For example, Health Systems Innovations, a healthcare consultant that has worked with private health insurers and the McCain presidential campaign, estimates that Senator Kennedy’s bill would cost $4 trillion over 10 years.

Should a healthcare plan be passed that even resembles anything like the current proposals, $2 trillion in costs would be a minor miracle.

A trillion here, a trillion there. Pretty soon, you’re talking about real money.

In my column last week, I offered three biotech stocks that should perform well, regardless of any healthcare reform plan that may be passed. As those reforms gather momentum, I’m going to explore a few more investments that should thrive, even in the face of a healthcare system overhaul…

Make Money From Bond Market Trouble

Despite the President’s popularity, he’s not likely to get everything he wants. Some sort of compromise is likely. But it’s safe to assume that the cost of the healthcare plan will be a 13-figure number (i.e. more than $1 trillion).

On a macroeconomic level, that would likely be inflationary and cause bond prices to decline. So if you’re a bond bear, here are two investments for you…

• UltraShort 20+ Year Treasury ProShares (NYSE: TBT): This ETF is not for the faint-hearted. It seeks to perform at twice the inverse results of the Lehman Brothers 20+ Year U.S. Treasury Index. So if the Index drops 5%, TBT should return rise about 10%.

• ProFunds Rising Rate Opportunity (RRPIX): This is a mutual fund that also seeks the inverse performance of the bond market. Its results aim to correspond to 125% of the inverse of the daily movement of the 30-year Treasury bond.

How To Buy Genzyme For $47.50

In last week’s column, I discussed the attractiveness of biotech companies that treat rare diseases.

But one of those names, Genzyme (Nasdaq: GENZ), had a major setback this week when it disclosed problems at one of its manufacturing facilities.

I believe these difficulties are temporary and I still like the company. But if you’d prefer to reduce your risk further, you can look at selling put options on GENZ at a lower strike price.

And when it comes to selling puts, look no further than Lee Lowell. He’s the master at this strategy and is currently riding a 100% winning streak since his Instant Money Trader, which focuses exclusively on this strategy, began last November.

I explained to Lee why I like GENZ, but wanted a good put-selling trade for investors who want to own the stock at a lower price. Here’s what he suggested…

• Sell the October 2009 $47.50 puts, currently trading at $1.85 on the bid. This means for every put that you sell, you will collect $185.

• Keep in mind that one put contract represents 100 shares.

• If GENZ never sees the $47.50 strike, you keep the $185.

• If the stock drops to or below $47.50 at expiration, you’ll be required to buy the stock for $47.50 (100 shares of GENZ for every put contract you sell). But remember, that you collected $1.85 already, reducing your cost basis to $45.65.

So if you like GENZ, but would prefer to own it at a lower price, this is one trade to consider.

Add Watson To Your Watchlist

In my column last week, I also suggested best-in-class generic drug maker Teva Pharmaceuticals (Nasdaq:TEVA).

Another generic drug maker to look at is Watson Pharmaceuticals (NYSE: WPI). Watson just announced its acquisition of privately held Arrow Group, a generic biotech drug maker, with significant international operations.

I like this move by Watson, as it broadens the company’s reach both in products and markets served.

The bottom line is that while healthcare reform could very well change the investing landscape within the sector, you can always find opportunities if you know where to look.

Source: Four More Ways To Profit From U.S. Healthcare Reform

The global population is peaking and is consuming more food than it’s producing. This will make food scarcer and cause it to rise in price.

But there are more subtle reasons for investing in commodities right now. Rogers says that although stocks may touch crazy valuations in the near term, they may be in worthless currencies – a vista Notes readers will be familiar with. This from a recent interview with Rogers in the Economic Times:

Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed… so, it’s going into stocks and real assets such as commodities. It’s a mistake what they are doing. It’s giving short-term pleasure, but there’s long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.

The American bond market is already beginning to go down dramatically as people realize that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.

The fiscal deluge is lifting stocks. But they’re getting frothy. And Rogers reckons the current upward trend won’t last.

It’s going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don’t know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what’s happening out there in the world.

In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.

They are doing many of the same mistakes now. What’s different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.

There are a number of ways to play this scenario with hard assets. But to keep things simple, you may want to focus on the following three market-beating commodities ETFs (hat tip ETF Trends).

1) The iShares S&P GSCI Commodity-Indexed ETF (NYSE:GSG), up 8.1% for the year

2) Notes’ old favorite, the PowerShares DB Agricultural Fund (NYSE:DBA), up 7.5% for the year

3) The Market Vectors-RVE Hard Asset Producers ETF (NYSE:HAP), up 25.9% for the year

The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts – which began in March – to keep yields down through direct purchases of government bonds.

