now that the economy is showing some signs of life, the same Western governments and central banks are going to begin weaning a myriad number of financial institutions off low interest rates, or so they thought.

Instead, the free markets are taking over, and bond prices are plunging... in turn, taking huge chunks of principal out of your investments, causing another round of potential huge losses for you.

John and the team here at Mauldin Economics warned our readers that this was coming. That's why we said all along to stay out of sovereign bonds.

But recently, we've noticed a new trend among investors. Because interest rates are rising, investors are...

1. Buying more of the traditional dividend-paying stocks, companies that are exceptionally vulnerable to rising rates.

2. Starting to buy Treasuries again, figuring that because the yield has recently jumped, Treasury notes and bonds might finally offer a decent return.

Our view: Investors doing either one of the above - or worse, both - are headed for some pretty nasty surprises.

Look, investing in the "new normal" - as John calls it - is going to be quite a bit different from the good old times of more than a decade ago.

It's going to require new ways of thinking. New ways of understanding the markets. New ways of investing.

And most of all, new ways to protect and grow your investment income and your wealth.

We don't pretend to have all the answers. But we do know this:

The same old dividend stocks aren't going to cut it.

For instance, consider what happened to American Capital Agency Corp (AGNC), one of the largest mortgage REITs in the country.

Since May 1, shares are down 32.9%, while the dividend has been cut 16%. An investor who bought $10,000 worth of AGNC shares on May 1 would have lost $3,290 and another $242 in annual dividends.

Or Ventas Inc. (VTR), one of the largest US healthcare REITs. Since May 1, shares are down 9.87%. That's more than double the company's nearly 4% annual dividend yield.

These are companies that depend on a very low cost of money - low interest rates - to be profitable. So as rates rise, guess what?

These companies are going to see their earnings shrink and then, they're going to start cutting their dividends.

Meanwhile, their share prices are also likely to suffer. Investors who own these stocks are simply going to get clobbered.

Their dividend income is going to shrink, and the value of their investments is going to plunge.

Is that what you want? We don't think so.

Plunging bond prices aren't going to cut it either.

Or how about Treasuries. Are the waters safe to start investing in them? Not hardly!

In just the last 12 weeks, US 30-year bonds have lost more than 11% of their value. Put another way, investors in Treasuries have lost over 4 times the annual yield they were counting on. In just the last 12 weeks.

The devastation in municipals, in corporate bonds, and even in 10-year US Treasury paper has been similar.

What's more, we are just in the beginning of a rising interest-rate cycle.

As interest rates springboard higher off of artificially depressed historic lows, they're going to leap higher and faster than at any time in our country's history.

According to TrimTabs Investment Research, investors are already selling bond-related investments at a record pace, with $47.2 billion (US) flowing out of US bond mutual funds and exchange-traded funds in June alone.

And again, this is just the beginning of the secular rise in interest rates - and bursting of the bond bubble - that John's been warning about.

So the question is, very simply, what the heck
do you do now for investment income?

We like what John is seeing among the savvy investors in his network.

People John rubs shoulders with all the time. Money managers such as PIMCO's Bill Gross and Mohamed El-Erian (Morningstar Mutual Fund Investor of the Year). Investors and analysts like Dr. Marc Faber... Dennis Gartman... Barry Ritholtz... Kyle Bass... and more.

The simple truth is that if you want to dramatically boost your investment income while interest rates are heading up, then you simply must understand what these top-of-the game investors are doing.

• Every single one of them is avoiding sovereign bonds like they are the black plague.

• Every single one of them is dumping shares in vulnerable interest-rate sensitive companies, no matter how high the dividend yield is.

We agree. 100%. That's why we recently scoured the universe of dividend-paying stocks to select the very worst of them - widely held stocks we feel you should dump IMMEDIATELY.

25 Dividend-Paying Stocks No One Should Own.

The list starts with homebuilders. For much of the past year, a 30-year mortgage could be had for 3.35% to 3.65%.

But recently, the rate suddenly moved above 4%. For homeowners and potential homeowners, the mortgage-rate jump translates into a 27% increase in the monthly payment.

That in turn is going to put a damper back on the real estate market. It's also precisely why the shares of home builders like Pulte, KB Home, and Lennar Corp. have lost as much as 30.70% over the last 10 weeks.

And while real estate prices may have bottomed longer term, that's still no reason to bet on interest-rate sensitive dividend-paying home builders.

Our view: Dump the FIVE most vulnerable home builders, regardless of their dividend yields.

Their names are in the box to the right. Each and every one of them is vulnerable to rising long-term rates.

