WHERE"S THE INCOME?

The front page story on the latest Barron's leads: "The Top 10 Income Ideas For 2016."

There are still plenty of places to find decent income in stock and bond markets, even with many key interest rates at or near historically low levels. Investors can get yields of 4% to 9% on a range of investments, including junk bonds, utility stocks, telecom shares, and real estate investment trusts. These look appealing in an environment of sub-2% inflation, 1%-to-3% Treasury yields, and minuscule yields on bank deposits and money-market funds. 

Recall that all of those-- utilities, junk bonds, REITs and telecom shares spent much of 2015 under pressure. The part about sub-2% inflation we are willing to debate later. One of the lead stories in today's WSJ reads: "Drug Prices Jolt Middle Class." There are two things about that story, one surprising, the other not so. 

The surprise is there's some pretense that a middle class still exists anymore. As for the other, in "big  pharma," as it's known, what's new? And on that no inflation nonsense, see our recent post financialspuds.blogspot.com/2016/01/and-they-want-to-tell-you about price gouging, a ploy hardly unique to big daddy pharma.

• Yield-oriented sectors of the stock market didn’t generate outsize returns in 2015 despite generally favorable earnings, as investors favored dividend-free or low-yielding growth stocks like Facebook, Amazon.com, and Alphabet. The result is that price/earnings ratios are lower now than they were 12 months ago in utilities, REITs, and telecoms. • A big issue is whether bonds and yield-oriented sectors of the stock market can do well in 2016, with the Federal Reserve likely to continue lifting short rates. The Fed may prove to be a head wind, but the central bank is expected to raise short rates to only about 1% by year-end 2016, and such an increase may be already partly discounted in the market. 

This is the fourth straight year that Barron’s has sized up income-producing investments in both stock and bond markets. What looks best for 2016? 

Topping our list are junk bonds, now yielding almost 9% on average after a weak year dominated by a crash in the energy and commodities sectors. Other areas that look good include dividend-paying stocks, with yields at 3% or more in a range of industries, as well as utilities and REITs. Municipal bonds, which are coming off a solid year in which they bested Treasuries, look good, not great, for the year ahead. 

Pipeline master limited partnerships are on the minds of many individual investors following a 40% sector crash in 2015. Despite the losses, the sector doesn’t look like a bargain, given tougher business and financial conditions in an environment of low energy prices. What follows is our view of 10 income sectors in order of their appeal.

It's one of those pick and choose scenarios and there's much to choose from. Municipal bonds not so long ago were disliked and still don't yield much. Yet in 2015 there were one of the few shining stars in the fixed income area.

Once upon a time a popular television commercial asked: "Where's the beef?" Today, after all this ZIRP, it's where's the income?