Tom Porcelli, economist for RBC Capital Markets, described it as a “terrible auction.”

Why is this bad news? Because such poor demand in the face of America’s requirement for record amounts of public debt will make it very difficult for the Fed to keep interest rates low.

You see, politicians pretend that there are few adverse consequences to their worsening debt addiction. And since the collapse of the debt bubble in 2007, they have been putting Americans in hock like it was going out of fashion.

Of course, all of this borrowing has very real consequences for Americans. As investor confidence and risk appetite return and US equities rally, investors are turning their backs on the low-yielding US bond market. As investors shun US treasuries, interest rates move higher to lure investors back into the market. This rise in treasury rates puts pressure on interest rates everywhere – from homes to cars to the interest corporations must pay on any new bonds they issue. Mark our words, higher interest rates in this market will just wind up choking off any real recovery.

The very real consequence of the rising long-bond yields can be seen in the recent rise in mortgage rates. This, again, from the FT:

Mortgage rates have been following the government bond yields higher. A 30-year fixed-rate mortgage averaged 4.84 per cent last week, according to a Freddie Mac survey, compared with 4.78 per cent the week before.

As underground investor Tom Dyson (who edits the excellent 12% Letter ), a rise in the long bond’s interest rate can crush certain income investments.

If the long bond’s yield rises from 4% to 8%, the yield on all other income investments must also rise by 4%. A 12% junk bond would become a 16% junk bond. A 14% dividend payer would have to become an 18% dividend payer.

As Tom says, the long-bond market is “weaker than a wet paper bag” right now. He reckons the magic number for shorting long bonds is 124.07. And the long bond closed at 123.26 on April 28 and is now making new five-month lows.

Here at Notes we smell opportunity. We have our eye on the ProShares UltraShort 20+ Year Trea ETF (NYSE:TBT) . This ETF has risen over 6% in the last five weeks or so.

Oil slipped slightly – down to $39. And gold lost $21. While some may see the drop in the gold price as disheartening, we see it as an opportunity to grab some more of the precious metal while the price is relatively low.

The Banque de France says the country’s GDP is falling. It’s expected to walk backwards by about 1% this year.

The Sarkozy government announced a $12 billion program to support France’s auto industry. “We’ll give you money,” he said, “but you’ve got to promise not to cut salaries or close down.”

Nissan, 40% owned by Renault, announced it was cutting 20,000 jobs worldwide – 9% of its workforce.

Japan is facing an “unimaginable” contraction, its central bank’s chief economist warned yesterday. Orders are drying up…production is falling off…and consumers can’t seem to find anything they want to buy. Industrial production in Japan fell a record 9.6% in December. The country is looking at an annual GDP decline of 1.7%.

Growth is collapsing throughout all of Asia. Singapore, for example, went from healthy 5.3% growth last year to minus 2.4% this year. India and China are still projecting decent rates of growth – though significantly below their highs. We’ll see how long that growth continues…

And poor Latvia. Its economy is not just walking backward…it’s running. Today’s Financial Times tells us that output is falling there too at a depression rate of more than 10% per year.

But the big news yesterday was the sell-off in the bond market.

“All eyes on sudden spike in US Treasury yields,” says the headline in the Financial Times.

The yield on the U.S. 10-year note rose above 3% for the first time in three months. The two-year note, meanwhile, moved above 1% yield. What does it mean?

We are bearish on U.S. government paper – in all its forms. And here’s why. The latest estimate from Goldman Sachs puts US government borrowing for this fiscal year at $2.5 trillion. Meanwhile, foreigners are showing less and less interest in U.S. debt. They’re switching to short term paper – bills and notes, which are less vulnerable to inflation and currency declines. And they’re pulling out of U.S. Treasury market generally. The total percentage of U.S. debt owned by foreigners is falling from 60% down to about 40%…a huge drop.

Either one of two things will happen. If the government funds its deficits honestly – by borrowing from willing lenders – this huge extra demand for credit will force up yields…thereby lowering bond prices. Or, if the government resorts to “monetizing the debt” – that is, funding its debt with printing press money – investors will flee bonds, in fear of higher inflation.

Either way, it will be bad news for bond prices.

Remember, we are only in the Boondoggle Stage of the crisis. Using the collapsing economy as an excuse to waste money, the pols are having the time of their lives. Does your community need a bridge? A new drainage system? A shooting range for blind people? A study of the mating habits of fire ants (how do they get together without getting burnt?) Even in the best of times, politicians have trouble saying ‘no.’ Now, ‘yes’ is the answer to every request.