And each is going to get clobbered as interest rates move still higher and begin to negatively impact the real estate market again. And potential home buyers are indeed getting worried. According to a recent survey from real estate watchdog Trulia, 41% of home buyers said rising mortgage rates is their number-one worry.

Next to dump are the home supply companies. If builders are going to get hit again, so are these companies.

Our view: Dump the following FIVE home supply companies, again no matter what dividend income you're getting:

That's 10 companies vulnerable to rising rates that we feel no one should own. Period. If you own any of them, dump them now. There's more.

Dump the US Auto Industry

The US auto industry has had a terrific rebound since the depths of 2009.

But now, like home builders, auto companies are going to face some stiff headwinds as a result of rising interest rates.

Bankrate.com figures that a 48-month loan for a new car is set to jump from 2.58% to a whopping 5%. That's going to put a significant crimp in sales and hurt the earnings of the five auto companies and suppliers that are the most vulnerable to this new rising-rate environment.

Ford is heading for another disaster. So is General Motors. So is Goodyear Tire, Cooper Tire, and TRW Automotive.

If you own shares in any of these companies in the automotive sector, dump them now.

Still more companies you don't want to own: utility companies that are vulnerable to rising interest rates.

Until rates started exploding higher, many utility stocks were attractive bond-like investments that spun off relatively safe income.

Our view: Dump the most vulnerable utility stocks. We've identified five in the table to the right.

If you own shares in any of them, we strongly suggest getting rid of them now.

Our analysis tells us each and every one of them is going to get clobbered in the new rising-rate environment.

Last, there's one more group of stocks we feel you should also dump. They benefited from artificially low interest rates. As the punch bowl of record low interest rates disappears, so will a big chunk of these companies' earnings.

Hardest hit will be the fixed-income asset managers, companies that have to keep large chunks of their customers' funds in fixed-income type investments. Their businesses will shrink as the assets they manage dwindle.

Also included are two investment banks our research has identified as the most vulnerable to rising interest rates and slumping bond prices.

That's 25 stocks you simply must get rid of now. Don't wait. Get rid of them, and don't look back.

Replace them with the following:

Three solid companies with dividends
that will thrive with rising interest rates.

We've identified three solid companies we believe you should buy now. Each offers dividend payouts, and each should benefit from rising interest rates.

They're not on most investors' screens, which makes them all that more attractive. As these companies shares start to shine with rising rates, more and more investors will want in on them, also helping to push their share prices higher.

For instance, consider:

Company #1.
Your payout: A 14% dividend.

From a finance company that borrows money for
nothing, then invests that free money at long-term rates.

The simple truth is that with rates rising and its borrowing costs nearly zero, thanks to the Fed, this company's gross profit margin is set to go off the charts.

That's going to be great for the company's earnings, equaling a very juicy and STABLE 14% dividend!

How stable? The company's been paying dividends since 1997. Even during the crash of 2008, this company managed to pay a nice double-digit dividend yield.

What's more, right now the company's share price is trading at a 23% DISCOUNT to book value!

What's not to like? A stable history of paying out and even increasing its dividend. A profit margin that's poised to expand in the months and years ahead. And trading at nearly 25% discount to book value!

Our view: This company's shares are a BUY right now. They are also a great addition to anyone's income portfolio.

The prospects for capital appreciation along with a double-digit income yield, with what we consider very conservative downside risk, makes this company's shares a MUST-BUY investment for anyone's portfolio.

And consider:

Company #2.
Your payout: A 3.6% dividend.

From a company whose earnings and dividends
should jump as interest rates climb.

Most businesses hate to see rising interest rates, which make it more expensive to borrow money. But not this one. It helps companies process payroll, and in the process, holds on to its clients' large cash balances, earning the float.

The company is debt-free and has $500 million in cash. Most important, it floats roughly $3.5 billion of clients' payrolls. Every 1% increase in interest rates could add an additional $40 million in pure profits to the company's bottom line.

That means the potential for nice capital appreciation for the stock, and down the road, probably a hike in the 3.6% dividend. This is a must-own dividend play for your portfolio.

Company #3.
Your payout: A 2.6% dividend.

From a despised investment banker
whose share price and dividend payout are
poised to explode higher as interest rates rise.

We don't like many of the investment bankers that brought our country to the brink of disaster back in 2008 any more than you do.

But there's no question they lead a privileged business life. They get money for free from the US Treasury as well as the Federal Reserve.

This investment banker, though, is more than triply privileged. It's already benefiting from two fiscal-cliff corporate giveaways from last year's tax deal: Active Financing and the Liberty Zone tax break.