What strange madness is this? Why would anyone think the economy will be made better off by squandering money now on projects that were deemed unworthy or unaffordable only a few months ago? The country got into trouble because people squandered too much money; now they think they will get out of trouble by letting the government squander money. But we’ll have to wonder about that later. Now, we’re just trying to keep up with the torrent of boondoggles, bailouts and bunkum.

Let’s see, Bloomberg reports that about $3 trillion has been spent fighting the downturn in the last two years by the United States of America. We pass over the issue of whether this has done any good, and stick to our figures… Another $5.7 trillion has been pledged. Plus, this latest Obama Bailout will cost about a trillion more.

Hmmm…a trillion here…a trillion there…pretty soon you’re talking about real money.

“US Taxpayers Risk $9.7 Trillion on Bailout Programs,” Bloomberg figures, or about two-thirds the entire national GDP.

Hmmm….that’s about as much as the total burden of household mortgages. In other words, instead of all these boondoggles, bailouts and bunkum, Congress could have just paid off everyone’s mortgage.

*** Inflation is now only a problem because there isn’t any. In the United States, the consumer price index crested at nearly 6% last year. Now, it appears to be headed down to zero…and perhaps below. That is what the feds are desperate to avoid. When consumer prices fall, consumers become obsessively frugal. They know that if they just wait, they’ll be able to get what they want at a lower price. And then, why not wait a little longer…and get the item even cheaper still? This “propensity to save,” as economists call it, becomes self-reinforcing. As consumers stop spending, lower demand causes prices to fall further…which incites consumers to dilly dally even more…which causes prices to sink again.

That is the Japanese-style ‘deflationary cycle’ that gives Ben Bernanke a nightmare.

But we explained yesterday, there’s not much he can do about it – at least nothing honest. Rupert Murdoch says the financial crisis has caused $50 trillion in wealth to vanish. The feds have put back only $3 trillion (arguably) so far. Just looking at the numbers, it doesn’t seem as though prices will be rising anytime soon. For every dollar the feds put into the system, $17 disappears.

What’s a fellow to do? The only way out, as near as we can see, is the road taken by Gideon Gono. “Monetizing the debt”…“quantitative easing”…“printing press money” – it will no doubt go by a number of different euphemisms and code words. It’s what happens when the Fed buys U.S. Treasury debt directly. For this purpose, it simply creates a ledger transaction…effectively adding to the money supply.

But even printing money does not automatically and immediately cause consumer price inflation. According to classical economic theory, the shelves must be cleared and the excess capacity must be re-absorbed before prices will rise. That could take a very long time. But we’re not sure it works like that. If money were suddenly dropped from helicopters, as Ben Bernanke once pledged to do, merchants probably wouldn’t wait for their inventory to disappear before raising prices. They’d be concerned that there were giving away something that was valuable in exchange for something that was not.

When this kind of inflation happens – perhaps worthy of the adjectival modifier ‘hyper’ – it can happen very suddenly, and very violently. That is why we suggest selling U.S. paper now…even if it turns out to be very early.

*** Drought…fires… plagues…

The poor Australians are battling blazes all over Victoria province. The total cost is climbing up towards 200 dead…and half a billion Australian dollars worth of property damage.

There’s a terrible drought in China too…the worst in 50 years. Peking has put up 10 million euros to help the peasants.

Chris Mayer sends this note:

“China is in the midst of its worst drought since 1951. Beijing has gone 100 days without rain. Nearly one-fifth of China’s wheat harvest is at risk and over 1.8 million head of livestock are short of water. Over 3.7 million people face water shortages, as do nearly 23 million acres of farmland. Rivers and lakes are drying up and farmers are drilling deeper than ever to reach falling water tables.

“As is the way with these things, it couldn’t happen at a worse time. The economy is clearly slumping along with the rest of the world. Unemployment is on the rise. And now food prices may also climb. Not a good combination for a country that already has a fair amount of unrest bubbling just below the surface.

“Water mismanagement has long been a problem in China. Wasteful irrigation is one problem. So is pollution and mass urbanization to the cities, particularly in the more industrialized – but water-parched – areas in the north.

“The government knows this and has swung into action with a number of emergency measures, including financial aid for farmers. One of these measures also increases the subsidies to pay for irrigation projects.

“Over the next several years, I think irrigation equipment is going to play an ever-larger role in helping reduce water use. Water problems will get only worse before they get better. The companies that make the tools and have the expertise to solve those problems will be very valuable. And so will their shares.”

*** And from Argentina comes bad news. Not only is the country parched, the drought seems to be centered on your editor’s farm.

“It’s dry…very dry…” says the farm manager. “We got almost no rain this season. The reservoirs are empty. There’s no way to keep the cattle. There’s nothing for them to eat. We just have sell as many of them as we can.”

So far, the cattle business has not been a big winner for us.

“When the grass is too dry and too short,” the farm manager explained, “the cattle pick up a lot of dirt and sand when they eat. The sand wears down their teeth, so even if they had good grass, they wouldn’t be able to put on much weight. And since they can’t find much to eat and can’t eat it very well, they don’t have the energy to go very far looking for better grass. It’s a vicious circle. But that’s what we’ve got up here…a difficult place to raise cattle.”

Meanwhile, here in Europe, there’s water everywhere. Fields are flooded in England. In France, it’s been raining for days.

Source: Bad News for Bond Prices

For one, in the photo he is looking directly into the camera, point-blank, which I know that he did on purpose so that I would see it and I could – using my Extraordinary Mogambo Powers (EMP) – look deep into his eyes and thus know exactly what he is thinking.

I can tell that he is thinking, “I know you are out there, Mogambo! I know that you know, and now you know that I know that you know, that I am a weird little guy who has no idea what in the hell economics has to do with anything, and that I am, provably, a total failure if someone takes the time to get up off his or her fat, stupid, trusting butt and walk over to the window and look out at the world that I helped fashion when I was Governor of the Fed bank of New York.”

I gotta give him credit, as he knows my opinion of him to a freaking T! When you consider how the Federal Reserve, which is responsible for the creation of all the money and credit that provided the financing for Huge Freaking Bubbles (HFB) in the stock market, the bond market, the housing market, and in the size of government, it is obvious that the Federal Reserve is a total failure, the Congress ought to disband them and get the United States back to a gold-as-money financial system, presumably with zero leverage, and put all of the Fed Governors and their henchmen, past and present, on trial in a Mogambo Kangaroo Court Of Vengeance (MKCOV) for a quickie “guilty” verdict and appropriate sentencing.

Instead, the Congress confirmed this guy as the next Secretary of the Treasury!

If that is not scary enough, the photograph of Mr. Geithner is worrisome in others ways, such as the way he was handling his microphone, sending the clear message “You see this microphone, Mogambo? Well, if you keep telling people about me, my corruption, my ignorance, and my total failure as a Governor of the Federal Reserve so that the USA and the purchasing power of the dollar are both destroyed, then one of these days a goon squad dressed in black is going to show up at your house and beat you with clubs that are a lot bigger than this stupid little microphone! Hahaha! And anyway, even if what you say is true, you are still a terrible father and husband, and everybody hates you!”

Stung at the cruel, although accurate, comment, my eyes filled with bitter tears and I looked away from the photo, and I am sorry that I did, because my eyes fell upon the terrifying headline that accompanied the photo: “Geithner Vows Credit Action On ‘Dramatic Scale”! Yikes!

In the article, he says that he is going to destroy the credibility of the USA, the purchasing power of the dollar and the economy itself by creating so much, much, much more money and credit so that it will “get risk premia down, interest rates down and get that basic mechanism of credit market going again”!!

Junior Mogambo Rangers (JMRs) around the world (one in America and one in Canada, as far as I can tell) are alerted to my ending that sentence with two exclamation points, indicating special emphasis, which, in this case, is obviously shorthand for, “This guy is a freaking idiot if he thinks that creating money and credit on a ‘dramatic scale’ will solve the problems caused by the creation of money and credit on a lesser-although-still-dramatic scale without producing catastrophic inflation! It’s freaking insane, I tells ya, and it’s enough to cause insanity in anyone hearing it, too, as is proved by my inserting Rude Editorial Comments (REC) in the middle of a freaking explanation of a couple of damned exclamation points!”

I keep looking at the prospects of a trillion dollars of new debt coming our way, and compare that to the measly 100 million non-government jobs in the country, and I wonder how any of these morons can think that anything good can come of the government spending $10,000 for each of them?

And if the Treasury sells $2 trillion in new debt, then that is an astounding $20,000 in federal government deficit spending for everybody who has a non-government job! In one year!

And if, after all of this monetary and fiscal insanity you are not buying gold, silver and oil (and indeed all commodities), then you are made of sterner stuff than I!

And a lot less paralyzed with fear, for which I envy you!