Now its investment banking, credit card operations, retail financing arm, commercial banking, and consumer loan divisions are all going to see their earnings explode higher as the company benefits from low-cost government and central bank-sponsored borrowings...

But lends at higher rates to many of its customers.

We've vetted the company, and we like what we see:

• Second-quarter 2013 results: earnings jumped 31.9% over the same period last year.

• Earnings are set to rise by another half a billion over the next 12 months as interest rates rise.

• Outstanding share float shrinking as the company moves to buy back as much as $8.6 billion worth of its stock.

Share price is trading at a mere 9 times earnings! In our view, this despised investment banker is simply the best-managed, most valuable global banking franchise in the world.

And its nice combination of a conservative and growing dividend along with a share price with upside profit potential makes it another must-own stock for your income portfolio.

These companies and many more like them
could easily add thousands of dollars to your
monthly investment income, month in and month out.

And the details for each are all spelled out for you in our monthly publication, Yield Shark.

Yield Shark is where we look to boost your investment income by ceaselessly patrolling the deep ocean of income offerings - including high-quality US and foreign dividend stocks, always looking for the right combination of yield and safety.

Combining proprietary research with the knowledge of John's close friends in high places to sniff out opportunities you are unlikely to hear about from your broker or on the financial cable shows, Yield Shark moves quickly to bring these opportunities to your attention.

Yield Shark's goal: to dramatically boost your investment income to both protect and grow your money.

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This portfolio is where you get Treasury-beating INCOME, PLUS the potential for rock-solid capital appreciation.

Yields of up to 8% and total returns that approach TRIPLE DIGITS, beating anything you're currently invested in for income, hands down.

But there's more you need to do to flesh out a fully rounded investment income portfolio...

Your Income-Boosting Strategy #2:
"The DOUBLE-DIGIT INCOME Portfolio."

Yield Shark's Double-Digit Income Portfolio is designed expressly for those who want to take on a bit more risk - to boost their investment income and add even more dollars to their piggy bank.

For instance, on the team's radar screens right now is...

- A transportation company that has long-term shipping contracts locked in... which helps ensure you get a handsome double-digit 20.2% return, year after year.

A 20.2% yield is enough to generate $2,020 of pre-tax income for every $10,000 you invest - over 21 times more than what you can get in a one-year CD.

Moreover, at 20.2%, you can double your money in just five years, not counting compounding. That's less than one-seventh the time it would take you to double your money in a Treasury note or the equivalent Treasury fund... and less than one-twentieth the time it would take you in a CD!

With these first two portfolios alone, you can dramatically boost your investment income - and to levels that will allow you to get on with leading a comfortable life and planning for a secure retirement.

But given the high likelihood that in the not-too-distant future the US dollar may weaken as Washington's still unresolved deficit takes center stage again, there's one more very important step you MUST take...

Your Income-Boosting Strategy #3:
"The International Income Portfolio."

The endgame for the United States debt supercycle means that its gargantuan $16+ TRILLION debt bomb will implode one day soon, no matter what Washington does. As there is no conceivable way for it to be repaid: it's not a question of if, but when.

So although the dollar is strong right now in international markets, it won't be that way forever. A depreciating dollar is bound to be with us again.

The loss of purchasing power that incurs is a major reason behind our third portfolio, the team's "International Income Portfolio. "It's designed specifically to help insulate you from the loss of purchasing power your dollars will experience over time.

One way to do that is by investing in international markets. The reason is simple. Most non-Western economies - read non-US and non-Europe - did not have to artificially depress interest rates to begin with.

That's especially true of Asian economies, which also tend to have budget surpluses, trade surpluses, and virtually no external debt. So those economies had no need to suppress interest rates - and hence, their corporations and bond funds are paying out healthy income streams.

This is precisely where the international income portfolio identified by my team comes into play. A portfolio that can include companies like...

- A top-rated international bond fund: Averaging a 9.5% income stream payout, year after year.

- A little-known Asian transportation company, paying a 9% dividend operating its six oceangoing containerships at 100% capacity.

Expanding your investment income horizons beyond US shores is a must in this new era of income investing. It can boost your income and protect your dollars, to boot.

Plus, you never have to leave the comfort of your living room to make these investments. They're as simple to buy as any domestic investment - with the click of a mouse or a simple call to your broker. In addition...

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This company dominates nearly all of the markets it enters. It's a hardware and software tech giant, and its products can be found in many everyday uses. It's involved in everything from flight to fleet management to the outdoor and fitness market for activities like hunting, rock climbing, jogging, and cycling.

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Sincerely,

Ed D'Agostino
Publisher
Mauldin Economics