Source: Money Creation, Tim Geithner and the Thin Air in Between

This from The Sovereign Society:

In the last few weeks, Treasury yields have been headed upward – from 2.63% a month ago to 3.33% today on 30-year bonds – and everyone’s been asking whether the bubble has finally blown out.

The “Treasury Bubble” became the new boogeyman for many experts and media pundits last year. Its “impending” collapse could potentially crush the U.S. government and throw the dollar into rampant hyperinflation.

But is it a bubble at all? And if so – or not – what’s your most prudent course of action?

That’s what we’ll be talking about today, on the heels of Ben Bernanke’s latest announcement that he’d consider purchasing long-dated bonds in the open market to manipulate yields. Will Bernanke’s plan be the final nail in the coffin for the U.S. economy and the dollar, or will it further propel a 27-year bull market in Treasuries?

Just the Facts…

That we’ve been in an almost thirty-year bull market for Treasuries is perfectly clear.

Since October of 1981, when yields hit 15.21% on long-term bonds, Treasury yields have been on a downward trend. And aside from a few reversals in that span of time, yields have consistently been lower each year.

But Bill Gross – Manager of PIMCO’s Total Return Fund – admits that the Treasury market is showing “some bubble characteristics,” and reiterates a previous statement, “…I have said for the past three months, the governments are very overvalued.” Do Gross’ cautious statements back up the allegations of Peter Schiff and other “Treasury Bubble” proponents?

The very essence of a bubble is that it’s unsustainable in the long run. So let’s ask the question; what happens if this bull market continues and 30-year government paper reaches a yield of zero?

Sustained rates at that level would indicate the market’s belief that we’re in a deep depression. Essentially, the market would be saying that it would rather park money with the government for 30 years – with a guaranteed return of zero – than risk it in private-sector investments. Retirement fund managers would be forced either to adjust their expected returns or abandon Treasury debt altogether.

But investors in zero-yielding Treasury paper would actually be taking on more risk than they might expect. And that’s the risk of a rising interest rates…

Interest Rate Risk

Even if Treasury yields reach zero, it’s not likely they’ll stay there forever. And when yields once again start to rise, it puts the capital investment of bondholders at risk.

Let’s say for example that Treasuries are yielding zero and you purchase a US$1,000 dollar note without any discount (so you’re paying US$1,000 for the bond). Then, rates eventually rise to 1%. That means that buying the same bond will only cost you US$990, even though you’ll still be reimbursed the full US$1,000.

That means you’ve essentially lost 1% of your original capital investment, as the market price of your bond would change to reflect the new issue yielding 1% more than your original purchase. As you can imagine, the lower yields get, the greater the risk to an investor’s capital is likely to be.

The “Treasury Bubble” and YOUR Money…

It’s hard to tell whether Treasuries are currently in “bubble” mode.

Unfortunately, most bubbles just aren’t diagnosed until after-the-fact. While they’re clear in hindsight and defining “unsustainable” levels is easier after the bust, the real defining attribute of a bubble is the rampant sell-off and ensuing havoc that come once the bubble has popped.

So should you join in with the “Bubble-phobia” and steer clear of Treasuries?

It’s a good idea to steer clear of Treasuries right now, but not because the Treasury-bubble-boogeyman is hiding under your bed. Simply put; the interest rate risk seems far too great for the meager reward of near zero-yielding Treasury securities. In light of the news, we can safely expect Bernanke to do everything in his power to suppress that long end of the curve. And we can probably expect the market – in turn – to continue to disagree, leaving Treasuries in a relatively volatile position.

Instead, Investment Director Eric Roseman believes there’s a case for select issues of Investment-Grade Corporate debt. It’s also a great time to look at gold, “With interest rates now at 0%,” Eric recently said, “the cost disadvantage to holding gold has vanished because high quality Treasury bond yields have plummeted while T-bills pay nothing. Gold will probably safeguard your capital better than paper money in this environment.”

Source: The End of the Treasury Bubble?

Look in any direction and there are bargains. Stocks, commodities, even corporate bonds, after their recent run up, have started to drop off to the point where there are nice discounts again.

Options, usually the Vegas of investments, have had huge potential in the last few months. I have sold covered calls in the last two months that have given me returns as high as four to five percent per month.

Once again, though, the average Joe is being driven to inaction and all the wrong moves by information sources that seem to want to extend this period of economic bottom bouncing. Whether it is intentional or not, the outcome is always the same. Scare as many people as possible into never leaving the TV for fear they might miss the next bit of bad economic news, and sell them as many pickup trucks as you can in 60 seconds.

The press and media will give you no help in participating in this market opportunity. Bad news sells and they are selling their butts off.

Except for a few programs, Squawk Box being the best of the bunch, everything is negative and written for eighth graders on the “day late dollar short” theory of investing. Which means it’s useless for making money decisions.

Having pounded the table for the almost 20 years about this exact subject, I am doubtful this effort will make any more difference than the last 50 or 60, but I feel duty bound to try again.

The Golden Rules for Down Markets

Buy stocks when they are down. I didn’t say this information was earth shattering.

Stocks are way down right now, way down. Buying?

Look at the 30 stocks in the DOW and the S&P 100 stocks and pick the ones that are in businesses that have products we need, not want, no matter what the economy does. Also, look for ones at the lowest point of their 52-week range.

Now look at the 200-day moving average for each. Pick the ones where the price is way below the 200-day curve. Finally, look at their balance sheets and earnings estimates and pick the ten you think look the best.

At this point, it may begin to sink in that we are in the midst of a huge buying opportunity. You are beginning to see the light. Now, get up and turn off the TV, or at least turn down the volume. That will be the best thing you can do for your portfolio.

If the nameless talking heads are predicting really low bottoms, we have definitely bottomed.  If they are talking about it on TV, it has already happened.

Yes, we will test new bottoms. This is a reason to celebrate, not run and hide. We will probably bounce all over for the rest of 2008. This is called a buying opportunity for a reason, prices are low. Every new low should be like seeing the price of steak cut by another huge amount. Why do you think you have a freezer?

Our freezer is dollar cost averaging and small position sizes. Buy into the dips and don’t bet the house on anything. I said it was a buying opportunity, not a give away.

Keep your buys small and don’t chase upward price moves. The recent move in Treasuries is a perfect example of following the hot trend right to the poor house.

The market dumped and the institutions had to go for safety, treasuries. The news reported a huge move up in them and dutifully the sheep lined up and bought them at record highs.

This is the basis of the school of “buy high sell low portfolio management.”

Buy something other than just stocks. If the past year hasn’t taught you that the stock market is a very risky venture, then you have no business managing your own money.

You must own some stock no matter what your age. You also have to balance your portfolio with low risk investments to protect yourself form the sell off beast.

The formula is too easy, maybe that’s why everyone ignores it. I should charge you a couple thousand dollars for this and make you sit through several hours of CD’s to get to the point. Here it is free.

100 minus your age equals the percentage you should have in stock. (100 – 55 = 45) 45% in stock, 55% in bonds or other reduced risk investments. Not good at math, your age is the percentage you should have in bonds.

This balance will give you the opportunity to avoid a very poor retirement.

The bond idea has been ignored since the craziness of the mid-eighties drove us to money insanity. No top in sight, why not go for “the stock market lottery.” Only bowling teams from small towns in Maine ever hit the lottery. Get over it. Right now, I am making more money in corporate bonds than anything else.

Since October in The Bond Trader, I have taken capital gains as high as 90 percent. The potential in bonds right now is better than I have ever seen. The current interest yields are also great, six to eight percent is not unusual.

Bonds are not widely understood which is why many people avoid them. Their understanding stops at Savings Bonds and the thirty-year treasury. They aren’t difficult.

If you are over 50 you don’t have a choice, you have to have bonds in your portfolio. You don’t have the time to wait out another stock market collapse like this one, and there will be more.

While these two simple rules don’t begin to cover every possibility, they are enough to help you move from the frozen fear position to one where you can begin to act rather then react as we dig ourselves out of this most recent bubble burst.

Source: Making a Fortune

However, two of the greatest fears voiced here are not genuine threats to your financial well-being, in my view. You’re probably hearing these opinions, too. So let me give you my take on them.

The first fear, especially among folks with a particular political viewpoint, is that the incoming Obama administration and the new Democratic Congress are going to fall prey to their worst instincts to tax, spend, regulate and redistribute, further damaging an already fragile economy.

Again, I don’t buy this.

For starters, Obama has been tacking to the right on economic issues ever since he gained the Democratic nomination. In the primaries, he talked about renegotiating NAFTA. (To which Canadian Prime Minister Stephen Harper famously replied “Say what?”) But no longer. Obama also talked about raising top marginal tax rates. But not now.

It’s time for a reality check. Obama is getting economic advice from Paul Volcker and Robert Rubin (not Jerry Rubin.) He made economist Larry Summers the director of the White House National Economic Council.

Despite the heated rhetoric during the campaign, Obama is not a socialist. And the Republican minority in Congress will block far lefties from enacting protectionist legislation or fast-forwarding new redistributionist policies.

Top marginal tax rates are likely to remain the same at least until the end of next year. Why? If nothing else, it gives Democrats political cover. They can avoid criticism that they’re raising taxes during an economic downturn and can claim that the Bush tax cuts simply expired. This will play better when the mid-term elections roll around.

Yes, we’re going to get a massive fiscal stimulus because it has bi-partisan support. But so far Obama has shown that he intends to govern from the center, not the far left.

The other great fear I’m hearing is that this is not going to be just a tough recession but another depression.

I don’t buy it. This is a nation of 300 million resourceful, enterprising people, not 300 million on a morphine drip.

We will pull ourselves out of this. The Great Depression was caused primarily by policy errors.  And those aren’t likely to be repeated.

Herbert Hoover raised taxes. Obama is promising to cut them for 95% of Americans. (Although I’ll concede he would boost the economy more – and actually generate increased revenues – by cutting marginal tax rates on small and large businesses and individuals.)

The government also tightened the money supply in the 1930s. Today the Federal Reserve has taken interest rates near zero and is sharply increasing the money supply. That’s the right thing to do.

In the 1930s, Congress passed high tariffs to protect domestic jobs and businesses from the threat of foreign competition. Predictably, this caused foreign countries to retaliate by blocking imports of American products. The result? International trade contracted over 25%. But no such nonsense is in the air today.

Bear in mind also, Bernanke is an expert on the Great Depression. He has published a book of his academic essays on the subject. (Check it out on Amazon. It’s a wonderful cure for insomnia.)

Bernanke will move heaven and earth to keep the U.S. economy from going into a deflationary spiral. And in this objective, we should all root for him. (Although, admittedly, cleaning up down the road is going to be a challenge.)

The bottom line is this: Economics in the 1930s was like medicine in the Victorian Era. We’ve learned a lot since then. Paul Volcker, Larry Summers and Ben Bernanke are not going to bleed the economy with leeches.

We’re in a sharp economic contraction, yes. Should you avoid highly leveraged businesses and those in a weak competitive position? Absolutely.

But are we in for another Great Depression? The smart money – from Peter Lynch to Warren Buffett – is betting against it.

Source: Why These Two Investment Fears Aren’t Genuine Threats

This from Taipan Daily:

The euro is fast approaching an inflection point.

On Jan. 15th – Thursday of this week – the ECB (European Central Bank) will meet to decide how much to cut interest rates. The general consensus is that the cut will be big.

I wonder if the euro will “pull a sterling” and go up instead of down on the news. The chart certainly leaves room for that possibility.

As you can see, the euro’s move higher in December was sharp and swift. The ensuing downdraft has been more of a sideways lurch, creating something of a wedge formation. A sharp move back above $1.35 (and above the 50-day MA) could thus see some real upside follow-through.

While it’s generally true that anything can happen, it feels even more true in forex these days.

“Currencies Trading All Over The Map,” the Washington Post reports. “Over the past several months, global exchange rates have taken some of their wildest swings in years, with a fresh bout of zigzags hitting an array of currencies in both rich and poor countries in the past few weeks.”

Much of this uncertainty is tied to the prospects for U.S. recovery and the $64 trillion inflation versus deflation question. The theme song for the period could be “Should I Stay Or Should I Go” by The Clash: If I go there will be trouble… if I stay it will be double.The good news is currencies historically have a very strong tendency to trend. That means an “all over the map” currency period that began in 2008 could revert into a new stretch of powerful (and profitable) trending behavior in 2009.

And speaking of The Clash (and whether “to stay or go”), the powers that be threw a little more light on the subject of treasuries this week. In a speech to the London School of Economics on Tuesday, Ben Bernanke reminded his audience of the Fed’s willingness to buy long bonds.

“In determining whether to proceed with such purchases,” Bernanke said, “the committee will focus on their potential to improve conditions in private credit markets, such as mortgage markets.”

Brother, Can You Spare Some Inflation

What does that mean? It means the Fed wants inflation, ladies and gentlemen, and will do what it takes to get it.

A small helping of inflation would do nicely, but they’ll take a godzilla-sized helping too, if need be. Beggars can’t be choosers.

The logic is straightforward here. If deflation continues to grip markets, then credit conditions will clearly need “improving,” which, as Bernanke spelled out in London, would mean the Fed buying up treasuries with freshly printed dollars.

If, on the other hand, private credit markets start to “improve” on their own – without the Fed’s help – that means a flood of TARP cash, currently idle in bank vaults, is trickling its way back to work.

Either way, the end result is more dollars circulating through the system – and a jolt of reflation (maybe a BIG one) to go alongside.

Here’s a TIP

The “all roads lead to inflation scenario” is one reason Bill Gross is so high on TIPS, or Treasury Inflation Protected Securities.

Gross, the manager of the $128.4 billion PIMCO total return fund, managed to outperform 99% of his peers in 2008. He and a few others consider TIPS an amazing deal right now, in large part because the bond markets are still priced for heavy deflation. (TIPS outperform normal bonds in times of inflation, but underperform in periods of deflation.)

This presents another interesting way to think about the short treasuries trade – in the context of a TIP/TLT spread. (TIP is the iShares TIPS ETF; TLT is the 20+ Year Treasury ETF.)

As you can see from the chart, TIP dramatically underperformed relative to TLT all through the second half of 2008. This was due to the deflationary impact of the “great unwind” as credit flows collapsed.

You can also note from the chart that, as of late December, TIP started gaining ground again. Inflation-linked securities have grown more popular in recent weeks, as some look around and see the money-printing handwriting on the wall.

Source: Another Way to Play Inflation? Pssst, Here’s a Tip

This from Sovereign Society:

With yields as high on municipal debt as they’ve been in years and the President-elect’s office all abuzz with news of stimulus for state and municipal governments, the cunning investor is paying attention. The bailout of the financial system is already leading to some serious opportunities in commercial debt, so should you get ahead of the curve and dive into municipal debt?

In a word; no. At least not yet.

After all, big government curing our economic woes with “stimulus” projects is almost like a drug dealer curing withdrawal symptoms with more heroin…you just can’t help but wonder whether his medicine is exactly what got you there in the first place. Regardless, we’ll indulge popular thinking and acknowledge the fact that the government is now prepared to throw piles of free money at this sector of the economy.

But hold on just a second…what’s that percolating in D.C.? US$1trillion won’t do the trick, they say. Everyone from Bernanke to Riksbank-prize-winning economist Paul Krugman say that we’ll need more… possibly US$2trillion, or even more than that. And Obama has certainly indicated that he’d be open to that kind of discussion.

Now, let’s glaze over the fact that I could personally put another man on the moon – and probably Jupiter – with that kind of loot. And while we’re at it, we’ll glaze over the potential US$3trillion in government spending in 2009 (more than any government has spent in a single year since humans started governing).

No, let’s be professional about this, and in the words of Ricky Roma from Glengarry Glen Ross, “You never open your mouth until you know what the shot is.” So let’s figure out the shot…

Bloated State & Local Governments…

In the period between 1960 and 2000, the Federal Government went from two million total employees to three million. This difference didn’t even track the total growth in population over that period. But in that same period, state and municipal governments went from six million total employees all the way up to 20 million.

And since then, the situation hasn’t really improved. When the “War on Terror” terrified us into giving up a greater portion of our personal liberties for the promise of “security,” these payrolls ballooned again.

Think about it in practical terms; when was the last time you went to the DMV or the county courthouse? There were at least a handful of TSA-style security guards to frisk and scan you…since everyone’s a terrorist until proven innocent these days…who do you suppose pays their bills?

Why you do! And you also pay for another 20 million more state & local employees who rely on over US$74 billion in your annual taxes to keep a roof over their heads. But you have to remember; these outfits aren’t run with the trademark efficiency of business titans like IBM or Microsoft.

Instead – as you can see from the chart at the left – they constantly waffle back and forth from periods of excess savings to periods of excess debt (note that the Census data for this chart ended in 2007…when our crisis was just beginning and state & local governments held a collective savings rate of -10%!)

Sovereign Society Investment Director Eric Roseman chimes in, “The growing funding concerns facing municipalities has already spread to several states, including California, which requires cash to finance a massive budget gap in 2009. California, with a long string of budget deficits has declared a State of Emergency in December as the state runs out of cash. California is the largest issuer of muni debt.”

“What’s truly alarming about December’s scrapped Port Authority offering was the short duration of the fixed-income term of only three years. Investors would typically embrace a short-term note that pays a tax-free yield. But these are not normal times.”

“The rating agencies have also confused investors since the market has lost confidence in their ability to accurately rate and rank credit offerings.”

“As the U.S. economic recession deepens into 2009 it would be advisable to avoid tax-exempt municipal bonds, despite their attractive yields. The risk is too high. You’ve got to believe that many more cities, towns and states will suffer from a credit squeeze coupled by a lack of buyers as revenues continue to decline in a deteriorating economy. Avoid muni bonds.”

Source: When a Trillion Dollars Just Won’t Do…